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Uganda Country-Level Savings Assessment
Read the results of CGAP's fifth country-level diagnostic of small-balance savings mobilization.
Executive Summary
This report summarizes the results of the fifth test of the Country-Level Savings Assessment Toolkit under development as part of CGAP's Savings Initiative. The purpose of the toolkit is to help government agencies, donors, and others identify opportunities and constraints in increasing poor people's access to high-quality deposit services. The methodology examines client demand for deposit services and the capacity of the financial system to meet that demand at three levels: financial institutions (micro), supporting infrastructure (meso), and policy (macro). It concludes with suggestions for strategies to improve the quality and quantity of deposit services available to lowincome households.
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The report builds on the findings of CGAP’s 2004 Uganda Microfinance Sector Effectiveness Review, which highlighted the need to improve rural access to financial services and increase the safety of poor Ugandans’ savings. Despite high awareness of client demand for secure, convenient, and affordable deposit services among microfinance stakeholders, usage of formal sector deposit services is extremely low, especially among rural Ugandans. The market appears wide open for institutions that can design cost-effective deposit services tailored to low-income savers preferences.
At the micro level, the primary obstacle is lack of secure deposit-taking institutions in rural areas and extremely low density of financial service access points throughout the country. Linkages between SACCOs and regulated institutions offer promise in this area; incentives and competition could also draw banks downmarket. At the meso level, resources for communicating institutional soundness, consumer education, and access to the payment system are under-developed. A large amount of donor resources is poised to flow into wholesale lending facilities targeted at Tier 4 institutions, with potentially negative consequences for SACCOs. At the macro level, the MDI Act has been a substantial investment in extending secure deposit services, but stakeholders are increasingly aware of remaining challenges to rural outreach, including slowed pace of MDI expansion, inadequate regulation and supervision of SACCOs, and lack of clarity on regulation for new high- and low-tech delivery channels.
Seven strategies to improve small deposit mobilization in Uganda emerged from the assessment and warrant further research and reflection.
- Create smart consumers of financial services by investing in financial literacy and a complementary system for disclosure of pricing and performance by institutions.
- Size the market and clarify client savings behavior to design competitive products by investigating the level of unbanked liquidity and clients’ risk, return and liquidity profiles.
- Link SACCOs that operate in rural areas to more stable, regulated institutions, channeling excess SACCO liquidity to safer institutions such as MDIs, which are in need of deposits in order to expand.
- Invest in further developing new high- and low-tech delivery channels for MDIs and Tier 1 and Tier 2 institutions with an interest in microfinance to engender increased access for savers.
- Explore innovative ways of managing SACCO liquidity to create low risk, high-return investments that attract low-income people’s deposits into the financial system.
- Promote active dialogue with BoU on new methods of increasing outreach and construct a mutually-acceptable balance of systemic protection and expanded access.
- Focus support to SACCOs on better monitoring, regulation, and supervision, rather than on-lending, in order to build a more robust network of institutions that are both accessible and secure under strengthened regulation and supervision.
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