Joseph Murungi, a mechanic in the small town of Kakumiro in western Uganda, opened an account with a commercial bank in 2014 but has not deposited any money into it for the last five years because none of Uganda’s more than 20 commercial banks has a branch in the town which is located some 180 kms from the capital city, Kampala.
To deposit money into his account, Murungi would have to spend sh20,000 (over US$5) on public transport to travel 30 kms to the branch in the nearest big town, Mubende, where he opened his account.
“I stopped depositing savings into my account because I need a lot of money to travel to the bank branch,” he explained.
Millions of Ugandans like Murungi who live in rural and small urban areas have no access to financial services because the banks are based in Kampala and major towns. The high cost of running branches prevents banks from establishing outlets in outlying regions even though more than half of the over 24 million population of adults in Uganda live in rural areas. However, people like Murungi living in some urban and rural areas can now finally access financial services thanks to the introduction of mobile phone-based accounts and agency banking.
“I now save money into my mobile money account, but I plan to reactivate my bank account because the bank [where my account is held] recently recruited an agent to serve Kakumiro,” Murungi said.
Telecom firms first rolled out mobile money services in Uganda in 2009 and as the number of mobile wallet agents then outstripped the number of bank outlets and bank-owned cash deposit and withdrawal points, the banks introduced agency banking in 2018.
It is currently possible to save up to sh20,000,000 (almost US$5,500) in a mobile money wallet in Uganda where there are over 600,000 mobile money agents. Conversely, there are three bank branches per 100,000 adults, 28 bank-owned cash deposit and withdrawal points per 100,000 adults, and 124 banking agents for a similar number of adults.
Beyond cash deposits and withdrawals, at an agency banking access point, customers can pay for goods and services, transfer money between banks and open a bank account. Consequently, the number of bank accounts has increased to over 23 million from 7 million accounts in 2016. In addition, there are now over 43 million mobile money accounts which represents an increase of 60% over the last five years.
Dr Madina Guloba, an economist at the Ugandan think tank Economic Policy Research Centre, commented that mobile money and agency banking have taken services closer to the people and reduced the cost of financial transactions.
“Many people are saving money in mobile money accounts,” she said. “These are mainly women running small informal businesses. They don’t need to fill out bank deposit or withdrawal slips to make transactions, so even those who don’t know how to read or write can use these systems,” Guloba added that as these innovations, especially mobile money, extend into more remote areas, they are bringing more people into financial systems and creating employment. “Several women and young people in urban and rural areas are mobile money agents,” she said.
However, a 2021 study showed that only 10% of banking agents in Uganda are women – partly explained by the fact that banks only recruit people who own formal businesses as agents.
A total of 6.4 billion transactions valued at over sh227 trillion were undertaken on the mobile money platform in 2023 – representing an increase of 126% and 211% in transaction amount and value, respectively, over the past five years. Similarly, over 88 million transactions valued at more than sh15 trillion were undertaken through the agency banking platform in the same year. The bulk of these transactions were deposits and withdrawals.
Dr Enock Twinoburyo, a Ugandan economist, stated that the growing number of transactions and amounts of money moving across mobile money and agency banking channels show that these platforms are serving people who were previously underserved by the traditional banking system.
“The infrastructure [deployed by these platforms] has reduced barriers to accessing financial services,” he added.
Uganda has made significant progress towards financial inclusion over the last few years, with mobile money playing a key role. However, a substantial part of the population still has either zero access to financial services or can only access these through informal groups such as savings and loan organizations. Peter Babyenda, the policy engagement coordinator at Makerere University in Uganda, explained that this is likely to change as banking agents bring saving and loan groups into formal financial channels. However, mobile money and banking agents are not yet accessible in every small urban and rural area.
Financial inclusion will not be completely comprehensive without access to credit which is among the demands that telecom firms and banks have not yet addressed through these non-traditional banking platforms.
“Accessibility and availability [of financial services] are not sufficient measures of financial inclusion,” Twinoburyo noted. “True inclusion requires that services are also affordable and designed to meet diverse financial needs such as credit and insurance. Addressing these gaps could transform these platforms from mere transactional tools to robust platforms for economic empowerment,”
As banks are reducing investment in brick-and-mortar facilities following the success of agency banking so far, it is uncertain if towns like Kakumiro will have a bank branch in the near future. Murungi stated that what matters now is being able to access a range of financial services, including credit.
“There is a high demand for credit here and there are many individual money lenders lending at very high interest rates, and then grabbing people’s assets after they fail to pay back,” he added. “What is important is having a system that enables people to receive a wide range of financial services, and not necessarily a bank branch.”
