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Financial Services Penetrations

In Uganda financial services are less prominent in rural areas than urban areas and they only reach 14% of the rural population. Some districts in the country are not served by any commercial banks. On average 62% of Uganda’s population has no access to financial services. Slightly over 10 % of the population in Uganda have a personal savings account.

Informal institutions play an important role in the rural financial service provisions and serve approximately 12% of the rural population. These numbers indicate that Uganda’s financial system is still quite shallow and the majority of the Uganda population is not banked.
Government effort aimed at financial deepening through growth in savings has yielded low response in rural areas than urban areas.
Marketing in Financial Institutions.

The financial system in Uganda is characterized by the co-existence of formal and informal financial markets. The formal financial markets mainly comprise of commercial banks, development banks and credit institutions while the informal sector includes the following;

  • Microfinancel Institutions,
  • Microfinance Deposit-taking Institutionss,
  • Savings and Credit Cooperative Societies  and
  • Rotating Savings and Credit Associations

Challenges in penetration of financial services
The penetration of financial services levels in rural areas are still low due to the following challenges;

  • Lack of legal documents like a national identity card, voter’s card, driver’s license.
  • Limited literacy is a deterrent to penetration of financial services.
  • Low income levels makes people shy away from banks.
  • Banks terms and conditions at account opening and when applying for loans negatively impact on the poor and uneducated hence low penetration of financial services in rural areas.
  • Financial intermediation is poor as indicated by the stock of private sector credit of 11.8% of GDP.
  • The lack of a system of crop finance is a major barrier to lending to small farmers and this has contributed low penetration.
  • Poor accessibility challenge in terms of infrastructures.
  • Inadequate knowledge and skills.
  • Insufficient guarantees and subsidies to agric lending to rural people.
  • Financial services in urban areas are more profitable than rural areas and this has limited the penetration to rural areas.
  • Slow rate of growth of savings deposits in rural areas.
  • Coping with high operating expenses, expanding outreach outside the urban and peri-urban areas.
  • Lowering interest rates to cope with adverse political and media publicity is a challenge to financial services.

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