bank of uganda financial inclusion project

Bank of Uganda Financial Inclusion Project

Strategy Paper on Financial Inclusion

July, 2013

Project Initial Duration: 3 Years (2012-2015)

Project Start Date: July, 2012

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Table of Contents List of Abbreviations and Acronyms .................................................................................................................................. 1 The Bank of Uganda Financial Inclusion Project Strategy Paper .................................................................................... 4

1. Background.................................................................................................................................................................... 4 1.1. Statement of the Problem .................................................................................................................................... 4

1.2. Status of financial Inclusion in Uganda ............................................................................................................ 4

1.2 (a) Demand Side Data on Financial Inclusion ......................................................................................................... 4 1.2 (b) Supply Side Data on Financial Inclusion ........................................................................................................... 5

2. Financial Inclusion Project ........................................................................................................................................... 6 2.1 Rationale for BOU’s Engagement in Financial Inclusion ............................................................................... 6

2.2 Overview of the Financial Inclusion Project .................................................................................................... 6 2.3 The Bank of Uganda Financial Inclusion Internal Project Structure ............................................................. 7

2.4 Interaction with External Stakeholders ............................................................................................................. 8 3. Detailed Strategy Frameworks for the Financial Inclusion Pillars......................................................................... 8

3.1 Pillar 1: Financial Literacy................................................................................................................................... 8

3.1.1 Background to Financial Literacy .................................................................................................................. 8 3.1.2 Purpose of this Pillar ....................................................................................................................................... 9

3.1.3 Specific Objective ............................................................................................................................................. 9 3.1.4 Role of the BOU FLSC ..................................................................................................................................... 9

3.1.5 Membership of the FLSC ................................................................................................................................ 9 3.1.6 External Partnerships ...................................................................................................................................... 9

3.1.7 FLSC Strategic Priorities ............................................................................................................................... 10 3.1.8 Activity Timing and Expected Output for the Financial Literacy Sub Committee .............................. 10

3.2 Pillar 2: Financial Consumer Protection ......................................................................................................... 11

3.2.1 Background to Financial Consumer Protection ......................................................................................... 11 3.2.2 Purpose of this Pillar ..................................................................................................................................... 11

3.2.3 Specific Objective ........................................................................................................................................... 11 3.2.4 Role of the BOU FCP SC ............................................................................................................................... 11

3.2.5 Membership of the FCP SC .......................................................................................................................... 12 3.2.6 External Partnerships .................................................................................................................................... 12

3.2.7 Strategic Priorities .......................................................................................................................................... 12 3.2.8 Activity Timing and Expected Output for the FCP Sub Committee. ..................................................... 13

3.3 Pillar 3: Financial Innovations .......................................................................................................................... 13

3.3.1 Background to the Financial Innovations................................................................................................... 13 3.3.2 Purpose of this Pillar ..................................................................................................................................... 14

3.3.3 Specific Objective ........................................................................................................................................... 14 3.3.4 Role of the BOU FISC .................................................................................................................................... 14

3.3.5 Membership of the FISC ............................................................................................................................... 14 3.3.6 External Partnerships .................................................................................................................................... 14

3.3.7 Strategic Priorities .......................................................................................................................................... 14 3.3.8 Activity Timing and Expected Output of the Financial Innovations Sub Committee ......................... 15

3.4 Pillar 4: Financial Services Data and Measurement (FSDM) ........................................................................ 16

3.4.1 Background to the Financial Services Data and Measurement ............................................................... 16 3.4.2 Purpose of this Pillar ..................................................................................................................................... 16

3.4.3 Specific Objectives ......................................................................................................................................... 16 3.4.4 Role of the BOU FSDM SC ........................................................................................................................... 16

3.4.5 Membership of the FSDM SC....................................................................................................................... 16 3.4.6 External Partnerships .................................................................................................................................... 16

3.4.7 Strategic Priorities .......................................................................................................................................... 16 3.4.8 Activity Timing and Expected Output for the FSDM Sub Committee .................................................. 17

4. References .................................................................................................................................................................... 18

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List of Abbreviations and Acronyms AFI Alliance for Financial Inclusion AMFIU Association of Microfinance Institutions in Uganda BOU Bank of Uganda CBD Commercial Banking Department CB Commercial Banks CFI Centre for Financial Inclusion CMA Capital Markets Authority DFID Department for International Development EDS Executive Director Supervision EXCOM BOU Executive Management Committee FCP Financial Consumer Protection FCP SC Financial Consumer Protection Sub-Committee FE Financial Education FEWG Financial Education Working Group FI Financial Inclusion FIDWG Financial Inclusion Data Working Group FIP Financial Inclusion Project FISC Financial Innovations Sub-Committee FL Financial Literacy FLAG Financial Literacy Advisory Group FLFCP Financial Literacy and Financial Consumer Protection FLISG Financial Literacy Information Sharing Group FLSC Financial Literacy Sub-Committee FLWG Financial Literacy Working Groups FMD Financial Markets Department FS Financial Stability FSDM Financial Services, Data and Management GIZ Gesellschaft für Internationale Zusammenarbeit IRA Insurance Regulatory Authority JWG Joint Working Group KFD Key Facts Development MDI Micro Deposit Taking Institutions MDIA Micro Deposit-Taking Institutions Act MFIS Micro Finance Institutions MNO Mobile Network Operators MOES Ministry Of Education and Sports MOFPED Ministry Finance, Planning and Economic Development MoU Memorandum of Understanding MWG Media Working Group NBFI Non Banking Financial Institutions NCDC National Curriculum Development Centre NSSF National Social Security Fund PM Project Manager PSD Payments and Settlements Department

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ROWG Rural Outreach Working Group RTC Regulators Technical Committee SACCOs Savings and Credit Cooperative Organizations SFI Supervised Financial Institutions SFLU Strategy on Financial Literacy in Uganda UBA Uganda Bankers Association UBOS Uganda Bureau of Statistics UCC Uganda Communications Commission UIA Uganda Investment Authority UCSCU Uganda Cooperative Savings and Credit Union WCA Workplace, Clubs and Associations WCAWG Work places, Clubs and Associations Working Group WG Working Group YWG Youth Working Group

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FOREWORD By Mrs. J. Bagyenda, Executive Director Supervision

Strengthening Financial Inclusion is one of the Strategic Initiatives in the BOU revised

Strategic Plan 2012 to 2017. Bank of Uganda has started implementing various initiatives to

improve financial inclusion in Uganda as a response to financial innovations, gaps in financial

education, financial consumer protection, financial deepening as

well as issues of access and quality of financial services.

The pace of technological advancement has resulted into

unprecedented proliferation of financial innovations. Despite

these developments, the rural areas in Uganda and many Sub-

Saharan African countries remain unbanked. Limited financial

services are provided in the rural areas and mainly by the

informal sector in a fragmented, unsafe environment with

limited linkages. Without stifling financial innovations, Bank of

Uganda aims to provide adequate responses to these challenges

by creating an enabling environment for Financial Inclusion (FI)

activities.

Bank of Uganda has taken up the FI activities on a project basis under the Supervision

Function. The overall objective of the project is to increase access to financial services and

empower the users of financial services to make rational decisions in their personal finances so

as to contribute to economic growth. The project will run for an initial period of three (3) years

2012-2015 and relevant sub-strategies will be developed and implemented during this period.

The activities outlined in this strategy paper are based on four (4) Pillars namely: Financial

Literacy, Financial Consumer Protection, Financial Innovations (includes: Mobile Money and

Agent Banking) and Financial Services Data and Measurement. The main reasons for

prioritizing financial inclusion activities are:

Strengthening financial literacy through financial education initiatives in collaboration with

a broad range of actors both within and outside the financial sector.

Strengthening financial consumer protection and promoting public awareness of consumer

rights and responsibilities to enhance trust and transparency between financial institutions

and clients

Enhancing dialogue with financial institutions on the issues of access to financial services.

Providing a regulatory framework to promote technological innovations to increase access

and usage of financial services while ensuring safety and stability of the financial sector.

Maintaining data on access, usage and quality of financial services to enhance

understanding of the gaps that need to be closed by the key stakeholders.

Bank of Uganda has taken a national approach in the implementation of the Financial

Inclusion activities by involving many stakeholders both in the private and public sector

together with Government and development partners. GIZ (as part of German Development

Cooperation) specifically played a key role in the development of this strategy paper.

I thank you all for partnering with BOU in the development and implementation of financial

inclusion activities in Uganda.

J. Bagyenda (Mrs.)

Executive Director Supervision

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The Bank of Uganda Financial Inclusion Project Strategy Paper

1. Background

1.1. Statement of the Problem

Financial Inclusion is defined by different policy makers and advocates in different ways

depending to the level of development and needs of a country at a time. The Centre for

Financial Inclusion at Accion (CFI) defines full financial inclusion as a state in which all people

who can use financial services have access to a full suite of quality services, provided at

affordable prices, in a convenient manner, and with dignity for the clients. Financial services are

delivered by a range of providers, in a stable, competitive market and reach everyone who can

use them.

Uganda has made improvements over the years in terms of financial services delivery

outlets/channels offered by both the formal and informal financial institutions. Despite that, the

level of adults Ugandans above 18 years who are excluded from financial services remains

significant. The comparison between the Finscope Uganda survey 2006 and 2009, showed

improvement on the number of the financially excluded adult population, however this was

largely a graduation from exclusion to the informal financial institutions while the formal

financial institutions showed only 1percentage point improvement in financial services access.

The results of the geo spatial mapping exercise (2013) of financial outlets in Uganda1 indicates

that while the urban areas are well covered in terms of financial services outlets, the rural areas

have a long way to go even after taking into consideration the SACCOs and mobile money

outlets.

The BOU Financial Inclusion project attempts to tackle both the supply side and demand side

bottlenecks to financial inclusion. This will include Financial Education or financial literacy

activities at a national level, financial consumer protection awareness campaign, appropriate

regulatory responses to financial innovations and facilitating data collection to periodically

measure the levels of financial inclusion in Uganda.

The project will explore different ways of promoting increased financial services delivery channels and linkages between the formal and informal financial sector including providing an enabling regulatory framework for the Agent Banking model.

1.2. Status of financial Inclusion in Uganda

1.2 (a) Demand Side Data on Financial Inclusion

According to the 2009 FinScope survey2, the majority of Ugandans (75%) live in rural areas, 32%

do not earn any cash income, 8% are in formal employment, and 40% earn irregularly. On the

financial access strand, the survey showed that 70% of the sampled population aged 16 years

and above are financially served (formal and informal) while 30% are not served or are

1 Geo Spatial mapping of financial institutions cash in/cash out points carried out by M/S Bill and Melinda Gates Foundation. 2 The 2009 survey included respondents aged 16 years and above while the 2006 respondents comprised only those 18 years and above.

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financially excluded; 28% of the financially served use formal financial access (specifically 21%

used banking services)3 while the majority (42%) used informal financial services. The survey

concludes that Financial Inclusion is highly influenced by the informal sector.

Using the sample of 18 years and above the proportion of those using financial services

increased from 57% in 2006 to 72% in 2009. The comparison of the results for the 18+ years

sample is shown below:

Finscope Survey (2009) Financial Access Strand Results Comparison for the 18 and above

Sample

Access Strands/Year 2006 2009

Served by formal financial institutions (Banks, Credit Institutions, MDIs,

other formal registered institutions like MFIs, SACCOs, Insurance, NSSF,

Forex Bureau, Western Union, Money Gram, Mobile Money services)

28% 29%

Served by informal institutions: money lenders, ROSCAs, Village Savings

and Loan Associations (VSLAs), NGOs, investment clubs, savings clubs,

village groups like burial associations and welfare funds, savings like

through shops or investments in property (houses for rent), livestock’s, crop

produce to be sold later.

29% 43%

Not served formally or informally – Excluded 43% 28%

Source: Figure 3.4: Finscope Uganda 2009 Final Report. **The FinScope activities are a great support to the Bank of Uganda Financial Inclusion Project and are directly linked to Pillar 4 of the project: Financial Services Data and Measurement. The 2013 FinScope Survey is funded by DFID to a tune of USD 494,800 and is conducted by the Economic Policy Research Centre (EPRC).

1.2 (b) Supply Side Data on Financial Inclusion

The Bank of Uganda data on the licensed branches as at June, 2013, shows that the Commercial Banks network of branches reached a total of 504 compared to 496 in 2012 and 455 branches in 2011, while ATMs increased to 719 from 714 in 2012 and 637 in 2011. The Credit Institutions branch network increased from 44 in 2011, 42 in 2012 to 51 in June, 2013. The MDI network increased from 98 in 2011 to 99 in 2013 while the forex bureaus increased from 184 in 2011 to 205 in 2012 and to over 226 in June 2013. Mobile Money Financial services also showed rapid growth with the number of registered users reaching 12.1m in June, 2013 compared to 8.9m in December 2012. The cumulative value of money transferred through the mobile money system increased from Shs.11.7 trillion in December 2012 to Shs.15.9 trillion in June 2013.

3 Banking Services means Commercial Banks, Credit Institutions and MDIs regulated by BOU.

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2. Financial Inclusion Project

2.1 Rationale for BOU’s Engagement in Financial Inclusion

The pace of technological advancement has resulted into unprecedented proliferation of

financial innovations. Despite these developments, the rural areas in Uganda like many other

Sub-Saharan African countries remain unbanked, with limited financial services provided

mainly by the informal sector in a fragmented manner, unsafe environment and limited

linkages.

Promoting Financial Inclusion is one of the strategic objectives of Bank of Uganda in its revised

Strategic Plan 2012-2017. Bank of Uganda is therefore in the process of implementing various

initiatives to improve financial inclusion in Uganda as a response to financial innovations, gaps

in financial education, consumer protection issues, financial deepening issues as well as issues

of access and quality of financial services among others. The goal is to create an enabling

environment for financial inclusion activities.

This structure of the Financial Inclusion Project also aims to fulfil BOU’s commitment under the Maya Declaration. At the 2011 AFI Global Policy Forum held at Maya, Mexico, BOU committed to: “To develop and implement a Strategy for Financial Inclusion based on four Pillars by 2014. Pillar 1: Financial Literacy, Pillar 2: Financial Consumer Protection, Pillar 3: Financial Innovations and Pillar 4: Financial Services Data and Measurement”

2.2 Overview of the Financial Inclusion Project

Bank of Uganda’s financial inclusion activities have been set up as a Project under the

leadership of Supervision Function. The overall objective of the Project is to increase access to

financial services and empower the users of financial services to make rational decisions in their

personal finances so as to contribute to economic growth.

The project will run for an initial period of three (3) years (2012-2015) and relevant sub-

strategies are being developed and implemented during this period. The activities outlined in

this framework paper are based on the four identified Pillars:

Pillar 1: Financial Literacy (FL) The broad goal under this pillar is to ensure a more financially literate population, empowered and equipped to make prudent choices on their personal finances. The identified strands are: financial education in schools, use of media for financial literacy, rural outreach, the youth, workplaces, clubs & associations.

Pillar 2: Financial Consumer Protection (FCP)

The broad goal is to promote fair and equitable financial services, increase transparency,

foster confidence, enhance disclosures on bank products, provide mechanisms for

handling complaints and ensure privacy of consumer information.

Pillar 3: Financial Innovations (FI)

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The broad goal is to establish an effective regulatory framework for financial sector

innovations in order to further broaden financial inclusion while ensuring system

stability and safety.

The currently identified strands include; Agent Banking and Mobile Money Financial

Services, however the pillar remains open to accommodate other financial innovations

including Payment Systems.

Pillar 4: Financial Services Data and Measurement (DM)

The broad goal is to monitor and measure financial inclusion indicators of access, usage,

quality and welfare or impact of financial services on the lives of consumers. This

requires defining key financial inclusion indicators and developing strategy for

collection and utilisation of data as an integral part of the Financial Inclusion Project.

The identified Strands include; financial access indicators, usage of financial services

looking at both the demand the supply side, quality or the relevance of the financial

services or products and their impact on consumers.

Examples of the access measurement indicators include: the percentage of adult

population with bank accounts, number of bank branches per 1000 adults and number

of ATMS per 1000 adults, credit/GDP ratio, savings GDP ratio and spread between

deposits and lending rates.

2.3 The Bank of Uganda Financial Inclusion Internal Project Structure

Chair FL SC

Chair FCP SC

Chair FI SC

Chair FSDM SC

FL SCMembers

FCP SC Members

FI SCMembers

FSDM SCMembers

Project Manager

GIZDCB, D.Comm.,

Apex Comm.

EDS

CORPORATE LEVEL (EXCOM)

Source: Bank of Uganda The overall reporting is to the BOU Executive Committee (EXCOM). The directing role is vested

in the Executive Director Supervision in consultation with GIZ, the Project Apex Committee,

Director Commercial Banking, Director Communications and other Departments. The Project

Manager coordinates the day to day running of the project activities while the Sub-Committee

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Chairpersons are charged with the delivery of planned activities in consultation with external

stakeholders, who are drawn from the public and private sectors as well as the development

partners.

As part of the overall Financial Inclusion Project, the BOU has established four Sub-Committees

to spearhead initiatives in the identified areas. The Sub-Committees are drawn from relevant

Functions and Departments across BOU.

The activities of the four Sub-Committees are overseen by the Financial Inclusion Apex

Committee which is charged with leading the BOU’s efforts on Financial Inclusion, providing

effective governance and coordination for the FIP within BOU, monitoring progress and

reporting to BOU Management. The Apex Committee is constituted by the Project Manager,

the Chairpersons of the four Sub-Committees and GIZ.

2.4 Interaction with External Stakeholders

In implementing the Financial Inclusion Project, Bank of Uganda recognizes the efforts of the

different organizations that have been involved in promoting financial inclusion in Uganda

over many years. The FIP aims to build on these efforts in collaboration with a broad range of

stakeholders, as well as seeking to facilitate the engagement of additional players to advance

the overall goal of financial inclusion. Further details on the interaction with external

stakeholders are provided in Section 3.

3. Detailed Strategy Frameworks for the Financial Inclusion Pillars

3.1 Pillar 1: Financial Literacy

3.1.1 Background to Financial Literacy

Financial Literacy can be defined as having the knowledge, skills and confidence to manage

one's finances well, taking into account one's economic and social circumstances. Strengthening

people's financial literacy will enable them to make the most of their money, protect themselves

against risks and avoid financial frauds; and will enhance financial inclusion and inclusive

growth. Efforts to implement Financial Literacy (FL) and Financial Consumer Protection

(FLFCP) were initiated by BOU, with support of GIZ, in September 2009. During 2010, a

detailed analysis was conducted through a consultative process with a broad range of

stakeholders, culminating into a report4 titled: “An Effective Framework for Financial Literacy

and Financial Consumer Protection in Uganda”. In order to follow up on the recommendations

of the report, a Sub-Committee for Financial Literacy was established to coordinate BOU’s work

in spearheading the development of a Strategy on Financial Literacy in Uganda. Since then, the

Financial Literacy Sub-Committee has engaged more than 150 stakeholders in a structured,

consultative process to develop a Strategy on Financial Literacy for Uganda, based on the

principles of cost-effectiveness, sustainability and feasibility. The Strategy aims at making cost-

effective use of resources which can be used to strengthen financial literacy. Through the

Strategy, a number of initiatives to strengthen financial literacy are being promoted. The

4 The report was approved by BOU management in March 2011.

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Strategy facilitates effective coordination and knowledge-sharing between organisations and

individuals who are working to improve financial literacy. A broad range of stakeholders is

involved in implementing aspects of the Strategy. The role of Bank of Uganda is to spearhead

the implementation and further development of the Strategy.

3.1.2 Purpose of this Pillar

The broad goal under this pillar is to ensure a more financially literate population, empowered

and equipped to make prudent choices in their personal finances.

3.1.3 Specific Objective

The specific objective is to spearhead the development and implementation of a Strategy for

Financial Literacy in Uganda (SFLU) in partnership with a wide range of stakeholders. The

SFLU aims at cost-effective use of resources which can be used to strengthen financial literacy;

and effective coordination and knowledge-sharing between organisations and individuals who

are working to improve financial literacy.

3.1.4 Role of the BOU FLSC

The role of the FLSC is to coordinate Bank of Uganda’s efforts in spearheading the development

and implementation of the Strategy on Financial Literacy for Uganda.

3.1.5 Membership of the FLSC

The FLSC draws its membership from the following departments of Bank of Uganda:

Commercial Banking (CB), Non-Banking Financial Institutions (NBFI), Communications,

Financial Markets (FM) and GIZ.

3.1.6 External Partnerships

The preparation of the Strategy on Financial Literacy for Uganda has benefited from the input

of stakeholders during a series of stakeholder workshops and in a number of individual

meetings and discussions. In order to effectively coordinate the development and

implementation of the SFLU, Bank of Uganda has established the following advisory and

consultative bodies:

The Financial Literacy Advisory Group (FLAG), which is composed of high level

individuals who bring expertise from a variety of sectors relevant to the Strategy, and

whose role is to provide strategic advice to Bank of Uganda and the Working Groups.

The Financial Literacy Information Sharing Group (FLISG), an information sharing

forum open to everyone with a stake or an interest in Financial Literacy.

Five Working Groups – on Schools, Youth, Workplace, Rural outreach and the Media,

which comprise experts in the various areas. Each Working Group began by identifying

a wide range of possible financial literacy programmes and then developed

recommendations for the development and implementation of a small number of

programmes which are most likely to be cost-effective, affordable and feasible. Once the

Strategy has been launched, the Working Groups will oversee the implementation.

The continued engagement and efforts of stakeholders across a broad range of sectors will be

indispensable if the Strategy is to be successfully implemented and to achieve a genuine and

significant increase in the level of financial literacy in Uganda.

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3.1.7 FLSC Strategic Priorities

Bank of Uganda aims to achieve significant improvements in financial literacy across the

Ugandan population. For each of the five strands identified by stakeholders (FL in schools, FL

for the youth, FL via rural outreach, FL at the workplace and FL via the media), Bank of Uganda

has facilitated the Working Groups to develop cost-effective, sustainable and feasible priority

activities as described below:

Schools: The Strategy seeks to incorporate FL into the secondary school curriculum as

part of the overall reform of the curriculum, as well as into the primary school

curriculum through the development of supplementary materials and teachers’

trainings. At the same time, extra-curricular activities relating to FL shall be extended.

Youth: The Strategy proposes the incorporation of FL into university exit courses and the

training of community FL mentors who incorporate FL into the activities of already

existing youth clubs and associations.

Rural Outreach: The Strategy proposes the provision of FL trainings to rural

communities, capitalizing on existing trainings and trainers. Additionally, FL messages

shall be disseminated via a variety of community channels like community radios,

community meetings and many more.

Workplace: This will involve improving FL at formal workplaces through presentations

and trainings, as well as presentations being held to informal workers through their

associations.

Media: To achieve maximum outreach, a lively and vibrant website dedicated to FL will

be developed, newspapers and magazines will be engaged to increase their FL contents,

and radio as well as social media will be used as platforms to spread the messages.

3.1.8 Activity Timing and Expected Output for the Financial Literacy Sub Committee

Activity Timing 2012-15 Expected Output

2012-13 2013-14 2014-15 Identify candidates for the advisory and consultative bodies (FLAG, FLISG, 5 Working Groups)

√ Candidates for FLAG, FLISG WGs identified

Establish the advisory and consultative bodies (FLAG, FLISG, 5 Working Groups)

√ FLAG, FLISG, WGs established

Coordinate the development of core messages on FL which cut across all 5 strands

√ Core messages are developed and agreed on with the sector

Facilitate the Working Groups in developing cost-effective, sustainable and feasible priority activities

√ Cost-effective, sustainable and feasible priority activities developed for each strand

Harmonize the priority activities with FLAG and FLISG

√ Priority activities are agreed on with FLAG and FLISG

Draft the Strategy document √ Strategy document drafted

Publish and launch the Strategy on Financial Literacy for Uganda

√ SFLU published and launched

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Coordinate the development of resource materials for implementing the priority activities

√ Resource materials are developed

Coordinate the piloting and evaluation of priority activities under the 5 strands

√ Priority activities are being piloted

Spearhead the rolling out of priority activities

√ √ Strategy for Financial Literacy in Uganda is being implemented

Ensure effective knowledge sharing, stakeholder communication and coordination

√ √ √

Source: Bank of Uganda

3.2 Pillar 2: Financial Consumer Protection

3.2.1 Background to Financial Consumer Protection

Financial consumer protection seeks to level the playing field between suppliers and consumers

of financial services. Financial Consumers usually have less information about financial

products and services offered by financial institutions, which can result in excessively high

interest rates, poor understanding about financial options and insufficient avenues for redress.

Following the recommendations of the report “An Effective Framework for Financial Literacy

and Financial Consumer Protection in Uganda”, the Bank of Uganda developed Financial

Consumer Protection Guidelines (FCPGs) which were issued to supervised financial institutions

in June 2011. The Guidelines stipulated requirements on Fairness, Reliability, Transparency and

Complaints Handling & Consumer Recourse.

BOU also established the Regulators Technical Committee with other financial sector regulators

to discuss how to harmonise and strengthen consumer protection requirements across the

broader financial sector.


The broad purpose of this pillar is to effectively implement financial consumer protection in

order to promote fair and equitable financial services; increase transparency, empower

consumers of financial services; and support the establishment of efficient and effective

mechanisms for handling consumer complaints relating to the provision of financial products

and services so as to foster consumer confidence in the financial sector with the ultimate goal of

encouraging financial deepening.


The specific objective is to monitor effective implementation of the financial consumer

protection guidelines by supervised financial institutions (SFIs) and to recommend

improvements as well as to promote improved harmonization of financial consumer protection

issues across the broader financial sector.

3.2.4 Role of the BOU FCP SC

The main responsibilities of the FCP SC are to develop, implement and coordinate activities

relating to the implementation of the BOU FCP Guidelines.

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3.2.5 Membership of the FCP SC

The FCP SC draws its membership from the following Departments; Commercial Banking,

NBFI, GIZ and Communications and Legal (where necessary).


BOU will interact closely with external partners including other regulatory authorities (CMA,

MOFPED, IRA, and UCC), apex bodies (e.g. UBA, AMFIU, UIA) as well as regulated financial

institutions. BOU will also continue to seek feedback and updates from interested third parties

and consumer associations.

3.2.7 Strategic Priorities

The Bank of Uganda has embarked on a three-pronged approach to delivering the project: This

includes: raising the awareness of consumers through a continuous programme to broadly

publicise the FCPGs so that consumers are aware of SFIs’ responsibilities as well as their own

responsibilities as clients; strengthening Bank of Uganda’s supervisory skills to ensure

compliance by the SFIs and working with SFIs to ensure there is a clear understanding of what

is required under the FCPGs

Through this approach it is intended that the outcome will be threefold: SFIs want to meet the

standards of the FCPGs, and have been educated to do so, because consumers are sufficiently

informed and empowered to know they have rights that should be fulfilled and that BOU, as

Regulator, is backing this up by monitoring that SFIs are attaining the standards required by the

FCPGs.

Major activities for the implementation of FCP Guidelines include:

Review progress with implementation of Guidelines and provide further orientation to

supervised financial institutions on outstanding issues

Develop and issue Key Facts Documents to enhance transparency in the sector and

thereby enable consumers to make informed financial decisions

Develop and implement measures to strengthen complaints handling both within SFIs

and within BOU

Strengthen BOU supervision of compliance with FCP requirements

Develop a communications strategy to effectively reach clients of supervised financial

institutions and the wider public to raise awareness on the FCPGs among consumers

(“know your rights”)

Review the FCP Guidelines periodically and update where appropriate

Major activities to strengthen harmonisation of FCP requirements across the broader financial

sector include:

Liaise with other regulators to identify areas of potential harmonisation of FCP

requirements and possible collaboration

Coordinate activities identified for collaboration

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Periodically engage stakeholders through workshops

3.2.8 Activity Timing and Expected Output for the FCP Sub Committee.


2012-13 2013-14 2014-15

Review status of implementation of FCP Guidelines

√ Gaps Identified

Support further implementation of FCP provisions

√ √ √ Enhancements issued

Establish FCP “Consultation Group” on FCP issues drawn from the relevant stakeholders (UBA, SFIs, SACCOS, MFIs, AMFIU)

√ Consultation Group established

Develop internal strategy on supervision of FCP principles

√ Internal guidance note on key FCP issues to review during on-site inspections

Develop Key Facts Document(s) (KFD) √ √

Key Facts Documents issued Circulate KFD to SFIs, and other relevant organizations for comments

√

Finalise and issue KFD √

Revive Regulators Technical Committee √ RTC operational

Develop and implement strategy to improve effectiveness of complaints handling

√ √ √ Efficient mechanism for complaints handling established

Develop and implement appropriate communication strategy to the public regarding FCP developments , including issuance of pamphlets in different local languages

√ √ √ The public is aware of their rights under the FCP Guidelines

Develop long-term supervisory procedures and BOU capacity

√ √ √ FCP integrated into supervisory practices of BOU

Review and update FCP Guidelines √ Updated FCP Guidelines Source: Bank of Uganda

3.3 Pillar 3: Financial Innovations

3.3.1 Background to the Financial Innovations

Against the background of technological innovations, the nature of financial services is evolving

rapidly. Service delivery in particular has been influenced by technological innovations in

recent years. The Bank of Uganda seeks to establish an effective regulatory framework for

financial sector innovations in order to further broaden financial inclusion while ensuring

system stability and safety.

This entails, considering in a holistic and comprehensive manner, the following: Agent Banking,

Point of Sale Services and Mobile Payment Services, Financial Service Innovations including

Branching Mechanisms. The first trigger on the need for a quick regulatory response was the

request by Mobile Network Operators (MNOs) to provide Mobile Money Services where BOU

responded by allowing banks to partner with MNOs to provide the services, which commenced

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in 2009. To this effect BOU initially issued ‘no objection’ letters to partner banks and

subsequently issued enhancements to the ‘no objection’ letters to mitigate the identified risks.


The broad goal is to facilitate the positive development of financial system, institutional, process

and products/services innovations while ensuring safety and stability.


The specific objective is to develop and operationalize a holistic approach to regulation and

supervision of new technologies for financial service delivery which facilitate Financial

Inclusion on a safe and sustainable basis.

3.3.4 Role of the BOU FISC

The role of the FISC is to coordinate and drive forward BOU’s activities in the sphere of financial sector innovations to provide adequate regulatory responses to financial innovations so as to keep pace with market responses to shortfalls in the financial systems and regulatory arbitrage tendencies.

3.3.5 Membership of the FISC

The FISC is drawn from CB, NBFI, PSD, GIZ, Legal and Communications on a consultation basis.


BOU will interact closely with external partners including other external authorities including:

MOFPED, UCC, financial institutions, mobile network operators and other relevant actors from

the public and the private sector.


Major activities on Mobile Money include:

Establish formal collaborative arrangements with UCC on the regulation and

supervision of Mobile Money.

Development of Guiding Principles on Mobile Money

Development of Mobile Money Guidelines

Provision of comments on the National Payment System Policy Paper

Provide inputs into relevant legal and regulatory changes as regards Mobile Money

Support the development of a long-term regulatory framework for mobile money in the

context of a comprehensive legal framework for payments (NPS Act)

Major activities on Agent Banking and Branching include:

Provide inputs into relevant legal and regulatory changes as regards Agent Banking

Development of Guiding Principles on Agent Banking and Branching

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Drafting of Agency Banking Regulations

Major activities on the Supervisory Framework include:

Develop and implement a holistic supervisory approach for financial innovations, in

collaboration with other regulators where appropriate

3.3.8 Activity Timing and Expected Output of the Financial Innovations Sub Committee


2012-

13 2013-

14 2014-

15

Mobile Money

1. Prepare recommendations for amendments to FIA (2004) relating to mobile money/mobile payments

√ Amendments submitted to Parliament by BOU and subsequently enacted.

2. Develop “Guiding Principles” for the regulation and supervision of Mobile Money to provide orientation for subsequent work.

√ “Guiding Principles” document.

3. Development of Mobile Money Guidelines.

√ √ Mobile Money Guidelines issued to the sector.

4. Make recommendations on interim changes to current arrangements

√ √ √ Recommendations responding to pertinent developments (e.g. further modifications to ‘no objection’ letters)

5. Input to National Payment Systems (NPS) Law.

√ Recommendations on areas relating to mobile payments to ensure the processes are coordinated.

6. Development of a long-term regulatory framework for mobile money in the context of a comprehensive legal framework for payments. (NPS Law)

√ √ Regulations on Mobile Payments under a NPS Law

7. Establish formal collaborative arrangements with UCC on the regulation and supervision of Mobile Money.

√ √ Establish Joint Working (JWG) Group, agree on ToR, identify areas of collaboration and enter into MoU.

8. Implement agreements within MoU in collaboration with UCC.

√ √ √ Contingent upon final content of MoU.

Agent Banking and Branching

1. Prepare amendments to FIA (2004) and MDIA (2003) to enable Agent Banking

√ Amendments submitted to Parliament and subsequently enacted

2. Develop “Guiding Principles” on Agent Banking and Branching to provide orientation for subsequent work.

√ “Guiding Principles” document.

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3. Development of Agent Banking Regulations

√ Agent Banking and Branching Regulations submitted to 1st Parl. Counsel and subsequently gazetted

4. Develop recommendations for risk-based supervision of Agent Banking

√ Supervisory recommendations developed

5. Implement risk-based supervisory regime for Agent Banking, including further development of BOU-internal capacity and expertise

√ √ Effective supervision implemented


3.4 Pillar 4: Financial Services Data and Measurement (FSDM)

3.4.1 Background to the Financial Services Data and Measurement

The Financial Services Data and Measurement(FSDM) component of the Financial Inclusion Project (FIP) is designed to determine the adequacy of data on the various strands of the overall FIP, identifying the most suitable measurement tools to facilitate measurement and monitoring of indicators of access, usage and quality of financial services. Data plays an important role in determining the state of financial inclusion, influencing stakeholder actions and assessing progress.


The main purpose of this pillar is to enhance the framework for financial services data and measurement and provide a mechanism for monitoring and measuring financial inclusion indicators of access, usage, quality and welfare on the lives of consumers in Uganda.

3.4.3 Specific Objectives

The specific objective is to develop benchmarks for measuring and monitoring Financial Inclusion.

3.4.4 Role of the BOU FSDM SC

The role of the FSDM Sub-Committee is to lead Bank of Uganda’s efforts in the collection and analysis of Financial Inclusion Data to evaluate the overall impact of the Financial Inclusion activities on the level of access and financial exclusion.

3.4.5 Membership of the FSDM SC

The FSDM Sub-Committee is drawn from Research, Statistics, CB, NBFI, FM, Financial Stability (FS) and PSD on a consultation basis.


Throughout the tenor of the project, the sub-commitee shall build on collaboration and coordination efforts already in place. External partners include: IRA, UCSCU, AMFIU, DFID, AFI, SFIs, National Social Security Fund and Government Ministries and Departments.


Major activities on Financial Services Data and Measurement are to:

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Formulate a contextually relevant definition of financial inclusion.

Identify the relevant key financial inclusion indicators of access, usage, quality and welfare.

Take stock of current available data both on the supply and demand side and assess the

adequacy of the data for development of a financial inclusion data set.

Devise strategy for collection and utilisation of data as an integral part of the Financial

Inclusion Strategy.

Adopt relevant measurable indicators for the Financial Inclusion Data set.

Monitor and evaluate Financial Inclusion indicators of Access, usage, Quality and Welfare

or Impact of financial services on the lives of consumers.

Establish internal and external coordination structures with relevant partners/stakeholders

(internally Research Function, Supervision Function and Financial Markets Department

(FMD) and externally with institutions like GIZ, UBOS, and CMA.

Participate in ongoing initiatives like the 3rd FinScope survey, AFI data working group to

inform overall Financial Inclusion Strategic Framework.

Together with other sub committees, identify benchmarks against which success or failure

of the financial inclusion strategy can be measured.

Develop an Action plan and road map for achieving the main goals of the data and

measurement subcommittee.

Publication of the Financial Inclusion Report on the level of access and financial exclusion in

Uganda.

3.4.8 Activity Timing and Expected Output for the FSDM Sub Committee

Activity

Timing 2012-15 Expected Output

2012-13 2013-14 2014-15

Revisit the definition of Financial Inclusion for Uganda and benchmark with other countries

√ √ Agreed upon definition of financial inclusion for Uganda

Revisit the financial inclusion strands of Access, Usage, Quality, and welfare to ensure that they are measureable

√

√

Agreed upon strands of financial inclusion

Engage the different departments within the BOU to identify list of relevant data for financial inclusion measurement that are already compiled

√

√

Data status report

Enhance questions in the FinScope survey to measure Financial Inclusion

√

Proposed list of questions for inclusion in FinScope survey questionnaire

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Activity

Timing 2012-15 Expected Output

Develop form for collecting additional supply side indicators from Financial Institutions

√ √ Financial Inclusion Data collection Form

Finalize the Geo Spatial Mapping of Financial Services points and Develop Financial Services Access Grid for Uganda

√ √ Financial Services Access Map for Uganda

Carry out impact evaluation of financial inclusion activities on access to financial services

√ Impact evaluation report on the level of access and financial exclusion in Uganda

Coordinate FinScope Secretariat as per Terms of Reference

√ √ Minutes/ Resolutions of the Steering Committee

Develop Financial Inclusion Data Report

√ Financial Inclusion Data Report

Participate in AFI Data Working Group(FIDWG) meetings

√ √ √ Deliverables as agreed by FIDWG.


4. References 1. Centre for Financial Inclusion at Accion (CFI) (2011), Road Map for the Microfinance industry:

Focussing on Responsible and Client Centred Microfinance. The Microfinance CEO Working Group.

2. Finscope Uganda 2009, Final Report: Results of a National Survey on demand, Usage and Access to Financial services in Uganda

3. Bank of Uganda and GIZ: Towards an Effective Framework for Financial Literacy and Financial Consumer Protection in Uganda

4. The 2011 AFI Global Policy Forum Report: Taking stock, setting goals, Moving forward 5. Asli Demirguc-Kunt et al (2012), Financial Inclusion in Africa: An Overview. Washington. World

Bank Publications. 6. Bill & Melinda Gates foundation (March, 2013): Geospatial Mapping for Financial Inclusion 7. Bank of Uganda: Annual Supervision Report December 2012 Issue No.3