Leveraging Digital Services and Market Development for Financial Inclusion

The paper examines the extent to which digital financial services mobile money, online banking and agency banking contribute to financial inclusion in Uganda. We identify the key enablers and inhibitors of access and usage of digital financial services. To achieve this, we adopt a mixed methods approach and use the recent 2019/20 Uganda National Household Survey (UNHS) data, the World Banks Global Findex data for 2021, and insights from key informant interviews. We use an instrumental variable approach to control for endogeneity and run recursive probit models for the binary outcomes of usage of mobile money services, agency banking, and commercial banks. We also run models for access to commercial banks and usage of informal groups. The results re-affirm the gap between men and women in access to and usage of digital and formal financial services, although this gap has significantly reduced over time. We also find that informal financial groups are used more by women. Financial literacy proxied by an individuals ability to read and/or write is a significant enabler of digital financial services usage among both men and women. Conversely, saving money at home/secret place has a strong negative effect on the overall usage of digital financial services, but a strong positive effect on the usage of informal groups. The new financial inclusion strategy should provide incentives to the private sector to promote innovation and investment in a broad range of new, friendly, and affordable products to attract the excluded sections of the population. Importantly, cultural and community institutions provide better opportunity towards changing social norms that have for long disadvantaged women and kept them financially excluded