Digital Financial Inclusion in Uganda
Financial inclusion in Uganda has shown divergent trends of late. According to the Uganda 2013 FinScope III Survey, the proportion of Ugandans using “formal” financial services  (excluding mobile money) was essentially unchanged from 2009 when the previous FinScope Survey was conducted, despite growth in the number of commercial banks and branches. Use of formal banking also remained skewed towards wealthier and more urban residents, implying that access to and use of potentially useful savings and credit instruments is not yet widespread.
The use of mobile money, however, has increased to the point where the rate of mobile money account ownership outstrips bank account ownership. Yet, as the FinScope survey concluded, mobile money is still primarily a money transfer tool as opposed to a financial inclusion conduit per se. The challenge ahead for mobile money proponents is to find ways to leverage mobile money’s popularity to make a wider array of financial services available through digital means, particularly to the many Ugandans lacking ready access to brick-and-mortar financial institutions.
At the regulatory level, Uganda is taking steps to extend financial inclusion and create a fully functioning mobile money market.  Notably, the Bank of Uganda (BoU) released mobile money guidelines that went into effect in October 2013, and defined the roles and responsibilities of mobile network operators (MNOs) and banks under a partnership model. There appears to be tacit acknowledgement in the guidelines that MNOs are the primary service providers, while bank partners manage the financial backbone as well as conduct safeguard checks in the system. Banks’ responsibilities include ensuring adequate anti-money laundering safeguards, holding mobile money escrow accounts and reconciling these with individual mobile money accounts on a daily basis.
Mobile money service providers also are charged with fostering interoperability across each other’s systems. The 2013 Uganda Financial Inclusion Insights (FII) tracker survey results suggest the large majority of mobile money users would benefit from being able to make transactions across different providers.
Regulatory Environment: Protecting the Consumer–and the Agent
The BoU guidelines also call for measures to protect consumers, combat fraud and foster better service through increased competition. “Know your customer” (KYC) checks, for example, must be conducted by mobile money agents to verify a customer’s identity. Customers can present any one of the following documents as proof of identity: a valid passport, driving permit, identity card, voter’s card, financial card, a business registration certificate or a local administration letter.
The FII tracker survey found that 83 percent of Ugandans do not have any kind of official ID; but it is considered relatively easy and common to get a letter from a local administrator attesting to one’s identity and address. The BoU’s KYC rules could thus be viewed as relatively liberal. Even so, mobile operator MTN has requested a further loosening of the rules based on its view that requiring KYC for low-value transactions hinders growth in a market segment that does not pose a fraud threat.
Beyond mobile money, the BoU is also working to promote financial inclusion by focusing on consumer financial literacy. The bank’s “Strategy for Financial Literacy in Uganda,” released in August 2013, sets out guidelines and strategies for implementing financial literacy programs in the country. The BoU has a goal of seeing “Ugandans have the knowledge, skills and confidence to manage their and their family’s personal finances well.” The document also identifies three key challenges to strengthening financial literacy and hence financial inclusion: most people find at least one aspect of managing their finances well overwhelming; there is a lack of financial education and awareness on how to access information that would help people manage their money; and low levels of literacy and numeracy, as well as the range of languages spoken in Uganda, make it more difficult to communicate information about financial literacy.
The Mobile Money and DFS Environment
The high level of access to mobile phones has enabled mobile-based financial services to achieve a broader reach than traditional brick-and-mortar institutions. Mobile money service providers have focused on recruiting and deploying mobile money agents throughout the country, building a total of nearly 18,000 agents as of 2012 versus the 3,000 financial access points available through other formal financial service providers.  In addition, a young and relatively literate population is considered to have contributed to the surge in mobile money uptake.  Seventy-eight percent of the population is under 30 and nearly half of the population is less than 15 years old, which bodes well for the future of Uganda’s mobile money sector.
MTN remains the dominant mobile money provider but Airtel’s acquisition of rival Warid Uganda, in 2013, created a viable number two. In total, six Uganda-based mobile money providers are currently in operation, with Kenya-based M-PESA accessible along the Uganda/Kenya border. ,
Mobile Money Service Offerings
As of early 2014, mobile money providers in Uganda offered person-to-person (P2P) money transfers, payment services for utility bills or other goods and services, and the ability to buy mobile airtime. MTN and Airtel also have begun offering other value-added services. Specifically, MTN is providing tools to pay for school fees, parking, airline tickets, insurance premiums, and to play the national lottery. MTN also entered the energy market with partner Fenix International, a company offering customers the ability to access pay-as-you-go solar power products through regular installment payments via mobile money. Airtel, partnering with the Grameen Foundation and GSMA, launched a program to bringing mobile financial services to Chamas, or savings groups, whose members are predominantly women. “Airtel Chama” is providing women with better access to credit facilities and more efficient loan application processing than would be available in traditional financial institutions.
Despite efforts to attract more customers, poor infrastructure and data security impede service providers from reaching a wider consumer base. The ongoing National Data Transmission Backbone Infrastructure (NBI) project is expected to improve connectivity nationwide but even with this,  and the government’s push for operators to share use of their telecom towers, mobile phone and mobile money account users report mobile network issues as being a frequent problem. 
While using a mobile money account to store money can reduce customers’ risk of having cash stolen or lost, mobile money agents encounter these problems on the job. In 2013, physical attacks on mobile money agents reportedly were on the rise, ostensibly because criminals targeted the large amounts of cash frequently carried by agents.  Fraud by customers is another problem; anecdotal reports suggest that agents are being defrauded by customers, causing them to lose thousands of shillings. 
Meanwhile, as transaction revenue in the mobile money sector has grown, the Uganda Revenue Authority (URA) has taken notice. In June 2013, the URA imposed a 10 percent tax on all money transfers in Uganda, including mobile money transfers. In addition, in fall 2013 the URA began registering mobile money agents’ businesses to enforce collection of income taxes on their earnings. Soon after the introduction of the tax, mobile money service providers passed on this cost to customers by including the 10 percent tax as part of their customer transfer fees. Following the new tax, the URA began registering mobile money agents’ businesses in fall 2013 to enforce collection of income taxes on their earnings. The full effects of these changes have yet to be measured but initial research from the FII program suggests the new tax on transfers had a negative impact on uptake and use. 
Outside of MNOs, local and international stakeholders are becoming more involved in the push towards a cashless society, in spite of the challenges. They point to the potential for many sectors in Uganda to transition from cash to digital payment systems. For example, USAID and other donors are exploring ways to replace cash for both operational and programmatic payments. USAID has partnered with Plan International, Innovations Poverty for Action (IPA), Private Education Development Network (PEDN), and Mpanga Tea Factory to pilot payment and savings programs.