Prime
Can financial inclusion ease the back-to-school pressure?
Author: Anthea Paelo. PHOTO/HANDOUT
What you need to know:
- Financial service providers need to go beyond their traditional services to meet the needs of their clients.
At the start of this academic year, schools reported a low turnout of students, with parents citing lack of money to pay for school fees. Students also often require additional material. For cash-strapped parents, the demands at the beginning of a school term are excessive. As a result, some students begin the school term late or without necessary material.
While parents are aware of school fees necessity months in advance, it is still a challenge for most to plan due to low income. The other challenge is that even where parents have steady income, they need access to financial services to help them plan, save, or access credit that would provide cashflow during the school opening. Such parents could benefit from financial inclusion.
Financial inclusion refers to the access and usage of financial services. According to the 2021 Global Findex study, 66 percent of Ugandans own a regulated deposit account, an increase from 59 percent in 2017. Bank of Uganda also reports that there were more than 22 million active mobile money subscribers and 235 financial access points for every 10,000 adults in Uganda, thrice the number five years ago.
However, there needs to be more growth in the usage of financial services and the benefits consumers derive. For instance, according to the 2021 Global Findex study, of 71 percent of Ugandans who saved money, only 39 percent used an account from a formal financial institution. Additionally, of the 75 percent of Ugandans who borrowed money in 2021, only 29 percent did so from a formal financial institution.
Statistics suggest that while Ugandans require financial services such as savings and credit, minority access these services from financial institutions. Likely, the type of savings and credit products available at these institutions do not cater to the specific profile and needs of a large portion of the Ugandan population.
Financial service providers need to go beyond their traditional services to meet the needs of their clients by, for example, developing customised services to support parents in planning, saving, and borrowing to meet their school fees demands. These financial service products should have three key features to help solve beginning-of-school term dilemmas.
First, these products should let parents deposit money as and when they receive it, not monthly. Much of the Ugandan population are seasonal income earners, Uganda being an agricultural economy. This feature would enable parents to save their income during the harvest season when products are on sale and shore this up for periods of low income.
Second, these financial accounts should be low-cost or even zero-rated. Finscope 2018 survey data cited the high bank fees as one of the reasons Ugandans avoid formal financial institutions. Low-fee accounts would incentivise parents to open and continually deposit income as and when it is received. The frequent use of the account would help parents obtain a credit history that would form the basis for small loans to capture shortfalls at the start of the school term.
Third, these financial services should be convenient, easy to open and maintain. Parents should be able to access the account through their phones and even carry out transactions using USSD such as *130#. Deposits should be possible through various channels, such as agents. Schools could consider being agents to ease the collection and payment of fees.
An inclusive financial sector can alleviate stress caused by the demands of the start of the term. However, financial institutions must be prepared to develop and provide financial services that meet the needs of consumers.
Anthea Paelo (PhD) is the intervention manager at the Financial Sector Deepening Uganda
[email protected]
