The impact of financial innovation on savings in Uganda
Agaba, Davis Johnson
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The study examined the impact of financial innovation on Gross Domestic Savings (GDS) in Uganda for the period financial year 2008/2009 to 2019/2020 based on aggregated quarterly data sourced from Bank of Uganda. The study examined the existence of Co-integration among the underlying variables using Auto-regressive Distributed Lag (ARDL) model after conducting preliminary statistical test to ascertain the normality of the variables as well as stationary of the data set using descriptive and unit root tests, specifically using the Augmented Dickey Fuller test and the Phillips Perron unit root test. The result of the ARDL test show that the rate of internet banking usage has a positive effect on GDS in the long-run while its effect still on GDS is negative in the short-run. Insurance saving products have a negative effect on GDS in the Longrun. In addition, findings still show that the value of mobile money transactions is positively related to GDS in the short-run while in the Long-run, this effect is not significant. Regarding other control variables; the results indicate that Real Exchange Rate, Time Deposit Rate and the Trade Balance all have a positive and significant relationship with GDS in the Long-run. On the other hand, the findings indicate that Lending interest rates in the long-run have a negative and significant relationship with GDS. From our findings, the study recommends that private telecom companies in Uganda should reduce the cost of transactions and improve the security for users to give them confidence in using mobile money services. This will encourage users to frequently use mobile money services which in turn increases savings. These private telecom companies should also provide affordable internet packages to their customers as this is envisioned to increase internet banking usage which also positively impacts on savings rates in the long-run. The government can also play a role in increasing usage of internet banking by either reducing the new tax on internet bundles or completely removing the tax. The insurance companies should come up with policies that allow even those who cannot afford to pay the full amount of the premium at once to do it in installments as long as they can finish paying within the year; as this will encourage more people to take up their policies hence increasing savings even among the low-income earners.