Examining the effectiveness of linkage banking as a strategy of enhancing financial inclusion in Uganda : A case study of Post Bank operations in Kamwenge District

Abstract

Developing countries are seeking to promote financial inclusion, i.e., greater access to financial services for low-income households and firms, as part of their overall strategies for economic and financial development. The main objective of the study was to establish the impact of linkage banking on the financial inclusion of the people of Uganda, specifically targeting Post Bank Uganda’s services in Kamwenge District. This study surveyed more than 35 PBU customers and staff to investigate their opinion about the effective of linkage banking in scaling up financial inclusion. The study established that the effectiveness of linkage banking and agency banking in particular has negated the need for customers to visit banking halls for services. With the guidance of bank agents, customers can access a variety of allowed services at the agents location even beyond the bank’s operating hours. Bank agents display charts that prescribe the available services, fees and contacts. Financial institutions offer trainings to bank agents when they are signing them and the technology deployed is user friendly and easy to adopt. Bank agents offer specific services and are for example not allowed to finalize the process of account openings and loan applications. The operations of agency banking as a pathway to linkage banking and financial inclusion faces a number of challenges. Unstable networks affect or fail the transactions. Bank agents sometimes run out of cash and fail to facilitate cash withdraws during peak hours. The rigid conditions set for opening accounts ensure that bank agents have a minimal role. Due to security concerns at some agents’ premises, some customers do not trust them with large deposits. A number of strategies have been advanced to help scale up financial inclusion through linkage banking. The need for financial literacy trainings and bringing on board informal savings groups, developing customer oriented products and regularly training the agents about the developments in the banking environment would help to scale up financial inclusion. Financial institutions should not only facilitate agents to open in rural areas but also provide liquidation centers to cater for agent cash outs. Financial institutions should redefine the “know your customer” rule just as they should enhance cross-sector partnerships such as mobile money platforms so as to enhance customer service and access opportunities.