Financial inclusion in Uganda: determinants of outreach, access to and use of financial services

Abstract

Worldwide, 38% of adults do not use formal financial services, and 73% poor people are unbanked. The 2009 Finscope study revealed that only 28% of the adult population above 16 years of age was served by formal financial institution in Uganda which is a very low proportion and therefore need to increase financial inclusion in the country to enjoy the benefits of it. This study examines the key Indicators of financial inclusion in Uganda by analyzing the determinants of usage and access indicators. The background indicators analyzed are bank branch penetration, ATM penetration; number of borrowers and formal accounts and the independent variables are Proximity to a formal financial institution, Age, Age Squared, Education, Marriage status, employment status and educational level. The data was obtained from the 2013 Finscope III survey with 3,401 respondents and FINclusion lab on ATM and bank branches in Uganda. Univariate, bivariate and multivariate analyses are used to examine key indicators of financial inclusion. A probit regression model to the response variable account and loan ownership is fitted since the dependent variables have two distinct categories. The results show that there is low financial usage and financial access in Uganda. The Majority of Commercial bank branches and offsite ATMs are in the central region. There has been steady increase in the bank branch and ATM penetration per 100,000 adults in Uganda though the penetration is still lower than in Kenya and Rwanda. The findings suggest that improving financial inclusion is important to the development of the country. Financial inclusion programs by government and other stakeholders should be intensified to meet the financial needs of all Ugandans.