DFSP country case studies

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    Digital Finance Policy and its Impact on Financial Inclusion in Uganda
    (African Economic Research Consortium, 2024-07-17) Okot, Nicholas; Kasekende, Elizabeth
    Sound policies provide a formal framework for interaction between economic agents engaged in the production, distribution, exchange and consumption of goods and services. The transition to digital finance requires policies that spur innovation and promote competition while protecting agents to enhance confidence in the financial system and financial inclusion. Uganda has enacted a set of laws, regulations, policies and guidelines to regulate digital financial services (DFS). This study examined the impact of digital finance policies on financial inclusion coupled with the gender and rural/urban dimension using the treatments effects model and key informant interviews (KIIs). The findings showed that digital finance policies enhance financial inclusion for both men and women, largely driven by the uptake of mobile money services. Individuals with financial awareness use DFS such as online banking, mobile wallets and agent banking, but are cognizant of risk of fraud. Further, rural dwellers were less likely to access digital finance than were their urban counterparts. The KII confirmed that indeed DFS has enhanced access and usage of financial services. The other drivers of financial inclusion cited were costs, convenience and FinTech innovations. However, gender disparity existed, with rural women being the most disadvantaged. This requires public policy to provide infrastructure where the private sector has no incentives, review distortionary taxes, enhance financial literacy and mitigation of cybercrime.
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    Can Mobile Money-Induced Cost Reduction Spur More Remittances to Uganda? Would the Resultant Large Remittances Affect Monetary Policy Effectiveness?
    (African Economic Research Consortium, 2024-07-17) Okello, Jimmy Apaa
    The increased use of mobile money for cross-border transfers can lower the costs of cross-border remittances. The reduction in costs in turn can spur additional increases in remittances as it frees up the incomes of the senders. This study first estimated the remittance elasticity to cost by applying the pooled mean group method to quarterly panel data of three country sources of remittances to Uganda for the period 2013Q1- 2022Q4. The results showed that remittances are highly elastic to costs. This implies that a reduction in costs can spur larger remittances than is currently observed. The study then created two regimes (one with lower and another with higher growth of remittances) in which we assess the impact of remittances on monetary policy effectiveness. We use the local projection model on quarterly data for the period 2002Q3-2023Q1. The results showed that the responses of output gap, inflation, and policy rates to shock in monetary policy are broadly similar in magnitude and direction across both regimes. However, the policy rate and inflation responded sluggishly in the regime with higher growth of remittances, which suggests that in this regime, monetary policy is not as potent as it would be in the regime with lower remittance growth. Thus, in a regime with higher remittance growth, the case for an independent monetary policy is weakened. Thus, in this regime, for a central bank to credibly commit to an inflation target, it must adopt a fixed exchange rate system (or variants therein).
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    Gender, Digital Financial Services and Financial Inclusion: Empirical Evidence from Rwanda
    (African Economic Research Consortium, 2024-07-17) Munyegera,Ggombe Kasim
    Rwanda has distinguished itself in terms of efforts to promote gender equality and women’s empowerment. However, some distinctive gender-based socio-economic differences remain that are worthy of policy attention. This study examined the gender differences in access to and usage of financial services and products in Rwanda using the FinScope survey of 2020. Probit regression models were used to estimate the propensity of ownership and access to digital platforms and the likelihood of using financial services. Results showed that women significantly lag behind men in terms of adoption of mobile phones, computers and the Internet. Similarly, they are less likely than men to own bank and mobile money accounts, which further translates into reduced propensity to save, and to receive and send remittances. Using Tobit regression models, the study revealed gender differences in financial inclusion at the intensive margin, that is, the amount of money saved, borrowed and sent in remittances was significantly lower among females than among males. Propensity score matching was used as a robustness check that further confirmed the negative gender effect on financial access and usage. The results imply that strategies to promote financial inclusion and digital financial services (DFS) ought to pay special attention to the specific challenges that limit women from adopting digital platforms, and from accessing and effectively using financial services to ensure greater gender equality and inclusive sustainable development in the country.
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    Drivers of the Gender Gap in use of Digital Financial Services: Evidence from Uganda
    (2024-07-17) Ogwang, Ambrose; Kahunde, Rehema; Makika, Maya Denis
    This study uses a mixed methods approach to analyse the social and economic factors causing the gender gaps in the use of digital financial services (DFS) in Uganda, using the Uganda National Household Survey data of 2019/2020. Quantitatively, we applied the bivariate probit regression and the Fairlie technique to decompose the gender gap. Bivariate regression results showed that among other factors, males were more likely to use both bank accounts and mobile money services than females. A decomposition of the gender gap for each of the DFS using Fairlie decomposition technique indicated that social and economic factors explain 75% and 65% of the existing gender gap in the use of mobile money services and bank accounts in Uganda respectively. The largest contributor to the gender gap in the use of mobile money services was the ownership of a mobile phone (72.4%), followed by expenditure on information and communication technology (ICT) and education contributing 13.5% and 2.7% respectively. Similarly, the largest contributors to the gender gap in the use of bank accounts were education (18.0%), expenditure on ICT (15.3%), age (12.7%) and ownership of a mobile phone (11.5%). Our results from qualitative analysis put culture among the other key contributors to the gender gap. We therefore recommend that policy-makers in Uganda bridge the gender gap in employment and education between men and women, to achieve inclusivity in the use of DFS.
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    Who is More Likely to Pay the Tax on Mobile Money Withdrawals?
    (African Economic Research Consortium, 2024-07-17) Sekumbo, Karia; Manda, Noela Ringo Constantine
    This study investigated the distributional effects of a controversial tax that was instituted on mobile money withdrawals in 2021. The lowest taxable amount of TZS 1,000 (USD 0.0023) was taxed at the highest rate of 1% on every withdrawal while the largest taxable bracket (starting from TZS 3 million equivalent to USD 1,304.35) was taxed at a rate of 0.33% on every withdrawal. Almost immediately after its introduction, transaction volumes across mobile money platforms declined substantially. The country’s policy-makers revised this tax multiple times before removing it altogether. Given this turnaround, we investigated how the burden of tax affects different consumer groups. Our data sources for this analysis comprised aggregated transaction- level data obtained from the Bank of Tanzania alongside nationally representative survey data. Relying on survey data answer choices, we constructed regression models assessing how social determinants contributed to mobile money use. Our findings revealed salaried respondents based in urban areas as being more likely to reduce consumption of mobile money services because of this transaction tax. We also observed gender dynamics at play as being female was associated with receiving less mobile money from friends and family. These results suggest that less wealthy respondents in rural areas with fewer substitutes were forced to contend with this tax while wealthier urban respondents substituted into different financial services. The results are consistent with those from other African countries such as Kenya, Ghana, Malawi and Uganda, which also attempted to introduce similar taxes on mobile money and faced similar outcomes.