About
Online
Data
Wednesday 10 August 2022
Kampala, Uganda
Allow me to begin by saying that it is an honor for me to address this distinguished gathering. I wish to thank Dr. Michael Atingi-Ego, Deputy Governor, Bank of Uganda for inviting me to deliver the keynote address at this very important event – the inaugural financial inclusion and financial literacy forum, 2022. I would have very much wished to be with you in person in Kampala, but regrettably I am not able to, due to conflicting commitments.
I would like to take this opportunity to commend the Government of Uganda, the Bank of Uganda, development and technical support partners, the civil society, private sector, and all other stakeholders who are actively participating in this forum.
The theme of this year’s Forum, “Enhancing Financial Inclusion through Digital Financial Literacy” brings to the fore the importance of digital financial services in advancing access to and usage of financial services.
Advancing the financial inclusion agenda, as the world recovers from the impacts of the COVID-19 pandemic is critical in ensuring that no one is left behind.
Experience has shown that financial crisis and economic recession entrenches the cycle of poverty. It has been estimated that during a financial crisis, poor households lose 10 times more of their income compared with an average household.
The role of financial inclusion has thus become more magnified in improving the livelihoods and to strengthening the financial resilience of the disadvantaged. It provides the opportunity to save for the future, to invest and generate income and to insure against adverse events. The gains made so far, provide us with the opportunity to accelerate the financial inclusion agenda as a national imperative.
What is happening?
The evolution of Digital Financial Services (DFS), coupled with rising innovations in financial technologies, different business models, and new approaches to service delivery, represents an opportunity to reach previously excluded and underserved populations with more tailored financial services. The list of DFS models proven to advance financial inclusion has been continuously expanding over the past decade. New, bigger, and unusual players are rapidly entering the space to serve both individuals and the SMEs, with new products such as digitally delivered credit and innovative business models (such as open Application Programming Interfaces (APIs), alternate credit assessments, among many others), thus creating new levels of complexity in the DFS landscape. Also, it brings new opportunities for financial consumers, from increasing the potential reach and access of financial services, to offering more convenient and faster transaction, and more tailored products.
Uganda has witnessed tremendous acceptance of digital financial services driven by uptake and use of mobile money services, from 34.2 million registered Mobile Money accounts to the value of annual transactions of UGX 138.9 trillion in 2021. While this growth is laudable, with it comes challenges related to Digital Financial Literacy.
Definition of digital financial literacy
Digital financial literacy is a multi-dimensional concept, which can be defined as acquiring the knowledge, skills, confidence, and competencies to safely use digitally delivered financial products and services and making informed financial decisions.
The first dimension is knowledge of digital financial products and services, which captures the basic understanding of digital financial products and services. Individuals should be aware of the existence
of non-traditional financial products and services accessed through digital means such as mobile phones. In addition to being aware of DFS, people should be able to compare the pros and cons of each available DFS. Such knowledge would help them to understand the basic functions of different types of DFS (i.e., either for personal purposes or for business purposes).
The second dimension of digital financial literacy is awareness of digital financial risks. Individuals and firms need to understand the additional risks that they may encounter when using DFS, which are more diverse but sometimes harder to spot than those associated with traditional financial products and services. DFS users should be aware of the existence of fraud and cyber security risks.
DFS users should also be aware that their digital footprint, including information they provide to DFS providers, may also be a source of risk. DFS users should fully understand terms and conditions stipulated in contracts that they sign with DFS providers. They should understand that DFS providers may use their personal information for other purposes such as, advertising.
The third dimension of digital financial literacy is digital financial risk control, which is related to DFS users’ understanding of how to protect themselves from risks arising from such use. For instance, they should know how to protect their personal identification number (PIN) and other personal information when using financial services provided through digital means.
The fourth dimension is knowledge of consumer rights and redress procedures, in cases where DFS users fall victim to the above-mentioned risks. DFS users should understand their rights and know where they can go and how to obtain redress if they fall victim to fraud or other loss. They should also understand their rights regarding their personal data, and how they can obtain redress against unauthorized use.
Increasing recognition of importance of digital financial literacy
Financial technology (FinTech), i.e., using software, applications and digital platforms to deliver financial services to consumers and businesses through digital devices such as mobile phones, has become recognized as a promising tool to promote financial inclusion, i.e., access of excluded households and small firms to financial products and services.
However, improved access to financial services via FinTech requires higher levels of digital financial literacy to make effective use of them and to avoid miss-selling, frauds such phishing, hacking attacks, unauthorized use of data, discriminatory treatment, and behavioral issues such as excessive borrowing.
Digital financial literacy is increasingly becoming an important aspect of education for the Digital Age. Bank of Uganda, together with other relevant stakeholders, is implementing the second National Strategy for Financial Literacy 2019-2024. The Strategy includes a special provision for DFL that is expected to be streamlined across all target groups and driven by the rapid expansion of DFS in Uganda
AFI Work on Digital Financial Literacy
AFI, as a global policy leadership alliance, through our member-driven and bottom-up approach, recognized the need to strengthen digital financial literacy within the network. Within this context, a Guideline Note and a Toolkit on digital financial literacy have been developed to provide an effective framework of policy recommendations that supports policymakers and regulators in understanding, developing, and implementing interventions directed at advancing digital financial literacy within their jurisdictions. The Guideline Note is complemented by a Toolkit on digital financial literacy which offers further practical guidance on the design, implementation, monitoring and evaluation of digital financial literacy strategies and interventions. I do encourage the Bank of Uganda and other stakeholders to make use of the Guideline Note and the Toolkit as they go about implementing the various digital financial literacy interventions
Conclusion
Ladies and Gentlemen – the future of financial inclusion as well as the wider financial services will continue to be shaped by technology. While there are obvious benefits, there are new/emerging risks resulting from use of technology. As such, we need to ensure that consumers of the digital financial
services have the prerequisite knowledge and skills required for them to use these services in a reasonable and responsible manner.
Allow me to end with a call for action to all policy makers, market players and other stakeholders in the eco-system to leverage digital technologies in a responsible and safe manner to reach out to vulnerable sections of the society such as women, youth, elderly, and forcibly displaced persons, by promoting digital financial literacy. The need for better digital financial literacy is never out of fashion, even in the advent of the glory of financial technology.
I wish you very fruitful deliberations during this inaugural financial inclusion and financial literacy forum.
Thank you for your attention.
© Alliance for Financial Inclusion 2009-2024
