Mobile Banking in Uganda: an Example

In the video at the beginning of this BBC article, the reporter demonstrates how he is able to buy four samosas using transfer of money via mobile phones through Kenya’s M-PESA system.

According to BBC, across the world, there are over a billion people who lack a bank account but have a mobile phone. Seen from this light, using mobile phones for banking simply makes practical sense.

Not only can it be used for convenience, as in the samosa purchase, but it can often be necessary. How African societies have survived in a modern world without it is almost incomprehensible.

Michael Landau explains the benefits of mobile banking in Uganda in this video. He describes a scenario in which a villager arrived home to find his friend’s grandmother in need of medical attention but with no money to pay a doctor and no agents available to refill his mobile bank account with money.

In Uganda before the advent of mobile banking, “[he’d] probably have a dead grandmother and a weeks' worth of coming and going and moving.”

With a phone from which money can be obtained electronically, the doctor was summoned and paid within an hour.

Not only did mobile banking potentially save the grandmother’s life, it also saved money because she did not die nor develop further complications in her illness. Mobile banking lends itself to an increased level of connectedness and opportunities to live a more modern life.

This is just one of many advantages to developing mobile banking in African nations. 

A mobile banking system has emerged in Uganda in 2009. It was launched by MTN and reached 890,000 users in its first year, double what was predicted. By 2012, it is expected to reach 3.5 million users.

Mobile banking in African countries like Uganda is a new venture, mainly because it is an immensely challenging one. Uganda, like the majority of central African nations, is plagued with low incomes, high illiteracy rates, and large signal black spots. Additionally, it has tax rates as high as 30%, a disincentive to purchasing a mobile phone.

As a result, according to this BBC article, most of the private sector has cherry-picked the nations to which it provides mobile banking services, sticking to Kenya (with its successful M-PESA system), South Africa, and Francophone North Africa.

But the risk that MTN took by reaching out to Uganda may pay off.


Mobile banking creates opportunities, chances to lift people from the status quo, chances to alleviate poverty. According to UK International Development Secretary Andrew Mitchell, "Access to basic financial services - the ability to save, transfer and invest even small amounts of money - can make a huge difference to people around the world. It can help a farmer to survive a bad harvest, or provide a slum-dweller with the vital capital needed to start a small business."


Additionally, according to Aletha Ling of Fundamo, it is more reliable. "Money gets sent from the cities to the rural areas where it is required. Less cash passes hands so it is much more secure. Previously people were travelling with huge amounts of money."

But the most important factor in providing this service has been a means for people in Uganda to trust those who are administering it.

With a largely non-banking population - only 38% of Ugandans use a banking system and only 7% have more than one banking service - most people originally didn't believe in the benefits MTN when it made its arrival into Uganda.

Said Gavin Krugel, head of mobile money at GSMA: "At first they don't trust the system. Then they can see that it works and eventually they start to leave some money in their account. This is how they start lifting themselves out of poverty."


The way that this is accomplished is through agents.


In Uganda, where 60% of the population lives in remote and rural areas, the only person who can handle money transactions are fellow villagers. While this lack of professionals may seem to be a disadvantage, it is a factor that works highly in favor of promoting mobile banking. Through the MTN service, these people are put through rigorous training. But their most significant asset is that they are already trusted by the community. They can serve as advocates and ambassadors of a technology that will change the lives of the people in their villages.


Realistically, when people have so few resources, they will not entrust them to someone they do not believe is worthy. So in order for a system to work, agents who are known to be reliable must speak for the system, and in that promote it more than any logical argument ever could. Uganda has used this fact to great effect.


Additionally, the media - particularly, the radio (which is a key way of transferring messages to a largely illiterate population) - has played a large role in promoting the MTN mobile banking service.


Yet the system is not perfect. Uganda reports several instances of agent fraud per week. But MTN says these agents are immediately removed and that rates of fraud are decreasing as mobile banking becomes more accepted.


The first challenge of mobile banking in Africa is to convince the private sector that central African nations are a worthwhile investment - and this has been done through the success of programs such as that of MTN, which has shown the private sector that they will need to invest in these nations to remain competitive.


In a MAP International promotional video, it is said the most important part of mobile banking is that it will reach out to the people instead of the other way around. This is why mobile banking is so necessary in Africa: because most people do not have the capability to reach out to banks.


The second challenge is that the people in these nations need to learn to trust the system.


Through agents, through accepted media such as radio, Uganda has seen staggering and unprecedented success in this area. The system is not perfect, but it is a model for other nations.


The technology is there. Now it is time to apply interpersonal skills and demonstrate how these resources can best work for the people.