What you need to know:
Taking shape. According to the Central Bank, Ugandans must first gain trust in electronic systems, keep money within the banking system and wide distribution of point of sales across the country, for the cashless economy to take shape.
Uganda will take some time before it can fully achieve a cashless economy, according to Bank of Uganda director for research.
Replying to an email inquiry seeking to understand why cash payments had grown at a time when the Central Bank is seeking to foster a cashless economy, Dr Adam Mugume, the Bank of Uganda executive director research, told Daily Monitor that whereas it was true that the bank is seeking to replace cash payments with electronic or digital payments, it will take some time before this is achieved.
“People have to first trust the electronic systems. Keep their money within the banking system and points of sale must be widely distributed in the country,” he said, noting that it is difficult to give a timeline because financial sector development is partly driven by factors outside the control of central banks.
Such factors, he said, include developing a sophisticated saving culture, trust in the financial sector, legal and institutional factors and IT infrastructure development, among others.
“Bank of Uganda is encouraging the banking sector to be innovative and improve payment systems to be real time. This way, people will see the value of not moving with cash,” Dr Mugume said.
Increase in cash payments
According to the 2019 Bank of Uganda annual report for the year ended June, local cash payments rose above the annual average of Shs423b to close at Shs544b. The growth represented an increase of 20 per cent from Shs455b recorded for the year ended June 2018.
Cash payments, which for a longtime have been one of the most popular forms of payment in Uganda are still a popular choice among end-to-end low cost payments.
However, Dr Mugume said, the increase in the value of cash payments reflected growth in nominal Gross Domestic Product.
During the period to June, according to Dr Mugume, nominal GDP growth was about 7.2 per cent, which ideally saw payment systems register similar growth.
“Basically, the growth in the value of payments reflect growth in economic activity. Similarly, the growth in cash payment reflects growth in transactions, which again is reflective of growth in nominal GDP,” he said.
Under the National Payments Policy, Bank of Uganda is seeking to regulate digital payments, among other aspects of financial services, which are expected to be key in boosting e-payments such as mobile money, debit and credit cards, among others.
Bank of Uganda has since 2017 been working on a National Payments Policy through which it seeks to reduce cash payments.
During the launch of an Instant Interbank Transfer system in Kampala in 2017, Mr Benedict Ssekabira, the then Central Bank executive director for commercial banking, said Bank of Uganda was working on a 2017-2022 strategic plan that will reduce the use of paper notes and cheques, among others.
“We have planned to enhance and enable e-payments within the next five years because we want to reduce paper payments,” he said.
The reduction of paper and cash payments, he said, would heavily rely on e-payments, among them mobile money, credit and debit cards and internet transfers, among others.
Status of mobile money in the period to june
According to the 2019 Bank of Uganda report for the year ended June, mobile money, a relatively new form of electronic money transfer platform, grew in volume but declined in value recording at least 2.51 billion transactions up from 1.35 billion in the same period last year. However, mobile money transactional value decreased by 8.4 per cent from Shs73.08 trillion to Shs66.95 trillion during the period.
Mobile money subscribers increased in the period by 12.4 per cent from 22.7 million to 25.8 million but only 15.5 million was registered as active.