Digital economy will cut business informalities, says FSDU

Building a digital economy will reduce business informalities and increase government revenue, according to Financial Sector Deepening Uganda (FSDU).

Speaking at a stakeholders’ meeting between bankers and financial services sector players to discuss the electronic know your customer project in Kampala yesterday, Ms Pillai Rashmi, the FSDU executive director, said financial institutions must digitise to help government attain a number of goals that include implementing planned projects such as the Parish Development Model, reduce business informalities as well as expand the taxable base.

“The digital economy will be a greater tool to drive the economy into middle income. It will also reduce the informal economy and increase tax revenues, thereby contributing wholeheartedly to economic growth,” she said, noting that it would be important that the agenda to achieve a digital economy is fast-tracked by all stakeholders in the financial sector.

Yesterday, stakeholders in the banking and financial services sector met to discuss the progress of the electronic know your customer project, which was launched in 2019.

The project seeks to develop an electronic platform for all supervised financial institutions that is linked with the NIRA database to allow such institutions to sustainably deliver financial services that are largely dependent on the ease of understanding and identifying customers.

The absence of a flexible, timely and cost-effective means of verifying consumers’ identity of financial services has been a major and continuing constraint to financial inclusion in Uganda.

Therefore, through the project Financial Sector Deepening Uganda, Uganda Bankers’ Association and Bank of Uganda are developing infrastructure that will enable supervised financial institutions to update records of customers using National Identification Numbers.

Mr Wilbrod Owor, the Uganda Bankers Association executive director, said during the meeting that whereas Uganda is still a heavy cash driven economy, the introduction of digital solutions for financial institutions must be embraced to support the move towards a new journey.

“Let’s embrace electronic know your customer project. Nothing can be perfect, I know there are issues of connectivity, they will be dealt with but we should also know that there will never be a perfect system. I believe NIRA and NITA-U are working to solve such issues,” he said.

So far, according to Uganda Bankers Association, there are 25 supervised financial institutions that are connected to the system, which is a critical foundational component for Uganda’s banking and financial industry towards building a robust digital economy ecosystem.

This means that the 25 supervised financial institutions are able to onboard new clients using their bank systems, validate or authenticate transactions remotely without relying on physical presentation of identity information and undertake updating of existing customer information