How digital loans are driving financial inclusion and transformation in Uganda

COMMENT | Hope Ekudu | We often delay pursuing our dreams, waiting until we’ve saved enough to make them a reality. It can be frustrating to work hard toward a goal only to be held back by a lack of funds. In Uganda, where acquiring loans can be a lengthy and inaccessible process, especially for rural communities, the swift adoption of mobile technology has transformed the financial landscape.

One of the most significant developments is the rise of digital loans, which now provide quick and convenient access to the funds needed to bring aspirations to life.

This technology shift has transformed the way Ugandans and small businesses secure credit. Digital loans are now available to anyone with an active mobile wallet or account. For many, this is life-changing, farmers can now secure loans to purchase fertilizers, small businesses can access quick funds to stock up items and individuals can handle unexpected expenses with a click of a button.

As the school season begins, digital loans provide a valuable opportunity for parents to invest in their children’s education, easing financial pressures and securing a brighter future.

Telecommunication companies such as Airtel have evolved from only providing communication services to including financial services in their products. This level of accessibility is particularly significant in a country where traditional banking is inaccessible to the underserved population, especially in rural areas.

The 2023 Financial Sector Deepening (FSD) Uganda annual report states that traditional and conventional financial services rarely or hardly deploy digital technology in the delivery of their service and this has proved ineffective in increasing financial inclusion for the unserved and underserved. This is due to their high operating costs, legacy business models and limited competition and innovation. On the other hand, digital financial services (DFS), enabled by fintech, have the potential to lower costs, increase speed, security and transparency and allow for more tailored financial services that serve the underserved at scale. This creates an opportunity for businesses such as Telecommunication companies to create innovative financial solutions for their customers.

Digital micro-loans such as the recently launched LetsGo Pesa loans by Airtel Money and Letshego, a fintech are breaking down these barriers by offering financial services to anyone with an Airtel Money account, regardless of location. By leveraging mobile technology, a parent has the chance to access a loan between Ushs. 20,000- Ushs. 700,000 payable in 30 days. The said parent can go ahead to skip the long traditional bank lines and pay his/her child’s school fees through Airtel Money School pay.

The UCC Market Performance Report 4Q FY 2023/24 (Apr-Jun 2024) stated that the second quarter of 2024 recorded 38.5 million active mobile subscriptions and 44.2 million mobile money registrations so far. This is an indication that as mobile penetration continues to increase, digital loans will only become prevalent.

Looking ahead, the demand for digital loans is expected to grow, driven by the convenience and speed that they offer while evolving to offer more personalized and flexible financial services. As more Ugandans become digitally literate and mobile-savvy, digital loans will continue to revolutionize financial inclusion. Additionally, with the country’s young, tech-oriented population, the adoption of digital-first financial solutions will be more popular. The era of digital loans is here, and it’s only just the beginning.

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Hope Ekudu, the Head of Airtel Money Operations at Airtel Money