- For millions of households in Uganda, remittances play a vital role in safeguarding food security, healthcare, savings and investment opportunities.
- IFAD data shows 75% of money sent to Uganda is used to fight poverty and improve access to nutrition, health, housing and education.
- The remaining 25 percent is used to support small businesses and facilitate access to financial products.
The UN’s International Fund for Agricultural Development (IFAD) has partnered with Stanbic Bank Uganda (SBU) in a plan to reduce the cost incurred by Ugandans sending money back home by half through a digital payment platform dubbed FlexiPay.
The partnership will also provide remittance recipients, especially in rural areas, with digital and financial training to promote the savings culture and foster digital finance uptake among these communities.
Cost of remittances in Uganda
At the moment, the average cost of sending money back home for Uganda’s migrant workers is 11.3 per cent, higher than the global average of 6.25 percent. Across Africa, the average cost is at 8.35 per cent, more than triple the Sustainable Development Goal (SDG) target of 3 per cent.
“FlexiPay has a simplified onboarding process that facilitates un(der)banked clients’ uptake. The wallet allows its users to store and transfer money, pay bills, top up airtime and transact through a feature phone as well as a smartphone. We are delighted to extend affordable international remittances in partnership with IFAD through FlexiPay and reach rural remittance recipients,” Stanbic Bank Uganda’s Executive Head for Personal Banking Sam Mwogeza said.
The two will work together to integrate remittance service providers and payment hubs into SBU’s FlexiPay, an electronic wallet that enables access to financial services for unbanked Ugandans.
While about 53 per cent of Uganda’s population or approximately 21 million Ugandans were using mobile money services as of 2021, the World Bank estimates that only 10 percent or four million people have bank accounts.
The new partnership means that Ugandans living abroad will pay a transaction fee within the SDG target at less than 3 percent when sending money to recipients with the FlexiPay wallets. Initially, two of the most relevant remittance corridors will be targeted, from Kenya to Uganda and from Sweden to Uganda.
FlexiPay e-wallet
“Thanks to IFAD’s financial support, Stanbic Bank Uganda is now able to overcome market barriers and play a crucial role in meeting the needs of remittance families through its FlexiPay e-wallet. This digital financial service offers a safe, fast and easy way for families to make electronic payments which is a popular alternative to traditional bank transfers,” IFAD Country Director in Uganda Mohamed El-Ghazaly said.
The partnership is under the European Union-funded PRIME Africa initiative, which is aimed at making the most of digital remittances in rural Uganda.
“The European Union is delighted to support this initiative because it is going to help migrants in the EU and their families and friends at home to make the most of their remittances by saving in transactional fees due to lower costs for sending money. Our support is geared towards promoting digitalization and financial inclusion for the benefit of millions of people at home and abroad,” said Jan Sadek, European Union Ambassador to Uganda.
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Promoting financial literacy in rural Uganda
In addition to developing FlexiPay’s capability to support remittances, IFAD’s partnership will also support the Stanbic Business Incubator, a sister company of Stanbic Bank. The company will design and implement digital and financial literacy trainings for Savings and Credit Cooperative Societies (SACCOs), aimed at empowering and fostering rural people to adopt the FlexiPay wallet as a solution to recieve remittances.
Despite its competitive price, the uptake of digital methods for sending and receiving money is still hindered by the lack of financial and digital literacy. Lack of trust in digital payment methods, as well as by the limited number of access points in rural areas, and the high percentage of informal remittances coming from the neighbouring countries is also a challenge.
Over the past decade, migrants and diaspora communities have actively contributed to their home country’s economic growth, through capital, skills and the transfer of know-how creating numerous jobs in key sectors of the economy.
This has proven to be a key driver of development in countries, especially in Africa, not only through remittances but also through the promotion of trade, investments, research, innovation and knowledge or technology transfers between their current host country and their country of origin.
For millions of households in Uganda, these remittances play a vital role in safeguarding their food security, healthcare, savings and investment opportunities.
Remittances into Uganda rising
Data by IFAD indicates that most money sent back to Uganda (75 percent) is used to fight poverty and improve access to nutrition, health, housing and education. The remaining 25 percent is used to support small businesses and facilitate access to financial products such as savings and credit leading to higher financial inclusion in the East African nation.
According to the Bank of Uganda Annual Supervision Report diaspora remittances are the number two major source of revenue for Uganda, accounting for 4 percent of Uganda’s Gross Domestic Product (GDP). Uganda is currently among the top 10 sub-Saharan Africa remittance recipients.
The most recent data indicates that international remittance flows to Uganda stood at $1.2 billion, registering significant growth from $1.1 billion reported in 2020 when the world was grappling with effects of the Covid-19 pandemic.
While the growth is laudable, the country is yet to reach its pre-Covid remittance valued at $1.4 billion in 2019. Majority of the country’s foreign inflows come from Europe, the Middle East and USA. This contribution has however been stifled by the fact that it is still very costly to send money back to Uganda.
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High cost of sending money back home
Uganda has already established a mobile money network that is one of the most integrated across the globe. Existing services in the country allow people to receive and send money to a number of sub-Saharan African countries.
While there has been a large shift to digital financial solutions, the key challenge for the country is to make money transfers more secure and cost-effective.
A report by IFAD indicates that the average cost of sending money back home for Uganda’s migrant workers is 11.3 percent.
This is significantly higher than the global average of 6.25 percent and Africa’s average of 8.35 percent. It is also more than triple the set target of 3 percent under the Sustainable Development Goals (SDGs).
