Balancing inclusion & profitability in Uganda’s digital financial services

In Uganda, where a significant portion of the population relies on small businesses and informal income, the challenge of balancing financial inclusion with profitability is a crucial issue for digital financial service providers. Mmiiro Francis, the Manager of Banking & Financial Services at MicroSave Consulting, delved into sustainable business models during an interview with CNBC Africa to shed light on ensuring accessibility for underserved communities without compromising financial viability. Balancing financial inclusion with profitability is a tricky task as serving micro, small, and medium enterprises often means reaching high-risk clients with low transaction volumes and smaller loan requirements. While this can drive up costs and impact profitability, financial inclusion remains essential for these businesses to flourish. Several effective business models have emerged in Uganda, with the tiered service model standing out as a popular choice. This model offers a range of services from basic, low-cost options to more advanced paid features as clients grow. Collaborative partnerships with telecom companies, banks, and microfinance institutions have also proven successful, allowing for the sharing of infrastructure and digital distribution costs to provide tailored products and services to underserved groups. These partnerships have facilitated reaching rural-based enterprises, especially women-owned businesses, in Uganda and East Africa. Pricing strategies play a vital role in the accessibility and sustainability of financial services for micro, small, and medium enterprises. Transaction-based pricing for basic services allows businesses to pay as they use, ensuring affordable access to credit and other services even for those with low business volumes. Risk-based pricing models tailor interest rates to clients' profiles, while bundled models offering payments, savings, and credit at discounted rates promote usage and long-term profitability. Technology plays a pivotal role in achieving sustainability and accessibility in financial services. With a significant portion of the Ugandan population owning smartphones and registered on mobile money platforms, collaborative partnerships have made it effective to reach rural enterprises. Automation and machine learning are transforming digital financial services, with providers leveraging alternative data to assess creditworthiness and manage risk for micro, small, and medium enterprises. The ecosystem for developing financially inclusive products in Uganda includes mobile network operators, banks, regulators like the central bank and Uganda Communications Commission, as well as digital platforms. Telecom companies provide infrastructure and data, while commercial banks and microfinance institutions offer resources to enhance access for micro, small, and medium enterprises. The collaborative efforts across various players in the ecosystem lead to cost-effective operations and increased accessibility to financial services for underserved communities.