October 26, 2010
Julius Matovu and Olga Morawczynski work on Grameen Foundation's financial literacy initiative in Uganda.
Muhereza Kabaramagi lives in Katooke village, Kyenjojo district in Western Uganda; where she is a second-hand-clothes trader in the weekly mobile markets that take place around Kyenjojo district. She has been doing this work for the last 15 years.
She doesn’t have a bank account for two reasons: She lacks familiarity with how a bank operates, and the nearest bank to her village is 30 km away. The cost to travel from Katooke to Kyenjojo, where the bank is located, is 8,000 Ugx (US$4), which is more than she afford, given that she sometimes earns less than that in a week. So Muhereza decided to save her money in a secret place — a small handbag at home. She has been keeping money like this for the last 15 years.
Two months ago, business was not doing well for Muhereza. It was low season for the farmers who buy most the second-hand clothes that she sells. She decided to dip into her savings, which had accumulated to about 350,000 Ugx (US $150). But after digging out the handbag from a secret place in her bedroom, Muhereza made a startling discovery — her fortune had been shredded to tiny pieces by rats!
Muhereza was devastated but continued to save cash at home, keeping it in an impenetrable box. This was the best option for her, she explained to us, because the bank was too far from her village and the transport costs would quickly wipe out her small savings. But when we told her that there was a Mobile Money agent about 100 meters away from her home, Muhereza signed up as a customer to send and receive money.
Grameen Foundation’s Mobile Money program, which connects the poor to traditional financial services through mobile-phone technology, has a vital place in any solution that aims to mobilize the savings of the poor. There are already five times more mobile money agents than bank branches in rural areas of Uganda. Many of these are located in places where banks find it expensive to operate. Mobile Money is well-positioned to capture the billions of shillings that are stored in purses, under mattresses, and in impenetrable boxes. It is also well-positioned to link the poor to the formal financial sector by enabling these people to transfer money electronically to faraway bank branches affordably. This would radically reduce the transaction costs associated with banking and enable individuals to put away cash more frequently.
It is vitally important that solutions like this become more widespread in the developing world. Good savings practices can help the poor deal with unexpected financial difficulties (healthcare challenges, fluctuations in income, etc.), and such practices can best be enhanced when the poor have easy access to affordable financial services.