Title: Unclear Know-Your-Customer Rules Hindering Financial Inclusion in Uganda’s Digital Finance Sector

Overview of Financial Inclusion in Uganda

According to Financial inclusion insights Uganda, nearly four in every ten adult Ugandans (39%) accessed financial services as of 2016. Of these users, 35% utilized mobile money, 11% had full-service bank accounts, and 6% belonged to non-bank financial institutions (Financial inclusion insights Uganda). Uganda is recognized for its strides in financial inclusion, especially in mobile money. However, challenges surrounding Know-Your-Customer (KYC) regulations continue to hinder digital financial services (DFS) players and undermine financial inclusion efforts.

Complexities Surrounding KYC Regulations in Uganda’s DFS Sector

Lack of Clarity over KYC Requirements

DFS access is primarily determined by users’ ability to comply with KYC regulations set forth by financial regulators. Industry experts within Uganda’s DFS sector echo the urgency of addressing this issue. Prevalent concerns amongst providers include:

• Individual consumers
• Informal merchants and traders
• Formal businesses
• Non-citizens, such as refugees

A clearer understanding of KYC requirements for these distinct user groups is essential (UNCDF-MM4P).

Discrepancies in KYC Interpretation

Disjointed understandings of KYC requirements amongst financial service providers further complicate matters and hinder consistent application of these rules.

Consequences of Strict KYC Requirements

Onboarding and Registration Challenges

Stringent KYC requirements create arduous onboarding and registration processes for particular groups, such as merchants, agents, and refugees. This not only deters potential DFS users but also results in extended registration procedures burdened with excessive paperwork.

Exploring KYC Requirements: UNCDF-MM4P Research

UNCDF-MM4P conducted extensive research entitled “Understanding KYC Rules in Uganda’s Digital Finance Sector” to address these challenges ¹. The study aimed to:

1. Clarify the specific KYC requirements for different DFS user groups.
2. Understand how financial service providers were interpreting and implementing KYC requirements.
3. Assess the consequences of varying KYC interpretation on DFS adoption rates.
4. Offer recommendations for managing KYC challenges and promoting DFS growth and utilization.

Recommendations for Addressing KYC Challenges

By studying the unique KYC requirements for Uganda’s DFS players, the research provides valuable insights for stakeholders, including regulators, banks, mobile network operators, and DFS providers operating within Uganda. Collaborative efforts by these stakeholders may help alleviate some of the KYC-related challenges hindering financial inclusion in Uganda.