Here’s the article in markdown format:
Know-Your-Customer Requirements: Challenges and Opportunities in Uganda’s Digital Financial Services Ecosystem
How are financial service providers interpreting and implementing know-your-customer requirements?
Financial service providers in Uganda have established certain know-your-customer (KYC) requirements for customers. For instance, they require documents such as a certificate of registration, constitution (or equivalent), and identity documents of at least two directors or other executives. However, there is no clear set of KYC requirements for schools, churches, mosques, and non-profit entities, leading mobile money service providers to take different approaches.
How are know-your-customer requirements impacting adoption of digital financial services?
Know-your-customer (KYC) requirements are a significant challenge to the adoption of digital financial services in Uganda. The lack of a universal identification system and effective electronic verification of national ID numbers and cards has limited financial inclusion. Additionally, difficulties onboarding informal and semi-formal merchants and agents, and a lack of risk-based KYC approach have hindered DFS growth.
Challenges with customer identification
Historically, the lack of a universal identification system and an effective system for electronic verification of national ID numbers and cards has limited financial inclusion. However, recent efforts to increase access to national ID cards and refugee ID cards have improved the situation.
Factors hindering customer identification:
- Lack of a universal identification system
- Ineffective electronic verification of national ID numbers and cards
Difficulty onboarding informal and semi-formal merchants and agents
The majority of Ugandan businesses are informal and cannot meet the requirements for being formal businesses. This hampers DFS ecosystem development.
Challenges with onboarding informal and semi-formal merchants and agents:
- Formal businesses have a more streamlined onboarding process
- Informal businesses face difficulties meeting KYC requirements
Lack of risk-based know-your-customer approach
Banks, mobile money service providers, and other financial service providers have faced challenges in developing a risk-based KYC approach due to the lack of data on national, sectoral, and customer- and product-specific money laundering and terrorist financing risks.
Factors hindering development of a risk-based KYC approach:
- Lack of data on money laundering and terrorist financing risks
- Limited understanding of DFS risks
How can sector stakeholders address know-your-customer challenges to foster growth and uptake of digital financial services?
Sector stakeholders can take the following steps:
Strategies for addressing know-your-customer challenges:
- Maximize the positive impact of efforts to improve identification of Ugandan citizens and refugees.
- Promote the development of a tiered regulatory framework for merchant and agent acquisition.
- Conduct sector-specific risk assessments to better understand DFS risks and enable development of proportionate AML/CFT approaches.
By addressing these challenges, sector stakeholders can foster growth and uptake of digital financial services in Uganda.