Uganda uses mobile money to attract new debt investors

Ugandans will be able to purchase government securities through a mobile money platform, which will allow the East African country to become less dependent on commercial banks and institutional investors for its funding.

The government said in a statement on Tuesday that the measure, which was approved at a cabinet meeting on Monday, would boost savings and investment among ordinary Ugandans as well as boost economic growth.

Ugandans with mobile money accounts, many of whom had limited access to banks, will now be able to purchase government debt directly. The move follows a similar decision by Kenya in 2017 and will also open up the market to the Ugandan diaspora.

Mobile money allows subscribers to transfer money and make payments for services and products through their mobile phones and has grown rapidly in Africa, where it is now widely used.

Of Uganda’s 41 million people, around 23.6 million have mobile phone subscriptions.

MTN Uganda, a unit of the South African group MTN, is expected to be the main beneficiary of the change among telecom operators, as it has the largest mobile money customer base, followed by Airtel, a unit of India. Bharti Airtel.

Uganda has traditionally sold its debt at auction – mostly treasury bills and bonds – via bids submitted through commercial banks which act as primary dealers and the government expects the plan to mobile money lowers the cost of borrowing.

“Broadening the scope of investors reduces dependence on a few players such as commercial banks, offshore players and institutional investors who tend to bid heavily in auctions as the government has limited choice “, did he declare.

Critics are concerned about Uganda’s appetite for credit, which saw its public debt rise to 41.5% of gross domestic product (GDP) in June.

They fear that escalating borrowing could trigger a crisis like those of the 1990s and early 2000s before the World Bank’s debt cancellation on Uganda’s loans.

The Bank of Uganda, the country’s central bank, said last year that its stock of debt, including loans granted but not yet disbursed, reached 50% of GDP.

Carol M. Barragan