Digital connectedness in developing countries and its potential impact on financial services

A TFI Research Challenge project by Sudha Vijay, Anne Marie van Swinderen & Simon Bailey
Posted on September 24, 2018

"Digital connectedness in developing countries and its potential impact on financial services" is one of the short-term projects supported by the Think Forward Initiative.

Digital finance is booming in both developed and developing countries. Sudha Vijay (independent consultant), Anne Marie van Swinderen (L-IFT) & Simon Bailey (Aflatoun International), examine the relationship between digital connectedness and digital finance among young Ugandan people. The results highlight the importance, and challenges of the uptake of mobile phones and mobile money services (including digital savings and lending).

Find out more downloading the full report in the link below!


A discussion of how young people use mobile money in rural Uganda

We live in a digital age where information and communication technologies are proliferating. According to a recent report, 3.7 billion people worldwide now use a mobile phone (Unicef, 2018), using it to communicate and connect with others, and to streamline business, work, and financial transactions (Pearson, Mack, & Namanya, 2017). In developing countries, mobile money providers have changed interactions between consumers and financial service providers, particularly banks. This study focuses on the financial inclusion of young people in Uganda. How does the next Ugandan generation perceive digital financial services, and how may their adoption of new technologies shape financial inclusion?

Young people are often the first to adopt new technologies. Studying their digital behaviour gives us an idea as to how certain technologies will be used in the future. This research aims to demonstrate the promises and challenges of mobile money. Using only a basic phone, young Ugandan men and women – especially the predominantly ‘unbanked’ – can manage their cash independently and securely.

Previous studies have shown that mobile money (MM) services are used for paying utility bills, fuel, school fees and contracting MM loans (Bank of Uganda, 2015). MM services have also positively impacted the country’s saving culture (Ndiwalana, Morawczynski, & Popov, 2010), allowing people’s savings to accumulate over time.

Mobile money: promises and challenges

In this research, Aflatoun International (an NGO offering social and financial education to children and young people worldwide) and L-IFT (a social enterprise dedicated to Low-Income Financial Transformations) joined forces to carry out an exploratory investigation into how digital finance services via mobile phones have changed how young people interact with financial services in Uganda.

We conducted a two-part research investigation that mixed quantitative and qualitative research, focusing on young people, using data from the year 2017. The quantitative research focused on using L-IFT’s financial diary approach, which consists of biweekly interviewing the same respondents over 12 months in first study and 9 months in the second study, at least once every two weeks. Respondents are asked basic standardized questions about all of their income sources, expenditures, savings, loans and business transactions. This provides insight into the fluctuations of finances, capturing the complexities and logic of people’s financial lives. Focus groups discussions with young people in the financial diary project give further insight on the use of digital technology in all aspects of their lives.

We reveal three emergent themes through the analysis for young people in Uganda:

  • Mobile phones are becoming essential and ubiquitous, especially important for communication but increasingly for work and business start-ups;
  • Mobile money services have a high uptake, can be used for a variety of productive purposes but are not yet used in high volumes;
  • Women have different experiences with mobile phones and mobile money due to gender related differences in mobile phone usage and ownership.

“67% of young people owns a phone in Uganda, offering business opportunities but also challenges around overuse and addiction”

Theme 1: mobile is everywhere

We found the use of mobile phones to be an important facet of young people’s lives. Our financial diary data showed that 67% of young people owns a phone in Uganda (basic or smartphone). Our qualitative findings focused more on young people with smartphones and found mobile use to be even more pervasive and multifaceted in their lives. Though communication remains the primary use, mobile phones are increasingly required to boost education, jobs, business, and money management. In some cases, mobile phones even create new business and work opportunities.

That said, there are challenges around overuse and addiction (Gao, Li, & Zhu, 2014). Also, we found that poor network, difficulty in charging and cost of airtime impedes access and use, as has been confirmed by previous research focusing on Uganda (Ryder, 2014).

Theme 2: high uptake, various productive purposes, low volumes

Our financial diary data found that an equal percentage of young people owning a phone was registered for MM services, showing an understanding and high uptake. Our qualitative research highlighted the intensity with which young people registered for such services. MM services were used mainly for saving purposes, but also for making payments and receiving money/income.

Qualitative research shows that young people feel that mobile money allows them to accumulate and handle money a lot easier, especially when unable to open a bank account. Interestingly, preference was shown towards a few MM services that specifically allowed young people to gain access to loans, particularly in emergency situations or when they had limited funds. However, such loan schemes were sometimes a cause of frustration due to their conditions for access being constraining, and their repayment and interest rates being too high.

Generally, MM services were found to be the more popular option versus other saving forms (at home, bank or saving group). This confirms studies in which MM services have been shown to be more reliable than other financial systems (Ky, Rugemintwari, & Sauviat, 2017). It has important implications for financial institutions, such as banks that want to cater to the new digitally connected generation.

Interestingly, although MM services were seen to be an integral part of young people’s lives, the frequency of digital transactions was very small (mobile money 1.4%) in comparison to transactions completed in cash form (93.5%)1. Studies have shown that it isn’t always plausible or convenient to use MM services, especially in cash-based economies, or in areas where the mobile network is down which means mobile money cannot be sent or received (Adaba & Ayoung, 2017; InterMedia, 2012). Therefore, though there is a high uptake and well defined use case for MM services, their actual usage has not reached its full potential yet.

“Men use mobile money service more pervasively than women”

Theme 3: gender-related differences

Our financial diary data showed that men, on average, use their mobile phones for many purposes. Our qualitative data showed that they use MM services more pervasively than women. Consistent with various studies (GSMA, 2014), men use those services to receive money/income and send money whereas women used it mainly to save and, at times, make payments. In our financial diary sample, women used mobile money as a payment option more often than men.

Our financial diary data showed that more men own a phone than women. Low literacy and education, lack of confidence and lack of identification documents (GSMA, 2014) might account for this difference. However, our qualitative findings showed abuse – in the form of control and violence – to be the dominant factor impeding women’s mobile phone access and use. Consistent with previous studies, the power dynamics between men and women were found to negatively impact mobile phone access and use, with men limiting or withholding access and use (Madanda, 2010).

Disrupting traditional financial institutions

Our findings document the importance and intensity with which young people use mobile phones in their day-to-day lives. This technology has not only created new ways of communication and opened new avenues for business and work, but also changed people’s perception of financial services (including saving, making payments and taking loans) from one that is based on physical infrastructure and banker relationships to one that is focused on digital transactions and interactions.

These findings can help developed economies learn from the ways in which mobile technologies have disrupted traditional financial institutions and increased financial inclusion in developing countries. Using mobile phones for financial services could benefit people of all income levels, particularly those that do not have access to the formal financial system. Findings from this study can be used to guide both youth serving organizations as well as financial institutions to support young people’s financial and economic inclusion.


  1. 1 In kind (2.13%) and formal bank transactions (primarily deposit (.94%) and Other (1.8%) transaction types