How financial regulation promotes financial inclusion in less developed countries

Abstract

Aim: This thesis aims to examine how bank regulation reduces financial exclusion in Uganda. Methodology: A qualitative content analysis method was used to examine the Annual supervisory Reports of the Bank of Uganda and Journals about Microfinance institutions in Uganda to examine how banks regulation reduces financial exclusion. After grouping financial regulatory instruments like the minimum capital requirement, consumer protection, deposit protection, anti-money laundering, and regulations about microfinance institutions in Uganda, content analysis was used to determine how such regulations reduce financial exclusion in Uganda. Findings and conclusion: Bank regulation in the form of minimum capital requirement may limit the barrier to entry for commercial banks, reducing the supply of banks that can provide financial services. This challenge was addressed by enacting the Tier Iv Financial Regulation (2016) that allows the survival of microfinance institution in rural areas by instructing them to pay licences instead of minimum capital contribution. Deposit insurance schemes played an essential role in ensuring confidence in financial institutions but may not increase financial inclusion in the non-deposit taking microfinance institutions. Consumer protection regulation made mobile money services safer to be used in both urban and rural areas of the country. Mobile money services ensured that people could access financial services through their mobile phones. Furthermore, agency banking regulation ensured that both microfinance and commercial banks accessed their customers in the less accessible area of Uganda. Contribution: This study highlights the importance of bank regulation in causing financial inclusion in less developed countries. Furthermore, it helps in highlighting the importance of aligning financial regulation in both microfinance institutions and commercial banks with the objectives of each country to avoid stringent regulation that may cause financial exclusion.