The effect of financial innovation on financial inclusion in micro finance institutions in Gulu District, Uganda

Abstract

This study examines the effect of financial innovations on financial inclusion within Microfinance Institutions (MFIs) in Gulu District, Uganda, which is home to a total of three MFIs. The research addresses the pressing issue of limited access to financial services among underserved populations in this region. Specifically, the study investigates the effects of agency banking services, Automated Teller Machines (ATMs), mobile financial services, and digital payment systems on enhancing financial inclusion. The objectives of this study are to explore how these financial innovations contribute to improving access to financial resources and to analyse the barriers that hinder their effective implementation. A descriptive research design was employed, targeting all three MFIs in Gulu District. Data was collected using a self-administered questionnaire, achieving a response rate of 94%. The collected data was organized, summarized, and analysed statistically to assess the relationship between financial innovations and financial inclusion. Findings indicate that mobile financial services were highly rated by respondents, demonstrating a significant positive effect on financial inclusion within MFIs in Gulu District. In contrast, ATMs showed limited effectiveness in enhancing access due to low usage rates and accessibility challenges. The study concludes that while certain financial innovations have effectively improved access to financial resources, others require further development and strategic outreach to maximize their potential benefits. This research underscores the urgent need for tailored interventions that address specific barriers to financial inclusion in Gulu District. By providing actionable insights, it aims to inform policymakers and practitioners on enhancing the effectiveness of financial services for underserved populations. The findings highlight the importance of understanding local contexts and adapting innovations to meet the needs of all community members effectively.