emmanuel tumusiime - mutebile : financial innovation and inclusion – challenges and implications for monetary policy and financial stability opening remarks by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, at the comesa ( common market for eastern and southern africa ) committee of central bank governors symposium on “ financial innovation and inclusion – challenges and implications for monetary policy and financial stability ”, kampala, 24 may 2013. * * * governors of comesa central banks secretary general of comesa resource persons senior central bank officials ladies and gentlemen, good morning everyone. i am delighted to welcome you to this comesa committee of central bank governors symposium on the theme, “ financial innovation and inclusion : challenges and implications for monetary policy and financial stability ”. during our 18th meeting held in kigali in december 2012, we recognised new challenges in the financial sector and decided to organise a symposium to share experiences and to explore ways of facilitating financial innovation and inclusion with due consideration of the page attendant effects on the efficacy of monetary policy and financial stability. today, we have a panel of experts who will enrich our understanding of the challenges posed by financial innovation and inclusion on monetary policy and financial stability. i am confident that the presentations and discussions during this symposium will fill any existing knowledge gaps on these issues. we will undoubtedly leave this forum with a strategic vision on the role that central banks should play in shepherding the development of financial innovation and inclusion. fellow governors, ladies and gentlemen, allow me to make a few remarks on this very important topic as a precursor. to date, our financial systems have experienced rapid financial innovation, driven mainly by advances in information and communication technology. both the banked and unbanked public can move money and effect payments much faster and with greater convenience. of all the innovations, mobile money growth has developed and proliferated across the region at such a remarkable pace that it should attract keener regulatory oversight. yet, regulation and supervision of innovations is often a double edged sword. on one hand, suboptimal regulation restrains the pace and extent of innovation. on the other hand, smart regulation provides a safe and secure environment. our discussions should shed light on the threshold beyond which the extent of new financial services makes them systemically important, and below which freedom unleashes creativity. moreover, because ict has delivered services to the unbanked who had no access to financial services before, it carries the hope of facilitating development. nonetheless, financial

##es which can then be used as raw materials in agroprocessing industries ; ii ) to free up labour for employment in modern industries, and iii ) to create a rural market for the products of domestic industry. uganda formulated the plan for the modernisation of agriculture in the 1990s but this has not been implemented effectively with dire consequences for the performance of the agricultural sector. labour productivity in ugandan agriculture is among the lowest in the world. most of the smallholder food crop sector is characterized by subsistence farming, with no use of modern inputs. the strategic objective of agricultural policy should be to help uganda ’ s smallholders to adopt good agricultural practices, produce more output for the market and to start to use modern farm inputs. the first step towards agricultural modernization is an effective agricultural extension service which can reach the mass of smallholder farmers and encourage them, through technical advice and demonstrations, to adopt good agricultural practices. the returns to investing in modernizing smallholder agriculture are potentially huge. the combination of adopting good agricultural practices and low input technology could enable smallholders to double their yields, which would raise farm incomes and bis central bankers ’ speeches generate marketable surpluses. it is a mistake to believe that ugandan agriculture can be modernized by focusing on large scale commercial farms, rather than smallholders. given the structure of agriculture in uganda, which is dominated by smallholders, large scale farms are never likely to account for more than a small share of farm output. furthermore, yield per area of land in ugandan agriculture is inversely related to farm size ; hence replacing smallholder agriculture with large scale farms is likely to reduce total farm output. 3. accelerate the demographic transition the demographic transition plays a key role in economic development. no developing country has achieved middle income status and structural transformation of the economy without undergoing a demographic transition. a demographic transition entails a fall in the total fertility rate, which reduces the population growth rate and the pulls down the agedependency rate. uganda has only just begun its demographic transition. it has a total fertility rate of 6. 1 children per woman and so has one of the highest age - dependency rates in the world, at over 100 dependents per people of working age. many of the fast growing economies of developing asia have age - dependency rates of around 50, because they began their demographic transitions several decades ago. lower age - dependency rates are closely correlated with higher savings rates and greater real spending per person on human capital development, which is crucial for structural