Uganda’s small-scale entrepreneurs need more funding

Start ups that received funding recently in Kampala. PHOTO/file

What you need to know:

Almost a quarter of the survey respondents, 23 percent, cited access to finance as the biggest obstacle they face, ahead of all other challenges. Even if they succeed at accessing finance, they often find the interest rates too high, Dan Kasirye writes.

Uganda has a vibrant entrepreneurial business community with over one million micro-, small- and medium-sized enterprises (MSMEs) across almost all sectors of the economy. The majority of these are informal micro-entrepreneurs, such as market stalls, repair shops and hairdressers. Some are larger and more formalised businesses in construction, tourism, and food processing.

They all play a key role in innovation, economic growth, and employment.

Expansion plans

Many of these smaller businesses have displayed remarkable resilience during the trying times brought on by the pandemic—and many are even looking to grow. A survey by IFC, a member of the World Bank Group, of just over 800 smaller Ugandan enterprises conducted earlier this year found that most were planning to expand operations in the coming months.

For this, however, many said they require access to finance. Just over half of the surveyed businesses stated a need for restructured loans and short-term capital to cope with the effects of the pandemic. Overall, the survey identified a current demand for credit by MSMEs at an estimated Shs31.4 trillion —an amount equivalent to about a fifth of Uganda’s total Gross Domestic Product (GDP). 

Almost two thirds, 60 percent, of the MSMEs surveyed say they want a loan to expand their business premises. Some need finance to buy equipment (22 percent), others to buy stock (19 percent), while almost a third require capital to start up a business (29 percent).


But small business owners know that capital is hard to come by. Almost a quarter of the survey respondents, 23 percent, cited access to finance as the biggest obstacle they face, ahead of all other challenges. Historically, in Uganda and elsewhere, the formal financial sector has often dismissed smaller businesses as too risky and costly to serve. This is because many lack the required collateral, credit history, and financial literacy to secure a loan. Even if they succeed at accessing finance, they often find the interest rates too high.

The IFC survey not only revealed the huge market size for MSME finance in Uganda, but also outlines several recent developments that may help open up this market opportunity. The establishment of a collateral registry for movable assets in 2019 as well as Uganda’s first credit bureau in 2008 are enabling MSMEs to leverage their assets and credit histories to access finance to a greater extent. The emerging and fast evolving fintech sector could similarly offer new innovative methodologies to strengthen the bankability of MSMEs.

There are also several measures that public authorities and private sector actors could take. These include, for example, making use of technology and innovative methods of credit assessments; encouraging greater formalisation of MSMEs; employing alternative delivery channels to increase efficiency in serving MSMEs; developing tailored financial products for MSME market segments; and increasing the reach and depth of business development services offered to MSMEs.


Financial institutions that most successfully serve micro-, small- and medium-sized enterprises offer well designed and appropriately priced products and services tailored to the needs of different segments. They include a degree of automation to run efficient operations and introduce new digital channels to reach MSMEs where its most convenient. Such providers also build strong credit underwriting skills to ensure portfolio quality, including the use of data-driven, alternative credit scoring methodologies.

The MSME finance market offers financial services providers the opportunity to expand operations while strengthening the domestic business community and the economy when it is needed the most. The result of getting more finance into the hands of Ugandan entrepreneurs should be clear: More economic activity, better access to goods and services for consumers, and more jobs.

The segment might be one that has traditionally been difficult to serve, but that is changing—and Uganda’s financial institutions would benefit from taking note.

Dan Kasirye is the IFC Resident Representative for Uganda


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