74% of Micro Small and Medium Enterprises (MSME) in Uganda identify access and the cost of finance as the greatest constraint to their growth. The estimated 450,000 MSME’s generate 90% of private sector production and are the top job creators, but without financing, they operate far below their potential. Since MSME’s are unable to convey their creditworthiness due to their lack of financial records, financial institutions spend significant time and money assessing prospective borrowers. They then pass on these costs to the borrowers in the form of high interest rates and application fees, while reducing their risk with high collateral requirements. Loans become prohibitively expensive and inaccessible, depriving even creditworthy small businesses of capital.
The challenges that financial institutions face in serving small businesses result in this market being underserved, ultimately hindering Uganda’s development by missing the opportunity to create employment, to stimulate the economy, and to increase standards of living for entrepreneurs and their families, staff, and customers. Studies have repeatedly shown that deep financial sectors with a focus on private sector credit generate inclusive national growth.
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