Assessing access to finance by small and medium enterprises in Uganda: A case of selected SMEs in Wandegeya, Kampala, Uganda

Abstract

This study was motivated by the difficulty faced by SMEs in accessing finances to run their business. The purpose of the study was to assess the sources of financing by SMEs with the aim of establishing the likely challenges faced by them in accessing the necessary funding for their operations. The study was guided by the following objectives; to establish the alternative sources of financing for SMEs in Wandegeya, to establish the current challenges faced by SMEs in accessing finance and to design a strategic framework to ease access to finance by SMEs in Wandegeya, Kampala, Uganda. The study was based on a cross sectional descriptive survey design. Primary data was collected using self-administered questionnaires issued to respondents who were owners/managers of the business and interviews were also conducted. A sample size of 187 respondents was selected from a population of 354 SMEs using simple random and purposive sampling methods. Data was analyzed using SPSS and extracts of interviews produced verbatim. The results indicated the most commonly used sources of financing for SMEs in Wandegeya are internal funds, borrowed funds from family, friends or SACCOs and borrowed funds from commercial banks, microfinance institutions or money lender. The SMES are not familiar with some of sources of financing like government support scheme, issue of non-collateralized debt instruments, leasing, invoice discounting, venture capital and equity financing. High borrowing costs, collateral requirements and sole proprietorship status remain the major constraints hindering access to financing by SMEs in Wandegeya. Among the strategies to ease financial access to SMEs in Wandegeya is financial literacy trainings of SME owners, use of advanced financial technologies to deliver financial services to SMEs and increase government support schemes to enable SMEs access funds.