A study to assess the challenges to the growth of capital markets in developing economies: a case study of Uganda
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The purpose of the study was to assess the challenges facing stock markets in Uganda. It was guided by three specific objectives which included: Assessing the growth of stock market in Uganda, to assess various challenges facing stock markets in Uganda, to establish strategies for the development of a vibrant capital market in Uganda. A descriptive research design which included quantitative and qualitative approaches were used to explore the study. The sample size of the study was 60 respondents, and Stratified sampling method was used to categorize the population into three strata i.e. (USE staff, listed companies and unlisted companies), simple random sampling was used to select USE employees and also purposive sampling method was used to select unlisted companies in Uganda which have knowledge and experience in the topic of the study. The data collection technique adopted was the use of interviews and questionnaires. Secondary data was obtained through reading and extracting existing literature from Uganda Stock Exchange reports, journals, newspapers, textbooks, and other publications, in order to support data obtained from primary sources. The results were presented in form of tables and pie charts. The study revealed that stock market in Uganda is characterized by a stagnated growth/development as indicated by the low stock market capitalization, low number of listed companies, a declining traded value/GDP, a declining turnover ratio, and a highly volatile stock market. The study further revealed that capital market in Uganda is faced with many challenges and they cut across many dimensions. Some of the challenges identified included; The problem of market liquidity where the securities cannot be readily sold or exchanged for cash without a substantial loss in value which is because of low trading activity, the problem of lack of education on the Exchange whereby majority of the population is unskilled and unaware on how to invest in the stock market trade, a problem of limited investment products in the stock market because there are few companies listed on Uganda Securities Exchange (USE), Outdated method of doing business which limits efficiency and effectiveness in processing of transactions, data analysis and customer engagement, inadequate capitalization of Licensed Dealing Members and rigid regulations, interest rate anomaly, small number of floating shares and non-performing companies. The study revealed the following strategies to develop a vibrant stock market; Investing in capacity building and upskilling of their human capital with the aim of achieving agile and purposeful people operations, Creating innovations through leveraging the use of technology to create user friendly platforms, Increasing the products on the stock market, Encouraging companies (Private equity) to exit the market through the stock exchange rather than selling their shares to other companies and lastly Conducting public education by educating the population about the importance of listing their shares on the stock.