Micro and small enterprise financing, constraints and challenges : a case of Luzira Alliance SACCO clients in Kampala District

Abstract

The purpose of this study was to assess financing constraints in Micro and small enterprises in Kampala district taking a case study of Luzira Alliance SACCO in Nakawa Division. The research was on the basis of the following objectives; to identify the sources of finance for Micro and Small Enterprises in Kampala District, to identify the financing constraints faced by Micro and Small Enterprises in Kampala District, and to suggest strategies that can improve access to finance by Micro and Small Enterprises in Kampala District. This study was motivated by the element that Micro and Small Enterprises (MSEs) play a big role in economic growth and development for developing countries yet majority of them do not have sufficient finances to support their growth and survival. The study was cross-sectional and qualitative in nature. Data was collected from respondents purposively through conducting interviews with selected respondents. Study findings revealed that MSEs obtain finances from formal and informal sources as well as the government. The challenges of MSE financing were identified as lack of collateral, limited information flow, lack of social and business networks, high interest rates and poor financial literacy knowledge. The study made the following recommendations basing on the study findings; it was recommended that government implements regulatory standards in MSE financing and also takes part in financing MSEs. MSE owners and operators have to obtain collateral necessary for obtaining loans, keep information regarding their businesses and gather data on viable sources of finance and maintain good social and business networks.