An analysis of business financing : a case study of small and medium enterprises in Kampala, Uganda

Abstract

This study aimed to analyze the business financing of small and medium enterprises in Kampala as a case study. The study adopted a survey-based approach to collect data from 100 participants selected from the small and medium enterprises in the five sub-counties of Kampala using a simple random sampling design. The data was collected using a self-administered research instrument, and data quality was ensured by establishing the internal consistency of the research instrument that resulted in an overall Cronbach's reliability coefficient of 0.784. The data was analyzed using descriptive statistics measures of central tendency and variability. The study results revealed that: the major source of finance for SMEs in Kampala is microfinance institutions, other sources of finance included; savings & credit cooperative (SACCO), rural and community banks, commercial banks, and savings and loans. Furthermore, the study results showed that the major challenges the small and medium enterprises in Kampala faced in accessing financing for their businesses is lack or insufficient collateral, inadequate or poor credit history, and failure to complete the loan application process. The study identified the following strategies which could be used to improve business financing to SMEs in Kampala. These include: i) Financial institutions should lower their interest rates, ii) Small amounts of loans should be given without collateral, and iii) Improve traditional lending through leasing, while investment in the capital market was identified as an alternative source of funds. The study recommends that SMEs should put more emphasis on the development strategies, such as developing social capital networks as a mechanism for developing financing opportunities.