Relevance of debt financing among owners of MSMEs in Uganda: a case study of Nakawa Division, Kampala

Abstract

This study aimed to analyze the accessibility of debt financing among MSME owners in Nakawa Division, Kampala District, guided by objectives that included assessing debt financing options, evaluating influencing factors, identifying challenges in obtaining financing, and recommending strategies for improvement. Using a descriptive research design and a quantitative approach, the study calculated a sample size of 175 MSME owners, categorized into various business types. Simple random sampling ensured the validity of findings. Data collection via questionnaires yielded a response rate of 75%, revealing a near-equal gender representation among respondents, with a majority being younger entrepreneurs. The results indicated that many MSME owners were married, which might influence their business operations. Furthermore, a significant portion had formalized their businesses, enhancing access to financial services. The study found that educated owners generally managed finances better. Most businesses had been in operation for 1-5 years and employed fewer than five people. The study found that respondents expressed skepticism towards crowdfunding and faced barriers in accessing bank loans due to high collateral demands. While some valued microfinance institutions, most were unsure of their relevance. Additionally, trade credit was underutilized, and government loans were perceived as difficult to access, primarily due to complex application processes. To address these challenges, the study recommended simplifying loan application procedures and encouraging financial institutions to accept movable assets as collateral, thereby enhancing credit access for MSMEs. Moreover, it emphasized the need for future research to assess the long-term impacts of these strategies on the accessibility of financing for MSMEs, aiming to understand how improved access to funding could influence their growth and overall contribution to the economy.