Easy access to finance and growth of small and medium enterprises in Uganda: A case study of Kampala Central Division

Abstract

The study examined the the effect of easy access to Finance on the growth of Small and meduim enterprses in Uganda using Kampala Central Division as the case study. It was guided by three objectives which included; establishing the different useful and affordable financial products and services available to SMEs, establishing the measures of growth of SMEs and the effect of easy access to finance on the growth of SMEs in Uganda. Using a case study design, data was collected from a sample of 148 respondents who included owners and employees in small and medium enterprises operating in Kampala central division using self-administered questionnaires and interviews. The study found out that there are a number of useful and affordable sources of finance that most SMEs in Kampala central division have been able to access to get capital to either start or finance their operations and these include among others retained earnings, informal sector financial schemes, grants from friends and relatives and many others. The findings also revealed that in most cases, SME growth has been measured in terms of expansion of operations by opening up new branches and adding on the new product lines, increase in the number of workers that run the business, monthly sales turn over, increase in liquidity levels and the level of profitability. Notwithstanding the above, the study established that SME in Kampala central division go experience numerous challenges which among others include uneasy access to finance from the formal financial institutions like banks that stringent requirements like collateral which in turn retards their growth and development, most of the SMEs do not have audited books of accounts yet this is a requirement by some of the financial institutions hence reducing their chances of having access to credit. The study recommended that government should direct efforts to promote access to formal credit of SMEs are synonymous with encouraging growth of these enterprises. The SMEs owner should be concerned on employing qualified labour on different sectors within the firm so as to have good knowledge concerning the viability on the business. The financial institutions should provide education to the society on the importance of using loans to the business by being transparent to the public on publishing what exactly they want from the borrower. A competitive business environment of which access to finance is an important component facilitates entry, exit and growth.