Access to credit by small and medium enterprises in Kampala Central Division

Abstract

The role of the SMEs in the development process continues to be in the fore front of policy debates not only in developing countries but also in developed countries. The advantages claimed for SMEs are various, including reducing unemployment, improving the BOT position, increased tax base; and they may well become a countervailing force against economic power of large enterprises. More generally the development of SMEs is seen as accelerating the achievement of wider socio-economic objectives, including poverty alleviation. In spite of the generally fast pace by which access to financial services for SME is being developed, significant segments of the SME sector have not yet benefited from the expansion and deepening of outreach. In attempting to gain access to financial services, SMEs continue to face many constrains. Thus this research intended to study the challenges faced by SMEs in access to finance. The findings indicated that the constraints faced by SMEs were insufficient collateral (62.9%) High risk perception (20.3%) and Poor financial management practices (16.4%). on the same note the study identified that the coping strategies used to manage challenges faced by SMEs in accessing finance include; cost cutting, use of money lenders, reliance on family and friends support, negotiating increase in supplier credit periods, reducing receivable days, invoice discounting, bank loans and overdrafts. Based on the study’s findings, it is recommended that the stakeholders should endeavor to provide financial information infrastructure, the government and financial institutions should also provide a good economic environment where SME’s are able to borrow at reasonable rates as well as friendly terms. It’s also important to train most of the entrepreneurs on simple financial management tips, to enable them make informed financial decisions.