An Assessment of Clients of Microfinance Programs in Uganda

TLDR: In this paper, the authors look at three micro-finance programs in Uganda, representing best practices, to determine how they impacted households and entrepreneurs, particularly in reducing poverty and empowering borrowers.

Abstract: This paper looks at three microfinance programs in Uganda, representing best practices, to determine how they impacted households and entrepreneurs, particularly in reducing poverty and empowering borrowers. Evaluation results showed the programs positively and significantly improved the quality of life of participants, both economically and socially. Introduction Microenterprises are a vibrant part of the Ugandan economy, providing a wide range of goods and services. In 1995 an estimated 22% of all households were engaged in some kind of business activity (Impact Associates, 1995). These households were usually micro in scale and home-based. Twenty-nine percent of the working age population in 1995 were estimated to be employed in micro and small enterprises. These statistics underscore the prevalence of microenterprises, but mask the importance of microenterprises as a vital source of income for the urban and rural poor. Microenterprise business activities are often the major source of household revenue. These poor microentrepreneurs, especially women, have had limited access to financial services offered by the commercial banks (Duval, 1991; Morris et al., 1995; Mugyenyi, 1992). Widespread recognition of this lower accessibility to formal credit has led to recent endeavors to target the poor, especially women entrepreneurs, through development programs that provide financial services. In addition to the provision of credit, these programs also facilitate the establishment of savings accounts. Thus, these semi-formal financial institutions provide low-income clients (particularly women) with financial services not previously provided by commercial banks. Since the mid-1990s, as part of its strategy to alleviate bottlenecks to private sector development, USAID/Uganda has provided financial and technical support to a number of organizations providing microfinance services for poor microentrepreneurs. These organizations vary in terms of target clientele, maximum size of loans, program strategies, geographic coverage, size of the loan portfolio, and financial security. The objective of the Uganda assessment is to provide data on the impact of USAID-supported microfinance programs on clients, their households and enterprises. The assessment will also provide information on the linkages between microentrepreneurs and the agricultural sector. It should be noted that no attempt is being made to distinguish between use of USAID funds and other funds, as these microfinance programs are normally financed through a mix of sources and funds tend to be fungible. Do programs providing microfinance services make a positive difference in the lives of microentrepreneurs, their households, and enterprises? This problem statement can be framed as a series of questions. What is the nature, extent, and distribution of these impacts? Have microfinance programs helped to reduce proverty in the households of microentrepreneurs? Has support to microentrepreneurs in urban areas increased the flow of transfers and remittances to rural areas? Have programs helped microentrepreneurs, particularly women, to gain more control over the income they generate? The baseline assessment answers the above questions also and an ancillary, but important, question: What are the linkages between microfinance program clients and the agricultural sector? Three microfinance organizations which follow what are considered to be "best practices" were selected for inclusion in this study: FOCCAS (Foundation for Credit and Community Assistance), FINCA (Foundation for International Community Assistance) and PRIDE (Promotion of Rural Initiatives and Development Enterprises) Uganda. The three districts covered by the assessment were purposively selected to provide a range of socioeconomic contexts, since geographic location can influence the impact of a program. The locations selected were: Kampala, a vibrant metropolitan capital center; Masaka, a small urban center in southern Uganda, and rural Mbale, a highly populated, good farming area in the east near the Keyan border. …