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Benefits of microfinance institutions

benefits of microfinance institutions

Microfinance & Microenterprise Issues in Uganda

The bulk of Uganda's economy is supported by agriculture—cotton, coffee, tea, fish, and vanilla. These cash crops are cultivated by thousands of rural communities and provide the financial backbone of the country; yet the profits generated are inadequate. Uganda sold the vast majority of its assets to the private sector to promote economic growth, resulting in decreased support for underserved populations (predominantly rural, agricultural areas) throughout the country. For example, only nine percent of the country has access to electricity due to a lack of infrastructural development and an energy crisis that has largely influenced a significant drop in the country's GDP.

Over the last 25 years, microfinance has emerged as an effective vehicle for poverty reduction. Essentially, microfinance is the provision of financial services (loans, savings, insurance) to individuals who are otherwise excluded from the traditional banking system due to their low economic status. Uganda is generally seen as the country with the most vibrant and successful microfinance industry in Africa. Some microfinance institutions (MFIs) have experienced strong growth and are now reaching a considerable number of clients, with three in

particular serving between 25,000 and 45,000 clients. A number of microfinance providers are close to financial sustainability or have already surpassed it. A series of impact studies conducted in Uganda in the past years have demonstrated that the provision of microfinance services contributes to reduced client vulnerability to economic risks; strengthened linkages of clients and their households to the agricultural sector; and the acquisition of highly needed skill sets.

Access to credit is a major issue among the rural poor, and microfinance institutions, SACCOs (Savings and Cooperatives), and loan schemes are designed to fulfill this demand. Such organizations often teach community members about the benefits and methods of saving, while offering micro-loans to start small businesses. Along with microfinance opportunities, socioeconomically excluded Ugandans need microenterprise creation and development training to effectively utilize credit. FSD works with locally run NGOs to support grassroots economic development by providing job skills, microenterprise trainings and workshops, and microcredit opportunities that empower communities to achieve change.

Read more about Microfinance & Microenterprise programs and opportunities initiated by our Community Partners in Uganda.

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