Abstract
This study investigated the individual and household characteristics that influenced credit market access in Uganda using household data for 1999/2000. The results suggest that credit market access was significantly influenced by gender, household wealth, age, regional location, and urban/rural location.
Highlights
Uganda’s poverty eradication action plan (PEAP) identifies lack of access to credit as one of the major causes of poverty (Ministry of Finance, Planning and Economic Development [MFPED], 2001)
The banking sector was riddled with inefficiencies as shown by high intermediation margins, a significant proportion of non-performing loans, and huge losses by state-owned banks funded by the Treasury. This provided the economic rationale for adopting reforms of the financial sector in Uganda so as to improve the performance of the formal financial sector in the mobilisation and allocation of resources to productive investment, thereby leading to sustainable economic growth
The financial sector reforms included the introduction of new banking laws, liberalisation of interest rates, divestiture of public sector banks and liberalisation of foreign exchange markets (Nannyonjo, 2002)
Summary
Uganda’s poverty eradication action plan (PEAP) identifies lack of access to credit as one of the major causes of poverty (Ministry of Finance, Planning and Economic Development [MFPED], 2001). Access is restricted to a small proportion of the population who can meet the stringent credit requirements, leaving most people dependent on informal credit (Okurut, Schoombee & Van der Berg, 2005) For this reason, a deliberate policy of developing the microfinance sector was developed, geared towards improving access to financial services for economic agents with limited access to the formal financial sector. The lenders in formal credit markets incur high costs in assessing the creditworthiness of small borrowers yet make low returns due to the small loan amounts involved. This motivates formal lenders to adopt strict collateral requirements as a screening mechanism to minimise default risk, keeping small borrowers out of formal credit markets or rationing their credit.
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