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NDEJJE UNIVERSITY

FUCULTY OF BUSINESS ADMINISTRATION


THE IMPACT OF ACCESS TO FINANCE ON SMEs

JULY 2011
Declaration
I, Odongo David Bosco, do hereby declare that this work is original and has never been
Submitted to any other institution for a ward of any Degree or Diploma. Where the work
of
others has been used, reference has been made there of.
Signed: Date:
Odongo David Bosco
Reg No: 01/U/12997/EXTii
Approval
This report Titled The Impact of Taxation on performance of small scale business
enterprises: A
case study of Ntungamo Town Council has been submitted by Odongo David Bosco for
examination with my approval as the University Supervisor, and its now ready for
presentation
for the award of a Bachelor of Commerce Degree of Makerere University.
Signed: .. Date: ..
MR. NUWAGABA GEOFFREY
(Supervisor) iii
Dedication
I dedicate this piece of work to my wife Susan, daughter Genevieve and Son David,
Brother Richard, Sister Susan and my friends Raymond, Mwasa, Francis and Daniel, who
supported me financially and morally

Iv. Acknowledgement

Table of Contents
Declaration............................................................................................................................
i.Approval.............................................................................................................................
ii.Dedication........................................................................................................................
iii.Acknowledgement...................................
List of Acronyms
CHAPTER ONE
1.0 Introduction
The study was meant to establish the impact of access to finance on SMEs(small medium
enterprises ) in Kampala Division consists of the background to the study, statement of
the problem, purpose of the study, objectives of the study, research questions, scope and
significance of the study.
1.1 Background of the study
Access to finance is necessary to create an economic environment that enables firms
to grow and prosper. SMEs in developing countries, however, face significant
barriers to finance. Financial constraints are higher in developing countries in general,
but SMEs are particularly constrained by gaps in the financial system such as high
administrative costs, high collateral requirements and lack of experience within
financial intermediaries. Increased access to finance for SMEs can improve economic
conditions in developing countries by fostering innovation, macro-economic
resilience, and GDP growth.
1.2 Statement of the problem
The following section will first look at debt financing, and the reasons why regular banks
provide insufficient debt to SMEs. It will demonstrate that the access to finance gap is a
complex problem driven by several factors including lower returns, higher risk
perceptions, an uninspiring regulatory environment, and a lack of intermediary skills,
experience and capacity.
1.3 Purpose of the study
The purpose of the study was to evaluate the impact of access to finance on SMEs (small
medium enterprises) in Kampala division
1.4 Objectives of the study
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1. To assess the performance of small scale business enterprises in Kampala Division


2. To find out if the policies are adhered to by the SMEs to access finance.
3. To find out problems affecting SMEs to access finance.
1.5 Research questions
1. What is the performance of small scale Enterprise in Kampala Division?
2. Are SMEs aware of policies concerning to access finance?
3. What are the problems faced By SMEs?
1.6 Scope of the study
1.6.1 Subject scope
The study covered small scale enterprise in Kampala Division. Specifically, the study
investigated the performance of small scale intermediaries, the awareness of the finance
policy problems faced by the SMEs and the relationship between the taxes paid and the
performance of the small scale businesses.
1.6.2 Geographical scope
The study was carried out in Ntungamo Town Council, Ntungamo District. The area was
purposely selected because the researcher worked within the vicinity and therefore this
eased data collection.
1.6.3 Time scope
The study considered a period of 3 years 2006-2009. This period was selected to enable
the researcher come up with coherent information from the respondents as it would
enable them 4(Respondents) to give responses that are typical of their opinion from the
observations made over this period.
1.7 Significance of the study
The findings of the study are significant on the following ways;
1. To scholars and researchers, the findings of the study are expected to contribute to the
existing literature about taxation and the effect it causes to the economy as a whole.
2. To the tax authority and government, the study will guide them in adjusting tax policies
so that they suit requirements of small scale businesses.

3. To future academicians especially of Makerere University, the study will help in


gaining insight about taxes and performance of small scale business enterprises.
4. The accomplishment of the study will enable the researcher to acquire hands on skills
about processing of research work and data analysis. This proficiency will enable the
researcher to handle such related work with a lot of precision and proficiency.
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter looks at taxation and its impact to performance of small scale business
enterprises in Uganda particularly Ntungamo Town Council.It consists of existing
literature on taxation by different scholars/research studies from magazines, text books,
journals and news papers. This chapter covers taxation, classification, and purpose of
taxation. However it particularly addresses the problems affecting tax payers, the
awareness of the tax obligation and performance of small scale business enterprises.
2.1 The concept of taxation
This refers to assessment, collection, administration and management of taxes in Uganda.
It deals with raising public revenue, managing public expenditure and public debt. It is
the responsibility of URA (Manasseh, 2000). The general idea behind taxation is the
provision of public goods and services. However the benefits received by tax payers from
the government are not related to or proportionate to the tax paid (Bhatia, 2002).Taxation
is a payment which cannot be avoided without attracting a punishment and in return of
which no gain/quid pro-quo is promised by the government to the tax payer (Balunywa,
1988). The government is responsible for providing to its citizens certain public facilities
and services like roads, hospitals, schools, and market securities. There are two main tax
authorities; the local government authority and the central government authority through
Uganda revenue authority (URA).

2.1.1 Tax
It can be defined as a compulsory and non refundable contribution executed by
government for public purposes. Payment is not followed by concurrent benefit in return.
A tax is generally referred to as a compulsory levy imposed by the government upon the
assessees of various categories. A tax is paid without a corresponding return in terms of
goods or services from the government and hence it is referred to as a non quid proquo

payment (Income Tax Act, 1997)6A tax can also be defined as a contribution imposed on
any person, business/property, for supporting central/local governments (Tayebwa, 1998).
2.1.2 Classification of taxes.
According to Manasseh (2000), taxes are classified as either direct versus indirect or
proportional versus progressive tax.
a. Direct versus indirect.
1. Direct taxes are those that affect the individuals/firms directly through a deduction
from earnings. Examples include; individual income tax, corporation tax, taxes on
property and others.
2. Indirect taxes are those taxes that are paid to government by an intermediary and then
passed on to the final user by including the tax in the final price. Examples include;
export and import duties, excise and local production, value added tax (VAT) and others.
b. Proportional versus progressive tax
On the basis of equity, taxes are classified as proportional/progressive. A tax is said to be
progressive when with increasing income the tax liability not only increases in absolute
terms but also proportionate to income.
2.2 The purpose of taxation
According to Income Tax Act (1997), taxation is an important source of government
revenue and an economic policy tool by government to attain economic growth. The
importance of taxation therefore arises from debate of whether government should
interfere in the operations of the market mechanism. Income Tax Act (1997) further noted
that taxes may be levied for other reasons but revenue remains the prime objective of
most taxes. Balunywa (1988) noted that, taxation has increased in importance not only as
a tool of raising revenue for the traditional roles but also for accelerating the economic
growth and ensuring social justice. The primary objective of taxation in underdeveloped
countries is not related to stability of income and expenditure. These countries
facenumber of problems of insufficient savings and 7capital accumulation, which calls
for a need to promote specific products to fill both the supply and demand gaps. It is the
problem of growth that covers a number of aspects; the tax system has to be designed to
help the economy (Bhatia, 2002). According to the Uganda economic journal (1973),
taxes can reduce the quality of resources consumed by the private sector. The Economic
Journal (1973) also shows that, in stressing consumption reducing aspect, taxes may
change the distribution of income and help to stabilize the economy.
2.3 Tax policies.
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The World Bank has influenced many countries in under taking tax reform policies. For
the case of Uganda, the tax base has remained significantly narrow since independence,
leading to inadequate tax revenue. By May 2004, the tax ratio of tax revenue to GDP was
just 18-20%. The composition of tax revenue has been predominantly important. Small
scale businesses are taxed differently compared to corporation/business with an annual
turnover of above 50 million shillings. Medical practices, legal practices, engineering
service, accounting and audit practices are tax payers even when their turn over is less
than 50 million shillings. As quoted by Kitinisa (2003), there are three broad approaches
to tax policies and these are;
1. Application of the standard tax provisions to all business activities
2. Taxing various business activities differently to achieve economic business policy such
as; increase in private investment, exports/employment depending on the revenue needs,
the second approval can result in a relatively high tax rates in some sectors and hence
induce problems for compliance and adversely affect the general investment climate.
3. Uganda has gone through a number of tax policy reforms, these include; gender,
nationalization, and harmonisation of tax rates and tariffs, abolition of wide ranging
exemptions, new tax incentives and conditional exemptions.
2.4 Approaches to tax administration
According to Bird (1974), tax administration refers to the identification of the tax payer,
assessment of tax payable, collection of taxes and enforcement of tax liability. According
to Olman (1967), tax administration refers to a structure/procedure of identification of
potential tax payer, collection and laws governing taxation. 8RoyBahl (1988) says that
much attention should be paid to critical aspects of tax administration, training,
procedures, staffing, collection and use of information. The weaknesses in tax
administration are mainly caused by lack of relevant information about the tax payer,
continued criticism of the tax and its structure. The tax structure should be simple in
order to avoid tax evasion.
2.4.1 Identification of a tax payer
Taxes are levied on individuals, groups/legal entities income earned. The identification of
a tax payer is done with reference to natural/artificial persons who can earn
income.However, for the purpose of this research we shall confine ourselves to business
as a tax payer and a business can be defined as vocation, trade, profession, adventure in
the nature of trade but does not include employment (Income Act, 1997).
2.4.2 Assessment of taxes

Income Tax Act (1997) section 3 (a), defines assessment as the ascertainment of the
chargeable income and the amount of tax payable on it by the tax payer for a year of
income. Assessment of tax is a process of ascertaining the amount of tax to be levied on a
person/business according to his/its income. According to the income tax Act (1997)
section 96 (11) the commissioner is required to make an assessment of the chargeable
income based on his returns and on any other information available within seven years
from the date the return was furnished. However, small scale businesses are not required
to submit in any return to the commissioner.
2.5 Small scale business
According to the Income Tax Act (1997), small scale businesses are those with growth
turn over of less than 50 million shillings per annum. In Uganda its not only income tax
Act that has tried to define small scale businesses; there are also institutions which have
tried to define small scale business (SSB) such as; Ministry of Finance Planning and
Economic Development (MFPED), the Uganda Small Scale Industries Association
(USSIA). The MFPED defines SSB as a unit with a capital investment not exceeding
US$ 300,000.
The USSIA defines SSB as those with employees between 1-25 people and assets and
capital exceeding US$ 1,000,000.9The study is to assume a small scale business as one
with the following features;
i). A business which employees 1-50 people.
ii). Has a capital investment of less than shillings 40 million.
iii). Has average annual revenue/sales of less than shillings 50 million.
2.6 Fines and penalties
Musgrave argues that in all matters of legal rules, better compliance can be served either
by a higher penalty if the offender is caught or by well facilitating the enforcements so as
to increase the probability of being caught. However, Bird (1974) argued that the law
should provide an adequate penalty structure, appeal system and general
administration.The penalty structure should be primarily financial in character and
probably progressively related to the amount of tax evaded and the seriousness of the
offence in case a tax payer fails to pay any tax including; provisional tax, any
withholding tax or tax required to be withheld, the penalty is 2% simple interest per
month on the amount unpaid calculated from the date on which payment was due until
the date on which payment is made (Pius, 2001). Under estimating provisional income
return is less than 90% of the tax payers actual chargeable assessed for the year
ofincome, the penalty is 20% of the difference between taxes based on provisional return
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as revised, and tax calculated in respect of the 90% of the actual income for the year of
income.
2.6.1 Performance of small scale business
Kitinisa (2004) describes performance of small scale business as the ability to attain its
goals by using resources in an efficient and effective manner, the goals of the
organisation include; survival, profit making and expansion. Pandey (1979) looks at
financial analysis as a measure of the organisation/business performance. The assessment
of financial performance of business entities has a well established methodology that
includes computation and interpretation of univariate and multivariate models. Univariate
predictions of performance are single ratios calculated for efficiency (Makerere Business
Journal, 1996).10In this study, the researcher is to consider performance of small scale
business as the ability of the business:
i. To meet its tax obligations.
ii. Cover its operating expenses and still retain some profits which can either be used for
re-investment or otherwise.
iii. The ability of the business to make sales that sustain its expenses.
2.6.2 Taxation and business performance
Taxes levied on revenue are worthwhile only if it can generate meaningful revenues at
acceptable rates and procedures (Musgrave and Musgrave, 1984).According to Gordon
and Dawson (1987), through taxation, the government takes away money from people
they would otherwise spend on private sector. As a result, purchasing power reduces per
unit of production in the private sector to the public sector. They further asserted that, one
of the most frequent arguments against high income tax is that it destroys the incentive to
business people and employees to work harder and more efficiently. According to the
World Bank Symposium (1991), businesses carry out tax planning so as to have a
minimal tax liability and thus increasing the purchasing power. It is through taxes that the
government takes away money from people/business they would otherwise spend
onprivate sector. This loss of purchasing power reduces the demand for units of products
in the private sector (Gordon and Dawson, 1987).
2.7 Taxes and profit levels.
The taxable profits of business are always different from the normal business account
profits for three major reasons;
i. Certain income which may be considered in the normal accounting system may not
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be liable to tax.
ii. Certain expenses that are deducted on profit and loss account may not be available
when determining taxable income.
iii. Some tax allowances may be provided and will not be reflected in business account.
(Manasseh T. 2000).11
Gordon and Dawson (1987) assert that many business people have complained probably
with
some justification that taxes interfere with the opportunities to re-invest their profits in
their
businesses.
2.7.1 Taxation and investment
Given the fact that there are financial institutions and mechanism for collecting the
communitys
savings and bringing them to investors, the level and patterns of investment will be
greatly
influenced by taxes. This is because the investors are basically interested in making profit
yet
profitability of investment can be affected through various tax measures in the following
ways;
i. The possibility of taxing savings themselves. If this happens, the investor will
experience a low level of savings and the over all level of investment will be low.
ii. The authorities might tax earnings from investment to an extent that it might become
a problem for the firm to raise adequate resources in the market.
iii. If the retained profits of the firm are taxed, they will not be able to depend much upon
their internal resources for expansion, instead they will borrow and invest if at all
they do so (Bhatia H.L, 2002).
2.8 Problems encountered by SSBs in trying to comply with tax policies.
Most businesses in Uganda are owned and managed by persons who are unskilled in the
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profession of accounting and thus do not keep proper books of accounts. These are
especially
sole proprietors and family businesses or partnerships. These generally do not keep books
of
accounts, have low sales turn over and change hands and business very often (Ravenous,
2005).
Mugulusi (2001) found out that a large proportion of business community is ignorant
about taxes
they pay, how these taxes are computed, lack of knowledge is attributed to the poor
methods of
sensitization used by URA.
According to Ravenous (2005), the following are some of the problems faced by tax
payers;
i. There is unfair treatment of tax payers, some of which are not necessary tax
obligations and thus not met as a result of this process. 12
ii. Tax payers have little understanding of the obligation as a result of lack of tax
education. It is said that URA would get fewer problems with tax payers if they were
able to understand how their liabilities come about.
2.9 Tax payers knowledge
Most Ugandans have poor/lack understanding of the rationale of taxes and knowledge of
different taxes imposed on them (Coping with taxes 1996). As a result, the tax
compliance in
Uganda is still very low. Besides that, various surveys conducted on small scale
businesses in
Uganda suggest that about 60% of them keep no records at all, while 25% keep partial
records
making it difficult to assess taxes (Ndandiko, 2000).
Alwedi (2002) found out that most SSBs are managed on unprofessional lines (poor or no

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business records) thus there is great uncertainty among traders in Uganda as regard to tax
matters
and to some extent due to their own making.
Ludega (2002) asserts that, many traders have expressed ignorance about taxes imposed
on their
businesses. They say that this is highly attributed to the poor work being done by the tax
authorities leaving traders ignorant about issues like the way taxes are assessed,
advantages of
paying taxes and the use to which it is put. Therefore there is a need to sensitize the
public
especially business owners. The sensitization should be done on different taxes that
impact the
business owners and the rationale that underlines the imposition of taxes, because tax
payers are
not aware of the reasons for paying taxes, evasion of tax duties, laws and regulations are
very
rampant. (World Bank Survey, 1994).
2.10 Conclusions
This chapter is analyzed using across section of literature dealing with taxation and the
performance of SSBs. However, most of the literature reviewed does not give details
about how
taxation affects the performance of small scale businesses. Therefore there was need to
carry out
a primary research to close the gap between research variables as this was not made clear
in
literature reviewed. 13
CHAPTER THREE
METHODOLOGY
3.0 Introduction
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This chapter covers the background against which data was gathered. It discusses the
research design, study population, sampling, and study variables, sources of data, data
collection methods and instruments, data processing, analysis and presentation and
limitations of the study.
3.1 Research design
The researcher used a cross sectional survey design basing on the use of qualitative and
quantitative approaches that were adopted to establish the relationship between taxation
and
performance of small scale businesses (Amin, 2005). This design was used for profiling,
defining, segmentation, estimating, predicting, and examining associative relationships.
CrossSectional studies easily provide a quick snapshot of whats going on with the
variables for the
research problem.
3.2 Study population
The study comprised of Managers/owners and employees of small scale businesses
(SSBs) in
Ntungamo Town Council, Ntungamo District.
3.3 Sampling
3.3.1 Sampling design
The study mainly used two methodologies. These were stratified sampling, and simple
random sampling methodology.
3.3.2 Sample size The study involved 60 respondents. This sample size was assumed by
the researcher to berepresentative enough of the entire population.

THE CONTRIBUTION OF MICROFINANCE


INSTITUTIONS (MFIS)
TO THE ECONOMIC ACTIVITIES OF THE YOUTH AND
WOMEN IN
LUWERO DISTRICT. A CASE OF FINCA UGANDA
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by
KYEYUNE CHARLES
2003/HDI0/1911 U
A Dissertation Submitted in Partial Fulfillment of the
Requirements for the Award of the Master of Business
Administration (MBA) Of Makerere UniversityDEDICATION
I dedicate this book to my dear parents, Mr. and Mrs. Bernard C. Mbaziira of Kabalagala
who
sewed the first seed of civilization into me, along with formal education, and who, by
God's grace,
have seen it grow to this level of Education. I also dedicate it to my dear brothers and
sisters, Peter,
Theresa, Joseph, Ann Mary and Margaret, who have kept my morale up in pursuit of this
course.
IiiACKNOWLEDGEMENT
I would like to thank my dear parents, brothers and sisters plus the entire family ofMr and
Mrs
Edward Kiggundu of Kansanga as well as uncle Joe, for their never ending support to me;
they
consistently covered all the gaps in my life which had been created by the pressures of
the course.
Special thanks go to my supervisor, Dr. Nkote Nabeta, for the patience, encouragement,
criticism
and constant guidance to me all through the course. All my future lay in his hands and
here he is
giving it back to me.
Many thanks go to the management ofFINCA Uganda for their help in my search for
knowledge

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and information. A special token of appreciation to the CEO, Fabian and Evelyn, the
officer in
charge of Wobulenzi branch.
To my supervisor at my workplace, Ernest and to MTN Uganda as a whole, I say thank
you for the
facilitation.
Finally and most important, I would like to thank the Almighty for the divine intervention
that saw
me through the many ups and downs since I started my life and particularly during this
course.
Thank you all once again
IVABSTRACT
Following the several services and products offered by MFIs to rural women and youth in
rural areas, a study was conducted to investigate the contribution of FINCA on the
Economic
activities of rural youth and women in Wobulenzi. The study was guided by the following
research
objectives: to examine the nature of financial services offered by micro finance
institutions to the
rural youth and women in Wobulenzi, Luwero; identify the indicators of growth in
economic
activities of micro finance beneficiaries in Wobulenzi, Luwero; establish the contribution
of micro
finance funding to the economic activities of the youth and women in Luwero. And to
design
appropriate strategies that will increase the outreach of micro finance institutions so as to
enhance
economic development.
The researcher used both primary and secondary data. The primary data was got from
FINCA clients
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(past, present and non beneficiaries) and from management. The information was
obtained by use of
self-administered questionnaires and interviews. Secondary data was obtained from
published
materials, which included journals, textbooks magazines, internal reports and
newspapers. The study
came up with the several conclusions, notable among them is that FINCA offers several
services to
clients; there are several indicators of growth in economic activities; FINCA has positive
contribution on economic growth of rural youth and women to cite a few. The study
yielded the
following recommendations; lower interest rates, lengthen the repayment period,
sensitization of
client, expanding the product portfolios, emphasizing village banking, evaluation of
project proposals
to cite a few.
VIICHAPTER ONE
1.0 BACKGROUND
Micro credit and micro finance are relatively new terms in the field of development, first
coming to
prominence in the 1970s, according to Robinson (2001) and Otero (1999). Prior to then,
from the
1950s through to the 1970s, the provision of financial services by donors or governments
was mainly
in the form of subsidized rural credit programmes. These often resulted in high loan
defaults, high
losses and an inability to reach poor rural households (Robinson, 2001).
Robinson states that the 1980s represented a turning point in the history of microfinance
in that MFls

15

such as Grameen Bank and BRI began to show that they could provide small loans and
savings
services profitably on a large-scale outreach. They received no continuing subsidies, were
commercially funded and fully sustainable, and could attain wide outreach to clients
(Robinson,
2001). It was also at this time that the term "microcredit" came to prominence in
development
(Micro finance Information Exchange, 2005).
The difference between microcredit and the subsidized rural credit programmes of the
1950s and
1960s was that micro credit insisted on repayment, charging interest rates that covered
the cost of
credit delivery and by focusing on clients who were dependent on the informal sector for
credit
(ibid.). It was now clear for the first time that micro credit could provide large-scale
outreach
profitably. The 1990s "saw accelerated growth in the number of micro finance institutions
created
and an increased emphasis on reaching scale" (Robinson, 2001). Microfinance had now
turned into
an industry according to Robinson (2001).
1Along with the growth in microcredit institutions, attention changed from just the
provision of credit
to the poor (microcredit), to the provision of other financial services such as savings and
pensions
(micro finance) when it became clear that the poor had a demand for these other services
(Micro
finance Information Exchange, 2005).
Currently close to 500,000 (Five hundred thousands) clients have access to micro
financing in
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Uganda with a total loan bill of 100 billion Uganda shillings. The average loan size
ranges between
Uganda shillings 50,000 and 20 million and the majority of the clients are the lowincome earners
and salary earners. MFIs have a deep outreach of over fifty major branches country wide
including
Wobulenzi and this is expected to grow further.
Data extracted from FINCA Uganda Internal Management Report (2004), revealed that of
the total
number of groups operating in Wobulenzi, eight (8) client loan groups exhibited a 33%
drop out rate
and these were: Tukolebukozi, Balikyewunya, Bamunanika, Nezikokolima, Tusaba
Katonda,
Mazima, Tusitukirewamu, and Kamukamu. They had received a total loan disbursement
of
Ugshs48,587,000 from FINCA Uganda Microfinance.
Despite the fact that FINCA disburses a loan portfolio of nearly Ugshs150,000,000 (one
hundred and
fifty million) to beneficiaries in Wobulenzi, its impact still remains low. The challenge
therefore is to
evaluate and ascertain whether these MFIs have created a positive or negative impact to
the
economic activities of the population through the creation of accessible sources of
funding to the
small scale businesses as well as individuals at less stringent conditions. The above
background sets
the basis of the study.
21.1 STATEMENT OF THE PROBLEM
Although micro finance services have endeavored to offer financial services to the
vulnerable
17

groups, (youth and women), their impact on the economic activities of the beneficiaries
still remains
low. For instance the percentage drop out rate of the FINCA Wobulenzi beneficiaries
stands at 33%
on average (FINCA Internal Annual Management Report 2004). Some drop outs may be
due to
improvement in welfare of the people while in other cases some have lost even the little
they used to
own (Nakawesi, 2003). This therefore sets the basis for the study.
1.2 PURPOSE OF THE STUDY
The purpose of the study was to assess whether micro finance institutions have had an
impact on the
economic activities of the rural youth and women of Wobulenzi, Luwero.
1.3 OBJECTIVES OF THE STUDY
The study was guided by the following objectives
i) To examine the nature of financial services offered by micro finance institutions to the
rural
Youth and women in Wobulenzi, Luwero.
ii.) To identify the indicators of growth in economic activities of macro finance
beneficiaries in
Wobulenzi, Luwero.
iii.) To establish the contribution of micro finance funding to the economic activities of
the Youth
and Women in Luwero.
iv.) To design appropriate strategies that will increase the outreach of micro finance
institutions so
as to enhance economic development
31.4 RESEARCH QUESTIONS
The study was guided by the following research questions
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i.) What is the nature of financial services offered by micro finance institutions to the
rural youth
and women in Wobulenzi, Luwero?
ii.) What are the indicators of growth in economic activities of micro finance
beneficiaries in
Wobulenzi, Luwero?
iii.) What is the contribution of micro finance funding on the economic activities of the
rural Youth
and Women of Luwero?
(iv) What are the appropriate strategies put In place to Increase the outreach of micro
finance
institutions so as to increase on their contribution to economic development?
1.5 SCOPE OF THE STUDY
Subject Scope
The study focused on the contribution of micro finance institutions (MFIs) to the
Household Income
and Asset Development of the rural youth and women In Wobulenzi, Luwero.
Geographical Scope.
The study covered the youth and women in Wobulenzi, Luwero.
41.
1.6 SIGNIFICANCE
The information will enable financial managers of small-scale industries / businesses to
assess and
evaluate potential viable development projects and also give them an insight into the
likely problems.
It will also assist the credit officers of MFIs to advise the potential borrowers of how and
where to
invest in order to benefit from the loans and also reduce on the failure rate that creates
bad debts to
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MFIs.
The individuals who are seeking projects to invest in can also use this information to
assess their
potential in investing in priority areas. It can also help them in their investment
appraisals. The
information will reveal other factors that are responsible for the successes or failures of
organizations.
The information can also be used by various stakeholders to avoid re occurrence of past
mistakes
thus ensuring continuity and sustainability of economic activities in low developing
countries.
5CHAPTER TWO
2.0 LITERATURE REVIEW
This chapter reviews the existing literature on key micro finance concepts, looks at the
nature of
services offered by MFIs, identifies the indicators of economic activities growth and
evaluates the
contribution of MFIs to the economic activities of the rural youth and women in
Wobulenzi, Luwero.
2.1 Micro Finance Services
Sinha (1998) states, "Micro credit refers to small loans, whereas micro finance is
appropriate where
NGOs and MFIs supplement the loans with other financial services (savings, insurance)";
therefore
micro credit is a component of micro finance in that it involves providing credit to the
poor, but
micro finance involves additional non-credit financial services such as savings, insurance,
pensions
and payment services (Okiocredit, 2005). The provision of micro finance services focuses
on three
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core dimensions of poverty alleviation. These are centred on the terms "Promotion"
(promotion of
individuals and households out of poverty) and "Protection" (protection of people from
vulnerability
because of fluctuations of income) Rogaly (1999).
The MFIs offer Enterprise Development facilities by assisting people, individually and in
groups, to
access financial services to start and grow enterprises which can sustain them and their
families
above the poverty line. This is mainly done through the provision of access to
Microcredit services,
for building up self-employment, in form of loans at interest free, low interest and market
rates (
Rogaly 1999). Making inexpensive credit available to the rural poor has been key to
breaking the
vicious circle of low capital, low productivity, low savings thus overcoming poverty.
6They also offer loans for Consumption and Asset Development which help beneficiaries
to build up
asset bases for their families or consume certain products that they would not consume if
they were
earning low incomes (transport, meals, and weddings). This may be enhanced through
encouraging
of Savings especially using low or no fee small deposit savings accounts. Saving is at
least as
important, if not more so, than loans in the effort to help households to accumulate
resources
(Shreiner and Morduch, 2001). Savings are financial assets that the poor can accumulate
against
emergencies and long term needs.

21

Insurance and Income Protection services are also offered such that people protect
themselves from
income fluctuations and become financially protected from life misfortunes (illnesses,
death,
accidents) Through Insurance, that is by raising of distress funds and forming of small
scale
insurance cooperatives, MFIs can assist individuals and groups to become more
financially secure.
Savings can also act as guarantee against outstanding loans and are mandated payments
especially
for emergencies.
Other Micro finance services that are offered by MFIs include provision of:- Financial
Literature by
training people to develop basic financial competencies which can be used to guard their
assets from
being eroded by misusing the already available resources. Counseling and Financial
Management
which help people develop debt management skills to avoid loan defaulting which can
lead to loss of
the securing assets or collateral security.
7
2.2.2 Indicators of Growth in Economic Activities of Households and Groups
Economic activities require commitment, cooperation, and cohesion at all levels of
development individual, household, community, and national. While micro finance alone does not
improve roads,
housing, water supply, education and health services, it can play an important role in
making these
and other sustainable contributions to the community. The following are some of the
indicators of
22

growth in economic activities that can be enjoyed by beneficiaries of MFIs: Consumption and Asset
Development can used as a measure of growth in economic activity. As the incomes of
beneficiaries
increase, there is likely to be an improvement in the consumption patterns of the people
as well as in
the asset bases for their families. Beneficiaries can now afford some of the expenditure
and assets
that were out of their reach originally.
Growth in profitability is also one of the indicators of improvement in economic activity.
Such
growth should be reflected in profitable enterprises, growing enterprises, and conversion
into
medium or large enterprises. In addition, small-scale businesses' growth can be measured
in terms of
profits. Profit making organizations look at the rate of return on the resources of the firm
(Pandey,
1996).
According to section 5(5) of the income Tax Act, payment of income tax by enterprises is
sign of
growth since they are seen as engines of development, employing 90% of the non-farm
economically
active poor people (Ministry of Finance and economic activities Report, 2000). The
growth in
business can make it possible for firms to train its employees. Naisbitt (1985), growing
businesses
have human resource objectives such as helping employees improve their career
opportunities or
improving performance through job skill training.

23

8Increase in the Market Share is also a sure way of measuring growth. According to
Kotler (2000), the
company's growth will be determined by the increase in rate of growth of its market
share. The
increase in the market share will be reflected in the increased volume of sales and
establishment of
distributional channels for the goods and services to target market segment.
Growth in economic activities is measured by strong management. Owners of businesses
usually
have previous managerial experience. In fact the competitive strength of the firm is often
based upon
the founder's unique skills on cost control, sales and so on. The managers of the business
must be
able to take risks. Management must be willing to work hard to overcome the challenges
associated
with growth possibilities.
Customer care also stands out as a signal of growth in enterprises. Donald (1987) stated
that growth
of economic activities could be viewed in the level of customer service offered to
customers. The
customer service is offered in form of product quality, diversification or innovation.
Technological advancement in enterprises can also be viewed as a sign of development.
Enterprises
will say move from the use of typewriters to the use computers or even where they have
computers,
to continuously upgrade their equipment. This may not be the case in the developed
countries where,
because of market opportunity and likely success due to environmental enabling factors,
it is easier to

24

secure new technology. Besides, this technology originates from the developed countries
and unlike
in the developing countries where it must be imported, it is relatively cheap (Coleman, et
al, 2005).
9Improved savings and economic assurance: MFIs can help people become more
economically
secure. Savings serve as reserves for important household expenditures (such as school
fees, feeding
and other emergencies), and as insurance against sudden crises (such as illness, natural
disasters, or
accidents) that can otherwise result in destitution for people already living at the poverty
line
(Cheston et al 1999). MFIs can build upon Africa's traditional savings ethics to enhance
outreach and
quality of services. It is important to keep in mind that for any financial service to have a
lasting
impact on poverty eradication, it must be flexible and innovative to adapt to the needs of
its clients
(Joanna, 1999)
The greater the rate of increase in number of employees, the greater the likelihood of
growth. MFIs
help people start or improve their own small businesses, providing income generation and
employment for themselves and their families (Okiocredit, 2005). Studies on CERUDEB,
an MFI in
Uganda, show that loans given to small farmers have resulted in substantial increases in
part-time
and permanent wage labor of non-clients. Expansion in scale of production leads to the
development
of departments and consequently increase in number of employees (Afrane, 2002).

25

Credit can be used as working capital so that clients' efforts become more productive; for
example,
clients can buy produce in bulk at discounted or wholesale prices and resell at retail
prices for more
profitability (Brau, et al, 2005). As clients become more productive, their incomes
increase and they
are able to accumulate savings for other investments as well as improvements in welfare
(nutrition,
hygiene, housing) and emergencies (Hashemi, 2003). Improvement in economic activities
of the
beneficiaries of MFIs will mean substantial improvements in their clothing, sanitation,
feeding,
housing, medical care, household property/equipment owned and ability to cover costs
related to
school fees, transportation and other physiological needs (Armendariz et al, 2005).
102.3 Contributions of Micro Finance Funding to Economic Activities
When properly harnessed and supported, micro finance can scale-up beyond the microlevel as a
sustainable part of the process of economic empowerment by which the poor can lift
themselves.
Considerable debate remains about the effectiveness of micro finance as a tool for
directly improving
on the economic activities and about the characteristics of the people it benefits
(Chowdhury, Mosley
and Simanowitz, 2004). Sinha (1998) argues that it is notoriously difficult to measure the
impact of
micro finance programmes on social economic activities.
2.4 Designation of Appropriate Strategies
Objective four sought to find out appropriate strategies that would make FINCA services
readily
26

accessible to its potential and actual targeted groups. The strategies include among others;
lower
interest rates, lengthen the loan repayment periods, Scrap off collateral security, rural
outreach,
expansion product portfolios and Project appraisal
Ryne et al, (2002), argued that lowering the interest rates is a strategy geared at making
MFIs
services more accessible to them. This would go a long way in enticing users to become
users as well
as ensuring increased use of the services by the current clients. It will also enable MFIs
clients to
benefit more as interest rates are lowered since it will favorably impact on their
profitability.
11Gyasi (2002) argued that the management of MFIs should revisit the loan repayment
period
offered to clients. This is due to the fact that majority of the F CA clients in Luwero
depend on
agriculture and trade which needs a long period to reap from the operation. Lengthening
the
repayment period would enable them meet their financial obligations in time. The
respondents also
wanted FINCA to give them a grace period before start of the payment period to enable
them start
the payment schedules after a reasonable degree of business stability.
Jerik, (2005) argued that one of the hindering factors limiting accessibility to MFIs
services is
collateral security. He suggested that it should be scrapped off so as to enable those
without it to
access the services freely. This may however not be practical since security is a
requirement by all

27

banks.
Palakow (2003) argued that most MFIs branches are in urban and peri-urban areas. He
suggested that
FINCA should endeavor to open up more branches in rural areas so as to make its
services more
accessible to all target groups. Currently most of the clients are supposed to travel to head
office or to
district headquarters for meetings and remitting of their weekly loan installments. This
however,
increases their operational costs and is time consuming as well (Walter, 2002).
Sebstard et al, (1996) argued that MFIs need to expand or increase on the product
portfolio offered.
The products currently offered are very few compared to the clients' demands. This in a
way has
fueled the misappropriation of funds received by the clients to other purposes not
prescribed in the
loan contract which increases high default rate (Hoque, 2004).
12Coleman et al, (2005), argued that management of MFIs should endeavor to appraise
and recommend
projects to be funded. Their experience over time should assist them to realize the types
of businesses
with the least failure rate and be able to advise their clients accordingly. The management
should go
an extra mile to periodically monitor the operations of the projects funded so as to reduce
on the
default rate.
13CHAPTER THREE
3.0 RESEARCH METHODOLOGY
This chapter outlines in detail the manner in which the study was executed. It highlights
the areas of
28

study, the research design, the sampling design and procedure. It also states the data
collection
methods, the data processing and analysis, which the researcher used.
3.1 Research Design
The study was cross-sectional; both descriptive and analytical methods were used. The
data was
collected from both primary and secondary data sources, from FINCA in Wobulenzi
region, and the
study focused on the contribution of MFIs to the economic activities of the rural youth
and women
for the period 2004-2006.
3.2 Study Population
The study covered a total population of 400 people, namely, 100 past and 200 present
FINCA clients,
50 non-beneficiaries and 50 management staff. Since the type of information required
was qualitative
in nature, judgment sampling! purposive was the most appropriate to use.
3.3 Sample Procedure and Size
The study population was selected using purposive sampling technique basing on the fact
that the
researcher was well knowledgeable about the economic activities parameters and that the
respondents were believed to have appropriate information pertaining to the study. For
purposes of
obtaining the relevant information, the researcher targeted 140 FINCA clients (past and
present and
non beneficiaries) and 10 FINCA management officials (credit officers) as shown in table
3.1.
Stratified random sampling was used to obtain the clients.
14 3.
29

Table 3.1 Population & Sample size structures


Nature of the respondents Population Expected Sample
Past FINCA clients 100 40
Present FINCA clients 200 80
Non- beneficiaries 50 20
Management 50 10
Total 400 150
Source: Primary data
3.4 Sources of Data
The researcher used both primary and secondary sources of data.
Primary Data
The data was obtained from FINCA clients (past, present and non beneficiaries) and from
management. The information was obtained by use of self-administered questionnaires
and
interviews.
Secondary Data
This data was obtained from published materials, which included journals, textbooks
magazines,
internal reports and newspapers. They included among others, minutes, internal and
credit officers'
reports of FINCA, which talked about the control and utilization of loanable funds and
customer
business operations.
153. 5 Instruments of data collection
The researcher used a number of data collection instruments namely, questionnaires,
interview
schedule and observation.
30

Questionnaire.
The researcher designed self administered questionnaires which were distributed to
FINCA
management staff, past and present clients as well as non beneficiaries of FINCA
services. The
completed questionnaires were then picked from respondents for analysis.
Interview schedule
The researcher designed appropriate questions relating to the topic of discussion and then
presented
the questions to FINCA respondents noting the responses thereof. The collected
responses were then
be analyzed.
Observation
The researcher employed the observation method to note whatever was taking place in
the
organization and its clients. For instance, the general appearance of the FINCA premises,
staff attire,
interior and exterior design, equipment in use, staff attitudes (disgruntlement, receptive
faces and
others), the dressing code of clients, their health plus other attributes.
3. 6 Data Analysis
The researcher used both descriptive and statistical approaches in processing and
analyzing the data.
Mostly qualitative data was obtained from the questionnaires and analyzed using
statistical methods
to give it a broader and more meaningful picture of the sample.
16CHAPTER FOUR
4.0 PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
4.1 Introduction
31

This chapter presents the findings of the study. The findings relate to the discussion,
analysis and
presentation as revealed by the field survey conducted by the researcher. Both primary
and secondary
data was used. The findings are presented in percentage tables, bar graphs, pie charts and
line graphs.
The presentation is guided by the following objectives; to examine the nature of financial
services
offered by micro finance institutions to the rural youth and women in Wobulenzi,
Luwero; to identify
the indicators of growth in economic activities of micro finance beneficiaries in
Wobulenzi, Luwero;
establish the contribution of micro finance funding to the economic activities of the youth
and
women in Luwero and to design appropriate strategies to enable the organization achieve
its vision
and mission.
4.2 General Background Information
This section presents the general characteristics of the respondents. These include the
response rate,
sex, marital status, age brackets, educational level and position of the respondents. These
are
presented in the subsequent sections.
4.2.1 Response Rate
Out of the expected sample of 150 respondents, only 118 accepted to be interviewed and
answered
the questionnaires, thus giving a response rate of 79%. The results of the study are
presented in table
4.2 below.
17Table 4.2: Showing the Composition of the Respondents
32

Particulars Frequency Percentage


Past FINCA clients 28 24
Present FINCA clients 58 49
Non beneficiaries 22 19
Management 10 8
Total 118 100
Source: Primary Data
According to table 4.2 , a total of 118 people accepted to be interviewed and answered
the self
administered questionnaires thus giving a response rate of 118%. Those that accepted
constituted
about 50% present FINCA clients, 25% past FINCA clients, 20% non beneficiaries and
almost 10%
were from the management.
This means that close to 75% of the respondents are or have been actual beneficiaries of
micro
financing through FINCA and this implies a good target group for the study.
4.3 Gender Distribution of the Respondents
The study examined the extent to which women used the services offered by micro
finance
institutions using FINCA as example. Figure 1 shows the findings
18From figure 3 above, nearly 48% represented the age bracket of (26-35); 29%
represented the age bracket
of (36-45); 17% represented the age bracket of 45 an above and lastly 6% represented the
age bracket of
(18-25). This implies that majority of the respondents were in the Youthful category
(54%). That is, the
dynamic, enterprising, risk taking and working class age. They have the potential to grow
their savings
33

and investment and consequently support themselves, the company and the economy at
large. The future
of any bank lies in this age and this is why FINCA strategically targets such group.
4.2.5 Educational Background of the Respondents
The study wanted to examine if there was a link between the level of education attained
by the clients and
the use of micro finance services. The respondents had different educational levels
namely; primary,
secondary, certificate, diploma, degree and others as shown in the figure 4.
224.3 Nature of Micro Finance Products/Services Offered
The first objective of the study was to examine the nature of micro financial services
offered to the youth and
women in Wobulenzi Luwero District.
4.3.1 Nature of Microfinance Products/Services
The study identified the types of services offered by FINCA micro finance institution and
included among
others; insurance, money transfers and loans. The findings pertaining to this were
extracted from a sample of
past and present FINCA clients and these are shown in Table 4.3
Table 4.3: The Ranking of Micro Finance Products/Services
Services /products Rank
Money Transfer 4
Insurance 5
Loan for Education and Others 2
Loan for Small Business Enterprise 1
Loan for Housing 3
Source: Primary Data

34

24According to the table 4.3 above, loans for small business was ranked number 1, loans
for education
and others was ranked number 2, loans for housing was ranked number 3, money transfer
was ranked
number 4, and insurance was ranked number 5. The above ranking from one to five
shows the level
of importance attached to each particular service, the most important being ranked
number 1 while
the least important being ranked number 5. The implication is that most of the client in
MFis mostly
go for loans purposely to expand or open up business ventures as is one of the pillars for
offering a
loan and other services are coincidental.
4.3.2 Time Taken Using FINCA Services
A study was also carried out to asses the time taken by the clients as customers of FINCA
before
leaving for any reason. This was done on the past and present clients. The finding are
recorded in
figure 5
254.4 Indicators of Growth in Economic Activities among Beneficiaries.
The second objective of the study was to identify the indicators of growth in economic
activities
basing on the beneficiaries. Notable among these were business expansion,
infrastructures, increment
in assets, prompt payment of financial obligations, increase in FINCA clients incomes
and increase in
the purchasing power.
4.4.1 Economic Indicators for Business Growth
The clients were asked to choose and rank from the selected criteria, what they feel
should be the
35

best measure of economic growth or their performance as they use the services of
FINCA. The
findings relating to indicators of growth in economic activities are as summarized in
Table 4.4.
Table 4.4: The Different Economic Indicators for Business Growth
Economic Indicators Frequency Percentage
Business Expansion 19 16
Prompt Payment of Loans 24 20
Increase in Assets 17 14
Ability to Pay Expenses 7 6
General Increase in Purchasing Power 17 12
Increase in FINCA Clients' Incomes 28 24
Improvement of Infrastructures 9 8
Total 118 100
Source: Primary Data
29From the table 4.4 above, 24% of the respondents said that increase in people's
incomes was the
major measure of business success, 20% said prompt payment of loans, 16 % said
business
expansion, and 14% said meeting expenses in time, 12% said improvement in the
standard of living.
The majority of respondents therefore prefer increase in income as the best measure of
growth in
business and individual welfare, closely followed by the ability to pay back the loans.
4.4.2 Problems Encountered in Using FINCA Services
Several problems encountered in using FINCA services were enumerated as follows; high
interest

36

rates, short repayment periods, lack of collateral security and inaccessibility of FINCA
services to
mention a few. The respondent were asked to rank problems according to their individual
feelings
and the results came out as in table 4.5
Table 4.5: Showing Problems Encountered in Using FINCA Services
Problems Frequency Percentage
High interest rates 26 22
Short payment periods 21 18
Lack of collateral security 28 24
Inaccessibility of FINCA services 35 30
Other 7 6
Total 118 100
Source: Primary Data.
304.4.3 Reasons for Poor Performance
The respondents were required to give account of the reasons as to why they
perform/performed
poorly in any of the cycles they had or were going through. The outcomes of this question
arose
from the work places of the clients and were centered around the reasons as highlighted
in the Table
4.6.
Table 4.6: Reasons for Poor Performance
Reasons Frequency Percentage
Misappropriation of Funds 35 30
Bad Seasons 24 20
Shifting Business Premises 7 6
37

Destruction of Property /Goods 12 10


Electricity Shortages 24 20
Sickness and Other 17 14
Total 118 100
Source: Primary Source
From table 4.6 , it's clear that nearly 30% of the respondents said that the major problem
facing
FINCA clients is misappropriation of funds, 20% said bad trading season, 20% electricity
shortages,
6% said shifting of business premise and 14% said sickness and other reasons.
It is important that prior to acquisition of loans, training should be done to assist the
clients acquire
some financial discipline tips thus avoiding misappropriation of funds. The rest of the
problems are a
result of poor feasibility study or reasons beyond the control of the clients; Electricity
shortages,
sickness are some of the examples.
324.4.4 Reasons for Excellent Performance
The respondents were asked to give factors that led to their excellent performance in any
of the
cycles they had gone through or were going through at that time. Several reasons
responsible for the
excellent performance were given namely group pressure, good clientele base, personal
discipline,
good season, good monitoring and supervision. The results are merged and recorded in
table 4.7
below
Table 4.7: Reasons for Excellent Performance
Reasons Frequency Percentage
38

Group pressure 35 32
Personal discipline 23 20
Monitoring 21 18
Good seasons 19 16
Good clientele base 17 14
Total 118 100
Source: Primary Data
From Table 4.7, it is clear that about 32% of the respondents gave 'group pressure' as the
reason for
their excellent performance, 20% gave 'personal discipline' , good monitoring and
supervision was
given by 18%, good season was given by 16 %, and good clientele base was cited by 14
% of the
respondents .The implication behind this is that most of the respondents had good reasons
for
performing better and in order for FINCA to achieve its mission and vision, its important
that such
attributes are incorporated in their strategy or policy. Group pressure, training and
supervision should
be given priority in its strategic planning.
334.5 To Establish the Contribution of Micro Finance Funding on the Economic
Activities of
the Youth and Women in Luwero.
The third objective was to establish the contribution of micro finance funding to the
economic
activities of the concerned groups. The major contributors were the increment in working
capital and
proper record keeping leading to a variety of outcomes. The findings pertaining to these
were
39

extracted from primary data records and summarized in the subsequent sections.
4.5.1 Present Working Capital
The respondents were asked to reveal the amounts of cash they have received from
FINCA so that
the amounts received are related to the kinds of businesses they have undertaken in order
to asses the
effect of such advances on the their economic activities. The quantity of working capital
in relation to
the kind of business undertaken greatly affects the economic activities. Table 4.8 contains
records
about the working capital that the respondents received from FINCA.
Table 4.8: Present working capital
Working capital Frequency Percentage
50,000 - 500,000 76 64
500,000 - 1,000,000 24 20

1,000,000 - 5,000,000 14 12
5,000,000 - 20,000,000 5 4
Total 118 100
Source: Primary Data
34From figure 9 above, it's evident that 50% of the respondents have good record
keeping skills, 30% had
poor record keeping and 20% had fair record keeping. The implication is that majority of
the respondents
were good record keepers though it also brings out the 30% poor record keepers. There is
need for
improvement of this kind of status through training, supervision and politicization. It is
possible that the
40

respondents in this category have made losses or profits but they are not recorded
anywhere and this may
bring out an untrue picture of the growth of their activities.
4.5.4 Contribution of Micro Finance Institutions in Wobulenzi
Respondents were asked to rank how they feel about the contribution of micro financing
in Wobulenzi.
Various criteria were used to determine the extent to which FINCA has helped in uplifting
the standards
of living of the women and the youth plus their development ventures. Almost every
body admitted that
there is an effect that FINCA has made in Wobulenzi and the respondents were required
to identify the
areas where they feel the impact is more and then rank them accordingly.
36Table 4.9 Showing the Economic Contribution of Micro Finance Institutions in
Wobulenzi.
Economic Contributions Rank Percentage
Business Expansion 30 25
Ability to Pay Taxes in Time 24 20
Improvement in Farming Practices 27 23
Increase in Peoples' Incomes 12 10
Improvement in Infrastructure 5 4
Meeting Customer Demands in Time 5 4
Meeting Financial Obligations in Time 13 11
Others 4 3
Total 118 100
Source: Primary Data

41

From table 4.9, its evident that 25% of the respondents said that the major economic
contribution of
microfinance is business expansion, 23% said improvement in farming practices, and
20% said it's the
ability to pay taxes, 11 % said its meeting financial obligations, 10% said increase in
people's incomes,
and 4% said improvement in infrastructures and meeting customers' demands in time and
3% for other
reasons respectively. Whereas there are various ways that can assist in gauging the
performance, as
indicated by the 'other' category, it is clear from most respondents that once there is
'expansion of
business premises', there is obviously an improvement in the performance of the business
due to a boost
in working capital.
374.6 Designation of Appropriate Strategies
Objective four sought to find out appropriate strategies that would make FINCA services
readily
accessible to its potential- and actual targeted groups. The findings after the study
satisfactorily
answered it. The strategies revealed included among others; lower interest rates, lengthen
the loan
repayment periods, reconsider collateral security requirement policy, rural outreach,
expansion
product portfolios and Project appraisal
The findings after the study revealed that most respondents suggested lowering the
interest rates as a
strategy geared at making FINCA services more accessible to them. This would go a long
way in

42

enticing non FINCA users to become users as well as ensuring increased use of the
services by the
current clients. It will also enable FINCA clients to benefit more as interest rates are
lowered since it
will favorably impact on their profitability.
The findings also revealed that FINCA clients have always complained about the short
repayment
period. This is due to the fact that majority of the FINCA clients in Luwero depend on
agriculture
and trade which needs a long period to reap from the operation. Lengthening the
repayment period
would enable them meet their financial obligations in time. The respondents also wanted
FINCA to
give them a grace period before start of the payment period to enable them start the
payment
schedules after a reasonable degree of business stability.
38One of the hindering factors limiting accessibility to FINCA services is collateral
security
requirement policy. The respondents suggested that it should be scrapped off or
reconsidered so as to
enable those without it to access the services freely. It will also assist users to access
larger loans.
This may however not be practical since security is a requirement by all banks. The idea
of group
pressure as security does not seem to be good enough for the respondents as it limits the
advances
required by them to certain limits which are seemingly peanuts to people with big
ventures.
The findings revealed that most FINCA branches are in urban and peri-urban areas. They
therefore

43

suggested that FINCA should endeavor to open up more branches in rural areas so as to
make its
services more accessible to all target groups. Currently most of the clients are supposed to
travel to
head office or to district headquarters for meetings and remitting of their weekly loan
installments.
This increases their operational costs and is time consuming as well.
The study further disclosed that the respondents wanted FINCA to expand or increase on
the product
portfolio offered. The products currently offered are very few compared to the clients'
demands. This
in a way has fueled the misappropriation of funds received by the clients to other
purposes not
prescribed in the loan contract which increases high default rate.
FINCA for example is not interested in directly supporting the agricultural sector due to
the long
gestation period of most crops. FINCA is also not keen at assisting 'starters' of whatever
business
however good a client's feasibility study may be, because of the high risk involved in the
initial
stages of business ventures.
39The study further discovered that FINCA management should endeavor to appraise and
recommend
projects to be funded. Their experience over time should assist them to realize the types
of businesses
with the least failure rate and be able to advise their clients accordingly. The management
should go
an extra mile to periodically monitor the operations of the projects funded so as to reduce
on the
default rate.
44

40CHAPTER FIVE
5.0 ANALYSIS OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter discusses the findings of the study, the conclusions and recommendations in
relation to
the study objectives. The discussion explains the findings of the study in support or in
contrast to the
literature after which conclusions and recommendations are drawn
5.2 Nature of Financial Services Offered by MFIs
The findings after the study revealed that loans for small businesses was ranked number
one, loans
for 'education and others' was ranked number two and loans for housing was ranked
number three.
Over 75% of the services offered by FINCA are loans, though for different needs. The
loan service is
the most used by FINCA clients in Wobulenzi though they offer a number of other
services which
include money transfer, insurance, and others at large. The study findings further revealed
that there
is both minimal knowledge and at the same time little need for the insurance services.
Money transfer
service is also not so commonly used in Wobulenzi despite the fact that it's a high income
earner for
MFIs. Urban clients have more dealings in such a service than rural ones.
This is in agreement with Sinha, (1998) who provided the composition of Micro finance
services as
stated above. The findings are also supported by (Rogery, 1999), who suggested that
Micro Finance
services are for promotion of individuals and households out of poverty, and
protection/insurance of
45

people from vulnerability of fluctuations of income. The argument is at the same time in
line with
Afrane, (2002), who argued that the importance attached to money transfers is of limited
use among
rural communities.
415.3 Indicators of Growth in Economic Activities
The findings revealed that 24% of the respondents suggested 'increase in people's
incomes' as their
measure of growth in economic activities, while 20% gave prompt payment of loans,
16% said business
expansion, and 14% said meeting expenses in time, and 12% said improvement in the
standard of living
as the indicators of growth in economic activities. The majority of respondents therefore
prefer increase in
income as the best measure of growth in business and individual welfare, closely
followed by the ability
to pay back the loans.
Most authors contend that there are several indicators of growth in economic activities,
the above
indicators inclusive, notable among these are; Dyck, Alexander (1997); Hoque, Serajul
(2004); and
Daley, Harris, Snodgrass, Sebstad (2002) just to cite a few. However, Ledgerwood,
(1999), noted from
the clients that there are no particularly outlined ways of measuring growth in economic
activities.
5.4 Contribution of Micro Finance Institutions Funding to Rural Women and Youth
The study findings deduced that out of selected attributes for the contribution of MFIs
funding to the rural
women and youth, business expansion was ranked number one, followed by
improvement in the farming
46

practices, prompt tax payment turned out to be number three, 'meeting financial
obligations in time' was
ranked number four, increase in peoples' incomes became number five, others included
improvement in
infrastructures and meeting customer demands on time. This therefore implies that MFIs
playa vital role
in boosting up the incomes of their clients.
42This is supported by (Brau, James Gary, Woller, 2005), who conceded that growth was
also reflected
by the increase in the different business ventures, prompt tax payment and meeting
financial
obligations among others. However a few clients harbor a different view about MFI
funding. They
argue that MFIs charge high interest rates coupled with the very short repayment period
which
culminates into confiscation of property, imprisonment and general impoverishment and
hence they
see no positive contribution at all. This argument is supported by Otero and Halt (1993).
5.5 Appropriate Strategies
The findings after the study revealed that certain strategies need to be adopted in order to
make MFIs
work better. These include lowering the interest rates, lengthening the loan payment
period,
reconsidering of the collateral security policy, and expansion of product portfolio,
constant project
appraisal and increase in the rural outreach. Barry, (2000); Cheston, Susy and Larry Reed
(1999)
also support the above strategies. Much as the strategies have to be put in place, there is
need of

47

considering the investors motives of targeting a particular rate of return on investment.


This therefore
places the implementation of the above strategies of MFIs into jeopardy leaving would be
beneficiaries into a take it or leave it situation (Gyasi 2002).
4. 435.6 CONCLUSION
Micro Financing is becoming increasingly important to poor countries like Uganda as an
engine of
growth and development and it is therefore important that policy makers accord more
attention to it than
ever before in order that the current and potential 'beneficiaries' can actually stand to
improve on their
welfare.
On the MFIs services, the reason behind the massive use of the loan service as compared
to the rest of the
services is that most small scale entrepreneurs require funds for starting up ventures,
reinvesting in the
existing businesses or overcoming various financial obligations. Insurance services are
not easily
adaptable to even people of a recognized degree of literacy due to their complexity and to
make it worse,
the rural women and youth do not have the asset base that can warrant the need for such
services. Money
transfer services are also rare in rural set ups and are therefore not attractive to Wobulenzi
people. The
general poverty level coupled with the illiteracy rate in Wobulenzi are the major causes of
the higher rate
in the use of loans as compared to the rest of the services. MFIs should for that matter
concentrate more
on the improvement of this service than any other service.

48

Evidence from clients reveals that it is up to the clients to gauge from their individual
situations and come
up with a way of accounting for their performance. The parameters for the measure of
performance are
therefore bound to change from person to person, period to period and circumstances of
the time.
Management of MFIs should therefore set up individual appraisal parameters for each
client basing on
already drawn policies. Such policies should be flexible.
44There is no single rule to use as the correct measure of the contribution of MFIs
funding to the clients'
business growth. Loan officers can at the same time not dictate any parameters to
measure this because
different clients will use different approaches. It is also not good to leave important
information untapped
lest it is required in the future. Management should therefore device 'middle ground'
parameter to use
especially where the client is undecided as to what parameter to use
Since micro finance institutions are proving important to the less developed societies, it is
paramount that
various strategies be formulated to pave a way forward for them thus propelling the
people from the
current status to greater heights.
455.7 RECOMMENDATIONS
The study findings yielded the following recommendations in view of the contribution of
MFIs funding
on the Economic Growth of the rural youth and women of Wobulenzi.
Management of MFIs should emphasize village banking in order to overcome or reduce
on the default

49

rate. Such a method creates psychological coercion amongst the clients to pay back the
borrowed money.
Individual borrowers tend to default a lot which poses a big risk to the organization.
MFIs should provide conducive organizational environment where by their staff are
provided with the
relevant tools, facilities, and incentives that enable them work comfortably. This will
alleviate the
likelihood of officers working' for the sake' and will ensure proper planning and appraisal
of the clients
dealings with in situation.
The management of MFIs should stretch further to rural areas so as to be able to serve the
needs and
wants of the rural business men. Cost benefit analysis should be considered when such a
decision is being
embarked on so that both parties can equally benefit from the venture.
The management of MFIs should increase on the product portfolios offered to the rural
people. The
existing product portfolios do not cater for all the needs and wants of the rural people.
The marketing
department should endeavor to research on the clients' desired options and be able to
include the probable
and realistic ones onto the list.
46The management of MFIs should endeavor to sensitize their clients about the need to
secure loans from
one source other than multiple sources so as to encourage them to acquire loans they can
afford to pay.
This calls prior training and briefing of clients
MFIs should be duty bound to lower the interest rates charged on the loans secured. The
current interest

50

rates ranging from 24% to 36% per annum are too high. This can not easily be afforded
by the low
income earners who are engaged in low profitability ventures. MFIs have the biggest
percentage of their
income earners centered on interest on loans but it is advisable that the product portfolio
be increased and
interest lowered in turn in order to achieve the goal. Management of MFIs should also
endeavor to
lengthen the loan payment period. The current loan payment period is too short to pay the
loan.
The management of MFIs should endeavor to evaluate project proposals for clients
wanting to secure
loans. A department responsible for evaluating project proposals should be instituted. Past
experience
together with secondary data sources should now be in position to assist the department
to compile
dependable information that can be used to recommend a portfolio of viable ventures to
clients in various
areas for investment.
External internal interference should be eliminated, donors should not impose their ideas
on micro
finance institutions rather they should work together to achieve tangible results.
47AREAS FOR FURTHER RESEARCH
The researcher recommends further research in the following areas.
The effect of MFIs funding on profitability of small scale businesses
The effect of information technology on MFIs funding
The effect of MFIs on the social, economic and political set up of Uganda.
48REFERENCES
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51

David, H. and Mosley, P. (1996), Micro Finance Against Poverty Vol 1.


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or reducing
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Holt, L.S. (1993), Village banking, a cross study of a community based lending
methodology,
USA1D Bureau for Asia and private enterprises, GEMENI Washington.
Joana Ledgerwood. (1999), micro finance hand book
Kibeer Micheal (1996) interest rates; why less may really be more, Kampala.
Montigomery, B. (1999), The experience of MFIs in eradication of hunger and poverty in
Uganda. The case of PAP Kampala.
Nakawesi, (2003), Why New Businesses Fail, New Vision 9th September 2003 the New
Publishing
Press.
Afrane, S. (2002). "Impact Assessment of Microfinance Interventions in Ghana and
South
Africa: A Synthesis of Major Impacts and Lessons." Journal of Microfinance, Spring, pp.
37- 58.
Armendariz de Aghion, Beatriz and Jonathan Morduch. (2005). The Economics of
Microfinance.
The MIT Press.
Brau, James & Gary Woller. (2005). "Microfinance: A Comprehensive Review of the
Existing
Literature and an Outline for Future Financial Research." Journal of Entrepreneurial
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the Impact of Microcredit." Microcredit Summit Meeting of Councils in Abidjan, Cote


d'Ivoire, 2426 June.
49Cheston, Susy and Lisa Kuhn. (2002). "Empowering Women through Microfinance."
United Nations
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Affairs.
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Mlotshwa. (2001).
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Poorest
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Balancing Business and Development. Kumarian Press, Inc., Bloomfield, CT.
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Transformation: An In-depth
Look at Microcredit and Training at Work in the Lives of Ghanian Women." Opportunity
International.
Gyasi-Fosu, Anthony. (2002). "Socio-Economic Impact Assessment of Microfinance
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Programmes: A Case Study, Sinapi Aba Trust." Post Graduate Diploma Project, Ghana
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Management & Public Administration.
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50Finding from Sinapi Aba Trust, Ghana." The Institute for Development Studies
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Contemporary Asia, Vol. 34 0.1, pp 21-32.
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Imp-Act Working Paper No. 11.
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of Welfare
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No.4, pp
617-629.
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Credit." Assessing the Impact of Microenterprise Services (AIMS), Washington D.C.


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Building Financially Self-Sufficient Institutions, and Showing Improvement in the Lives
of the
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Microfinance in Three Countries: Synthesis Report." Assessing the Impact of
Microenterprise
Services ( IMS), Washington D.C.
51SOME ABBREVIATIONS
FI CA - a leading Micro Finance Institutions in Uganda
MFIs - Micro Finance Institutions
CERUDEB - Centenary Rural Development Bank
GO - on Governmental Organization
I THE ROLE OF SMALL SCALE BUSINESSES IN THE PROVISION OF
EMPLOYMENT TO THE LABOR FORCE: A CASE STUDY OF SHAURIYAKO
TRADE CENTER IN KAMPALA DISTRICT

BY
55

SEKITOLEKO ERIC
BALAMAGA
2008/HD06/12124U

2010

SUPERVISOR:
DR. JAMES MUWANGA

A RESEARCH PAPER SUBMITTED IN PARTIAL FULFILLMENT OF THE


REQUIREMENTS FOR THE AWARD OF A MASTER OF ARTS DEGREE IN
ECONOMIC POLICY AND PLANNING MAKERERE UNIVERSITY.

56

DECLARATION

I SEKITOLEKO ERIC, declare that this work is original and has never been submitted
to any institution/University for any Award of a Degree.

Signature. Date
SEKITOLEKO ERIC
STUDENT

APPROVAL

This work has been produced under my supervision and is now submitted with my
approval.

Signature.. Date
Dr. JAMES MUWANGA
SUPERVISOR

DEDICATION
This work is dedicated to my parents and daughter Nanyunja Leticia Miriam as a sign of
love for them.

ACKNOWLEDGEMENT

Special thanks to Dr. James Muwanga who provided unreserved comments and guidance
for the completion of this research paper. Not forgetting the time that you always
foregone, this work would not have been finished. Indeed I am who I am because of you.

I also grant special acknowledgement to all the respondents in Shauriyako Trade Center
that I appreciate for all your support in the process and provision of information for my
study.

I wish to express my gratitude to my brothers and sisters; James Ssentongo and family,
Irene Nalukwago, Godfrey Bagerenga and Caroline Namuli, the management of Herm
Enterprises Limited for the care, moral and financial support you have always provided
throughout my study. Indeed you owe me a lot as this is a challenge put before me; I
appreciate for your readiness to facilitate me in whatsoever incidence that challenged me.

I would like to heartily thank all those who have collectively helped to make this study a
success my Lecturers in particular Dr Gertrude Muwanga, Dr Baale Edward, Dr Tom
Mwebaze, Prof. Gemina Semwogerere as well as Dr Fred Matovu for the knowledge
commitments, efforts and advice they have provided. Not forgetting Henry Sessanga,
Simeone Mugenyi, and all other colleagues in the Economic Policy and Planning
programme at the Faculty of Economics and Management, Makerere University for their
guidance and support during the course of my study.

Thanks to the beloved Katazze family in particular Erimia Kyanjo, Namubiru Aidah, my
colleagues Daniel Serunjogi, Herbert Mukasa, Festo Sagula, Mpanga Isa, Martin Setanda,
4

Nyangendo Judith as well as Sylvia Nalubega who did not forsaken me even when I
needed special assistance sincerely you bear an extraordinary position at my heart and I
honor you all for that may God Almighty reward you.

TABLE OF CONTENTS
DECLARATION..................................................................................................................i
APPROVAL.........................................................................................................................ii
DEDICATION....................................................................................................................iii
ACKNOWLEDGEMENT..................................................................................................iv
TABLE OF CONTENTS.....................................................................................................v
LIST OF TABLES............................................................................................................viii
LIST OF FIGURES............................................................................................................ix
ACRONYMS.......................................................................................................................x
CHAPTER ONE: INTRODUCTION..................................................................................1
1.0 Background....................................................................................................................1
1.1 Statement of the Problem...............................................................................................2
1.2 Objectives of the study..................................................................................................2
1.2.1 Specific objectives......................................................................................................3
1.2.2 Research questions......................................................................................................3
1.3 Purpose of the study.......................................................................................................3
1.4 Scope of the study..........................................................................................................3
1.5 Significance of the Study...............................................................................................4
CHAPTER TWO: LITERATURE REVIEW......................................................................5
2.0 Introduction....................................................................................................................5
2.1 Definition and nature of SSBs.......................................................................................5
2.2 ADVANTAGES OF SMALL SCALE BUSINESSES..................................................7
2.3 NATURE AND CATEGORIZATION OF ACTIVITIES OF SSBs IN SHAURIYAKO
TRADE CENTER...............................................................................................................8
2.4 REASONS FOR SMALL SCALE ENTERPRENUERIAL BUSINESSES IN THE
AREA OF STUDY............................................................................................................10
2.4.1 Government Policies:................................................................................................10
2.4.2 Trade liberalization policy:.......................................................................................10
2.4.3 Foreign

Aid Donations:......................................................................................11
6

2.4.4 Low start-up capital:.................................................................................................12


2.4.5 Population growth:....................................................................................................13
2.5 CHALLENGES FACED BY SMALL SCALE BUSINESSES..................................14
2.5.1 Poor Infrastructure:...................................................................................................14
2.5.2 Financial Problems:..................................................................................................14
2.5.3 Improper business Feasibility:..................................................................................15
2.5.4 Lack of Managerial Knowledge:..............................................................................15
2.5.5 Poor Educational Background or Lack of Education:..............................................16
2.5.6 Out-Dated Technology:.............................................................................................16
2.5.7 Poor Marketing Strategy:..........................................................................................17
2.5.8 Increasing Competition:............................................................................................17
2.6 SOLUTIONS UNDERTAKEN TO ENHANCE SMALL SCALE BUSINESSES....18
2.6.1 Traditional guarantee Associations:..........................................................................18
2.6.2 Financial sector development:..................................................................................19
2.6.3 Diversification and markets expansion:....................................................................20
2.6.4 Corporate governance:..............................................................................................20
2.6.5 Human and Cultural Capital Development:.............................................................21
2.7 Conclusion:..................................................................................................................21
CHAPTER THREE: METHODS AND PROCEDURES.................................................22
3.0 Introduction..................................................................................................................22
3.1.1 Research design.......................................................................................................22
3.1.1 Study area and Target population.............................................................................22
3.1.2 Sampling method......................................................................................................22
3.1.3 Sample size and sample selection...........................................................................22
3.2.1 Key Informants........................................................................................................23
3.2.2 Focus groups...........................................................................................................23
3.2.3 Data Collection........................................................................................................23
3.2.4 Observation.............................................................................................................23
3.2.5 Questionnaire..........................................................................................................23
3.4 Editing..........................................................................................................................23
7

3.4.1 Coding.......................................................................................................................24
3.5 Problems encountered during the field research..........................................................24
CHAPTER FOUR: DATA PRESENTATION AND INTERPRETATION OF FINDINGS
25
4.0 Introduction..................................................................................................................25
4.1 Background information of respondents.....................................................................25
4.2 The different classifications and activities of the Small Scale Businesses..................27
4.3 The challenges that limit the contribution of small scale businesses towards
development:......................................................................................................................30
4.4 The impact of employment opportunities provided by the SSBs to household welfare:
33
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS..............................35
5.0 Introduction..................................................................................................................35
5.1 Conclusions of the study..............................................................................................35
5.3 Areas for Further Research..........................................................................................37
REFERENCES..................................................................................................................38
APPENDICES...................................................................................................................40

LIST OF TABLES
TABLE 1: NUMBER OF PEOPLE WHO OWN A BUSINESS .......................................................25
TABLE 2: NUMBER OF RESPONDENTS EMPLOYED BY SSBS...............................................25
TABLE 3: LEVEL OF EDUCATION........................................................................................26
TABLE 4: SIZE OF THE BUSINESS AND LEVEL OF EMPLOYMENT ........................................28
TABLE 5: SOURCE OF STARTUP CAPITAL............................................................................30
TABLE 6: NUMBER OF BUSINESSES WITH CHALLENGES.....................................................31
TABLE 7: CHALLENGES TO THE SSBS................................................................................31
TABLE 8: RELATIONSHIP BETWEEN THE KIND OF ACTIVITIES DONE BY THE BUSINESSES
AND EMPLOYMENT OPPORTUNITIES............................................................................34

10

LIST OF FIGURES
FIGURE 1: UGANDA POPULATION GROWTH TREND............................................................13
FIGURE 2: LEVEL OF EDUCATION....................................................................................27
FIGURE 3: CATEGORIES OF SMALL SCALE BUSINESSES......................................................28
FIGURE 4: LEVEL OF EMPLOYMENT BY THE SSBS.............................................................29

11

ACRONYMS

GoU

Government of Uganda

MDGs

Millennium Development Goals

UBOS

Uganda Bureau of Statistics

FY

Financial Year

GDP

Gross Domestic Product

UIA

Uganda Investment Authority

EU

European Union

OECD

Organization of Economic Cooperation and Development

TASBI

- Transatlantic Small Business Initiative

SSBs

Small Scale Businesses

UBI

Uganda Business Inquiry


12

COMESA

Common Market for East and Southern Africa

EAC

East African Community

PEAP

Poverty Eradication Action Plan

UNHS

Uganda National Household Survey

MGAs

Mutual Guarantee Associations

GNP

Gross National Product

PSF

Private Sector Foundation

USSIA

Uganda Small Scale Industries Association

13

CHAPTER ONE: INTRODUCTION


1.0 Background
Small scale enterprises are a major component of the Ugandan business sector that sustained the
economy through the hard times when all the different sectors of the economy were in
disequilibrium. In 1986, Uganda undertook economic reforms through the IMF/World Bank
funded Structural Adjustment Programs (SAPs). Like in many developing countries these
reforms were meant to change the Economy from an inefficient, import dependent economy to
one that is more diversified, efficient and export oriented (Ajibefun and Daramola, 2003).The
small scale businesses had a role to play in support of the production and import sectors to
achieve the goals of the SAPs at the time.

In Uganda, Small Scale Businesses have been a critical source of support to the struggling
economy that formerly depended on the agricultural sector and remittances. The Small Scale
Businesses (SSBs) led to an increase in the employment levels to 70% of the non farm labor
force, thereby contributing to 80% of the manufactured output and 20% of total Gross Domestic
Product (World Bank 2009). This reduced poverty amongst the people in the rural and urban
areas of the country which encouraged government to undertake more action in support for such
investments since they needed less capital per job created, offering a rather inexpensive way of
accommodating the labor force for equitable wealth distribution.

The Government of Uganda (GoU) introduced several economic measures to restructure the
economy as a way to increase the role of both the public and private businesses. The deregulation
of the economy was aimed at altering the incentive structures faced by the small scale sector.
Such policies include the payment and trade liberalization, interest rate liberalization, and
appropriate pricing of public goods and the reduction of government involvement to enhance
production and performance. Most of these policies directly and indirectly affect producers and
employees in an economy.

14

The GoU is currently centered on minimizing its intervention in economic activities so that it
encourages private sector participation for increased production and incomes thereby leading to
economic self sufficiency and reliance. The efficient role played by the small scale businesses in
the utilization of resources as labor has led to poverty reduction for broad based economic
growth.

The large informal sector which is mostly comprised of the small scale businesses offer great
potential for employment generation therefore a good target for policy to eradicate poverty. By
creating employment opportunities for the unskilled labor, they could increase incomes as a way
to reduce poverty. However this potential can only be achieved if the small scale businesses
highly absorb the labor force to boost production.

According to the Background to Budget 2008/09, Ugandas economy was composed of the Small
Scale Business sector that were categorized into wholesale and retail trade estimated to be 46%,
manufacturing at 31% as restaurants and Hotels constitute 7% during Financial Year
(FY2007/08).Small Scale Businesses have played a great role in the provision of employment
opportunities to the labor force since they are many in numbers, owned and operated with low
volumes of working capital.

In many developing countries, the growth of Small Scale Businesses (SSBs) is a wide spread
concern due to their contribution to Economic growth and Development because they compose
the larger informal sector that is significant in the provision of employment in an Economy. It
should be noted that Small Scale Businesses are highly diverse in terms of division of labor
through which they create opportunities for productive work that leads to an increase in the labor
participation rate thereby contributing to poverty reduction, economic growth and development.

15

According to the Uganda Bureau of Statistics (UBOS 2007), between 2002 and 2006, the
proportion of workers in self employment increased from 13% to 22% for the non agriculture
activities in which the employment population ratio for men increased overwhelmingly to 82%
compared to 79% for women thereby enabling more people to find jobs in SSBs not only out of
the need to increase and diversify incomes but in the face of reducing Poverty through
employment provision. It was reported in 2006/2007 by Uganda Bureau of Statistics (UBOS)
that the total number of businesses registered in Kampala was nearly 26,000 of which those
employing 5 or more persons were 17,084 hence showing a growth of over 60% of Small Scale
Businesses.

The Government of Uganda (GoU) with the support of International development partners as the
World Bank through the Foreign Direct Investments (FDI) to promote the informal sector as a
way to reduce unemployment (a key variable for measuring the performance of an Economy).
This has led to the influx of unemployed work force to Kampala which is the major trade center
in the country; households increased their willingness to participate in the labor market by setting
up Small Scale Businesses to meet the social and economic responsibilities associated to their
families leading to competition.

It is against this justification that Small Scale Businesses in Shauriyako Trade Center have been
set up to provide substantial and sustainable employment opportunities trigger development and
economic growth.
1.1 Statement of the Problem
Small Scale Businesses are competitive and dynamistic nature. This makes them a fundamental
cause for Economic growth and Development through their contribution to income
redistribution, and Unemployment reduction in developing economies. However, there are no
clear indicators that unemployment rates have reduced. Unemployment consistently remains a
key concern that needs the attention of major economic decisions to focus on the promotion of
small scale businesses activities.

16

1.2 Objective of the study


The study attempted to examine the nature of SSBs that provide employment to the labor force in
Shauriyako trading centre in Kampala District.
1.2.1 Specific objectives
i.

To identify the different activities of the small scale businesses in which the labor force is
employed.

ii.

To identify how the SSBs contribute to development and growth of developing economic.

iii.

To identify the size of businesses that provides employment to the labor force.

1.2.2 Research questions.


The study investigated the following questions;
i.

What reasons have led to the growth of Small Scale entrepreneurial businesses in the
region of study?

ii.

What challenges have limited the activities of the Small Scale Businesses in their role to
provide employment opportunities?

iii.

Is there space for the expansion of the SSBs?

1.3 Purpose of the study


The purpose of the study is to identify the various activities in which the Small Scale Businesses
absorb the labor force.
1.4 Scope of the study
The study was confined to Small Scale Businesses since they engage the labor force in various
activities that require little capital to sustain the possibility of retail, wholesale shops, hardware
and general merchandise, restaurants to mention but a few as a way to reduce unemployment
levels

17

The study focused on the reasons for the growth of SSBs towards the provision of employment
to the labor force. Through this the role of SSBs with the support of government and other
International partners is recognized thereby encouraging small scale trade for employment and
improved household earnings.
1.5 Significance of the Study
The study shall help the policy makers to recognize the importance of Small Scale Businesses
and industries in the provision of employment to the labor force for economic development. This
shall further guide them to make trade policies to enhance the performance SSBs as regards their
activities to accommodate the mushrooming population that is attributed to high birth and
fertility rates as well as rural urban migration within the country.

To students and other scholars who intend to widen their knowledge in the study of the role of
Small Scale Businesses, this study shall be a basis of reference since it focuses on the causes of
the establishments, how the unique characteristics of the Businesses have facilitated their role in
the provision of employment, challenges they face and the solutions that are being undertaken to
harness their activities.

18

CHAPTER TWO: LITERATURE REVIEW


2.0 Introduction
This chapter aims at reviewing the relevant literature about the Small Scale Businesses and its
role in the provision of employment opportunities.
2.1 Definition and nature of SSBs
According to De Gobbi (2003), the small scale businesses refer to small and micro enterprises
that lack sufficient collateral to cover the particularly high risks involved yet they operate with
high transaction costs. To her they represent the large proportion of the economic sector in every
country. They sometimes operate in the informal sector since many micro entrepreneurs are
illiterate and have limited access to information, they are vulnerable and neglected group
commonly composed of home working women.

However, international organizations such as the World Bank and the International Finance
Corporations(2002), define Small Scale Businesses as those that require small amounts of capital
to establish, small number of employees or in most cases personally handled by the owner, and
referred to as micro businesses hence to them they are "mini businesses" or "Bop businesses".

The European Union (EU) definition is based on the parameters of development, turnover and
asset size and Organization for Economic Cooperation and Development (OECD) on
employment and sales turnover. This implies that they play a vital role in alleviating poverty and
increasing employment attributed to their promotion of competition and dynamism, since they
augment government efforts in rural and urban areas thereby improving the household incomes
which enables them to access various items for daily use at affordable costs. It is from this
perspective that small scale businesses are dubbed as the small scale establishments since they
operate at the least levels investment.

19

In Latin America, Small Scale Businesses are characterized by the dependence on family labor
and limited technical and managerial skills. They are commonly not registered, maintain no
business records and do not have access to credit from formal credit institutions. They are
relatively small, flexible, require low capital needs, modest educational requirements with
informal structures that are high labor intensive and do depend on local raw materials.

According to Susanjoekes (1995), the small scale business sector in India has been accorded as a
priority sector of the national economy by the national decision makers since it is protected and
promoted in various ways by government policies and measures to enhance their growth
potential. Small Scale Businesses generate employment at relatively small capital costs, mobilize
resources at micro levels and meet the rising demand for various goods and services required by
the economy. To the decision makers, Small scale businesses constitute nearly 40% of the total
output in the private sector. Much more significant was the employment generation capacity of
70%.

In Ghana, small scale enterprises are officially considered together. Small enterprises are defined
as business units that employ a labor force of not more than 9 persons (Mensah et al, 2007,
Kwasi Bruks et el, 2005; OECD, 2005).This is so because they augment government efforts to
achieve economic growth and reduce poverty in the rural and urban areas through the promotion
of competition and dynamism to enhance the development of low and middle income economies
and individual.
According to Ayozie Daniel Ogechukwu(2009), small scale businesses are a seedbed of
innovations, inventions and employment since they assist in promoting the growth of a countrys
economy. Hence at all levels of government policies which promote the growth and sustenance
of small scale businesses have been emphasized to enhance economic development.

In Uganda, UBOS (2006) defines them as components of the informal sector that make up the
National economy since they operate with low level of organization, low capital, low technology
20

and often temporary premises. They are not registered with the government and not supported by
formal financing institutions. Further these are classified as household enterprises which are
economic units owned by the households but without an identifiable location. It is an informal
establishment that usually employs about 10 employees as evidenced that 56% of the urban
households were operating informal businesses (UNHS 2002).

Small Scale Industries are characterized by the unique feature of labor intensiveness. The
importance of small scale businesses increases manifold due to immense employment generating
potential that is accompanied by fast decision making due to less staff and more control of an
entrepreneur, availability and dependence on local raw materials leads to innovation of products
which cater for the needs of individuals in a particular region hence their significance.

In conclusion, Countries characterized by acute unemployment are putting emphasis on the


model of small scale businesses so as to absorb the excess labor and further highlights the
advantages of such set ups to Economic development in the country (Balunywa 2002).
2.2 ADVANTAGES OF SMALL SCALE BUSINESSES
The small scale businesses contribute a lot to the progress of the economy. In Uganda, they have
a great potential for future development through their role towards the economy as discussed
below;

Large Scope for Employment:


According to Kalibbala and Ngobo (1994), the number of people employed by the small scale
businesses varies from country to country. To them in Uganda the figure was put to between 550, in India between 30-100.On the other hand Stoner et al (1996), small-scale businesses are
those which employ less than 500 people while in Kenya Kibera and Kibera (1997) say such
businesses employ fewer workers and are usually referred to as micro enterprises since they
employ 11-50 people while the medium enterprises employ 51-100. Uganda being a labor21

surplus economy due to its rapid rate increase, labor intensive approach for commodity
production has been adopted so as utilize the labor power for the production of goods. As the
small-scale businesses adapt to labour-intensive approaches, they employ more labor per unit of
capital for a given output compared to the large-scale industries. This is evident from the fact that
the small-scale sector accounts for as much as 70% of the total employment in the industrial
sector thereby scaling down the extent of unemployment as well as poverty (UBOS 2007).
Large Production: Kilby(1969)referred Small-scale businesses to as a quasi sponge for urban
employment and provider of inexpensive consumer goods with little or no imports content that
enhances industrial output of the country. To him this also contributes to long run industrial
growth by producing an increasing number of firms that grow up and out of the small scale
sector. For instance out of the total output of the manufacturing sector, as much as 40% comes
from these industries where as total supplies of industrial consumer goods are a major part
originated from the small-scale sector. The adequate availability of consumer goods plays an
important role in stabilizing and developing the economy. To him the emergence of wholly
modern small or medium scale industries is the prerequisite for any economy that endures
industrialisation.
Promoting Welfare: The small-scale businesses are important for welfare reasons. This in turn
increases their income-levels and quality of life. As such these businesses help in reducing
poverty in the country. Further, they promote equitable distribution of income among vast
number of persons throughout the country; it is through this that they help in the reduction of
regional economic disparities.
Social and Economic responsibilities: The small scale businesses are specialized in the
production and sale of consumer commodities this encourages individuals to increase their
participation in the labor market thereby upgrading their lives. The freedom to work, selfreliance, self-confidence, enthusiasm to achieve and all such traits of a healthy nation can be
built around the activities performed in these businesses. All these benefits flow from the fact
that these businesses are highly labour-intensive, and that these can be set up anywhere in the
country with small resources.

22

2.3 NATURE AND CATEGORIZATION OF ACTIVITIES OF SSBs IN SHAURIYAKO


TRADE CENTER.
Small Scale Businesses in the area of study mostly deal in hardware materials, electricity
appliances, and water materials as pipes, water joints, and foodstuffs. Note that there are some
businesses that specialize in the purchase of secondhand products to cater for local needs through
self employment to generate incomes;

Tied shop businesses are those that confine whatever they sell in common with what their
producers supply directly to them. The manufacturers ensure reliability and consistency in the
provision of the products as a way to support their sales. Tied shops in the area of study sell
already manufactured products as electricity appliances, paint, building materials, water pipes to
mention but a few.

Street retailing is another category of business where traders display their goods along major
streets or urban areas. These traders are different from hawkers because they operate from a
particular point. Some of these retailers go as far as raising temporary structures in form of stores
to protect themselves and their goods from rain and sun not forgetting thieves and robberies.
Their products may range from clothing, motor spare parts and food items.

Hawking is a rampant form of business where goods are carried from one place to another,
either on hands or by carts. Hawking is the most cheapest and popular means of business trading
as the would be capital for rent is used for the purchase of goods as clothes, herbal medicines,
simple edibles as maize, ground nut, peas to mention but a few. People who involve in hawking
are called hawkers.
Mobile shop businesses are moved from one place to another in motor vans, cars, Lorries sell
almost all types of hard ware goods and they reach consumers easily in the area of study. These
shops use all sorts of advertising methods like playing music, use of microphones to shout their

23

waves so as to bring the existence of their goods to the knowledge of the consumers and they
include, traditional herbalists, film and video producers to mention but a few.
Market place business is where traders come together in a common meeting place known as the
local market to exchange goods in form of sales and purchases. Each trader has his own store or
lock up store. The amount of capital required for this type of business depends mainly on the
type and quantity of goods sold. All forms of goods in this type of market range from food stuffs
to hard wares.
2.4 REASONS FOR SMALL SCALE BUSINESSES IN THE AREA OF STUDY
This section of the study focused on the reasons for the growth and increased number of Small
Scale Businesses as a way to provide employment opportunities to the labor force.
2.4.1 Government Policies:
Alila and Mc Cormick (1994), emphasized that government should put more affirmative and
positive action towards the promotion of SSBs in any country. To them they highlighted an
example from Kenya, where the government supported the Juakalis as an avenue of
industrializing and developing the country.

According to Bagadawa (2002), the Government of Uganda (GoU) has made great efforts to
provide attractive and appropriate environment for the small scale businesses through its
adoption of sound macroeconomic policies and its implementation of structural reforms. The
GoU set up Medium Term Competitive Strategy (MTCS) that aim at improving the business
environment, increasing competitiveness and promoting the private sector since in particular they
address infrastructural improvement, strengthening the financial sector for SME accessibility and
the reformation of the commercial justice sector as specific elements for SME development.

GoU has also become involve in venture capital infusion or issued guarantees to the private
individuals that provide angel funds for small scale establishments. It is these that have shifted
the mindset and adopt innovative qualifying processes and operational mechanisms for venture
24

capital programmes that enhance development. According to the World Bank (2005), for firms
and small scale businesses to invest productively, expand are largely dependent on how
government shapes its investment climate thus GoU has implemented a wide range of economic
and institutional reforms all intended to create a more conducive investment climate for both
local and foreign investors as well as promoting increased participation in private sector
development. It has been noticed that these reforms have resulted in GDP growth averaging to
6.3% from 1992/93 to 2006/07 with a peak of 10% (UBOS 2009).
2.4.2 Trade liberalization policy:
According to Kilimani (2007), Government policy of liberalization of trade, deregulation,
privatization, and participation in regional trade agreements, specifically the Common Market
for East and Southern Africa (COMESA), East African Cooperation (EAC) have played a role in
the contribution to poverty reduction, creation of employment through the entrepreneurial drive
for the establishments in which surplus labor is absorbed, diversification and promotion of
exports to increase their effect on the aggregate output growth. This was adopted to cast a view
on the importance of government policy under trade liberalization and its potential for resurgence
in terms of employment, export drive that consisted of import tariffs, exchange rate controls
within the framework of a liberal trading system in view to increase aggregate output, provide an
opportunity to expand the market beyond the domestic, generating economies of scale and
externalities from trade.

There has been a degree of recovery attributed to this policy as manifested by the low
employment rates in the agricultural sector to 46% in 2004/05(DTIS, 2006) as compared to the
upward trend in private small scale businesses as the main areas of investment attributed to
diversification policy. Through this structural deficit is eliminated for better macroeconomic
stability and economic growth since this emerges the economy away from external shocks.
2.4.3 Foreign Aid Donations:
According to Lele and Meyers (1989), Holtham and Hazlewood (1976) foreign donor
participation in public and private sector projects increases small scale business settings for
employment provision. This has played a positive role in fostering Entrepreneurship for
25

Development through their emphasis of more Foreign Direct Investments and Official
Development Assistance funds to risky and innovative projects despite evidence of failure. They
have made negotiations with the Government upon fiscal incentives and poverty alleviation
programmes in which they put an upper hand to ease financial constraints to those who need
additional working capital other than technical assistance.

The GoU adopted a number of structural adjustment Programmes (SAPS) which include:
introduction of a new investment code and establishment of the Uganda Investment Authority
(UIA), liberalization of foreign exchange market, control of inflation, return of Asian Properties,
and liberalization of trade regimes to promote investment as a key policy issue (PEAP 2007/08).
The purpose of these policy reforms was to attract private foreign investment to supplement the
locally mobilized resources as well as encouraging competition in small scale business.

The programmes with an overall objective of reducing extreme poverty to less than 10% have
emphasized the attempt to formulate a comprehensive employment policy that is attached to the
creation, protection and promotion of employment opportunities that absorb surplus labor force
available in the country.

According to the Poverty Eradication Action Plan (PEAP 2007/08) through its pillars of
Economic management, Production, competitiveness and incomes, Governance, Conflict
resolution and disaster management as well as Human development have emphasized
infrastructural development as roads, electricity, railways to maintain macroeconomic stability as
well as boosting private sector and small, micro entrepreneur skills and business development
through community empowerment and improved health attributed to formal education and adult
literacy. Its to this that Government aims to boost economic growth from 6.5 to 7% over the
medium term due to the changing structure of the economy as reveals the share of agriculture
since 1991/92 to 2002/03.

26

2.4.4 Low start-up capital:


According to the Briefing paper 11 (CED 2004) Small Scale Businesses operate in the informal
sector because many entrepreneurs and proprietors are illiterate and have limited access to
information. This implies that they lack sufficient collateral to cover risks involved for the high
transaction costs and can easily be set up since they require low start up costs in form of capital.

According to UBOS (2006), the informal sector is becoming an increasing important component
of the National economy since it comprises of SSBs usually with self employed activities with or
without hired labor. They operate with low capital as they are never supported by formal
financial institutions but only rely on Own savings.

The low income levels of Business owners, own savings invariably impose an upper limit to the
size of Business that can be operated and limit their potential to sustain the population in the jobs
created. Indeed UNHS 2002/03 revealed that one major source of hindrance to business earning
and productivity is access to capital. Microfinance Institutions are starting up to bridge the gap
but there are still concerns that the terms are not favorable due to high interest rates and short
maturity periods that are alluded as major problems.
2.4.5 Population growth:
According to the (UBOS 2007), the population has an increasing trend for every 20 years as
revealed since 1948 from 5 million to 9.5 million by 1969, 12.6 million in 1980 to 24.2 million
by 2002 while in 2007 population projection stood at 28.2 million thereby implying a population
growth rate of 3.2% per annum as compared to 2.4% of the sub-Saharan Africa. UBOS revealed
that National unemployment rate would be more pronounced at 16% in the urban areas of
Kampala. The population growth rate is highlighted below;
Figure 1: Uganda Population growth trend

27

Uganda Population Growth Trend

120

101

100

81.4

80

53.7

60
Population(m illions )

40
20

12.616.7
9.5
5 6.5

36.8
22 24.7

Year

Source: Population Secretariat Database


It is from this point of view that the presence of unemployment in families other than
dependence on individuals has induced the participation of labor force into the labor market
owing to the associated socio-economic responsibilities has led to reliable availability of labor
since this is at an increasing trend based on the projection.

2.5 CHALLENGES FACED BY SMALL SCALE BUSINESSES


Despite the nations economic recovery, a number of serious constraints have hampered the role
of small scale businesses to adjust towards globalization and this has restricted them to making
low quality products for low returns in the markets. The following factors account for the poor
performance of these businesses in the area of study.
2.5.1 Poor Infrastructure:
The major barrier to business success is the lack of infrastructure and the high costs associated to
its development for the administration and location of the business activities nevertheless the
28

ones available are also expensive in terms of rent as some are not easily accessible especially for
the case of roads in more remote areas (Barney, 1991; Peteraf, 1993). Minimal efforts are being
undertaken as improvements for the potential to stimulate business development in Kampala,
including a public transport system that would allow people to move more easily within the areas
of operation for the businesses.
2.5.2 Financial Problems:
Small enterprises make an important contribution to economic output and employment in
developing economies. While estimates vary greatly depending on definitions, the World Bank
suggests that almost 30% of employment in low-income countries is generated by the informal
economy, while an additional 18% is provided by (formal) small and medium enterprises.
Together these two groups contribute 63% of the GDP (Ayyagari, M., T. Beck and A. DemirgucKunt, Small and medium enterprises across the globe: A new database, World Bank Policy
Research Working Paper 2007). Finance is lifeblood of any enterprise irrespective of its size.
Small businesses face more problems in raising finance, as the provider of finance may not find
the return on investment interesting as compared to large enterprise, and also the entrepreneurs
are skeptical about repayment.

Chijoriga and Cassiman (1997) pointed to finance as a key constraint to the growth of small scale
businesses. Ngobo (1995) further made analysis of finance as a constraining factor for lack of
working capital, wrong choice of financiers, high interests payments, frauds, corruption, lack of
financial control, an absent of costing systems and delay in release of funds by banks or
financiers. Obviously, the professional approach is missing on the part of owners/managers and
promoters, hence there are no concepts to monitor and control the financial affairs of these
businesses with time.
2.5.3 Improper business Feasibility:
This factor acts mainly at the initial stages of the project and is based on the decisions of the
entrepreneurs. Many projects and businesses are affected at birth because of inadequate
feasibility reports regarding the demand of product in various markets, wrong choice of
technology, improper forecasting of financial requirements, delayed in supply of plant and
29

machinery or in their installation or release of funds by financiers. No clear vision, goals and
objectives. The root of all these problems may be traced to the lack of expertise in business
planning and management on behalf of entrepreneurs and promoters (Lockett and Thompson,
2001; Jacobides and Winter, 2007).
2.5.4 Lack of Managerial Knowledge:
According to Harper (1994), the formation of small scale businesses the owners can easily run
the business but as it grows and ages, managerial demands rise. These are in the form of
operational managerial requirements like production, sales and finances and most importantly the
ability to deal with them yet this is a hunch to them. Harper clarifies that entrepreneurship goes
beyond management since entrepreneurial skills are part of managerial skills.

The majority of entrepreneurs are unaware about the knowledge of managerial field. Therefore,
they are performing the non-managerial tasks rather than the tasks of managerial functions such
as planning, organizing, leading and controlling (Barney, 1991). Indeed, in this dynamic world
the informal sector needs qualified professionals to handle the various activities of business
affairs more effectively and efficiently. It is clear that, the sound knowledge of managements is a
key to success which is lacking in the small scale businesses (Sleuwaegen and Goedhuys, 2002).
2.5.5 Poor Educational Background or Lack of Education:
The research study reveals that most of owners/managers have a very poor educational
background, as majorities are un-educated. In this scenario, entrepreneurs of the small scale
businesses in the region of study are never comfortable at their business units since they lack
suitable training, and leadership skills to sustain their operations in the various areas of
accounting, marketing, technological processes and development as well as administration and
management. It should be noted that SMEs are never facilitated at the cost of development hence
operational shortcomings (Fafchamps and Minten, 2002).
2.5.6 Out-Dated Technology:
The methods of production which the small businesses use are old and inefficient. This results
into low productivity, poor quality of products and high costs. The entrepreneurs lack
30

information about modern technologies and training opportunities which concerns them. There is
little research and development in the field yet the pace of change has developed new
innovations and introduced new technology that is basically mechanized and requires less labor
as a concern which is much faster today small scale business units cannot survive and withstand
the global competition since they depend on cheap labor, adopt simple labor intensive
technologies and keep the pace with changing situations because they cannot afford to purchase
the highly expensive mechanized machines for their productive activities but rather sustain their
competitive advantages(Lockett and Thompson, 2001).
2.5.7 Poor Marketing Strategy:
The small-scale businesses also faced the acute problem of marketing their products. The
problems arises from such factors as small stocks, lack of standardized products, inadequate
market knowledge, competition from technically more efficient units, deficient demand, etc.
Apart from the inadequacy of marketing facilities, the cost of promoting and selling their
products too is high. The result is large and increasing subsidies which impose heavy burden on
the government budgets.
2.5.8 Increasing Competition:
Some businesses possess dynamic capabilities that give them a comparative advantage in
innovations (Barney, 1991; Lockett and Thompson, 2001; Jacobides and Winter, 2007).
Competition from large scale businesses gains them credibility with licensing and taxation and
enhances their access to rationed resources; can easily out-price and out-sell the small businesses
thus contributing to improved performance (Sleuwaegen and Goedhuys, 2002). SMEs can
benefit from networking effects, better infrastructure and larger markets relative to their rural
counterparts (Fafchamps, 2003; Fafchamps and Minten, 2002; Bogetic and Sanogo, 2005;
Shields, 2005; McPherson and Mead, 1996; Mead and Liedholm, 1998).

It is suggests that business performance depends not only on the returns of specific strategies, but
also on the cost of implementing those strategies. This explains, for example, behavior and
decision making such as diversification, market entry and exit and innovation, among others.
31

This is usually attributed to the formal enterprises since it is difficult for competitors to know the
causes of other businesses efficiency and they face costs associated with efforts that exhibit
superior performance that retains their position over others for a given period (Hawawini et al
2003). This also implies that, within a set of business units operating in the same industry/sector,
there will be intrinsic differences in business performances due to their overwhelming strategies
implemented (Barney, 1991; Peteraf, 1993; Lockett and Thompson, 2001).
2.6 SOLUTIONS UNDERTAKEN TO ENHANCE SMALL SCALE BUSINESSES

Despite the challenges faced, GoU is adopting a strategy of economic management as a way to
recognize the contributions of small businesses through this they have emphasized the
maintenance of macroeconomic stability, fiscal consolidation as well as boosting private
investment in various ways;
2.6.1 Traditional guarantee Associations:
According to De Gobbi (2003), the Mutual Guarantee Associations (MGA) is a viable solution to
the problem of access to credit from Banks for the small scale entrepreneurs who cannot offer
sufficient collateral. By definition, MGAs are associations that are comprised of entrepreneurs
who join together to create an organization that establishes a dialogue with Banks. Its plays the
role of an intermediary between artisans and banks; small scale enterprises join the associations
that negotiate with banks to secure loans for its members. Successful MGAs strengthen private
initiatives and SMEs which are widely regarded as a key ingredient to development and poverty
alleviation in most countries.

MGAs are built on social capital that is defined as the institutions, relationships and norms that
shape the quality and quantity of a societys social interactions (World Bank, 2002). It is marked
by the expressions of trust and reciprocity among a community network (Rankin, 2002).This
social capital characterized by the special relationship existing between the members of the
association is seen in its structure where each member is required to contribute to a common

32

fund which is then used as a guarantee to for the accessibility of credit from traditional banks
thereby linking them through a notion of solidarity hence become liable to each others debt.

The MGAs build a bridge between traditional financial institutions and small entrepreneurs since
they help them reduce administrative costs and level of risk through its analysis of loan
applications. Nevertheless they provide capital for expansion to the businesses that otherwise
could not have grown yet they play a significant role in the creation of new jobs that absorb
labor. A clear example of such association in Uganda is the Private Sector Foundation (PSF),
Uganda Small Scale Industries Association (USSIA), 360 Network and Enterprise Uganda that
have greatly advocated for the strengthening of the small and micro entrepreneur businesses.
2.6.2 Financial sector development:
This is a government strategy undertaken to improve the modalities of external support

by

focusing on commercial banks as there is a limited sector of non bank financial institutions. This
is intended to reduce commercial bank holding of Government securities so as to widen the
monetary base upon which loans to private sector businesses are to be obtained.

A credit reference bureau is being advocated through the promotion of microfinance institutions
as a way to enhance private sector investment due to reliable and fair lending terms since the
clients to the micro finance institutions are low-income persons that do not have access to
formal financial institutions with a relatively unstable source of income as the self-employed,
often household-based entrepreneurs and small scale entrepreneurs for instance in rural areas,
they are usually small farmers and others who are engaged in small income-generating activities
such as food processing and petty trade. In urban areas, micro finance activities are more diverse
and include shopkeepers, service providers, and street vendors, to mention but a few.

According to Zeller and Sharma (1998), Micro finances can help to establish or expand small
scale enterprises thereby potentially making a difference between grinding poverty and
economically securing life since they not only stabilize but also increase incomes for the small
33

scale establishments that work in the informal sector and comprise of social institutions like
cooperatives, Self Help Groups, Micro Finance Institutes in the Economy hence they provide
small and simple loans (micro credit) to help them engage in productive activities or grow their
businesses thereby enhancing their performance as well as increasing their savings for the
improvement of entrepreneurial welfare.

Micro finance Institutions have therefore made significant contribution to creation of


employment in the process of boosting SSBs that absorb labor to an approximation of 90% of the
school drop-outs, retired and retrenched civil servants, the skilled unemployed women and army
veterans (Wamasembe 2001).
2.6.3 Diversification and markets expansion:
Trade liberalization and the openness of boarders is a strategy the Government has undertaken as
a way to boost economic activities. COMESA, EAC are regional integrations that have played a
vital role in the contribution to poverty reduction, creation of employment through the
entrepreneurial drive for the SSBs since they promote exports, low tariffs have been put forward
with minimal bureaucracies thereby increasing their effect on the aggregate output growth.

This endures a competitive market place whose actions depend on the participants since they will
be able to set the terms of trade for the commodities and services offered to the market.
Participants are free to negotiate prices and conditions of exchange among themselves, broad
rules defining the structure of the market and dynamics of negotiation tend to be set by a formal
regulatory mechanism to ensure fair dealing among the competitors. Hence various products
shall be produced to widen the small scale participation in the labor and product markets due to
the assured markets that are beyond the domestic levels.
2.6.4 Corporate governance:
According to Roy Crum and Itzhak Goldberg (1998), corporate governance is a multidimensional aspect of authority that covers the political set up of formal and informal institutions
for efficiency, effectiveness and accountability so as to achieve sustainable development,
34

personal freedom and welfare of the population through its emphasis to strengthen national
planning and resource allocation for poverty eradication.

Insecurity is consistently being put to halt as a way to create a more conducive climate for small
scale and private investment. Political structures as democratization, decentralization, human
rights and better judicial systems have been undertaken to make them significantly affordable for
SSBs productivity and enhance their performance (PEAP 2007/08). Likewise the form of
Organization most appropriate for the so called Greenfield investments or new Ventures may be
the most effective structure for the large state owned businesses that are being transformed into
private owned businesses (Roy Crum and Itzhak Goldberg 1998).
2.6.5 Human and Cultural Capital Development:
Throughout the region, formal training facilities based on specialized training have been
emphasized to be incorporated into the curricula so as to impart knowledge and skills as regards
curatorial, marketing, managerial and administration (Fafchamps and Minten, 2002, Sleuwaegen
and Goedhuys, 2002). This will lead to the integration of women and low income entrepreneurs
to enhance their performance in the competitive world of business as they will have acquired
initiatives for understanding the production and management process, ability to respond to the
current practices and environment shall be obtained through the formal and informal skills
transfer education system as a focus on the entrepreneur approach.
2.7 Conclusion:
The working conditions in the Informal sector that encompass the Small Scale Businesses are
extremely poor due to the traditional apprenticeship system that is used which does not facilitate
the evolution towards a more efficient Organization of the Businesses. Hence training should be
imparted on the jobs through repetitive practices to increase productivity.

35

CHAPTER THREE: METHODS AND PROCEDURES


3.0 Introduction
This section describes the methods that were used for conducting the research. It dealt with the
research design, area of study, sample selection, data management procedure, data collection,
data analysis, and the anticipated constraints.
3.1 Research design
The study was designed in a way that it employed both exploratory and descriptive tools. The
qualitative and quantitative methods of data collection were adopted so as to explore and obtain
viable data as regards the extent to which SSBs provide employment opportunities despite the
challenges they face.
3.1.1 Study area and Target population
The study was carried out in Shauriyako Trade Center in Kampala district where Small Scale
Businesses have been developed as a way to alleviate poverty through employment provision to
the labor force that operates with the business entrepreneurs.
3.1.2 Sampling method
Snowball sampling method was used since involved asking the key informant to identify the
other business owner to be contacted for information as regards the issue under study. This
method was used since business owners worked as a network and were difficult to identify in the
area of study.
3.1.3

Sample size and sample selection

Simple random sampling as the basis for sample selection and size was undertaken because the
business units were clustered in the same vicinity. This also determined the sample size of 240
respondents from 25 business settings that were contacted in the process of data collection.

36

3.2 Key Informants


The key informants were those people who owned business in the area of study and are
responsible for all business operations as recruitment, administration and management were
purposively selected to provide information.
3.2.1 Focus groups
During the study, 2 groups with only 4 respondents from each business unit were interviewed in
the process of data collection. Each focus group was comprised of the business owner, 3
employees and this was conducted with the help of a research assistant and the researcher.
3.2.2

Data Collection

Data collection was based on the field visits to Shauriyako Trade Center by the use of
observation, and interview questionnaires. The interview questionnaire was designed and pretested for minor adjustments and corrections to clarify some questions and ensure that relevant
information is gathered.
3.2.3

Observation

The researcher used this method especially to learn about things that the respondents could not
be aware of and not willing to discuss in the interview or as regards the activities of their
businesses towards their provision of employment to the labor force.
3.2.4

Questionnaire

This method was used in the study, since questionnaires were administered and interpreted to the
business owners and their employees with the guidance of the researcher and a research assistant
so as to obtain reliable data.
3.3 Editing
Data was edited immediately after each interview so as to ensure completeness and uniformity
into meaningful categories for easy interpretation.
3.3.1 Coding
Coding was done in order to control the data which was collected; in this case all that did not
conform to the subject matter was left out.
37

3.4 Problems encountered during the field research


During the research study, many problems were encountered among which included the
following;

Information concealment; This came about by the respondents mistaking me and my assistants as
a revenue agent from the Uganda Revenue Authority since most of the SSBs lacked the
necessary documents like trade licenses and tax slips that authorize them into business.

Most respondents did not have time to answer questions yet this was the core of the study. This
was because of fear from the Bosses (Business Owners) who reserve the rights to take on any
action for the control of employee activities. Nevertheless the need to attend to customers also
limited my study since they are taken to be the utmost Bosses of the business as explained by
the statement The customer is my Boss.

For data about the SMEs in the libraries for review was so old and sparse since it was only
information far back as 10 years ago yet there are so many changes that have taken place that
render the information inapplicable to current situations.

In spite of all the setbacks, the study was carried out and the best possible solutions were adopted
to ensure that it is completed for instance the use of the University Identity Cards to provide our
identity as students rather than tax agents.

38

CHAPTER FOUR: DATA PRESENTATION AND INTERPRETATION OF FINDINGS


4.0 Introduction
This chapter highlights the presentations, interpretations and discussions of collected data in
tables, graphs and charts among others where 240 respondents were interviewed to provide
information about the subject of study.
4.1 Background information of respondents
Table 1: Number of people who own a business
RESPONSE

FREQUENCY

PERCENTAGE

Males

149

62.1

Females

91

37.9

TOTAL

240

100

Source: Primary Data


From the table above, it is indicated that there are more males than females that are participating
in the small scale business operations. This is so because the males have a greater share of 62.1%
as regards the ownership of the business compared to women. This implies that most of the
Small Scale businesses are operated by men for purposes of supplementing on their incomes to
enable them sustain an improved standard of living.

Table 2: Number of respondents employed by SSBs

RESPONSE

FREQUENCY

PERCENTAGE

5 to 10 people

157

65.5

10 to 15 people

41

17.1
39

15 to 20 people

42

17.5

TOTAL

240

100

Source: Primary Data

According to the table above, SSBs are those businesses that use more labor to sustain their
activities. In Shauriyako trading centre, for every business there are about 5 to 10 people being
employed this implies that the businesses are labor intensive hence contribute to 65.5% of the
labor force that is provided with employment. It is from this that the poor benefit since they can
easily access the opportunities generated by these small business units in the area of study.

Table 3: Level of Education


LEVEL OF EDUCATION

FREQUENCY

PERCENTAGE

Primary

3.3

Secondary

94

39.2

Diploma holder

14

5.8

Degree holder

112

46.7

Not educated

12

5.0

TOTAL

240

100

Source: Primary Data


From the table above, it is showed that 46.7% of the business entrepreneurs are Degree holders,
39.2% are Secondary certificate holders as 5.8% are Diploma holders compared to 5% with no
40

education and 3.3% at Primary level of education. According to the analysis it is showed
therefore that the level of education is positively related to the growth potential of business. This
is because only the educated entrepreneurs are in position to start up and manage the business
operations so as to cope up with the changing technology and competition in the labor market.
This is further showed by the figure below;

Figure 2:

Level of Education

41

42

4.2 The different classifications and activities of the Small Scale Businesses
Findings on the different classifications and activities of the Small Scale Businesses were
considered as evidenced below;

43

Figure 3: Categories of small scale businesses.

Frequency
Tied shop business
Street retailing
Hawking
Mobile shop business
Market place business

Source: Primary Data


30
40

Analysis20
shows that the businesses are small due to their marketing strategy that is bounded to
only customers who are already used to the place since they are tied to in place where every
50

10 them that are Shauriyako trade center. This is so because majority of the small scale
client finds

businesses in the area of study are involved in the tied shop business with a higher percentage of
0

63.3% compared to 17.1% in the market place business, 6.3% in the hawking business, and 7.5%
Percent

in the street retailing.

Table 4: Size of the business and level of employment


e
re
eg
D

r
de

r
de
ol

ol

y
ar
nd

44

10.8

co
Se

y
ar

26

PERCENTAGE
m

FREQUENCY
im
Pr

Micro

lo
ip
D

SIZE OF BUSINESS

What is the le

Small

186

77.5

Large

28

11.7

TOTAL

240

100

What is the level

Source: Primary Data


The size of the business was dependable on the structural set up of the management. All
businesses that had a clear managerial structure that composed of a single Boss who is also the
entrepreneur and the support staff was categorized to be operational at a small level and this is
showed by a greater percentage of 77.5% in Shauriyako trade center while those that had only
Own boss at the highest level of administration operated at a micro level with 10.8%, and those
with the Board of directors and support staff operated at large scale as indicated by 11.7% in the
table. This therefore implies that small scale businesses have limited bureaucracies that run there
administration of activities.

This implied that most businesses that operate at small scale with Own boss and support staffs
provided more employment opportunities to the labor force since they needed little technical
skills because the support staff is under the direct supervision of the business proprietor as
showed by the figure below;

45

Figure 4: Level of employment by the SSBs

12% 11%

Micro

Small

Large

78%

Source: Primary Data

46

Table 5: Source of startup capital


SOURCE OF CAPITAL

FREQUENCY

PERCENTAGE

Did not need any money

12

5.0

Own savings

160

66.7

Loans

28

11.7

Friends and relatives

16

6.7

Others

24

10.0

TOTAL

240

100

Source: Primary Data


It is indicated that the major source of startup capital for most businesses was own savings. This
is because most of the entrepreneurs in the area of study where previously employed by larger
businesses from where they were able to secure personal savings that accumulated over time and
enabled them to start up their own businesses at a small scale since these require little startup
capital.

However, others obtained their startup capital in form of simple loans from financial institutions
that are accompanied with interest rates over a specified period as others from friends and
relatives at negotiable terms of repayment. Note that there are some businesses that never needed
any capital because of the marketing skills adopted by the large scale businesses in the process of
widening the market base by opening up other branches within the same place.
4.3 The challenges that limit the contribution of small scale businesses towards
development:
Findings on challenges that limit the contribution of small scale businesses towards development
were identified according to the responses from the various business units that were contacted;
47

48

Table 6: Number of businesses with challenges


RESPONSE

FREQUENCY

PERCENTAGE

Yes

224

93.3

No

16

6.7

TOTAL

240

100.0

Source: Primary Data


According to the analysis, 93.3% of the business community accepted that they were limited by
for other reasons other than managerial and structural set up of their businesses compared to
6.7% who support the cause to be attributed to the above factors. Therefore various challenges
were put forward as below since they need attention so as to induce the contribution of small
scale businesses to development.

Table 7: Challenges to the SSBs


CHALLENGES
Taxes and regulations

FREQUENCY
132

PERCENTAGE
55.0

Competition

46

19.2

Lack of storage facilities

12

5.0

Inflation

23

9.6

Transportation costs

2.9

Others

20

8.3

TOTAL

240

100

Source: Primary Data

49

From the table, 55% of the business units noted that taxes and regulations is the most challenge
to their businesses these are usually so high yet they are also price takers and have no influence
in determining the prices of their products. One would however recommend them to follow the
law of demand and supply but still this is under the control of price flows and ceilings. Rather it
would be better if the GoU revises its policies as regards business so as to ensure incentives and
tax holidays are provided some products.

Competition is another limitation that is faced by the businesses. According to analysis, 19.2% of
the respondents agree that this is a challenge brought about by those businesses that possess
dynamic capabilities, credible with licensing, taxation and enhances their access to rationed
resources such businesses can easily out-price and out-sell the small businesses thus contributing
to improved performance for development. SSBs can therefore reduce on the effect of
competition by networking with medium and large businesses, better infrastructure and larger
markets.

Lack of storage facilities is also a limitation by the business units in Shauriyako trade center.
This is especially to those that hardly afford the costs to rent tied shops and rather resort to street
retailing and hawking the fact that they have little startup capital that cannot sustain them to
posses stores for their products. Suggestions are mostly referred to Government to improve on
the infrastructural development in the form of huge stores managed by the government to be
rented at subsidized amounts in the favor of the business fraternity.

Inflation contributed to 9.6%, this is in reference to the persistent increase in the prices of the
product that the SSBs deal with. This limits their decisions on which price level to sell their
products since this is attributed with high taxes. Inflation to them can only be reduced by
widening the market base for the large and medium businesses abroad so as not to compete with
the small scale businesses. In this way they will be generating foreign incomes that will help

50

improve the value of a shilling against a Dollar and this will endure small scale businesses to
increase in the provision of employment opportunities to the labor force.

Transportation costs with a minor percentage of 2.9% are attributed to poor roads for
accessibility purposes in the process of widening their markets. This has increased on their costs
since access to rural areas is difficult and this to the business fraternity in the area of study would
only be solved by construction of better road networks to the industrialized areas where the SSBs
obtain their products.

However, other solutions have been put forward in support of the small scale businesses so as to
sustain their activities as they provide employment to the labor force. These included;
i.

Traditional Guarantee Associations such as PSF,KACITA,360 Network

ii.

Financial Sector Development

iii.

Market expansion and diversification

iv.

Good Governance

v.

Human and cultural capital development

4.4 The impact of employment opportunities provided by the SSBs to household welfare:
In the process of providing employment opportunities to the labor force, household incomes have
been enhanced for better welfare. However there are other benefits attributed to this as
highlighted below;

i.

Equitable distribution of incomes amongst nationals that engage in the small scale
business operations.

51

ii.

Industrial developments among the different sectors of the economy are also a result of
small scale initiatives.

iii.

Poverty reduction which is a basis towards the accessibility to basic needs like food,
education, housing and medical care.

iv.

Social network in form of interrelationships keeps a wide and open mind to development
through knowledge and skills development.

v.

Access to financial institutions to widen the capital base for the small scale businesses is
also a benefit from the activities of the small scale businesses

Table 8: Relationship between the kind of activities done by the businesses and employment
opportunities
Correlations

Employment
Opportunities

Employment
opportunities
1.000

Pearson Correlation
Sig. (2-tailed)

N
What kind of
activities does your
business do?

240

Pearson Correlation

0.838**

Sig. (2-tailed)

0.000

240

What kind of
activities does
your business
do?
0.838**
0.000
240
1.000
.
240

**.
Correlation is significant at the 0.01 level (2-tailed).

From the findings, there is a strong positive relationship between employment opportunities and
the kind of activities done by the businesses at Pearson correlation coefficient at 0.838. This
implies that for every kind of activity involved in such businesses increases on the employment
opportunities generated by the businesses. For instance, each activity done in the small scale
businesses is an opportunity to the labor force hence more efforts should be done to enhance
their performance so as to increase on their contribution to development.

52

CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS


5.0 Introduction
This chapter involves a summary of the findings, discussions, and recommendations that are
based on the objectives, the problem statement, and well as the recommendations are based on
the findings.
5.1 Conclusions of the study.
Findings revealed that majority of the different classifications and activities of the businesses
were tied shop businesses that operated at a small scale, were managed by own boss and support
staffs, had their source of startup capital from own savings, and do not provide opportunities to a
great number of the people since they mostly employ less than 5 people compared to the labor
force available.

The study revealed that most business owners had challenges that hindered their business
operations, taxes and other regulations. Problems in the context acquisition of licenses for
registration, duplication of products have been attributed to competition. This has culminated
into the widening of markets, emphasizing of the Traditional Guarantee Associations as
KACITA, PSF, 360 Network and USSIA so as to focus on the issues that hinder trade and
business operations.

That small scale business mostly improve incomes and welfare of individuals, from their
businesses knowledge or skills and business partners, competition for jobs associated with social
responsibilities encouraged most business people to start businesses, the kind of activities
engaged in by the businesses have enabled them to absorb labor force through the provision of
employment opportunities.

53

The study revealed that most people owners used own savings as a startup capital for their
businesses hence operating at a small level with a structural hierarchy of own boss and support
staffs thus leading most businesses to be tied shop businesses with less than 5 employees.
Despite the challenges faced by the small scale businesses as taxes and other regulations,
competition from similar operations, transportation costs, efforts have been undertaken to
increase the role of such businesses in the provision of employment to the labor force.
5.2 Recommendations
Small scale businesses need to employ professionals to manage their businesses this will
improve on their performance since these will establish and strengthen the internal controls as
regards financial resources to reduce on mismanagement and misappropriations. It is through this
that small businesses whose startup capital is based on own savings will easily access financial
institutions for loans to enhance their business operations towards employment provision.

Small scale business operators should widen their markets so as to reduce competition this
should be done by integrating market information into the planning process because marketing is
the life blood of a competitive marketplace as it is driven towards the needs and desires of
customers in the production decisions. This should be done with the help of the Government
through tax exemption strategies for investment and direct financial support to small scale
businesses.
Government should introduce motivation incentives in support of the small scale business
operations for examples increased salaries, wage tax holidays and other non-monetary rewards.
This would improve on the performance of businesses towards development and employment
provision.
The decision makers of the small scale businesses should adopt the best form of organization that
can address the following issues with help of updated technology;
i.

The life and continuity of the business

ii.

The operating flexibility of the employees


54

iii.

The ease and expense of making the business recognized

iv.

The ease with which capital can be acquired to support business operations

v.

The ability to control the business without jeopardizing other activities in which they are
involved

Government should involve draft policy frameworks for small scale businesses that focus on the
legal and regulatory conditions, capacity building in support of improving the business
environment to increase competition and promote the private sector. Emphasis should be on
enabling accessibility through the development of better infrastructure in form of roads for
transportation, administrations buildings as well as communication systems.
5.3 Areas for Further Research
Further research should be carried out on the following;
The effect of information technology on the performance of Small scale businesses
The role of financial and non financial Institutions in the development of Small scale businesses
The effect of procurement ethics on the performance of Small scale businesses

55

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Development

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Susanjoekes (1995), Trade related employment for women in Industry and Services in
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UBOS (2007), Volume 1, Projection of Demographic Trends in Uganda 2007 to 2017

Mlatsheni C and Rospabe S, University of Cape Town: Why is Youth Unemployment so

high

and unequally spread in South Africa?

Kilimani N, Uganda Programme for Trade Opportunities and Policy (UPTOP 2007), The Impact
of Ugandas Trade Liberalization Policy on Economic Growth

UBOS (2007), Report on the Labor Market conditions in Uganda

UNHS (2002/03), Report on the Labor force Survey 2003

Ministry of Finance, Planning and Economic Development, Discussion paper 19(June


Employment and job creation in Uganda: Status and Growth prospects

56

2009),

Ministry of Finance, Planning and Economic Development, Poverty Eradication Action Plan
2004/5 to 2007/8

Roy L Crum and Itzhak Goldberg (1998), Restructuring and Managing the Enterprise in
Transition, Economic Development institute of the World Bank

Mumtaz Ali Junejo, Chandan lal Rohra and Prof Dr. Ghulam Murtaza Maitlo, Sickness in Small
Scale Industries of Sindh: Causes and Remedies. A case study of Larkana Estate Area

Uma Lele and Ijaz Nabi (1990), Transitions in Development: The Role Aid and

commercial

flows

Asaf Adebua and Okurut N Fransis (September 2004 Working Paper): The role of the
informal financial sector in small and medium scale industries in Uganda: The

case of

Kampala district

Briefing Paper 11, Solidar (2004): The Economic Crisis and its Impact on Developing Countries

Balunywa W (2002), Background: Entrepreneurship and Small scale Enterprise growth in


Uganda

Professor V.K. Sapovadia, BK School of Business Management, Gujarat University


Micro finance-The Pillars of a tool to Social Economic Development

57

India,

The Trinity Session (ILO), Promoting the Culture Sector through Job Creation and

Small

Enterprise Development in SADC Countries, Crafts and Visual Arts.

Okurut F. Nathan, Banga .M, Mukungu A (2004), EPRC, Microfinance and Poverty
Reduction in Uganda: Achievements and Challenges, Research series No.41

Enterprise Development Series (UNCTAD 2002), Proceedings of the Symposium on


Modalities for Financing SMEs in Uganda.

Uganda Bureau of Statistics (2006/07), Report on the Uganda Business Register

58

QUESTIONAIRE:

THE

ROLE

OF

SMALL SCALE

BUSINESSES

IN

THE

PROVISION

OF

EMPLOYMENT OPPORTUNITIES TO SURPLUS LABOR

Hullo Respondent,
My name is Sekitoleko Eric, a student at Makerere University pursuing a Master of Arts in
Economic Policy and Planning. I am conducting a study in the role of Small Scale Businesses in
the provision of employment to surplus labor. The information obtained will help me fulfill the
requirement for the Award of the Degree and will be kept confidential for academic purposes
only.
1. Do you have/own a business?
a) Yes
b) No
2. What is the physical address of your business?

.
3. Does your business employ other people?
a) Yes
b) No
4. If yes, how many people?
a) Less than 5 people
b) 5 to 10 people
59

c) 10 to 15 people
d) 15 to 20 people
5. Sex/ Gender
a) Male
b) Female

6. What is the level of education for your staff?


a) Primary
b) Secondary
c) Diploma Holder
d) Degree Holder
e) Not educated
7. What is the size of your business?
a) Small
b) Medium
c) Large
8. In what way is your business managed?
a) Own Boss, employees/support staff
b) Own Boss
c) Directors, Managers, Support staff
d) Directors, Secretary, Accountant, Support staff
60

The following questions are directed towards Business and its Operations as well as activities.
9. What was the source of startup capital for your business?
a) Did not need any money
b) Own savings
c) Loans from micro finance institutions
d) Friends and Relatives
10. What kind of activities does your business do?
a) Hawking
b) Tied shop Business
c) Street retailing
d) Market place Business
e) Manufacturing
f) Mobile Shop Business

11. Small Scale Businesses provide work to the unemployed persons.


a) I agree
b) I disagree
c) I strongly agree
d) I strongly disagree
12. Which of the following is a role played by Small Scale Businesses?
61

a) Distribute Money amongst workers


b) Develop other industries in the country
c) Improve your income
d) Reduce poverty
13. Please give any other benefits you get from your Business
i)
ii)
14. Which of the following is a reason that encouraged you to start such a business?
a) Poverty alleviation programmes like NAADS, PEAP
b) Little money required by the Business
c) Competition for jobs
d) Donations
e) Open boarder trade like COMESA, EAC
f) Government policies like tax regulations, Licenses
15. Do you have any other reason(s) that is specific to you?
a) Yes
b) No
16. Give 2 of those reasons above
i)
ii)
17. Do you have any challenges in your business?
62

a) Yes
b) No

18. If yes, Please give any 3 of those challenges


i) .
ii)..
iii) .
19. What have you done to overcome them?
i)
ii) ...
20. Do you think these would also be solutions to the above?
a) Traditional Guarantee Association e.g. Private sector foundation, Kampala City
Traders Association (KACITA)
b) Financial sector development
c) Market expansion and diversification
d) Good Governance
e) Human and cultural Capital Development

63

Thanks a lot, God Almighty bless you!

64