Local Microfinance Systems & their Accessibility by Smallholder Farmers in Uganda

An Exploratory Study on local Microfinance Practices

The microfinance industry worldwide has been recognized as an instrumental tool for poverty alleviation and economic growth. Therefore, socio-economic transformation efforts of low income and poor community have been possible through accessing semi-formal and informal financial products/ services. The pivotal role of the microfinance has helped foster the growth and development of small and medium enterprises in the world by providing start-up and business expansion capital among other financial services.

Microfinance institutions target the poor who are considered risky but the repayment rate turns to be positive as compared with the regular commercial banks (Zeller and Sharma, 1998). Based on this backdrop, ACSA underscores that ensuring farmers have adequate access to financial resources is a key tenet of successful rural development strategies and that without adequate access to financial systems for savings and loans, smallholder farmers who face negative shocks, such as droughts, illness or a significant drop in the prices, can lose some of the few assets they do have.

Conversely, smallholder farmers who have access to well-designed credit, savings and insurance services can avail themselves of capital to finance the inputs, labour and equipment they need to generate income; can afford to invest in riskier but more profitable enterprises and asset portfolios; can reach markets more effectively; and can adopt more efficient strategies to stabilize their food consumption. In summary, broader access to financial services provides opportunities for improving access to the agricultural output, food security and economic vitality of entire communities and nations. 

Despite this widely accepted notion underscored by ACSA, rural financial systems have been largely designed, crafted and implemented with little participation of the intended beneficiaries regarding accessibility, practicability and membership parameters. In a bid to provide a streamlined framework for participation, accessibility and initiation of financial systems in communities aimed at benefiting smallholder farmers, ACSA sanctioned this study to assess the existing local microfinance systems and their accessibility by smallholder farmers in Uganda which culminated into a user-friendly guide for entry, development and usability of local microfinance systems.

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