Financial inclusion of Micro, Small and Medium Enterprises (MSMEs) during the Covid-19 pandemic

Micro, Small and Medium Enterprises (MSMEs) play an important role in the economy such as providing numerous employment opportunities and generating innovations in all sectors thereby promoting competition and efficient resource allocation. There are a myriad of ways to define MSMEs: size of capital investment, the number of employees, turnover, management style, location and market share. In Uganda, MSMEs usually employ less than 5 and a maximum of 50 employees, with working capital of less than Ug.Shs 50 million and annual income turnover of between Ug.Shs 10 to 50 million.

Among the many constraints that MSMEs in Uganda are facing, access to finance stands out as a challenge for it limits their growth and performance.Therefore, the capacity for MSMEs to realise their potential in a given economy may largely depend on the availability of finance to enable them increase their income and resolve their liquidity constraints. Yet, literature shows that many MSMEs do not have access to credit and very few are incorporated in the formal financial markets. And those that access credit often borrow from informal market lenders who charge high interest rates.

Consequently, close to 90 percent of MSMEs in Uganda often collapse within the first year of start-up, owing to the lack of access to credit. In response, several financial institutions have taken initiatives to extend financial services to MSMEs especially during this period of the Covid-19 pandemic to enable them create employment, build their assets base and improve their capabilities.

Equally, inadequate human capital impedes MSMEs’ ability to build their capacity to obtain financing. Thus good quality human capital is a necessity for MSMEs to enhance their marketing and financial planning, business records and corporate governance, management skills, entrepreneurial skills and knowledge of business opportunities.

To complement financial services, MSMEs require financial literacy, training and mentoring in governance and compliance to develop the credibility of their businesses. Relatedly, MSMEs also need capacity building to improve their financial records and accounting systems. Proper record keeping and maintenance is important and the books of accounts have to be clear, realistic and replicating their operations and financial standing.

In turn, good books of accounts give credibility to the businesses and com in a handy in accessing credit from banks, business management and monitoring and guiding tax authorities. Fortunately, Some institutions in Uganda such as Stanbic Business Incubator have made an effort to train and mentor MSME’s in these area to harness their business and growth opportunities.