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2008 AEC - Constraints in Access to and Demand for Rural Credit: Evidence from Uganda

10-May-2019

Like is most developing countries, Uganda’s financial sector is largely underdeveloped and concentrated in urban areas, leaving the majority of the agricultural producers in rural population with no access. However, agriculture forms a significant part of the lives of the rural households, who constitute about 85% of the population. At the macro level, agriculture accounts for about 30 of Gross Domestic Product. This study uses the Uganda household surveys conducted in 1992/93 and 1999/2000 to shed some light on access to, and the characteristics of demand for credit among the rural population. We employ the probit, tobit and multinomial logit model estimations on we analyse demand for credit. We find that Uganda’s credit market is highly segmented. The rural peasant producers are largely served by relatives/friends and self-help credit associations and their loan applications are less likely to succeed, and of those that do, smaller loans are granted. The educated and the young are more likely to demand credit while women are less likely to, and to apply for smaller loans. Therefore, while government’s agricultural modernisation policy considers credit as an important input to its success and as the Government plans to roll out its programme of Wealth-For-All, more needs to be done to get credit flowing to the sector and to ensure that it can be usefully utilised. Skills and vocational training to enhance production and training in appropriate use of credit are needed.

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