Financial inclusion and micro, small, and medium enterprises (MSMEs) growth in Uganda
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Date
2019
Authors
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Publisher
Springer
Abstract
This paper draws on data from Uganda’s 2013 World Bank Enterprise Survey (WBES),
which comprises data on 762 firms across Uganda to assess the effects of the
business environment, with particular interest on the impact of finance on firm
growth by focusing on differences across firm size. Unlike past studies, we use firm
level data that allows us to interrogate whether the impact of the business
environment is unbiased across firm size. Most importantly, this paper mitigates the
risk of the potential measurement error, omitted variable bias, and endogeneity. The
results suggest that micro, small, and medium enterprises (MSMEs) in Uganda benefit
more from financial access than large firms. These effects are stronger and more
sustained among medium firms. The paper interprets these results as evidence that
MSMEs are more credit constrained relative to large firms. The paper also discerns
that while informality and poor regulatory environment may help divert economic
activity from large firms to MSMEs, informality increases the vulnerability of MSMEs to
corruption to sustain their informal and invisible status. The policy implication on
size, efficiency, and dynamism of the business sector in Uganda is that there is a
need to increase not only financial inclusion of MSMEs but also improve the general
business environment, particularly the formalization of micro firms.
Description
Keywords
Financial inclusion, Entrepreneurship, Employment, Growth, MSMEs
Citation
Lakuma, C. P., Marty, R., & Muhumuza, F. (2019). Financial inclusion and micro, small, and medium enterprises (MSMEs) growth in Uganda. Journal of Innovation and Entrepreneurship, 8(1), 1-20.