THE IMPACT OF THREE MICROFINANCE PROGRAMS IN UGANDA Carolyn Barnes, Gary Gaile, and Richard Kibombo In Association with Samuel K. Kayabwe, Prossy Musoke, Agrippinah Namara, and Peter Waalwo-Kajula Makerere Institute for Social Research Josephine Harmsworth Andama and Jeanne Koopman Management Systems International Submitted to USAID/Uganda by the Assessing the Impact of Microenterprise Services (AIMS) Project in association with the Makerere Institute of Social Research (MISR) January 2001 This work was funded by USAID/Uganda. Management Systems International (MSI) was contracted through the AIMS Project (Contract No. PCE-0406-6-00-5036-00) and MISR was contracted directly by USAID/Uganda. The AIMS Project is implemented by MSI (the prime contractor) in partnership with Harvard University, the University of Missouri, and the Small Enterprise Education and Promotion Network (SEEP). The project is a technical resource of the U.S. Agency for International Development, Global Bureau, Center for Economic Growth, Office of Microenterprise Development. TABLE OF CONTENTS AC K N O W LED G M E N TS .............................................x EXECUTIVE SU M M A RY ...........................................xi I. INTRODUCTION .............................................1 A. Significance of Microfinance in Uganda .................................................................1 B. Objective and Scope of the Assessment ..................................................................1 C. Assessment Framework ...........................................................................................3 D. Overview of the Report............................................................................................3 II. C O NTEXT ..................................................5 A. Uganda Context .......................................................................................................5 1. Macroeconomic Conditions.............................................................................5 2. Financial Services ............................................................................................7 3. Demographic and Socioeconomic Context......................................................7 4. The HIV/AIDS Epidemic.................................................................................8 B. Profile of Study Sites: Kampala, Masaka, and Mbale Districts...............................9 1. Comparative Information.................................................................................9 2. Kampala District............................................................................................10 3. Masaka District..............................................................................................11 4. Mbale District.................................................................................................12 C. The Microfinance Programs Studied .....................................................................13 1. Their Missions and Outreach .........................................................................13 2. General Program Characteristics....................................................................14 3. Individual Program Distinctions ....................................................................17 III. M E T H O D OL O G Y AND IMPACT ANALYSIS RESPONDENTS ...........21 A. Methodology..........................................................................................................21 1. Sampling ........................................................................................................21 2. Questionnaire Design.....................................................................................22 3. Field Teams....................................................................................................23 4. Data Coding, Entry, and Analysis..................................................................23 B. Relocation of 1997 Respondents ...........................................................................24 1. Strategies for Relocating 1997 Respondents..................................................24 2. Outcome of Relocation Efforts ......................................................................25 3. Relocation Problems Encountered .................................................................27 C. Characteristics of Survey Dropouts .......................................................................27 D. Respondents Included in the Analysis ...................................................................28 E. Statistical Testing...................................................................................................29 IV. PARTICIPATION IN THE MFI PRO G RA M S ........................30 A. Who Joins MFI Programs? ....................................................................................30 1. Basic Characteristics of Respondents and Their Households in 1997...........30 2. Sources of Household Income .......................................................................32 3. Key Characteristics of Respondents’ Enterprises ..........................................32 i 4. Agricultural Sector Linkages .........................................................................32 5. Key Expenditures...........................................................................................33 6. Unanticipated Events with Financial Repercussions .....................................33 7. Conclusions....................................................................................................34 B. Program Continuation and Departures...................................................................34 C. Clients’ Assessments of Their Programs ...............................................................37 1. Problems Encountered...................................................................................38 2. Positive Results from MFI Participation........................................................39 3. Discussion and Conclusions...........................................................................40 V. FINDINGS AND ANALYSES ....................................41 A. Continuity and Change at the Microenterprise Level............................................42 1. Stability of the 1997 Microenterprises...........................................................43 2. Use of Loan Funds .........................................................................................45 3. Transactional Patterns ....................................................................................46 4. Enterprise Assets............................................................................................48 5. Enterprise Net Revenue..................................................................................48 6. Problems Faced by Microentrepreneurs.........................................................51 B. Household Composition and Income Sources .......................................................53 1. Basic Characteristics of Respondents and Their Households........................53 2. Sources of Household Income .......................................................................56 3. Use of Enterprise Revenue.............................................................................57 C. Household Financial Shocks and Assistance to Others .........................................58 1. Coping with Financial Shocks .......................................................................58 2. Remittances and Gifts ....................................................................................61 D. Human and Physical Assets...................................................................................63 1. Education of Children ....................................................................................64 2. Household Residence.....................................................................................65 3. Ownership of Rental Units and Houses Elsewhere........................................67 4. Ownership of Durable Assets.........................................................................68 5. Selling of Physical Assets ..............................................................................70 E. Agricultural Sector Activities ................................................................................71 1. Land Cultivated and Income from Crops.......................................................71 2. Respondents’ Investments in Agricultural Inputs..........................................73 3. Land Cultivated by Respondent.....................................................................73 4. Crop Diversification by Respondents ............................................................74 5. Agriculture-related Products and Services.....................................................75 F. Individual-level Impacts ........................................................................................76 1. Expansion of Income-generating Activities...................................................76 2. Decision-making ............................................................................................77 3. Accumulation of Assets and Ability to Meet Family Needs .........................78 4. Savings Behavior...........................................................................................80 5. Skills Training, Leadership, and Social Networks.........................................81 VI.