TABLE OF CONTENTS

DECLARATION

APPROVAL

DEDICATION iii

ACKNOWLEDGEMENT iv

ABBREVIATIONS AND ACRONYMS ix

ABSTRACT x

CHAPTER ONE 1

1.0 Introduction 1

1 .1 Background information 1

1 .1.1 Strategic issues ofthe scheme to Farmers Cane Growers AssociationsMlSSlON 2

l.1.2TheSACCOS 4

1.2 Statement ofthe Problem 5

1 .3 Research Objectives 7

1.3.1 General research objective 7

1.3.2 Specific research objectives 7

1.4 Research Questions 7

1.5 Significance ofthe Study 8

1.6 Scope ofthe Study 8

1.7 Limitations ofthe Study 9

1.8 Organization ofthe Study/Dissertation 9

1.8 Conceptual Framework 9

CHAPTER TWO 11

LITERATURE REVIEW 11

2.1 Introduction 11

2.2 The SMEs in the Economy 11

2.3 The SMEs sector in Uganda 12

2.4 The financial sector in Uganda 12

2.5 Microfinance Policy in Uganda 13

2.6 Types of Microfinance Institutions in Uganda 14

2.7 The Impacts ofMFI Worldwide 14

2.8 The role ofMFIs in Developing SMEs 15

2.9 The Role ofthe Agricultural Sector in Uganda 16

2.lOLoan 17

V

2.10.1 Meaning & Scope of Credit in Agriculture .18

2.10.2 Agricultural Credit to Small Scale Growers 18

2.10.3 Types of agricultural loans 19

2.10.4 Terms and conditions ofthe loan 20

2.10.5 Factors to obtain credit or extend loans 20

2.10.6 Effects of loan received by SSSCG 21

2.10.7 Importance of Agricultural credit 21

2.10.8 Why small-scale farming merits Loan support 22

2.10.9 Lack of Knowledge and Financial Resources 22

2.10.10 Sources of Credit to Farmers in Other Parts in Africa 22

2.11 Problems in Financing Small Scale Farmers 23

2.12 Previous Studies on Impacts ofAgricultural Credits 23

2.13 Impact of Collateral on Microfinance Institutions’ Lending Perspective ofLending 24

2.14 Effects of collateral on the lending institution 24

2.1 STheoretical Framework 25

2.15.1 Micro-Credit Delivery Model 25

2.15.2 Theoretical Model of Matching 26

2.15.3 Empirical Evidence of the Study 26

2.16 Chapter Summary 27

CHAPTER THREE 28

RESEARCH METHODOLOGY 28

3.0 Introduction 28

2 Area of Study 28

3.1 Research Design 28

3.3 Study Population and sample size 28

3.4. Study population 28

3.4.1 Sample size 29

Table 1: Sample size 29

3,5. Sampling procedure 29

3.6 Units of enquiry 30

3.7. Method ofdata collection 30

3.7.1 Data Collection tools/techniques 30

3.7.2 Questionnaire 30

3.7.3 interviews 31

vi

3.7.4 Observations .31

3.7.5 Documentary source 31

3.7.6 Data Processing and Analysis 31

3.8 Ethics Review 32

3.8.1 Data Quality Control 32

3.8.2 Expected results ofthe study 32

3.8.3 Chapter Summary 33

CHAPTER FOUR 34

RESEARCH RESULTS AND DISCUSSION 34

4.0 Introduction 34

4.1 Socio-Demographic Profile of the Respondents 34

4.2 Results and discussion by objectives 35

4.3 Distribution of Respondents by Age 36

4.4 Distribution ofRespondents by Level of Education Figure 2:Level of Education ofthe Respondents 36

4.5 To examine the uses ofthe agricultural credits received by small scale sugar canegrowers at Kamuli 37

4.5.1 Agricultural Credit Program Operating at Kamuli Area 37

4.5.2 Main Sources of Credit to the Kamuli Small Scale Farmers Table Table 3 38

4.5.3 Uses of Credit 39

4.6 Accessibility of Credit by SSSCG at Kamuli District 39

4.6.1 Extent ofLoan by SSSCG 39

4.6.2Micro Finance and Collateral /Security 41

4.7 Relationship between Loan Acquisitioh and Improvement in Production 42

4.7.1 Agricultural credit play role in improvement of sugar cane production Figure 5:Agricultural credit play role in improvement of sugar cane production 43

4.8 To examine the challenges faced by Micro finance institutions/SACCOS as thefinancing entities 43

4.8.1 Lack oftangible collaterals 44

4.8.2 Lack of competitive market 44

4.8,3 Frequent breakdown ofthe factory 44

4.8.4 Cheating is another challenge experienced by CRDB,NMB and SACCOS 44

4.8.5 Un fair competition are challenges experienced by Kamuli SACCOS 45

4.9 Challenges faced by Small Scale Sugar Cane Growers 45

4.9.1 Laid down regulations for accessing credit 45

VII

4.9.2 The price provided by the buyer for cane sold to the Factory 46

4.9.3 Late payment to small scale sugar cane growers 46

4.9.4 Availability of Capital and Operation finance 46

4.9.5 High Costs ofProduction 47

4.9.6 Environmental and Infrastructure Challenges 47

4.9.7 Taxation 48

4.9.8 Transport costs Against Poor Infrastructure 48

4.9.9 Access Services Delivery 49

4.9.10 Health services Delivery 49

4.10 .1 Mechanisms to ensure that Agricultural Credit has impacts to the growth of SSSCG.. 50

4.10.2 Addressing on the source of funds and financing 50

4.10.3 Low Price provided by the buyer (Kamuli factory) 50

4.10.4 High Production Costs 50

4.10.5 Environmental issues regarding to Increased Production 51

4. 10.6 High Taxes and other Deductions 51

4.11 Constraints to sourcing Agricultural credits 52

4.12 Interest rates are favorable to borrowers 53

4.13 Small Scale Sugar Cane Growers Association 54

Figure 5: Are you a member of sugar cane growers Association 54

Figure 6: Reasons for Joining Farmers Association 55

4.14 Suggestions by Farmers to Improve their Credit Accessibility 55

4.15 Chapter Summary 56

CHARTER FIVE 57

CONCLUSION AND RECOMENDATIONS 57

5.0 Introduction 57

5.1 Summary 57

5.2 Conclusion 57

5.3 Policy Implication ofthe study 58

5.4Recommendations 58

5.5 Suggestions for Further Research 61

REFERENCES 63

APPENDICES 69

ABSTRACT

This study attempted to assess the role played by loans provided by Micro Finance Institutions (MFIs) to Small scale sugar cane out growers in Uganda, a case study of Kamuli District in Eastern Region. Currently, SMEs contributes significantly to Employment, Income generation and stimulation of the economic growth in both urban and rural areas in Uganda. SMEs contribute about 40% to the country’s Gross Domestic Product (GDP) (this is according to SMEs Development policy 2003). In Uganda it is estimated that every year only 5.7% of the school leavers get employed in public sector while the remaining 94.4% end up being absorbed by SMEs sector. For these reasons there is a need for the government to provide conducive environment for the growth and sustainability of the SMEs in the country through loans/agricultural credit. The sample size was 78 respondents selected through random sampling drawn from population of 398 small scale cane growers at Kamuli District both from MFIs and FCGA to fulfil the requirements of the study. Both primary and secondary data were used or employed. The former used questionnaires and interviews, while the latter was used through reviewing documents in terms of performance reports, articles magazine. Both quantitative and qualitative data were also analyzed. The responses from the interviews were coded, summarized and entered in a computer. The data were analyzed using Statistical Packages for Social Science (SPSS) version 16. Part of the analysis was based on descriptive statistics to describe the responses, characteristics of the data and information. The findings were presented in form of figures, tables and graphs. The findings ofthe study revealed that collateral, security requirement and high interest rates were the major problems for SSSCG to secure loans from MFIs. Most of SSSCG 50(64.1%) agreed that loan improve agricultural production. The study also revealed that 33(42.3%) had primary level education this was a problem especially on the processing of agricultural credits from financial institutions. Majority obtained loan from SACCOS and other informal sources. The study also revealed that loan acquired had positive influence in the growth of agriculture. Requirement of collateral was a major problem in accessing of loan by small scale sugar cane growers it was supported by 65(83.3%) of all small scale farmer-respondents. From the study, it is concluded that there is significant impact of microfinance loan scheme on small scale sugar cane production since farmers’ access to microcredit also means access to better financial products and services. Thus, despite problems encountered by small scale sugar cane farmers in accessing loans from banks, loans from microfinance banks and SACCOS has to some extent helped farmers to reduce poverty and boost production through financial system that meets their needs. Lastly, the researcher recommends that in order to succeed and develop, small scale sugar cane growers (SSSCG) all over the country should be assisted in improving cooperative societies. The cooperative approach is one of the best means of self-protection for small farmers mainly due to its self-help concept and member’s participation. It is therefore vital for the government to strengthen cooperative credit and improve efficiency of agricultural credit supply by providing innovative financing scheme to SSSCG who lack collateral and minimize long processing of documents and other requirements.