CHAPTER ONE

 INTRODUCTION

1.0 Introduction This chapter presents the background of the study; statement of the problem; purpose of the study, specific objectives, research questions, research hypotheses, scope of the study, significance of the study, and the operational definitions of the study. Li Background of the study It is the dream of every country to have an economy that is self-sustaining; with yet in Africa poverty is the heart of its problems especially in sub-Saharan Africa. In Uganda, poverty has been increasing at the rate of 2.5% every year since 2004 due to higher increase in population, Corruption of some big members of government, lack of social services like transports and communication to some part of the country etc. Increase in poverty has caused many problems like increase in environmental destructions, low income to the people especially central part of the country and poor economic-social empowerment (Adea, 2005). Beginning in the late 1970’s some highly inventive non- profit making agencies and banks pioneered techniques to issue loans to the self-employed who know their trade well, but lack conventional means to secure a loan. Micro-finance institutions (MFI’ s) as these innovations are now called, have prospered in some of the poorest countries of Africa, Latin America and Asia. The financial system in Uganda is composed offormal, semiformal and informal institutions. The formal institutions include banks, Microfinance Deposit-taking institutions, Credit Institutions, Insurance companies, Development Banks, Pension Funds and Capital Markets. The semi informal institutions include Savings and Credit Cooperative Associations (SACCO) and other Microfinance institutions, whereas the informal ones are mostly village savings and loans associations. Formal institutions are less prominent in rural areas than urban areas and they only serve 14% of the rural population. Informal institutions play an important role in the rural service provisions and serve approximately 12% of the rural population.