Gender differences in access to credit by small and medium enterprises in Uganda

Abstract

The study analyzed how the gender of business owner influences the ability of SMEs to access credit from financial institutions in Uganda. The study analyzed three specific objectives, including (i) to characterize the SMEs in Uganda with respect to attributes of the firms and their owners, (ii) to determine the difference between female and male-owned enterprises with respect to credit access, and (iii) to determine factors that influence the gender gap in credit access between male and female-owned enterprises..The objectives were analyzed using both descriptive and econometric techniques.

Descriptive statistics show that majority (76.51%) of the SMEs was male-owned and 23.49% were female-owned. Male-owned SMEs had been in business for more years and reported a larger number of employees compared to female-owned SMEs (about 7 workers compared to 5 for female-owned SMEs, respectively). More male-owned enterprises were engaged in the construction sector than their female-owned counterparts. On the other hand, the service sector was dominated by the female-owners. Descriptive statistics further show that (44%) of female-owned SMEs indicated that they needed credit compared to male-owned SMEs (40%). The 44% of the female-owned SMEs that applied only 25.5 % received credit and of the 40% of the male-owned SMEs, only 25.8% received credit. About 62% of male-owned SMEs accessed credit from formal financial institutions compared to 55% of female-owned SMEs.

Econometric results revealed that the number of employees, the distance to the financial institutions, formal financial institutions like commercial banks, age of the owner, Sex of the SME owner, SMEs that were singly owned, and the region where SME is located significantly influence the probability of SMEs access to credit. In particular number of employees, age of SME owners, Single ownership of SMEs and formal credit institutions increased credit access whereas the distance to the financial institution and gender constrained credit access by SMEs. The constraining factors to credit access among both male and female-owned SMEs include distance to financial institutions whereas the enabling factors for both types of SMEs include the number of employees, age of SME owner, Single ownership of SMEs and formal source credit institutions. Factors including financial institution and region where the SME is located limit credit access in female-owned SMEs only whereas no factor significantly limits male-owned SMEs. The enabling factors among female-owned businesses only include the number of employees, formal source of

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credit, whereas the enablers among male-owned SMEs include number of employees, age of the SME owner, single ownership of businesses the formal source of credit, and region where the SME is located.

It is recommended measures that reduce the distance business owners have to travel to access credit like increase in the branch of financial institutions should be taken. In addition, the government and credit providers should develop products and loans that target businesses that have few employees and those owned by the youth since they were less likely to access credit. Finally, SMEs should be encouraged to seek credit from formal financial institutions.