Title: The Effect of Microfinance Literacy on the Growth of Small-Scale Enterprises in Mbarara City, Uganda
Authors: Faibon Tumwijuke, Caroline Masiko Murezi , Willy Kagarura,
Volume: 10
Issue: 7
Pages: 138-145
Publication Date: 2026/07/28
Abstract:
Although microfinance is considered as a development tool for enterprises, many small-scale enterprises (SSEs) in Uganda are still failing to grow in the face of increasing access to microfinance. This study investigated the relationship between microfinance literacy and SSEs growth in the Mbarara city, Uganda. The study evaluated the level of financial literacy, the impact of financial literacy on the growth of enterprises, the problems faced by limited financial literacy and proposed solutions. A mixed-methods cross sectional design was used, which included 110 microfinance clients who were purposively selected from five microfinance institutions in Mbarara City using systematic random sampling technique. A structured questionnaire, was used for quantitative data collection, and 15 key informant and in-depth interviews for qualitative data collection. The data were analysed using descriptive statistics, Pearson correlation, simple regression and thematic analysis. The study revealed that 70% of respondents were financially literate (mean score 58.7/100) and that there were no significant gaps in numeracy (28% were not able to calculate interest), record keeping (31%) and budgeting (24%). There was a strong positive correlation between financial literacy and enterprise growth (r = 0.58, p < 0.001) with 34% of the variance in growth being accounted for by financial literacy (Rē = 0.34). Financially literate entrepreneurs saw a 11.6% increase in revenue growth, compared to their illiterate counterparts. Some of the barriers were that loan terms were not understood, business and personal finances were combined, becoming over-indebted and being susceptible to predatory lending. According to the study, microfinance literacy is a strong predictor of enterprise growth and existing microfinance trainings are not adequate. The recommendations include the compulsory literacy orientation for borrowers, the reduction in the documentation of loans in English to local languages, and better enforcement of all regulatory provisions by the Uganda Microfinance Regulatory Authority.