Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Micro Finance and Poverty Reduction of Selected

Households in Kawempe Division, Kampala-Uganda
Julius Twinamasiko
“Corresponding Author”
School of Graduate Studies and Research, Team University
Plot 446, KabakaAnjagara.rd
P.O Box 8128 Kampala-Uganda.

Steven Ainebyona AbasRutaro

School of Graduate Studies and Research, School of Graduate Studies and Research,
Team University Team University
Plot 446, KabakaAnjagara.rd Plot 446, KabakaAnjagara.rd
P.O Box 8128 Kampala-Uganda. P.O Box 8128 Kampala-Uganda.

Abstract:- The study was aimed at assessing the I. INTRODUCTION

contribution of micro finance towards poverty reduction
among households in Kawempe Division. And this was 1.0 Introduction
assessed in terms of contribution of microfinance This chapter covers background of the study, problem
towards access to basic needs, increased saving and statement, study objectives, research questions, study scope,
incomes and wealth creation among households in significance and conceptual framework of the study.
Kawempe division. The researcher employed a
descriptive, correlation, cross-sectional and survey 1.1 Background of the study
design in which he used a self-administered Poverty remains a matter of growing concern in many
questionnaire to collect both qualitative and quantitative developing countries of the world. According to Lufumpa
data. The researcher targeted a selected population of (1999), today, as other continents continue to register
110 households in Kawempe division from where a sustainable economic growth and development, Africa is not
sample of 86 respondents was selected using both only lagging behind but is trapped in a vicious circle of
purposive sampling and simple random sampling as borrowing and donor dependency syndrome which some
based on Krejcie& Morgan (1970) tables. Study findings critics point out as one of the causes practically sabotaging
revealed a slight correlation of R= 0.349a between the real development. Gurses (2009) conducted a study in
observed and predicted poverty reduction outcomes. Turkey and mentioned that micro finance is a powerful tool
And that a small coefficient of determination of 24.2% to reduce poverty. The author has mentioned that one fifth
(R-square 0.242) in the poverty reduction could be of the population of Turkey was at risk due to the poverty
explained by the microfinance elements considered in even then it is not a poor country according to global
this study. In view of the above the study recommended standards. Moreover the author mentioned that poverty, both
that microfinance institutions should consider increasing in Turkey and all over the world, is not only a function of
the period of first repayments in order to allow for the microcredit but a social problem, and government
households to command adequate cash flows that can intervention of the state holds the ultimate resolution to
allow for acquisition of assets and or take on struggle against poverty.
opportunities for expansion, there is need for special
microfinance, grant and training programs that target Therefore, to achieve sustainable development there is
the youth for entrepreneurial development and that need for a holistic approaches to dealing with the concerns
Government having though embarked on the youth of the poverty in the region. There is a range of MFIs whose
programme, need to put stringent measures to curb vices participation is essential to address appropriately the
like corruption that has infiltrated the programme. And challenge of poverty reduction (Yahie, 2000). For example
also the researcher recommends that in order to build on in Machona (2006) studied the impact of microfinance in
gains achieved in the microfinance sector, Government Addis Ababa Ethiopia by assessing the impact of
increasingly needs to harness the poverty- reducing microfinance on women microenterprises that were clients
potential of shifts in the household sectorial share of of Gasha MFI. The findings for this study indicated that
employment in favor of more productive and dynamic only a few of the women clients of Gasha microfinance
activities. institution reported increased incomes from their
microenterprise activities.

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Furthermore, Morduch and Haley (2002) notes that According to this framework of analysis, most MFIs
there is evidence to support the promise that it is possible for start out as NGOs with a social vision, funding operations
a microfinance institution to serve the poorest and also with grants and concessional loans from donors and
achieve financial sustainability. However, Swain (2004) international financial institutions that effectively serve as
states that microfinance is better used as an instrument along the primary sources of risk capital for the microfinance
with other policies for poverty alleviation rather than sector. Thus, the literature on microfinance devotes
poverty reduction strategy in isolation. The reality on the considerable attention to this process of “NGO
ground indicates that the increase on the number of poor transformation” as a life cycle model outlining the evolution
people both in rural and urban Uganda is worrying. of a microfinance institution (Helms, 2006).
Therefore, if poverty levels are not reduced in Uganda, then
the MDG goal number 1 on the eradication of poverty and Generally, the life cycle theory posits that the sources
hunger. of financing are linked to the stages of MFI development.
Donor grants and soft loans comprise the majority of the
The Uganda Poverty Reduction Strategy Papers funding in the formative stages of the organization. As the
(PRSPs) (2005) indicates that poverty is largely a rural MFI matures, private debt capital becomes available, but the
phenomenon. In the rural areas, incomes are lower and debt structures have restrictive covenants or guarantees. In
poverty is deeper than in urban centers. As a consequence the last stage of MFI evolution, traditional equity financing
they lack the ability to generate incomes, to save, to start has become available (Fehr et al 2004).
economic activities and to access credit from the formal
sector is heavily restricted due to lack of collateral. During this study, the emphasis was laid on two major
concepts. These include microfinance and poverty
According to the profit-incentive theory, MFI use of reduction. Microfinance was considered as an independent
commercial funding sources (at any stage of development) variable with dimensions; Loans, Savings, Business
will enable MFIs to meet the “microfinance promise.” development and Credit facilities. Poverty reduction was
Reliance on commercial funding is beneficial along two looked at as a dependent variable and was tackled basing on
dimensions: outreach and efficiency. Since donor funds are increased income, increased saving, ability to meet basic
limited in amount, reliance on donor funding limits the needs, creation of wealth and ability to save. Poverty is a
ability of MFIs to expand to meet rising demand for global phenomenon, which affects continents, nations and
services. There is also a question as to whether reliance on peoples differently. In this study, poverty referred to lack
donor funds allows MFIs to avoid pressures to operate opportunities for households to have their projected goals
efficiently (Armendáriz de Aghion&Morduch, 2005). due to limited capital (Lindvert, 2006).

Commercially funded MFIs respond to the profit It afflicts households in various depths and levels, at
incentive, working to increase revenues and decrease different times and phases of existence (Oyeranti, 2005). On
expenses so that they can have revenues sufficient to cover the other hand, poverty reduction is a set of measures, both
all operating expenses. MFIs with access to donor fund may economic andhumanitarian, that are intended to permanently
not respond to these pressures to operate efficiently or lift people out of poverty. The most commonly way to
deliberately choose outreach over efficiency by serving measure poverty is based on income or consumption line. A
poorer or rural clients with higher delivery costs. Concerns person is considered poor if his or her consumption level
over the dangers of excessive subsidization in microfinance falls below 1USD per day, a level necessary to meet basic
have been prevalent since the 1980s, and as a result, the goal needs. In most countries including Uganda there is urban
of serving the poor has been twinned with the goal of long- poverty. Towns and villages around the cities are
term financial self-sufficiency for some time (Morduch, characterized by high levels of poverty and most of small
2005). and micro enterprises operate with limited capital and in
unsecured places. In this study, poverty reduction referred to
In recent years, there has been increasing internal and improving the income level of households.
external pressure for the MFIs to decrease dependence on
subsidized or grant funding. By enabling MFIs to link Microfinance is a broad category of services, which
directly with investors and commercial banks, these types of includes microcredit. Microcredit is provision of credit
organizations strive to help MFIs become independent of services to poor clients (households). Microcredit is one of
donor funds (Armendáriz de Aghion&Morduch, 2005). the aspects of microfinance and the two are often confused.
However, Profit-Incentive Theory assumes that firms are Critics may attack microcredit while referring to it
certain about the levels of their maximum profits. But indiscriminately as either 'microcredit' or 'microfinance'.
profits are most uncertain for they accrue from the Due to the broad range of microfinance services, it is
difference between the receipt of revenues and incurring of difficult to assess impact, and very few studies have tried to
costs in the future. It is, therefore, not possible for firms to assess its full impact. Proponents often claim that
maximize their profits under conditions of uncertainty. microfinance lifts people out of poverty, but the evidence is
Therefore the researcher applied life cycle theory to guide mixed. What it does do, however, is to enhance financial
the study. inclusion (Feigenberg et al, 2011). In this study,
microfinance referred to providing micro loan to poorest of
the poor (basically those are neglected by banks,

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
microfinance provides them loan facility), and a source of i. To examine the contribution of microfinance towards
financial servicesfor entrepreneurs and small businesses access to basic needs in Kawempe division.
lacking access to bankingand related services (Robert et al, ii. To find out the contribution of microfinance towards
2004). increased saving in Kawempe division.

1.2 Statement of the problem iii. To assess the contribution of microfinance towards
Poverty has been and is a problem facing majority of increased income in Kawempe division.
the world’s people and nations and it has devastating iv. To examine the contribution of microfinance towards
consequences for the people who live it. Poverty reduction wealth creation among households in Kawempe
has been a major concern for successive governments in division.
Uganda over the years because it is believed to be the
universally accepted way of achieving economic growth in 1.4 Research Questions
the country. Uganda’s most important success on poverty i. What is the contribution of microfinance towards access
reduction was achieved in the MDG era where income- to basic needs in Kawempe division?
poverty ratio was reduced by two thirds, surpassing the 50% ii. What is the contribution of microfinance towards
reduction specified by Target 1A. It was found that savings in Kawempe division?
households with higher income levels were better able to iii. What is the contribution of microfinance towards the
meet the direct and indirect costs of accessing education and level of income in Kawempe division?
healthcare (MDG report 2015). Uganda’s poverty reduction iv. What is the contribution of microfinance towards
was driven by broad-based economic growth, enabled by Creation of wealth among households inKawempe
strong macroeconomic management, public investment in division?
infrastructure such as feeder roads and rural electrification,
regional integration and trade, and rapid urban growth. 1.5 Scope of the study
Nonetheless, Government continues to implement various The study focused on the contributions microfinance
measures among which microfinance has taken precedence towards poverty reduction among households in Kawempe
to support the 6.7 million Ugandans who are still in poverty, division. The researcher conceptualized microfinance as the
and the further 14.7 million who remain vulnerable (Mwabu independent variable with indicators of; loan provision,
et al, 2017). Micro finance institutions have been noted to savings and business development. On the other hand,
have tremendous contribution towards alleviation of poverty poverty reduction was looked at as a dependent variable in
through provision of micro loans to poor and low income terms of increased income, increased saving, ability to meet
earners who may not have access to other formal financial basic needs and wealthcreation.The researcher considered a
institutions like commercial banks. Its therefore important period of 1996 to 2018, as this was the period when the
for the researcher to assess the extent to which microfinance Poverty Eradication Action plan (PEAP) was initiated and
contribute to poverty reduction among households in implemented.
Kawempe division, Uganda.
1.6 Significance of the study
1.3 General objective The study is very significant to micro finance
The general objective of the study was to assess the Administrators and workers, Prospective customers,
contribution of micro finance towards poverty reduction government, other interested parties, as well as to the
among households in Kawempe Division. researchers as it’s a body of knowledge on deep
understanding of the contributions of microfinance in
1.3.1 Specific objectives poverty reduction among households in Uganda.
In order to achieve the general objective, the research
set out to achieve the following specific objectives.

1.7 Conceptual framework

Independent variable Dependent variable

Microfinance: Poverty reduction:

 Access to Loans  Access to basic needs

 Opportunity for Savings
 Increased saving
 Business development
 Increased income
 Creation of wealth
Figure 1: showing the conceptual relationship on microfinance and poverty reduction.
Source: Researcher, 2018

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
The conceptual framework in figure 1 above, explains portfolios, allowing them to dramatically increase the
the relationship among microfinance institutions and number of poor people they can reach.
poverty reduction. The researcher hypothesized
microfinance in terms of Loans, Savings and Business III. METHODOLOGY
development to influence the dependent variable (poverty
reduction) that was measured using increased income, 3.0 Introduction
increased saving, ability to meet basic needs and creation of This chapter focused on the description of the methods
wealth. that were used in the study. These include the research
design, study population, sample size and selection,
II. LITERATURE REVIEW sampling techniques and procure, data collection methods,
data collection instruments, validity and reliability, data
This section assesses the literature on the effect of processing and analysis and ethical considerations that were
access to finance, saving and wealth creation opportunities used to find out the contribution of microfinance towards
on the poverty reduction of the people. Wright (2000) poverty reduction among households in Kawempe division,
asserts that microfinance interventions on health and Kampala district.
education, nutritional indicators improve where
microfinance has been working. Littlefield, et al (2003) also 3.1 Research Design
acknowledgesthat microfinance impacts the health of the The researcher employed a descriptive,correlation,
beneficiaries as he was quoted saying that, “households of cross-sectional and survey design in which he used a self-
microfinance clients appear to have better nutrition, health administered questionnaire to collect both qualitative and
practices and health education as comparable to non-client quantitative data.
households”.
3.2 Study population
In low income communities, most people prefer to According to Sekaran (2003), study population is the
save in undisclosed places; in the roof, pot, walls, entire group of people or events that the researcher intends
underground or under a bed. Savings cannot be converted to to investigate. The researcher targeted a selected population
investment when it is kept under a bed. Investment is the of 110 households in Kawempe division to be involved in
sacrifice of the current consumption for the future returns. the study.
People need savings for emergencies, opportunities (which
are often unexpected), to pay for lifecycle events associated 3.3 Sample Sizeand sampling procedure
with death or marriage, and to smooth payments of their The researcher used purposive sampling and simple
consumption needs (Tareq 2015). random sampling to select the respondents who were
involved in the study. According to Sekaran (2003),
Nourse (2001) reviews the context and rise of purposive sampling is appropriate when desired information
microfinance products and argues there is a need for savings is to be obtained from specific target groups. Purposive
and insurance services for the poor and not just credit sampling helped the researcher to select individuals who
products. He goes on to argue that MFIs need to provide have the required information necessary for the study. A
tailored lending services for the poor instead of rigid loan sample of 86 households was selected from a population of
products. Supporting this latter assertion, Eyiah (2001) 110 households with the guide of Krejcie& Morgan (1970)
develops a model of small construction management tables.
contractors and MFIs in developing countries that provides a
tailored lending structure for microenterprise contractors. 3.4. Data Collection methods
The researcher used the questionnaire to collect
Hashemi et al (1996) investigated whether women’s primary data that allowed respondents to provide in-depth
access to credit has any impact on their lives, irrespective of and reliable information in relation to the study. The
who had the managerial control. And study findings questionnaire was used as it collects much more information
revealed that women’s access to credit contributes in a relatively short time. The researcher also reviewed
significantly to the magnitude of the economic contributions documentary reviews to guide the discussion of the study
reported by them; to the likelihood of an increase in asset findings.
holdings in their own names; to an increase in their exercise
of purchasing power and in their political and legal 3.5 Validity and reliability of instruments
awareness. According to Oso and Onen (2008), validity refers to
the extent at which the outcomes obtained from the analysis
Littlefield and Rosenberg (2004) state that the poor are of data represent the event under study. The researcher
generally excluded from the financial services sector of the ensured the validity of the questionnaire by the use of
economy so micro finance have emerged to address this content validity index from where an index above 0.7 was
market failure. By addressing this gap in the market in a obtained hence fit for the study using the formula below.
financially sustainable manner, a microfinance institution
can become part of the formal financial system of a country CVI=K/N where; CVI=content validity index, K= Number
and so can access capital markets to fund their lending of items considered relevant and N=Number of items
considered in the instrument.

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Smith et al (2008) define reliability as a determinant of of the information provided, and got permission from the
the degree at which research provides reliable results or data heads of department to carry out study on respondents. The
after several trials. The researcher employed the internal researcher also explained to the respondents the aims and
consistency method of the Cronbach Alpha test to determine objectives of the study and also sought consent from the
the stability and consistency of research instruments putting respondents to participate in the study freely before being
into account that the questionnaire used a five likert scale undertaken.
from where an alpha above 0.7 was obtained hence fit for
the study. IV. DATA ANALYSIS, INTERPRETATION AND
DISCUSSION OF FINDINGS
3.6 Data processing and analysis
Berowitz (1997) defines data analysis as a body of 4.0 Introduction
methods which help to portray facts, detect patterns, develop This chapter focuses on the presentation and
explanations and test hypotheses about the set data. Data discussion of the research findings on micro finance and
collected from the field was analyzed after editing and poverty reduction in Uganda focusing on selected
coding it. The purpose of analyzing data was to come up Households in Kawempe division-Kampala district basing
with important information about the research problem and on the study objectives. The findings have been presented
answer the research objectives. In this the researcher run a using simple Frequency tables, pie charts, histograms,
correlation, regression and ANOVA on the microfinance correlation coefficient, regression and ANOVA for easy
and poverty reduction in Kawempe division. understanding.

3.7 Ethical consideration 4.1 The effect of access to finance on poverty reduction
Research like any other discipline has ethical The responses from the respondents were computed to
requirements. Therefore the researcher followed ethical 5 point Likert scale options: Strongly Disagree- SDA,
considerations in carrying out the research. The researcher Disagree- DA, Not sure- NS, Agree- A, Strongly Agree- SA.
ensured privacy of the respondents, observe confidentiality (Note: Frequency- f and Total frequency-TF)

Table 1: Access to finance and poverty reduction

Likert scale SDA DA NS A SA Total

Statement F % f % f % f % F % Tf T(%)
Access to finance builds an inclusive
financial sector which reduces 18 21.2 25 29.4 9 10.6 17 20.0 16 18.8 85 100
poverty.
Access to finance improves
households’ consumption patterns,
11 12.9 19 22.4 2 2.4 34 40.0 19 22.4 85 100
income prospects, and the decision to
send children to school.
The activities of less-poor micro
entrepreneurs whose access has 20 23.5 23 27.1 10 11.8 16 18.8 16 18.8 85 100
improved benefit the very poor.
Access to credit improves the poor’s
income and reduces the inequality 31 36.5 24 28.2 12 14.1 17 20.0 1 1.2 85 100
gap.
Source: primary data, 2018

On the statement of “Access to finance builds an Further still on the statement, “Access to finance
inclusive financial sector, which reduce poverty by enabling improves households’ consumption patterns, income
poor and excluded people to employ their skill sets, labour prospects, and the decision to send children to school rather
and innovations in the productive activities of the than using them as laborers in the household.” findings
economy..”, 18.8 of the respondents strongly agreed, while show that 40.0% of the respondents agreed and 22.4%
20.0% agreed with the subject. On the other hand 21.2% respondents strongly agreed with the subject matter while
strongly disagreed with the statement while 29.4% disagreed 12.9% strongly disagreed and 22.4% disagreed with the
with the statement and 10.6% of the respondents were not subject statement. This implies access to finance improves
sure about the stated topic. This implies that access to credit household consumption a view held by Ruel, Garrett,
facilities generally build financial inclusion. This in Hawkes, &Cohen, (2010). Ruel and his colleagues asserts
agreement with Beck, T., Demirgüç-Kunt, A., &Honohan, that though financial crises affect the rural poor
P. (2009) who cited that microfinance loans have achieved a disproportionately, access to finance through microcredit
great mile in enabling financial inclusion- an aspect that had loans improve the poor’s consumption patterns on food and
filed the mainstream financial institutions clogged by their fuel in a Parallel manner irrespective of their location.
bureaucratic requirements and procedures for credit. However Banerjee, &Duflo(2007) highlights that

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
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consumption patterns especially on basic needs are not Basing on the statement “Access to credit improves the
dependent on access to micro credit only but also the credit poor’s income and reduces the inequality gap.” as observed
terms and monitoring capacity of the microfinance in the table 4.3 above, it revealed that 36.5% of the
institutions to which the poor subscribe which limit the respondents strongly disagreed with the statement and
subscribers on their spending and saving requirements. 28.2% disagreed with the statement. On the other hand
20.0% agreed to this view while 1.2% of the respondents
Basing on the statement “The activities of less-poor strongly agreed and 14.1% were not sure. This implies the
micro entrepreneurs whose access has improved benefit the respondents were of the view that Access to credit does not
very poor substantially from increased employment and improve the poor’s income nor reduce the inequality gap.
other opportunities”study findings show that 18.8% of the This is further explained by Akisimire (2010) who asserts
respondents strongly agreed to the statement while 18.8% that micro financial system influences the poor who can start
agreed to the statement. On the other hand 23.5%, of the a business and who cannot, who can pay for education and
respondents strongly disagreed while 27.1% disagreed with who cannot, who can attempt to realize one’s economic
the statement and 11.8% were not sure about the statement. aspirations and who cannot. Thus, finance can shape the gap
This implies that microfinance access to credit facilities to between the rich and the poor and the degree to which that
not necessarily increase employment and other opportunities gap persists across generations. In another perspective
for the poor probably due to the fact that most poor access Onyango (2011) notes that on one side the rich-poor gap
personal loans products (Avant, 2012). These findings are in shortens for those that can access the loans while it widens
alignment with Gobezie (2004) that access to credit and for those that cannot with potentially profound implications
other microenterprise services are hypothesized to expand on poverty and income distribution.
opportunities at both household and enterprise level through
increased household/enterprise income and enhancing 4.2 The contribution of Business development towards
employment opportunities (both paid and unpaid but the poverty reduction among households
evidence suggest only few results in these regards. On the The responses from the respondents were computed to
other hand Ferdousi (2015) observed that access to 5 point Likert scale options: Strongly Disagree- SDA ,
microfinance credit has increased entrepreneur activities but Disagree- DA, Not sure- NS, Agree- A, Strongly Agree- SA.
made no attempt to quantify the effect this had on the (Note: Frequency- f and Total frequency-TF).
poverty levels of those that accessed the credit facilities he
however noted that the lack of access to microfinance
financing maintains poverty among the poor .

Table 2: Business development and poverty reduction

Likert scale SDA DA NS A SA Total

Statement f % f % f % f % f % Tf T(%)
Identifying new markets for
Household products or services - - - - - - 59 69.4 26 30.6 85 100
increases productivity
Business developments allows for
- - - - - - 47 55.3 38 44.7 85 100
new jobs creation.
Investments in small and medium
enterprises create and sustain the jobs
17 20.0 26 30.6 8 9.4 18 21.2 16 18.8 85 100
necessary for poor people to work and
earn the income.
Business Planning skills enables
10 11.8 21 24.7 7 8.2 29 34.1 18 21.2 85 100
households to cut on operation costs
Source: Primary data, 2018

Results from table 2 above on whether“Identifying on Strengthening SMEs which emphasized how
new markets for household products or services increases governments and private actors can work with SMEs to
productivity and expand working opportunities within the harness digital technologies and improve market
households and increases income and economic growth.”, intelligence, access distant markets and knowledge networks
reveal 30.6% of the respondents strongly agreed, while at relatively low cost, and boost income for poor households
69.4% merely agreed with the subject. This implies that in the long run.
identifying new markets as one of the business development
strategies by microfinance institutions for household Further still on the statement, “Business developments
increase productivity and expand working opportunities allows for new jobs creation which in turn lead to equitable
within the households enhancing economic growth. This distribution of income culminating in higher standards of
finding is line with the OECD ministerial conference (2018) living for the populace.”, 55.3% of the respondents agreed

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and 44.7% of the respondents strongly agreed with the Basing on the statement “Business Planning skills
objective statement. This implies in line with this finding enables households to cut on operation costs improving the
Prateek, (2018) discussed that Microfinance institutions play income and increase household savings” as observed in the
a major role in ensuring a more equitable distribution of table 3 above, it revealed that 11.8% of the respondents
income giving all citizens a fair opportunity to become strongly disagreed, 24.7% of the respondents disagreed and
successful which may help accelerate growth and promote 8.2% were not sure. On the other hand 34.1% of the
economic development. respondents agreed and 21.2%strongly agreed. This implies
that business development improves on the financial
Basing on the statement “investments in small and stability of households. This finding is line with
medium enterprises, creates and sustains the jobs necessary Akinboadeet’al (2012) who observed that business
for poor people to work and earn the income needed to development is directly related to the financial stability of
purchase goods and services they need.”20.0%of the households. Among the elements of business development
respondents strongly disagreed, 30.6 % of the respondents he observed included business planning, market analysis and
disagreed and 9.4% were not sure. On the other hand 21.2% intelligence specifically emphasizing that these three
of the respondents agreed and 18.8% of the respondents improve on the income of the household and contribute to
strongly agreed with the statement. This implies Households poverty reduction among its members. On the contrary the
by reason of business development can facilitate poverty OECD (2012) observed that much as most households
reduction by provision of jobs and income giving the poor experience apparent growth and prosperity most of its
the purchasing power a proxy of poverty reduction. This members remain in poverty due to poor income of the
finding is line with Agyapong (2010) who observed that household members in low income countries most of which
households typically create job opportunities which provide lack a minimum wage policy.
employment for its members and other households,
including low-skilled workers, and providing opportunities 4.3 The relationship between saving opportunities and
for skills development. As such, households that generate poverty reduction among households
value added and quality jobs represent an important channel The responses from the respondents were computed to
for inclusion and poverty reduction, especially by providing 5 point Likert scale options: Strongly Disagree- SDA ,
spendable income for the poor in low-income economies Disagree- DA, Not sure- NS, Agree- A, Strongly Agree- SA.
(Avant 2012). (Note: Frequency- f and Total frequency-TF).

Table 3: Business development and poverty reduction

Likert scale SDA DA NS A SA Total

Statement F % f % f % f % f % Tf T(%)
The opportunities for savings enable
Households create assets for future 4 4.7 21 24.7 2 2.4 29 34.1 29 34.1 85 100
investment and financial security.
Savings services at MFIs which have
time restrictions on withdrawals are
- - - - - - 46 54.1 39 45.9 85 100
good for long term capital
accumulation.
The opportunity to save provides
Households with the capacity to
access better financing for business 26 30.6 27 31.8 - - 16 18.8 16 18.8 85 100
endeavors in terms capacity and
productivity.
The opportunities for savings enable
Households create assets for future 17 20.0 22 25.9 8 9.4 17 20.0 21 24.7 85 100
investment and financial security
Source: primary data, 2018

On the statement of “The opportunities for savings several studies which generally point to the fact that Micro
enable Households create assets for future investment and finance institutions (MFIs) have become the main source of
financial security”, 4.7% of the respondents strongly funding micro enterprises in Africa and in other developing
disagreed, 24.7% of the respondents strongly disagreed and countries helping alleviate poverty by generating income,
2.4% were not sure. On the other hand 34.1% of the creating jobs, allowing children to go to school, enabling
respondents agreed and 34.1% of the respondents strongly families to obtain health care, and empowering people to
agreed with the statement. `This implies that Microfinance make the choices that best serve their needs." (Siyad 2013,).
institutions create an opportunity for Households to generate
Assets through savings. This finding is a supported by

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
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Further still on the statement, “Savings services at and 31.8% of the respondents strongly disagreed. On the
MFIs have time restrictions on withdrawals, which are good other hand 18.8% respondents agreed, while 18.8% of the
for long term capital accumulation to meet the financial respondents strongly agreed with the statement. This implies
needs of the poor.”,54.1% of the respondents agreed and that the saving opportunities offered by microfinance
45.9% respondents strongly agreed with the subject matter. institutions may not translate into business expansion. This
This implies time restrictive saving products offered by finding is contrary to the OECD (2018) that lists saving
microfinance institutions facilitate capital accumulation to opportunities as one of the key factors facilitating business
meet the poor financial needs. Siyad (2013) argues that time growth through expansion driven by re investment.
restricted drawings are just a few of the strategies However a World Bank Enterprise Survey found that
microfinance institutions use to control the urge of the poor Access to finance is disproportionately difficult for smaller
to withdraw due to the proneness to spending. The OECD firms in the least developed countries (LDCs), with 41
(2012) observed that the poor’s proneness to spending arises percent of Households in LDCs reporting access to finance
from the fact that their income is always less than their need. as a major constraint to their business growth and
development.
Basing on the statement “The opportunity to save
provides Households with the capacity to access better 4.4 Poverty Reduction
financing for their business endeavors in terms capacity and The responses from the respondents were computed to
productivity.”30.6% of the respondents strongly disagreed 5 point Likert scale options below.

Table 4: showing the Poverty reduction

Likert scale SDA DA NS A SA Total

Statement f % F % f % f % F % Tf T(%)
More households can now meet their
basic needs as a result of access to 8 9.4 26 30.6 8 9.4 25 29.4 18 21.2 85 100
microfinance.
Households have better and improved
18 21.2 26 30.6 17 20.0 16 18.8 8 9.4 85 100
living conditions through microfinance
More individuals have registered
17 20.0 17 20.0 8 9.4 25 29.4 18 21.2 85 100
increased personal savings
Microfinance has enabled people to
engage in entrepreneurial and
- - - - - - 59 69.4 26 30.6 85 100
economic activities that make them
more self-reliant
Microfinance builds inclusive financial
systems to all people to access - - - - - - 47 55.3 38 44.7 85 100
financial services
Microfinance services have enhanced
peoples’ productivity and capability to 17 20.0 26 30.6 8 9.4 18 21.2 16 18.8 85 100
procure assets.
Microfinance clients have built assets
10 11.8 21 24.7 7 8.2 29 34.1 18 21.2 85 100
and are less vulnerable to life shocks.
Source: SPSS data, 2018

Concerning the statement, “More households can now alleviating poverty. According to him the poor consider the
meet their basic needs as a result of access to funds to be meant for their basic needs which remain their
microfinance.” 9.4% of the respondents strongly disagreed only benefit when they access the funds.
with the statement, 30.6% agreed and 9.4% were not sure.
On the other hand 29.4% of the respondents agreed with this Regarding the statement, “Households have better and
view and 21.2 % of the respondents strongly agreed with the improved living conditions through microfinance”, 21.2%
view highlighted by the statement. This implies that of the respondents strongly disagreed 30.6% of the
microfinance activities in Kawempe had generally respondents disagreed with the statement while 20.0% were
empowered households to meet their basic needs. This not sure about the reliability of the statement. However
finding aligns with the view held by OECD (2012) who 18.8% of the respondents agreed with this view and 9.4% of
reviewed that microfinance institutions play a major role in the respondents strongly agreed with the view highlighted
improving the lifestyles of the poor especially related to by the statement. This implies the respondents generally
meeting their basic needs as a direct benefit from accessing rejected the view that microfinance activities in Kawempe
finance. Mbugua (2010) added that the misconception of the had improved households living conditions. This may be
poor associated with microfinance funds is the major barrier attributed to what wolfburger (2014) revealed noting that
to the fruitfulness of microfinance projects aimed at though Microfinance institutions had achieved financial

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
inclusion to greater extent among the poor communities of Regarding the statement “Microfinance services have
Kampala, most of the microfinance subscribers households’ enhanced peoples’ productivity and capability to procure
living conditions had remained virtually unchanged. On the assets and necessary facilities that can encourage
contrary Bugembe (2014) had found that microfinance productive investment.”20.0% strongly disagreed with the
institutions had greatly improved the subscribers living view and 30.6 disagreed with the statement while 9.4% of
conditions from aspects of housing, nutrition and most basic the respondents were not sure. On the other hand 21.2%
needs. respondents agreed and 18.8% of the respondents strongly
agreed with the statement. There was in consistency among
On responding to the statement “More individuals the respondents about this view however most of the
have registered increased personal savings.”20.0% of the respondents rejected the view. This implies that
respondents strongly disagreed with the viewand 20.0% of microfinance services may empower and enhance some
the respondents. Disagreed with the view while 9.4% were people’s ability to procure assets and indulge in productive
not sure. On the other hand 29.4% of the respondents agreed investment while others may not be able to chive this
with this view and 21.2% strongly supported it. This implies benefit. This may be attributed to the fact that different
that microfinance activities and services among households people use microfinance funds in different ways which may
in Kawempe have enable people and their businesses to bring about differing results. The same view is shared by
register increased savings. This aligns with Srivastava, Carlton et’al (2010) who observed that sometimes
(2016) who asserts that microfinance lending institutions microfinance lending institutions deprive people of their
require institutions and individuals to open up accounts with productive assets through collateral and limit productive
them before accessing credit facilities which accounts serve capacity of households.
both as payment channels, monitoring platforms and saving
instruments. This consequently encourages clients to save Regarding the statement “Microfinance clients have
registering increased savings (Minja, 2015). built assets and are less vulnerable to life shocks such as
unemployment, illness, or family breakup” 11.8% of the
Responses on the statement “Microfinance has respondents strongly disagreed, 24.7% of the respondents
enabled people to engage in entrepreneurial and economic disagreed and 8.2% of the respondents were not sure. On
activities that make them more self-reliant” revealed that the other hand 34.1% respondents agreed, while 21.27% of
69.4% of the respondents agreed with the view highlighted the respondents strongly agreed with the statement. This
by the statement and 30.6% strongly agreed supported it. implies that microfinance institutions have empowered
This implies microfinance activities and services among household members to build assets which act as safety nets
households in Kawempe have encouraged the growth of to life shocks.
entrepreneurships which has promoted self-reliance and
economic independence. This view is shared by Srivastava, 4.5 Regression and ANOVA
(2016) who argues that business entrepreneurship among the Having discussed the descriptive analysis of
poor is the gateway to economic self-reliance and since the microfinance and poverty reduction, the researcher arrived
MFIs facilitate the financing of the entrepreneurship projects at some conclusions with correlation, regression and
this achievement can justifiably be attributed to them. On ANOVA analysis basing on the research objectives.The
the contrary (Mbithe, 2013) argued that despite the results below show the regression model for microfinance
undeniable fact that MFIs are the major financiers of and poverty reduction as shown in table 5 and 6 below.
entrepreneurship among the poor, they cannot be Table 5: Model Summary for microfinance and poverty
independently hailed for promoting self-reliance as some of reduction
them actually perpetuate dependence. Through cycles of Adjusted R Std. Error of
borrowings and repayments the poor are stringed on a rope Model R R Square Square the Estimate
of dependence on MFIs for finance even the operating
capital (Mbithe, 2013; Waliaula, 2013). 1 .349a .242 .205 .46002

The findings further reveal that on responding to the a. Predictors: (Constant), Microfinance
statement” Microfinance builds inclusive financial systems
to all people to access financial services” 55.3% of the The model summary revealed a slight correlation (R=
respondents agreed 44.7% of the respondents strongly 0.349a) between the observed and predicted poverty
supported it. This implies microfinance services have reduction outcomes. In fact only a small proportion of
provided an inclusive platform that helps households in variance 24.2% (R-square 0.242) in the poverty reduction
Kawempe to access financial services. This could be could be explained by the microfinance elements considered
attributed to the business friendly approach of Microfinance in this study.
institutions towards small and micro businesses allowing for
access to funds without collateral supported by affordable A simple regression result from ANOVAa for
interest rates a view held by the OECD (2018). microfinance and poverty reduction in Kawempe division in
table 6 below.

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Table 6: ANOVAafor microfinance and poverty reduction. Study findings also revealed a slight correlation of R=
Sum of Mean 0.349a between the observed and predicted poverty
Model Squares Df Square F Sig. reduction outcomes. And that a small coefficient of
determination of 24.2% (R-square 0.242) in the poverty
1 Regression 6.023 reduction could be explained by the microfinance elements
24 3.679 17.354 .026a
considered in this study.
Residual 12.024 60 .212
5.2 Conclusions
Total 18.047 84 Based on the study findings, the researcher concludes
a. Predictors: (Constant), Micro finance b. Dependent that access to finance is linked to poverty reduction by
Variable: Poverty Reduction facilitating increased entrepreneurial activities which
increases disposable income spent on household
Further analysis by the ANOVA shows a regression consumption especially on food, fuel and basic needs such
variation of 6.023 and a F-ratio of 17.354 significant at the as health and education. The study further concluded that
alpha level 0.05 since the sig 0.026 is less than 0.05 access to credit does not reduce the income inequality gap as
implying a greater likelihood that the differences between the gap shortens for those that access credit while it widens
the means did not happen by chance. for those that cannot and that a lack of access to
microfinance financing maintains poverty among the poor.
V. SUMMARY OF FINDINGS, CONCLUSIONS
AND RECOMMENDATIONS The researcher also concludes that business
development activities financed by households such as
5.0 Introduction business training, Market development and marketing
This chapter presents a summary of findings, reduce poverty by increased productivity and expand
conclusions and recommendations on findings as far as working opportunities assisting their companies acquire new
micro finance and poverty reduction in Uganda are customers and sell additional products or services to existing
concerned. This also based on the objectives which is; to ones consequently increasing the potential for profitability
examine the effect of access to finance on poverty reduction, among its members. However there are chances that
establish the contribution of Business development towards households experience apparent growth and prosperity yet
poverty reduction among households and determine the some of its members remain in poverty.
relationship between saving opportunities and poverty
reduction among households. The study concluded that though microfinance
institutions create an opportunity for households to generate
5.1 Summary of Findings assets through savings, such saving opportunities may not
The study results revealed that Access to finance translate into business expansion.
improves households’ consumption patterns, income
prospects, and the decision to send children to school rather 5.3 Recommendations
than using them as laborers in the household.” As evidenced Based on the study findings, the researcher
by 62.4% respondents in agreement with the subject matter recommends that there is need for special microfinance,
while 35.5% contrary. Also 100% respondents agreed that grant and training programs that target the youth for
Identifying new markets for household products or services entrepreneurial development and that Government having
increases productivity and expand working opportunities though embarked on the youth programme, need to put
within the households and increases income and economic stringent measures to curb vices like corruption that has
growth. infiltrated the programme. Clients should be trained in skills
that can add value to their ability to run the businesses they
Results also showed that Business developments own more efficiently. This can be done by the relevant MFIs
allows for new jobs creation which in turn lead to equitable credit officers or Business Development Officers. Since all
distribution of income culminating in higher standards of clients have different knowledge gaps, the researcher
living for the populace.”, as evidenced by 100% respondents suggests that a thorough assessment be carried out to know
in agreement with the statement. However results showed exactly which areas an entrepreneur requires further skills.
that 62.4% disagreed with the statement that “The
opportunity to save provides Households with the capacity The researcher also recommends that in order to build
to access better financing for their business endeavors in on gains achieved in the microfinance sector, Government
terms capacity and productivity contrary to the only 37.6% increasingly needs to harness the poverty- reducing potential
in agreement. of shifts in the household sectorial share of employment in
favor of more productive and dynamic activities. In addition
to that entrepreneurs and households need to be encouraged
to take potentially risky investments whilst appropriately
managing new sources of vulnerability

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Volume 5, Issue 11, November – 2020 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
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