MSME Resilience in Uganda
FSD Uganda has entered a new strategic phase – we are building on the successes and learnings from our foundational years which saw us give over 600,000 adults access to new and improved digital financial services, participate in and facilitate key developments and reforms in the financial sector (14 critical laws, policies and regulations in the financial sector passed or reformed with our support) and produce nearly 50 knowledge products dating back to our inception that continue to inform the decision of public and private sector actors in the sector. We are taking these successes and learnings and using them to extend our influence in the real economy. Our revilatised focus on the ‘end user’, who are often hard to reach, profile and design financial products and services for, has seen us embrace Digital Finance as a key pillar for our work.
- Jobs: Digital Finance Services have the potential to open new opportunities for investment and value creation for all businesses, including MSMEs and women-led businesses.
- Quality of Life: Digital Finance Services open channels to reach vulnerable groups with critical services that improve their wellbeing.
- Sustainable futures: Innovative Finance mechanism are playing an increasingly bigger role in building a climate friendly, equitable and resilient society.
MSMEs are a crucial source of income and employment creation (including for women and youth) in Uganda. It accounts for approximately 90% of the private sector, over 80% of manufactured output and contributes about 75% to GDP. MSMEs operate in multiple sectors, with the highest proportion working in agriculture. Despite the critical role they play in economic growth, stability and diversification, a majority of MSMEs remain vulnerable to financial shocks (such as unpredictable weather patterns affecting yields, inputs for firms in the agriculture sector) which limit their growth and sustainability.
Traditionally, MSMEs are considered a ‘high risk’ market by financial service providers, including insurers, who often struggle with the challenge of information asymmetry that limits their understanding of this nice market. While access to credit, and other financial services remains a key concern for MSMEs, driving their adoption of financial products and services which do not meet core business challenges they face is a challenge.
Additionally, it is difficult for FSPs to build and adapt strong business cases for this market which continues to evolve due to the national, regional, and international economic dynamics at play. Financial markets need access to data that will enable them to tailor make solutions that support the growth of MSMEs and serve their own business needs.
Digital financial services have the potential to bridge this gap – build an understanding of the market for responsive product development AND offer MSMEs a variety of solutions that build their resilience while serving core business needs.
In February 2021, FSD Uganda commissioned the Centre for Financial Regulation and Inclusion (Cenfri) to conduct a study exploring the nature of risks faced by Ugandan MSMEs, and how the insurance sector can intervene with appropriate solutions. The study, conducted in partnership with Old Mutual Rest of Africa, UAP Old Mutual Uganda explored four key sectors – agriculture, retail (FMCG), construction, and logistics. The main objective of the study was to Consider how insurers can better provide holistic risk management and mitigation solutions to address the broad range of diverse risks faced by MSMEs in Uganda.
We are keen to learn how digital solutions can bridge the gap in supply and demand on insurance:
- DFS can help market actors effectively segment and profile MSMEs
- DFS can enable market actors to create strong backwards linkages to MSMEs and producers in their respective value chains
- DFS can help FSP collect data to help them design relevant products and services
FSD Uganda will continue to partner with financial sector actors to create an enabling environment that catalyses innovation and promotes inclusive finance and build demand-side interventions that will see us work more closely with the financially unserved and underserved – women, youth, MSMEs, the rural economy and small holder farmers, and refugees and their host communities.