Strengthening Uganda’s Economy, One Business at a Time: The Mastercard Foundation MSE Recovery Fund’s Story

By the FSD Uganda and MicroSave Consulting teams

In the heart of Uganda, the Mastercard Foundation Micro and Small Enterprise (MSE) Recovery Fund has ignited transformation, turning the tide of economic uncertainty brought by COVID-19 prolonged lockdowns into stories of hope and resilience.

Entrepreneurs like Lillian Rwambuka, 35, who runs a small retail shop in Kampala, are seeing real improvements in their lives: “I now have more stock in my business, earn more and I hope to employ someone to help me manage the increased number of clients,” she shares, beaming with pride. Thanks to a loan she acquired from a microfinance institution participating in this project, Lillian can now also pay for her children’s school fees on time, enhancing her family’s well-being and securing a brighter future.

The MSE Recovery Fund, established in response to the vulnerabilities exposed in Uganda’s financial services ecosystem during the COVID-19 pandemic, is managed by Financial Sector Deepening (FSD) Uganda, which oversees its administration and alignment with financial resilience goals. ASIGMA, as the fund manager, handles operations and liaises with participating financial institutions, ensuring effective fund deployment. gnuGrid, the Credit Reference Bureau partner, enhances lending decisions with advanced credit scoring solutions, supporting informed and secure credit extension. Microsave Consulting, as the monitoring, evaluation and learning partner, gathers actionable insights to continuously refine and scale the fund’s impact.

A Widespread Impact: From Individual to Institutional

By the end of 2023, the Recovery Fund, established in 2022, had completely disbursed its USD 22 million allocation, financing 22 microfinance and grassroots financial institutions. This support extended credit at reduced interest rates to approximately 54,000 enterprises. Remarkably, 74% of these are owned by women, and 40% by youth.

This initiative has strengthened both individual businesses and financial institutions by providing zero-cost capital, enabling these institutions to offer loans at reduced interest rates, greatly benefiting women and youth entrepreneurs. For instance, one Microfinance leveraged the fund to reduce its interest rates from 31% to 23% per annum on products targeting women and youth. Furthermore, this Microfinance partnered with the Agricultural Business Initiative and KIVA Uganda to provide individual guarantees to women entrepreneurs who lacked collateral, a move that has significantly benefited youth, women entrepreneurs, and refugees demonstrating additionality.

Enhanced governance, due to diligent oversight and technological advancements, have also improved policy implementation around whistleblowing, credit, and safeguarding. Several institutions have begun using Credit Reference Bureau services, which compile detailed credit reports and scores to aid in informed lending decisions. Some institutions have also upgraded their systems to comply with new Bank of Uganda reporting guidelines, enhancing their credit management capabilities.

Dicky Byamukama, General Manager at Lyamujungu Savings and Credit Cooperative Organisation (SACCO), highlights the benefits since adopting these services: “Previously unused by us as a tier IV institution, the integration with gnuGrid has allowed our field officers to process loans more efficiently without needing prior borrowing histories from our SACCOs.” Additionally, the organisation has strengthened its risk management and data confidentiality by introducing roles such as Risk Officer and Accountant.

These measures have streamlined credit management and bolstered the financial health of micro and small enterprises.

Building Stronger Foundations

The Fund’s success has also captured the attention of the Government of Uganda and development partners, leading to high-level engagements and strategic discussions. These include meetings with the Deputy Governor of the Bank of Uganda and his leadership and the Permanent Secretary and Secretary to the Treasury of the Ministry of Finance, Planning and Economic Development to discuss the Fund’s strategies, outcomes, and lessons learned. These interactions have among others, culminated in the drafting of the policy paper, “Blended Finance Catalyzing Financial Inclusion in Uganda.” This document outlines essential strategies to enhance financial inclusion and will serve as a guide for future initiatives, illustrating the Fund’s significant role in shaping economic policy in Uganda.

Learning from Challenges

Despite its successes, the Fund has faced some hurdles. Tier IV financial institutions (microfinance institutions and SACCOS that operate at a community level), crucial for reaching grassroots levels, struggle with robust systems (digitisation) and meeting stringent credit reporting standards. Efforts are underway to enhance their capabilities through targeted training and support, ensuring that these institutions can fully participate in the evolving financial landscape.

Another challenge lies in aligning the investment readiness of financial institutions in less economically vibrant regions, such as Eastern and Northern Uganda. The fund has responded by earmarking resources specifically for these areas, promoting equitable financial inclusion.

Lessons Learned

The journey of the Fund so far has offered valuable lessons that challenge and refine the financial sector’s practices. First, data collected reveals that micro and small borrowers, especially those businesses led by women, pose less risk than traditionally perceived. These findings challenge existing credit norms and encourage the development of more inclusive financing models.

Furthermore, the integration of credit information services within the Fund has proven crucial in minimising the risk of poor credit portfolios, highlighting the effectiveness of integrated financial services.

Lastly, the adaptability in lending practices allowed financial institutions to tailor their credit offerings to meet the specific needs of their clients. This flexibility has significantly enhanced the effectiveness of credit and underscored the need for adaptable financial products in responding to diverse market demands.

Looking Ahead

As the Fund moves into its next phase (resilience building), the focus will be on expanding its impact, leveraging lessons learned to refine approaches and ensure sustainability. It also aims to further influence and integrate its successes into national financial policies and strategies, bolstering Uganda’s overall economic resilience.

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