Exploring financial literacy in commercial bank financing for small and medium enterprises in Uganda: a case study of Nakawa Division, Kampala

Abstract

Small and Medium Enterprises (SMEs) are crucial drivers of Uganda's economic growth, contributing significantly to GDP and employment. However, their growth is often hindered by limited access to commercial bank financing. This study examines the intersection of financial literacy and access to financing for SMEs in Nakawa Division, Kampala. Guided by Human Capital Theory and the Theory of Planned Behavior, this mixed-methods research assessed SME owners' financial literacy levels, strengths, and weaknesses, and explored the barriers to securing bank loans. Quantitative data was gathered from 50 SME owners, complemented by qualitative insights to deepen understanding.The findings revealed that while SME owners exhibit moderate confidence in foundational skills like budgeting and record-keeping, significant gaps exist in credit and risk management. Structural barriers such as high interest rates, stringent collateral requirements, and complex loan processes further constrain financing access. The study emphasizes the need for targeted financial literacy programs that combine practical training with collaborative learning, as well as SME-friendly financial policies to enhance accessibility. The findings underscore the dual importance of empowering SME owners through education and reforming banking practices to foster a more inclusive financial ecosystem, thereby contributing to sustainable economic development.