Uganda's businesses are finding it harder to borrow, and the reasons run deeper than any single bank or policy. Since the pandemic, credit flowing to private enterprise has thinned to a trickle while households borrow more to meet daily needs, a shift an International Monetary Fund report from October 2026 reads as a sign that savings are not yet becoming productive investment. Banks, squeezed by the state's appetite for their funds and by high costs of doing business, have leaned toward safer or smaller lending. The report, drawing on Ugandan and regional data, suggests that the country's lon
IMF Finds Uganda's Mobile Money Gains Haven't Translated Into Productive Business Credit
Banks spend UGX 62 to earn UGX 100; smaller lenders spend UGX 81
Mark
The headline is about mobile money, but the numbers on lending seem like the real story. What's the core finding?
Mimi
Access has grown, but credit to productive business hasn't. Private credit growth fell from 6.25 percent a year to 2.07 percent, and agriculture dropped from 13.14 percent to 0.82 percent.
Mark
And personal loans went up?
Mimi
Yes, from 5.45 percent to 10.28 percent. The report reads that as borrowing tilting toward household consumption.
Luke
That's the IMF's reading, though. The figures show where credit grew, not what people spent it on. The consumption interpretation is an inference.
Mark
What about the government borrowing point?
Mimi
Banks' claims on government relative to private claims went from 44 percent in 2019 to 65 percent in 2024. Public borrowing is taking a bigger share of bank balance sheets.
Luke
Worth noting that's a ratio. It shows the shift, but the report summary doesn't say how much of the slowdown it explains.
Mark
Why are digital loans not filling the gap?
Mimi
They're growing, from 0.2 to 1.9 percent of GDP, but most are between UGX 10,000 and 500,000. That's too small and short for business investment.
Luke
And the reserve requirement comparison is stated as raising funding costs in principle. How much it matters for Ugandan lending rates isn't quantified here.
O Pulso
- Private sector credit has slumped from about 6 percent annual growth before 2020 to barely 2 percent since, leaving farms, traders and builders starved of capital.
- Banks are increasingly lending to the government, whose share of their lending rose from 44 to 65 percent in just five years, crowding out enterprise borrowers.
- Uganda carries the widest interest spreads in East Africa, with operating costs and reserve requirements pushing the price of money far above regional peers.
- Digital loans are spreading fast, but most are tiny and short-term, leaving major business investment still waiting for a financing solution.
- Reforms on savings, banking costs, credit records and capital markets are being urged, and observers are watching closely to see whether they arrive and whether digital credit matures beyond small loans.
Uganda's businesses are finding it harder to borrow, and the reasons run deeper than any single bank or policy. Since the pandemic, credit flowing to private enterprise has thinned to a trickle while households borrow more to meet daily needs, a shift an International Monetary Fund report from October 2026 reads as a sign that savings are not yet becoming productive investment. Banks, squeezed by the state's appetite for their funds and by high costs of doing business, have leaned toward safer or smaller lending. The report, drawing on Ugandan and regional data, suggests that the country's long-term growth now hinges on whether its financial system can turn local savings into affordable capital for the enterprises that would build it.
Between 2001 and 2025, Uganda's private sector credit grew far more slowly than that of its neighbours. Kenya, Rwanda and Tanzania all expanded their lending to businesses faster relative to their economies. An October 2026 report from the International Monetary Fund, prepared by researchers Jean Christine A. Armas, Daphne Babirye and Alex Vaval Pierre-Charles, argues that this gap is holding back Uganda's growth ambitions, pointing to weak business lending, heavy government borrowing and expensive banking.
The slowdown has deepened since COVID-19. Private credit growth fell from around 6 percent a year before 2021 to about 2 percent afterward. Agricultural, trade and construction lending all weakened sharply, while personal loans climbed, suggesting that borrowing increasingly funds household consumption rather than productive investment. Banks, meanwhile, have shifted their resources toward the government, whose share of their claims rose from 44 to 65 percent in five years.
Costs add another layer. Uganda has the highest interest spreads among the East African countries studied, driven largely by operating expenses and loan-loss provisions. Banks spend more than half of every shilling earned on running themselves, and a higher reserve requirement than its neighbours adds to funding costs. Financial inclusion has improved through mobile money and savings cooperatives, yet few adults use banks, most are paid in cash, and many incomes are too low and irregular for lenders to assess easily.
Digital lending is expanding rapidly, but most loans are small and short-term, far from what business investment requires. Government programmes such as the Parish Development Model and the Agricultural Credit Facility have widened access, though repayment problems and governance concerns threaten their future. The IMF recommends stronger domestic savings, better credit information, lower banking costs, deeper capital markets and greater financial literacy. Whether these reforms follow, and whether digital credit grows beyond its present limits, will shape whether Uganda's savings can finally fund its enterprises.
Between 2001–2005 and 2021–2025, Uganda's private sector credit rose by just 6.7 percentage points relative to the size of its economy. Kenya gained 13.3 points over the same span, Rwanda 13.9 and Tanzania 9.4. That comparison anchors an October 2026 International Monetary Fund report, Financial Deepening: Unpacking Barriers for Stronger Growth, which argues that Uganda's growth ambitions are being held back by weak lending to businesses, heavier government borrowing and expensive banking.
The report was written by IMF researchers Jean Christine A. Armas, Daphne Babirye and Alex Vaval Pierre-Charles. It draws on findings from the Bank of Uganda, the World Bank, the Uganda Bankers Association and Financial Sector Deepening Uganda.
The slowdown has deepened since the COVID-19 pandemic. Average annual real private sector credit growth was 6.25 percent from 2011 to 2020, then fell to 2.07 percent from 2021 through the third quarter of 2025. Agricultural credit growth dropped from 13.14 percent to 0.82 percent. Trade lending went from growth of 4.57 percent to a contraction of 1.29 percent. Construction and real estate credit slipped from 7.13 percent to 0.93 percent. Personal loans moved the other way, with growth rising from 5.45 percent to 10.28 percent, which suggests borrowing increasingly supports household consumption rather than productive investment.
Government borrowing is one reason. Banks' claims on government, relative to their claims on private businesses, rose from 44 percent in 2019 to 65 percent in 2024, so public financing is absorbing a growing share of bank resources. Costs are another. Uganda has the highest interest rate spreads among the East African countries examined. Operating expenses make up about 59.1 percent of those spreads and loan-loss provisions 13.7 percent. Commercial banks spend around UGX 62 to earn UGX 100 in revenue, and smaller financial institutions spend about UGX 81, with staffing, technology, cash handling and administration driving the expense. Uganda's 10 percent bank reserve requirement is also well above Kenya's 3.25 percent, Rwanda's 5 percent and Tanzania's 6 percent. The report notes such requirements support stability but can raise banks' funding costs.
Financial inclusion has nonetheless advanced. Formal financial access rose from 58 percent in 2018 to 68 percent in 2023, helped by mobile money and savings cooperatives. Mobile money usage reached 64 percent, and participation in savings and credit cooperative organisations grew from 5 percent to 14 percent. Yet only 14 percent of Ugandan adults use banking services, against 52.5 percent in Kenya, and about 19 percent remain financially excluded. More than half the population earns less than UGX 150,000 a month, and 91 percent of adults are paid in cash, which makes it hard for banks to assess borrowers.
Digital lending is growing quickly. Uganda had 44.2 million mobile money registrations by mid-2024, and digital lending climbed from 0.2 percent of GDP in late 2021 to 1.9 percent in late 2024. But most digital loans run between UGX 10,000 and UGX 500,000, too small and short-term for major business investment. The IMF also flags unclear pricing, unfair debt collection and misuse of personal information as risks.
Government programmes have widened access to credit. The Parish Development Model had disbursed UGX 1.166 trillion to roughly 1.165 million households by December 2024, and lending supported by the Agricultural Credit Facility grew from UGX 21 billion to UGX 751 billion. The report cautions that weak repayments, governance problems and funding shortages threaten their sustainability.
The IMF recommends strengthening domestic savings, improving credit information systems, cutting banking costs, developing capital markets and expanding financial literacy. Its conclusion is that Uganda's long-term growth depends on a financial system that turns domestic savings into affordable credit for private enterprise. What to watch is whether those reforms follow, and whether digital lending grows beyond small, short-term loans.
Citações Notáveis
Uganda's long-term growth prospects depend on a financial system able to turn domestic savings into affordable credit and support private enterprises.— IMF report, Financial Deepening: Unpacking Barriers for Stronger Growth (paraphrased)
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