Based in Nateete, Akello Harriet is a juice manufacturer who has been in the industry for a long time and has had some success. Even though the business was profitable, she felt that her growth had been limited, mainly because she was unable to adequately manage the business’s money independently from her family’s daily expenses.
Even though Akello’s firm was successful, there were issues with their record-keeping procedures because they just used a mobile money account and had no official banking arrangements. But after going through a rigorous Financial Literacy training program, her viewpoint changed dramatically. In an interview with Watchdog Uganda, she emphasized the crucial understanding that business funds must be kept apart from personal spending. Consequently, she became proactive in creating a specific bank account and acquired the skill of carefully balancing her financial documents.
Akello clarifies that the course of her firm has changed dramatically, with current margins much exceeding those from her previous period of financial illiteracy. Her firm has grown as a result of her enhanced knowledge of financial management, which has been a huge step forward in her entrepreneurial path.
In Uganda, both most players in the formal and informal sectors live in Akello’s initial dilemma, they grapple with the pervasive challenge of financial illiteracy. Countless businesses fail to mark their fifth anniversaries due to the cancerous effect of financial mismanagement, often driven by unchecked expenses that stem from impulsive decision-making.
Financial literacy is the cognitive understanding of financial components and skills such as budgeting, investing, borrowing, taxation, and personal financial management. The absence of such skills is referred to as being financially illiterate.
Financial illiteracy is a significant barrier on Uganda’s path to become a mid-income country. The country’s success is impeded by a lack of understanding of financial concepts and procedures, even in spite of concerted attempts to support economic development and elevate its population. Addressing the financial literacy gap becomes essential for long-term growth and prosperity as Uganda works to negotiate the intricacies of its economic environment.
Uganda’s national development program includes the goal of moving the country from low-income to mid-income status, which is at the core of its aspirations. But the attainment of this goal depends not only on macroeconomic regulations and infrastructure spending, but also on the people’s capacity to successfully negotiate the complexities of money management. The absence of financial literacy poses a threat to Uganda’s progress towards its socio economic goals, as it is fundamental to both individual and community economic emancipation.
Speaking to Watchdog Uganda, John Walugembe, the Executive Director of the Federation of Small and Medium Enterprises also notes that part of Uganda’s challenges to Middle income status leaving other factors constant is the Financial Literacy gap.
“Part of the challenge generally is Financial inclusion and the government has come up with the program of Financial inclusion and the key pillar is the Financial Literate, this means that most Ugandans don’t understand where and how to borrow, they don’t understand the advantages of saving, they don’t understand the advantages of using the formal financial institution. So if we are talking about professionalization of businesses we have to emphasize the issue of financial Literacy,” he said.
Walugembe also asserts that it’s true one can be skilled but naive about running the business therefore the issue of financial skills, Financial competence and financial literacy must extremely be addressed and he thinks a lot needs to be done in such areas.
“This is a very big issue and is linked if we say that 39 per cent of our people are in abstract poverty and not engaged in money economy, we can assume that all these people are financially illiterate and are living from hand to mouth. Then some people are actually running businesses but are running them down because they are financially illiterate,” he added.
Just because someone is educated does not mean that someone is financially literate since being able to read and write and being financially literate are two different things. Because most of the Education systems in Africa, Uganda inclusive is about memorizing concepts that don’t apply to a person’s day to day living. Therefore it’s very easy to find a fully educated person but financially illiterate.
Financial literacy is more than just knowing how to make a budget and save money; it also includes knowing how to handle debt, make investments, and start your own business. In Uganda, where entrepreneurship is essential for generating jobs and economic progress, a major obstacle to the success of entrepreneurs is their lack of financial literacy. Many would-be business owners find it difficult to obtain official financial services, comprehend the workings of the market, or decide which investments to pursue wisely. This leads to a vicious circle of limited opportunity and economic mobility.
Ssenyange Peter the Chief Finance Officer at Post Bank Uganda, a bank that has partnered with Federation of Small and Medium Enterprises to ensure that small business holders are financially literate also informed Watchdog Uganda that financial management in Uganda is still a big challenge even in those running bigger companies.
“In banking we know very well, we give loans to people even very big borrowers and one thing you find this borrower does very well in coffee, the bank lends him to muscle up his business, instead he goes and builds an apartment! These are all aspects of Financial literacy. And banks use this alot to find out who are good businessmen and who are not. But we need to find out the root cause of this. If you look at the way our brothers in Indian or Kenya do business they start small and within a few years they are having empires and one of the key pillars they respect is that; they don’t even remove a coin from that baby business,” he said adding that Financial literacy is the backbone of any economy that is to thrive.
He added; “Financial literacy in Uganda is very low because the system that grows us doesn’t teach us about money until we graduate or become an adult even though we are so, no one teaches us about money management. It also goes far on how you discuss with your bank.”
Ssenyange asserts that the nation’s legislators are not exempt from the financial literacy crisis. He draws attention to the fact that programs like the Parish Development Model and the Small Business Recovery Fund frequently have a breakdown in communication with their intended audience. A major reason for the limited success seen in many cases is this misalignment with the requirements and realities of small firms..
What has been done to curb to monster
Walugembe, claims that the Bank of Uganda has created an extensive Financial Literacy curriculum that is suited to the requirements of different organizations.
This program is an excellent tool for raising financial literacy in many societal groups. Understanding the vital role that financial literacy plays in small and medium-sized businesses’ (SMEs’) success, FSME has included this curriculum into every one of its programs. By doing this, they hope to guarantee that SME participants have access to the financial know-how and abilities that will support their expansion and long-term viability.
Furthermore, by extending its collaboration with FSME, Post Bank Uganda has reiterated its dedication to advancing financial literacy. Under the terms of the collaboration, a substantial Shs 200 million would be allocated to programs that will improve small business owners’ financial literacy, especially with regard to agribusiness. This partnership demonstrates Post Bank’s commitment to helping small businesses grow and promoting economic empowerment in the agribusiness industry.
Ssenyange, a Post Bank Uganda official, highlighted the partnership’s specific strategy towards small agriculture owners. This emphasis results from the bank’s large clientele in the agriculture industry. Through this agreement, Post Bank Uganda hopes to give agricultural owners and operators specific training and support, enabling them to acquire the financial and value-adding skills and knowledge needed for their companies’ long-term success.
It must also be noted that people from disadvantaged origins are more likely to become victims of predatory loan tactics, exploitation, and ongoing debt if they lack the skills essential to handle their finances. Therefore, a lack of financial literacy threatens not only individual economic progress but also the resilience and potential for inclusive growth of the country as a whole.
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