Characteristics of Demand for Rural Credit: Evidence from Uganda

Uganda's financial sector is underdeveloped and concentrated in the urban areas, leaving the majority the rural households with at the mercy of the often costly informal sources. This study analyses the demand for rural financial services in Uganda. To promote agriculture and rural development in Uganda, and elsewhere through the provision of credit, it is important to understand the characteristics of its demand in these areas.We find that Uganda's the credit market is segmented such that rural residents have limited access to the formal financial services. Most of those who applied for loans applied to relatives and friends and community self-help savings and credit association. Loan applications individuals living in the rural areas are less likely to be successful, and for those that are, smaller loans are granted compared to the individuals in the urban areas. while government policy on agricultural modernisation considers credit as an important input to its success, there is more to be done to get credit working for the sector.