Microfinance Self-Sustainability and Outreach in Uganda: A Case of Teso Rural Development Trust Limited

Abstract

In Uganda, microfinance institutions (MFIs) have been able to reach the poor but economically active people in rural areas, where the traditional commercial banks deliver limited financial services due to the high transaction costs and risks involved in lending to this clientele. MFIs have developed ways of reducing these transaction costs and risks through group lending and solidarity guarantee, among others. Those that will become licensed by the central bank will take deposits and on-lend if need be under the MDI ACT 2003. This is an important step towards financial savings mobilization that has been neglected in the past. However, this calls for better governance and efficiency in running the MFIs if they are to be self-sustainable and improve on their outreach. As more MFIs get registered and regulated by the central bank, they will invariably in the long-run have to shift to higher degrees of financial self-sufficiency and outreach.

The objectives of this study was to determine the level of self-sustainability using Subsidy Dependence Index /Ratio and depth of outreach for a representative microfinance institution in Uganda, Teso Rural Development Trust Ltd (TERUDET). The study was conducted in districts of Soroti, Katakwi and Kaberamaido. Primary data were collected from 180 randomly selected active clients of TERUDET and secondary data were obtained from audited and un-audited financial statements of TERUDET for the period 1998-2003. The results show that TERUDET was heavily dependent on external funds. It was not profitable and self-sustainable through its own income in the period 1998-2003. Its depth of outreach was also low in that it covered more of the non-poor people than the poor.

Key words: financial self-sustainability, microfinance institutions, outreach performance.

Eastern African Journal of Rural Development Vol.20(1) 2004: 34-44