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Economic Consequences of Credit Market Failure in Uganda - Term Paper Example

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This paper is a blueprint for the consequences of the failure of credit market failure on the growth of the Ugandan Economy. It contains practical and suitable recommendations for the stabilization of the Ugandan credit market according to the Economic, Regional and Social set-up of Uganda…
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Economic Consequences of Credit Market Failure in Uganda
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Download file to see previous pages "The failure of formal credit institutions to serve the poor is due to a combination of high risks, high costs and consequently low returns associated with such business." (Orkut et al. 2004:5)
Despite the pressure from the International agencies and Governments of the developed nations it will neither fruitful for the economy of the developing countries nor for the consumers of these countries to implement terms and conditions of lending and borrowing as applied in the developed countries.
Factors contributing to this argument are many and varied, which include:
The difference in economic conditions.
The difference in technology and skills.
Dependence economies of both the countries on Labor-intensive industries.
Loss of competitive advantage in international trade.
The economy of Uganda is considered as one of the fastest-growing economies in African countries. The growth in the Gross Domestic Product of Uganda has reached to 6.9%per years from 2.9% in the era of 1980s according to World Bank. (World Bank 2004:183)
As a consequence of this growth, Appleton (2001:4)has estimated, based on household surveys, that the poverty headcount (defined relative to a poverty line close to the
widely used dollar a day)has declined substantially: From 56%in 1992 to 34%in 1999/2000 - mainly because mean consumption per adult equivalent rose by 4.7%%per
annum over this period (its distribution worsened slightly). Wider measures of poverty (the poverty gap ratio P1 and the poverty severity ratio P2)declined, even more than the poverty headcount ratio (P0), thus indicating that the poorest gained much from this growth (Appleton 2001:27, Table 2). This decline in poverty is confirmed by panel data
that show similar declines in the poverty headcount ratio over the same period (Lawson et al.2003:6). Nevertheless, this is a relatively strict poverty definition, and poverty is
still widespread, particularly in the Northern region, where the panel data also seems to indicate most poverty persistence (Lawson et al.2003:7). Uganda is still a very poor
country, as judged by the fact that it's per capita income of $240 in 2002 is scarcely above half the average level for all African countries ($450)and for all low-income
countries ($430)(World Bank 2004:16). Admittedly, exchange rates exaggerate Uganda ’s poverty, and converting using PPP dollars gives a somewhat better picture.
But even then, at $1360 versus Africa ’s $1 700 and the average for low-income countries of $2 110, Uganda is still amongst the world ’s very poorest countries, despite
its more recent commendable growth performance, and it needs much more growth to reduce poverty (World Bank 2004:16). It is against this context of poverty that the issue of credit in Uganda should be seen. In an impoverished country, albeit one experiencing rapid economic growth, opportunities of individuals and therefore indeed opportunities for macro-economic growth are likely to be constrained by lack of access to resources to invest. It is in this way that micro-finance builds a bridge between micro-economic opportunities for individuals and macro-economic performance of the economy. ...Download file to see next pagesRead More
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