From Mobile Money Boom to Credit Crunch: IMF Exposes Uganda’s Financial Growth Challenges

The IMF warns that Uganda’s economic growth is constrained by weak private sector lending, rising government borrowing, high banking costs and limited access to affordable investment finance. The report calls for stronger domestic savings, banking reforms, digital financial inclusion and improved credit access to boost businesses, attract investment and support sustainable economic development.

The International Monetary Fund (IMF) has warned that Uganda's economic growth ambitions could face serious challenges as weak private sector lending, rising government borrowing and high banking costs continue to limit investment. In its October 2026 report, Financial Deepening: Unpacking Barriers for Stronger Growth, IMF researchers Jean Christine A. Armas, Daphne Babirye, and Alex Vaval Pierre-Charles examine findings from the Bank of Uganda, the World Bank, the Uganda Bankers Association, and Financial Sector Deepening Uganda. The study highlights the urgent need for financial reforms to improve access to affordable credit, strengthen businesses and support long-term economic development.

Private Sector Lending Slows as Investment Challenges Grow

Uganda's private sector credit-to-GDP ratio increased by only 6.7 percentage points between 2001–2005 and 2021–2025, compared with 13.3 percentage points in Kenya, 13.9 in Rwanda and 9.4 in Tanzania. The figures reveal Uganda's slow progress in expanding credit relative to the size of its economy.

The situation has worsened since the COVID-19 pandemic. Average annual real private sector credit growth declined from 6.25 percent during 2011–2020 to 2.07 percent during 2021–the third quarter of 2025. Agricultural credit growth dropped from 13.14 percent to 0.82 percent, while trade lending shifted from 4.57 percent growth to a contraction of 1.29 percent. Construction and real estate credit growth also weakened from 7.13 percent to 0.93 percent.

Meanwhile, personal loan growth increased from 5.45 percent to 10.28 percent, suggesting that borrowing is increasingly supporting household consumption rather than productive investment.

For policymakers, these findings highlight the importance of directing more affordable financing towards agriculture, manufacturing, infrastructure and small businesses to strengthen productivity, employment and economic growth.

Rising Government Borrowing and High Banking Costs Squeeze Businesses

The IMF identifies growing government borrowing as a major obstacle to private sector financing. Banks' claims on government relative to their claims on private businesses increased from 44 percent in 2019 to 65 percent in 2024, indicating that government financing is absorbing an increasing share of banking resources.

High lending costs create additional difficulties. Uganda has the highest banking interest rate spreads among the East African countries examined. Operating expenses account for approximately 59.1 percent of these spreads, while loan-loss provisions contribute 13.7 percent.

Commercial banks spend around UGX 62 to generate UGX 100 in revenue, while smaller financial institutions spend approximately UGX 81. Staffing, technology, cash handling and administrative expenses contribute to these costs.

Uganda also maintains a 10 percent bank reserve requirement, compared with 3.25 percent in Kenya, 5 percent in Rwanda and 6 percent in Tanzania. Although these requirements support financial stability, they can increase banks' funding costs.

The findings underline the need for governments and financial regulators to improve banking efficiency, develop capital markets and balance financial stability with greater access to productive credit.

Mobile Money Expands Financial Access but Millions Remain Underserved

Uganda has made substantial progress in financial inclusion. Formal financial access increased from 58 percent in 2018 to 68 percent in 2023, supported by mobile money and savings cooperatives. Mobile money usage reached 64 percent, while participation in savings and credit cooperative organisations increased from 5 percent to 14 percent.

However, only 14 percent of Ugandan adults use banking services, compared with 52.5 percent in Kenya. Approximately 19 percent remain financially excluded.

Low incomes and widespread informal employment remain major barriers. More than half the population earns below UGX 150,000 monthly, while 91 percent of adults receive income in cash, making it difficult for banks to assess borrowers.

Digital lending offers new opportunities. Uganda recorded 44.2 million mobile money registrations by mid-2024, while digital lending expanded from 0.2 percent of GDP in late 2021 to 1.9 percent in late 2024.

However, most digital loans range from UGX 10,000 to UGX 500,000 and are too small and short-term to support major business investments. The IMF also warns of risks involving unclear pricing, unfair debt collection and misuse of personal information.

Financial Reforms Could Unlock New Opportunities for Growth

Government financing initiatives have helped expand credit access. Uganda's Parish Development Model disbursed UGX 1.166 trillion to approximately 1.165 million households by December 2024, while Agricultural Credit Facility-supported lending increased from UGX 21 billion to UGX 751 billion.

However, weak repayments, governance problems and funding shortages threaten their sustainability.

The IMF recommends strengthening domestic savings, improving credit information systems, reducing banking costs, developing capital markets and expanding financial literacy programmes.

For international development partners, the findings highlight opportunities to support financial infrastructure, business training, responsible digital lending and stronger financial institutions. Banks and FinTech companies could benefit from developing affordable credit products and reaching underserved businesses, provided they manage lending and consumer protection risks.

For policymakers, the priority is to ensure that financial inclusion translates into productive investment. The IMF concludes that Uganda's long-term growth prospects depend on building a financial system capable of turning domestic savings into affordable credit, supporting private enterprises and creating sustainable economic opportunities.