Kampala — LACK of access to affordable loans is the biggest restriction for budding entrepreneurs in Uganda, and is hampering growth, the International Monetary Fund said on Tuesday.

Peter Allum, the fund's country representative, said deepening the credit market was a higher priority than totally eliminating graft, which often irks influential foreign donors.

"Corruption is something Uganda needs to address, but in my view it is probably not the single largest obstacle to investment and growth," he told Reuters in an interview.

At any one time, the east African country had only about 6% of its $6b gross domestic product available to the private sector as credit, less than half the average for a country at Uganda's level of development, he said.

"The real interest rate on that borrowing is between 18 and 20%,which is probably higher than a low income country ought to be charging in domestic currency terms," Allum said.

If Uganda reduced corruption and improved the availability of credit, it would boost the economy.

"I think that would add to the five, six, seven percent growth we have seen over the past decade," Allum said.

Without easy credit, most Ugandan entrepreneurs have to start with savings and build their businesses with retained earnings.

"It is only when they get to have 50 or 100 employees perhaps that they can get into the banking system," he said. "Kenya, for instance, performs much better than that in terms of providing financing to the small and growin businesses."

"If the commercial banks also start moving down the ladder into the small businesses, that is going to make a big difference," he said.

Uganda's next IMF review will take place in Kampala in mid-October