Financial literacy gaps are largely responsible for the short lifespan of many enterprises, particularly those falling under the small and medium enterprises (SMEs) bracket, an enterprise development expert had said.
Charles Ocici, the executive director Enterprise Uganda, said the country suffers from a wide financial education vacuum, landing young entrepreneurs into the dilemma of making ill-informed decisions about money.
"We need to first get the financial wisdom. This is believed to be a cardinal stepping stone in strengthening the establishment and sustainability of enterprises," he said while training over 600 entrepreneurs in business and enterprise start-up tool techniques at Luzira in Kampala recently.
In Uganda 80% of business are SMEs. However, the bad news is that they do not reach their first anniversary, and quarter of them collapse in their first six months of existence.
"Supporting business growth must entail an element of financial literacy to empower people with the knowledge, skills and confidence to manage their business and personal finances well, taking into account their economic and social circumstances," he said.
Ocici pointed out that deepening financial education should be spearheaded by Bank of Uganda with support from commercial banks and development partners.
The most detrimental financial mistakes are made while securing bank loans to finance businesses. The banks neglect the role of sensitising their customers on how to use the funds in a manner that can enable them run profitable businesses with capacity to service the loans.
"People who are financially literate are able to make sound financial decisions for themselves and their families and make informed choices between financial products and services," he added.
According to the Central Bank, only three million Ugandans out of a population of 33 million are banked. On average, less than 20% of households have access to formal financial services, a case to a larger extent attributed to low levels of financial literacy.
Ocici said financial education suitable for entrepreneurs should include awareness about dealing with the challenges in meeting eligibility for bank loans.
"Lowering these barriers to access and offering suitable financial products can allow households and small businesses to maximise the leverage of their savings or earnings for increased productivity, contributing to higher incomes and job-creation and growth," Ocici noted.