Role of Private Capital Inflows in Financial Inclusion in Uganda

Download Article

DOI: 10.21522/TIJMG.2015.05.02.Art028

Authors : Benson Benedict Okech, Rheeta Marjery, Godfrey Akileng


This paper provides an empirical analysis of the role of private capital inflows in financial inclusion in Uganda. Financial inclusion was measured using three dimensions (access, usage and quality). Whereas private capital inflows where measured using two proxies of foreign direct investment and remittances. The study anchored on financial intermediation theory with its three associated theories. The target population was private organisations that have received private capital in Uganda. The study used data which were collected from Bank of Uganda and Ugandan investment Authority, Ministry of Finance for the period 2012-2016. A cross sectional descriptive designs were used while data was analyzed using descriptive statistics and multivariate Logistics regression analysis. It was found that private capital inflows did not play any significant role in promoting financial inclusion in Uganda. The study recommends that government particularly Bank of Uganda, Ministry of Finance and Uganda Investment Authority to formulate policies which will attract more investors to Uganda hence boosting FDI. For worker remittances to be deepen and widened, the Ministry of Finance and Uganda Revenue Authority should remove costs associated with receipt of remittances in-country. This way an all-inclusive and stable financial sector in Uganda is ensured.

Keywords: Private Capital, Financial Inclusion, Inflows, Uganda.


[1].      Action Aid International (2009). Annual Report. ActionAid International. The Hague, The Netherlands.

[2].      Akerlof, G.A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism, Quarterly Journal of Economics 84, 488-500.

[3].      Alfaro, L., Areendam, C., Kalemli-Ozcan, S., Selin, S. (2003) “FDI and economic growth: The role of local financial market” Journal of International Economics, 6(1), 512–533.

[4].      Baron, D.P. (1979). The incentive problem and the design of investment banking contracts, Journal of Banking and Finance 3, 157-175.

[5].      Baron, D.P. (1982). A model of the demand for investment banking advising and distribution services for new issues, Journal of Finance 37, 955-976.

[6].      Benston, G.J., and Smith Jr., C.W. (1976). A transactions cost approach to the theory of financial intermediation, Journal of Finance 31, 215-231.

[7].      Berger, A.N., and Udell, N.G. (2002). Small business credit availability and relationship lending: the importance of organisational structure, Economic Journal 112, F32-F53.

[8].      Bernanke, B.S. (1983). Nonmonetary effects of the financial crisis in the propagation of the Great Depression, American Economic Review 73, 257-276

[9].      Boot, A.W.A., Greenbaum, S.I., and Thakor, A.V. (1993), Reputation and discretion in financial contracting, American Economic Review 83, 1165-1183.

[10].  Campbell, T.S., and Kracaw, W.A. (1980). Information production, market signaling, and the theory of financial intermediation, Journal of Finance 35, 863-882.

[11].  Dani Rodrik and Arvind Subramanian (2008). Why did financial globalization disappoint?

[12].  Diamond, D.W. (1984). Financial intermediation and delegated monitoring, Review of Economic Studies 51, 393-414.

[13].  Diamond, D.W., and Dybvig, P. (1983). Bank runs, deposit insurance, and liquidity, Journal of Political Economy 91, 401-419.

[14].  Diamond, D.W., and Rajan R.G. (2001). Liquidity risk, liquidity creation, and financial fragility: A theory of banking, Journal of Political Economy 109, 287-327.

[15].  Diego Anzoategul; Asil Demirguc-Kunt and Maria Soledad Martinez Peria (2011). Remittances and Financial Inclusion: Evidence from El Salvador. International Bank for reconstruction and Development/The world Bank.

[16].  Fama, E.F. (1980). Banking in the theory of finance, Journal of Monetary Economics 10, 10-19.

[17].  Fischer, S. (1983). A framework for monetary and banking analysis, Economic Journal 93, 1-16.

[18].  Gale, D., and Hellwig, M. (1985). Incentive-compatible debt contracts: The one-period problem, Review of Economic Studies 52, 647-663.

[19].  Gemechu Ayana Aga and Maria Soledad Martinez Peria (2014). International remittances and Financial Inclusion in Sub- Saharan Africa. Policy research working paper. International Bank for reconstruction and Development/The world Bank. https/

[20].  Giulia Bettin; Alberta Zazzaro (2011). Remittances and Financial development: Substitutes or Complement in Economic Growth? Bulletin of Economic Research. Volume 64, issue 4.

[21].  Goodhart, C.A.E. (1987). Why do banks need a central bank? Oxford Economic Papers 39, 75-89.

[22].  Gurley, J.G, E.S Shaw. (1960). Money in a theory of Finance, Brookings

[23].  Guttentag, J.M., and Lindsay, R. (1968). The uniqueness of commercial banks, Journal of Political Economy 71, 991-1014.

[24].  Hart, O. (1995). Firms, Contracts, and Financial Structure, Oxford: Clarendon Press.

[25].  Hart, O., and Moore, J. (1995). Debt and seniority: An analysis of the role of hard claims in constraining management, American Economic Review 85, 567-585

[26].  Hart, O., and Moore, J. (1998). Default and renegotiation: A dynamic model of debts, Quarterly Journal of Economics 113, 1-41.

[27].  Hellwig, M. (1991). Banking, financial intermediation and corporate finance, in: A. Giovannini and C. Mayer (eds.), European Financial Integration, Cambridge: Cambridge University Press

[28].  Holmström, B., and Tirole, J. (2001). LAPM: A liquidity-based asset pricing model, Journal of Finance 56, 1837-1867.

[29].  Kareken, J.H. (1986). Federal bank regulatory policy: A description and some observations, Journal of Business 51, 3-48.

[30].  Kindleberger, C.P. (1989). Manias, Panics, and Crashes – A History of Financial Crises, Basingstoke and London: MacMillan (2nd ed.).

[31].  Kroszner, R.S., and Strahan, P.E. (2001), Bankers on the boards – monitoring, conflicts of interest, and lender liability, Journal of Financial Economics 36, 225-258.

[32].  La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R.W. (1998). Law and finance, Journal of Political Economy 106, 1113-1155.

[33].  Lehmann, E., and Neuberger, D. (2001). Do lending relationships matter? Evidence from bank survey data in Germany, Journal of Economic Behaviour and Organization 45, 339-359.

[34].  Leland, H.E., and Pyle, D.H. (1977). Informational asymmetries, financial structure, and financial intermediation, Journal of Finance 32, 371-387.

[35].  Macias j. B & Massa, I, (2009). The global financial crisis and sub-Saharan Africa. The effects of slowing private capital inflows on growth, ODI Working Paper 304. London: Overseas Development Institute

[36].  Mankiw, N.G. (1986). The allocation of credit and financial collapse, Quarterly Journal of Economics 101, 455-470.

[37].  Merton, R.C. (1995b). Financial innovation and the management and regulation of financial institutions, Journal of Banking and Finance 19, 461-481.

[38].  Merton, R.C., and Bodie, Z. (1993). Deposit insurance reform: a functional approach, Carnegie-Rochester Conference Series on Public Policy 38, 1-34.

[39].  Nils Bhinda Matthew Martin (2009). Private capital flows to low income countries: Dealing with boom and bust. Debt Relief International Ltd. London EC1R 3AF United Kingdom.

[40].  Pyle, D.H. (1971). On the theory of financial intermediation, Journal of Finance 26, 737-747.

[41].  Stiglitz, J.E., and Weiss, A. (1981). Credit rationing in markets with imperfect information, American Economic Review 71, 393-410

[42].  Stiglitz, J.E., and Weiss, A. (1983). Incentive effects of terminations: Applications to the credit and labor markets, American Economic Review 73, 912-927

[43].  The Organisation for Economic Co-operation and Development (2002). Annual Report.

[44].  Tobin, J. (1963). Commercial banks as creators of “money”, in: W.L. Smith, R.L. Teigen (eds.), Readings in Money, National Income, and Stabilization Policy, Homewood, Ill.: Richard D. Irwin.

[45].  Towey, R.E. (1974). Money creation and the theory of the banking firm, Journal of Finance 29, 57-72.

[46].  United Nations Conference on Trade and Development (2005). World Investment Report. Transnational Corporations and the Internationalization of R&D. United Nations New York and Geneva, 2005.