An Analysis of Effect of Government Grants on Micro & Small-Scale Enterprise Performance. A Case of Kampala Capital City-Uganda

ABSTRACT: Micro and small-scale enterprises (MSEs) are pivotal to Uganda's economic growth, contributing 25% to GDP and employing 45% of the labor force, yet they face persistent challenges including limited access to finance, high failure rates exceeding 50% annually, and low formalization (10%). Despite government interventions like Emyooga, Parish Development Model (PDM), and over UGX 10 trillion in grants since 2019, MSE performance remains suboptimal, with only 40% adopting good management practices and 33.1% of households still subsistence-dependent. This seminar paper analyzes the effects of government grants on MSE performance in Kampala Capital City, compares them with private credit, and proposes optimization strategies. Grounded in Profit Maximization Theory (Smith, 1776; Friedman, 1970) and Growth Maximization Theory (Marris, 1960s), the review synthesizes empirical literature revealing that government grants positively influence survival, employment, sales, and innovation (Dvouletý et al., 2018; Srhoj et al., 2021), but are hampered by bureaucratic delays, inadequate monitoring, and exclusion of informal MSEs. Private credit, while dominant (54% via SACCOs), drives 52.4% of performance variance through enhanced resource access (Byamukama et al., 2024), yet imposes high interest rates and collateral barriers, exacerbating the loan gap. Findings underscore multifaceted performance drivers beyond finance, including organizational culture (12.4% impact; Aketch et al., 2017) and entrepreneurial competencies (30.4%; Abaho et al., 2016). Recommendations advocate blended public-private financing, capacity building (e.g., financial literacy), standardized grant procedures, joint ownership for accountability, and a proposed model integrating business plan approval, disbursements via Microfinance Support Centre, monitoring, recovery, and e-output reporting. This framework, specified as Yit = β0 + β1 Funds Disbursedit + ... + εit, aims to transform 68% of subsistence homesteads into market-oriented entities, fostering sustainable wealth creation and poverty reduction.v