LocationsFrom Fragmentation to Transformation: Unlocking Micro, Small and Medium Enterprises (MSME) Potential for Inclusive Growth
June 30, 2026
The President of the Republic of Uganda, H.E. Yoweri Kaguta Museveni, at an exhibition where TEXFAD, a UNDP grantee, was showcasing products made from banana by-products.
On World MSME Day 2026, the global community once again turns its attention to micro, small, and medium enterprises (MSMEs), considered in many ways as the backbone of economies and the engines of innovation, employment, and local resilience. Despite accounting for over 90% of Uganda's private sector, most MSMEs remain small, informal, and disconnected from growth opportunities. The challenge is not enterprise creation—Uganda has no shortage of entrepreneurs. The challenge is building systems that enable enterprises to grow, formalize, innovate, and compete.
In Uganda, as in many developing economies, MSMEs provide the majority of jobs, particularly for youth and women. In Uganda, MSMEs dominate the economy with about 90% of the private sector being MSMEs, contributing roughly 75% to GDP and employing over 3 million people. However, most operate informally given that Uganda’s informal economy accounts for 54.5% of GDP and 92% of employment; in addition, small business survival rates remain modest, with many struggling beyond the first few years.
Unfortunately, enterprises remain trapped in cycles of informality, low productivity, and limited growth. This also affects MSME’s ability to build and maintain employment for a majority of the population, the youth. The challenge is not a lack of entrepreneurial spirit—it is the presence of systemic barriers that constrain that spirit and the potential. To address this challenge, a transformational approach demands that we rethink the ecosystem itself.
Understanding the Systemic Gaps
Divine Bamboo, a sustainable forestry and energy SME that focuses on promoting bamboo as a renewable resource.
MSMEs do not fail in isolation, they struggle within interconnected systems. According to recent enterprise surveys, access to affordable finance remains among the top constraints reported by Ugandan MSMEs, particularly among women and youth-led enterprises. But the root issue goes deeper: weak financial infrastructure, limited credit information systems, and risk-averse lending practices, which exclude small enterprises from formal financing. Similarly, digital adoption is often framed as a skills gap, when in reality it is also about affordability, infrastructure, and policy alignment.
Markets, too, remain fragmented. Many Ugandan MSMEs operate within local value chains with limited links to intercountry, regional or global markets. Standards compliance, logistics, and information asymmetries prevent small businesses from scaling. Addressing these challenges requires not just individual capacity-building, but system-wide coordination. Uganda’s MSMEs are central to economic growth but face challenges in integrating into regional value chains, leveraging the Africa Continental Free Trade Area Agreement (AfCFTA) opportunities, adopting e-commerce, meeting standards certification, and achieving export readiness. While policy frameworks and international support are expanding, structural barriers such as informality, limited financing, and complex certification systems remain significant.
From Support to Systems Transformation
A transformational approach shifts the focus from isolated interventions to structural change. It asks: how do we redesign systems so that MSMEs can thrive naturally? In addition, it also ensures that socially vulnerable groups such as women and youth remain in focus as Uganda pursues a transformational national development agenda which leverages the private sector as a key driver. It is imperative that MSMEs are supported to contributed to the goals set out in Uganda’s ten-fold growth strategy, driven by key sectors such as Agriculture, Tourism, Minerals and Science & Technology (ATMS).
UNDP Uganda has been advancing this integrated approach through its inclusive growth and innovation portfolio. For instance, MSMEs are being connected to markets, mentors, knowledge and technology ecosystems. This integrated support model demonstrates how aligning multiple system components can unlock enterprise potential. Special focus has also been on supporting youth and women-led/owned MSMEs to explore and access markets in and outside Uganda, through skilling and mentorship in formalization, business plan development and understanding the unique dynamics in targeted markets.
Similarly, UNDP’s work in digitalization has moved beyond training workshops to enabling platforms. By supporting digital public goods and innovation hubs, MSMEs gain access to tools that reduce entry barriers and enhance competitiveness. This is not just about teaching entrepreneurs to use digital tools, it is about embedding them in digital ecosystems where opportunities can flourish.
Centering Youth and Women in the Transformation
Some of the youth and women at Makerere University Innovation Pod creating new ideas.
Uganda has one of the youngest populations globally, with over 75% of its 45.9 million citizens under the age of 30 and therefore transformational change must also be inclusive. Youth- and women-led MSMEs face compounded barriers, from limited asset ownership to social norms that restrict participation in certain sectors. Addressing these challenges requires targeted interventions within broader system reforms.
UNDP Uganda’s initiatives on youth skilling, University Innovation Pod at Makerere University (UNIPOD) initiative and the YouthConnekt initiatives, for example, have created pathways for young entrepreneurs to access financing, mentorship, and networks. More importantly, they are influencing policy dialogue around youth entrepreneurship that works for them, ensuring that young people are not just beneficiaries, but co-creators of solutions.
Likewise, initiatives focused on women entrepreneurs are increasingly addressing structural inequalities like financial literacy, linkages with financial institutions, and market participation. These efforts highlight that inclusion is not an add-on, but a central pillar of system transformation.
Partnerships as Catalysts
The UNDP Deputy Resident Representative, Mr. Ian King, together with some women entrepreneur winners at the MKAZIPRENEUR Awards in 2025.
It has now been well understood that systemic transformation is a fully collaborative endavour. Governments, development partners, academia private sector actors, and MSMEs themselves need to collaborate in new ways. Partnerships that align incentives and share risk are essential.
In Uganda, UNDP is working with government ministries, including the Ministry of Gender, Labour and Social Development and the Ministry of Trade, Industry and Cooperatives, to strengthen policy frameworks that support MSMEs. In addition, collaborations with academic and industry are providing the requisite support to MSMEs to ensure their products and services are innovative and competitive and translate into industrial value chains.
These partnerships illustrate a key principle of transformation: leverage collective action to change the rules of the game.
Rethinking Metrics of Success
Youth and women MSME owners in the artisanal mining sector receiving capacity building on value addition.
Transformational impact also requires new ways of measuring success. Traditional metrics such as the number of MSMEs supported or loans disbursed do not capture systemic change. Instead, we must look at indicators such as increased market integration, improved policy coherence, strengthened ecosystems as well as changes in number of those newly employed by these MSMEs.
Are MSMEs becoming more resilient to shocks? Are they accessing new markets? Are systems becoming more inclusive? These are the questions that continue to inform the perspectives on systemic transformation.
A Call to Action
The question is no longer whether Uganda has entrepreneurs. The question is whether its institutions, markets, financial systems, and innovation ecosystems are evolving quickly enough to support them. If Uganda can close these systemic gaps, MSMEs will become more than engines of survival; they will become engines of structural transformation, job creation, enhanced government revenues and inclusive prosperity.
As we mark World MSME Day 2026, the call is clear: incremental change is no longer enough. To unlock the full potential of MSMEs, we must address the systemic gaps that hold them back.
This means investing in digital infrastructure, reforming financial systems, strengthening value chains, and fostering inclusive policies. It also means listening to MSMEs themselves—understanding their realities and co-creating solutions that reflect their needs, thereby ensuring that they survive beyond their first one or two years.
The future of MSMEs is not just about survival—it is about thriving in systems that enable innovation, inclusion, and resilience. By embracing a transformational approach, we can ensure that MSMEs are not just participants in the economy, but drivers of sustainable development.
On 2026 World MSME Day, let us move from fragmented efforts to collective transformation and in doing so, unlock the true power of MSMEs.
By Berna Mugema, Team leader inclusive growth and Innovation, Nicholas Burunde, Programme Officer Inclusive growth and Innovation and Hope Kyarisiima, Programme Coordinator ACP-EU development Minerals