Financial systems and risk management : the nature and role of financial services for managing poor urban livelihoods in Kampala, Uganda in 2000

Abstract

The concept of urban poverty has developed from a static income-based absolute approach to a holistic dynamic and complex state, embedded in livelihood assets and a vulnerability context. A variety of livelihood assets including labour, housing, intra-household, human and social capital are important for risk management strategies. Microfinance has been seen as a key panacea for livelihood development. Using the livelihoods framework this research analyses the nature of livelihoods and financial services within Bwaise, Kampala, Uganda, a poor, densely populated area with a mixture of residential and commercial activities. Financial services available in the area at the time of the research were diverse, ranging from formal banks and donor-led microfinance to cash rounds and informal loans. These financial services, mainly developed by the poor, were used to secure livelihoods with a cumulative nesting of use by the poor. The influence of external factors was high and significantly affected how the poor managed their livelihoods and impeded livelihood development. Theft, ill health and unstable employment were key factors contributing to a highly vulnerable environment. The complexity of urban livelihoods created the need for diverse financial services because expenditure requirements often outstripped income flows. A diverse range of financial services became a vital part of income and consumption smoothing risk management strategies, and these were key for protecting and managing livelihoods.