The impact of Covid-19 pandemic led to a severe contraction in economic activity due to a combination of global supply chain disruptions, travel restrictions and the sudden decline in demand.
Businesses faced reduced productivity as many workers struggled to reach workplaces owing to mobility restrictions and safety concerns during lockdowns.
Currently, the business community needs to be versatile to remain afloat.
This prompted DFCU Bank to launch its small business recovery fund that aims to offer a financial uplift to small businesses that have been adversely impacted by the Covid-19 pandemic.
The DFCU recovery fund is part of the bigger industry action spearheaded by the government through Bank of Uganda.
A report by the Economic Policy Research Centre (EPRC) indicated that micro and small businesses experienced a larger decline in business activity compared to medium and large firms in Uganda since the on-set of Covid-19.
Small and Medium Enterprises (SMEs) contribute over 70% towards Uganda’s Gross Domestic Product (GDP) and over 90% employment opportunities. Therefore, when SMEs suffer, the entire economy suffers.
Many SMEs are sustained by bank loans which have to be serviced periodically. With the current situation, many SMEs will not be able to service their loans. Stagnation in loan repayment will cause banks to suffer. As a result, there will be an increase in bad debts and this will affect liquidity.
Announcing the commencement of the fund, Ronald Kasasa, DFCU Bank’s head of Business Banking said the bank has been at the forefront of transforming businesses in Uganda by providing affordable and flexible financing solutions.
Through the fund, he explained that the bank will provide affordable credit facilities to small businesses that have suffered financial distress arising from the knock-on effects of Covid-19 pandemic.
This fund provides the much-needed liquidity to resuscitate such businesses.
“The Covid-19 pandemic has had a heavy impact on Uganda’s micro, small and medium-sized enterprises. Micro, Small and Medium-sized enterprises (MSMEs) generally had fewer assets, cash reserves and other resources to ride out the storm, making them particularly vulnerable to the crisis. However, it is because of their resilience that we see an opportunity for them to survive.
To convert those opportunities to reality, there is a need to continue supporting small businesses so that they can get back on track,” he reiterated.
Borrowers can access up to a maximum loan amount of Shs 100m and will be expected to provide collateral/security for the loan at a discounted interest rate not exceeding 10% per annum. The interest is charged on a ‘reducing balance’ basis.
The loan repayment period is a minimum of six months and a maximum of four years, which includes a grace period of a maximum of one year depending on the nature of the project.
The credit facility is available to small businesses under the following criteria; Small businesses operated by individuals, groups, partnerships and companies employing between 5-49 people, businesses with an annual turnover of Shs 10m to Shs 100m and these businesses should demonstrate capacity for recovery.
Kasasa said a qualifying borrower can only access this financing once and there are no top-ups. This provides an opportunity to other eligible borrowers to access the much-needed financing and Agri-businesses or agricultural activities that are eligible under the Agricultural Credit Facility (ACF) and those that have already been financed under ACF are not eligible.
“SMEs are at the core of Uganda’s economy; with this initiative, we are focused on bridging the gap between them and financial support which they urgently require to grow and recover,” noted Kasasa.