Banks advised to relax credit access rules and boost financing SMEs, manufacturers 

by Musa Hashim Kasibante
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Uganda’s financial institutions and commercial banks have been advised by experts to improve their efforts in financing manufacturers and Small and Medium Enterprises (SMEs) to access funding to speed up their recovery from the prolonged effects of the Covid-19 pandemic.

Several panellists yesterday at Kampala Serena, Victoria Hall voiced their concerns during their speeches on day one of the 5th edition of the Annual Bankers Conference on Monday, 25th July 2022. 

 It has been noted by most speakers at the ongoing 2-day conference that following the Covid-19 pandemic, commercial banks have continuously ignored financing SMEs and manufacturers. 

Panellists discuss the financing of manufacturers and SMEs
Panellists discuss the financing of manufacturers and SMEs

 Mr Francis Kamulegeya, the former country senior partner of PwC Uganda said banks should revise ways of asking for collateral as security as a prerequisite to access finance. 

“Some SMEs have huge contracts worth millions of dollars without the standard collateral that banks require. This is an opportunity for banks to lend as they support SMEs,” Mr Kamulegeya said. 

“Very many years ago, we came here to speak about asset-based financing and leasing, and I am glad that today, most bankers here have implemented this but I want them to embrace a new concept today which is value chain financing,” he added. 

“Value chain finance” (VCF) refers to the use of a value chain and how it supports participants by tailoring services and products to one or more points in a value chain to reduce the risk and cost of financing and increase the efficiency of the value chain as a whole. 

According to Mr Kamulegeya the Bank of Uganda report, the lending and financing given to agro-processing is usually allocated to manufacturing sector yet the country has a bigger production value chain. 

“I love people like aBi Development Finance who have gone the extra mile to understand the agribusiness value chain and I implore other financial institutions to follow suit,” he implored. 

Uganda Manufacturers Association (UMA) Executive Director Daniel Birungi, said banks hold the key to manufacturers’ recovery. 

“Walk with us to support the SMEs grow and recover. We are moving to new markets such as DR Congo, we would want to see more of our banking footprint move into these markets. There is scope for entry,” he said. 

He added; “We want to get down as bankers and get our hands dirty in preparing the people who are coming to borrow because it is a win-win situation, once SMEs win, banks also win.”  

Ms Geraldine Ssali, the Permanent Secretary at the Ministry of Trade and Industry, also appealed to the banks to remove the bureaucracies involved in accessing finance and loan facilities. 

“The bureaucracies for funding application are just too much so please bankers share the services on let’s say a phone so that we can eliminate all the paperwork… ” she advised those in attendance. 

She also called for import substitution. 

“If we can get the top 10/ 15 products we are importing and do import substitution with our raw materials with the help of extensive financing to the manufacturing sector, the economy would recover on its own,” she added. 

Mr. Moses Kaggwa from the Ministry of Finance acknowledged that the current funds given by government through Uganda Development Bank (UDB) are not enough for all manufacturers. 

“There’s also a mismatch between available credit & what the manufacturing sector requires. As the government, we have tried to put more money in UDB but the demand exceeds the supply,” Mr Kaggwa said. 

“We have a plan to reduce government borrowing. When you look at the money borrowed here and abroad, it is quite a bit and affects our interest rates”. Banks have 4 trillion stuck in unresolved disputes – this too affects interest rates,” he added. 

Mr. Kaggwa noted that this reduction in the borrowing and resolving the banking disputes could ultimately lower interest rates that will subsequently foster more affordable pocket-friendly rates in the market. 

Ms Winnie Lawoko Olwe, the Director of Domestic Investment at Uganda Investment Authority, also added her voice by urging banks to help profile SMEs. 

“Can the bankers come up with a portal for appraisal of these SMEs to help us understand what stage a particular SME is? There’s enough information that can give us traceability and fair judgment,” she said. 

“One of the key issues we need to look at is formalization so that we help those SMEs that have potential to formalize to be able to access funds and support to grow and thrive,” she added. 

Dr Michael Atingi-Ego, the Deputy Governor of the Bank of Uganda, said the banking sector can play its role in economic recovery because it remained solid and resilient having entered the pandemic with sufficient capital and liquidity buffers. 

Dr Michael Atingi-Ego, the Deputy Governor of the Bank of Uganda
Dr Michael Atingi-Ego, the Deputy Governor of the Bank of Uganda

“The uncertainty brought about by the current economic status has made banks shy away from financing businesses due to possible risks…” he said. 

“The bank of Uganda’s most significant contribution to sustaining economic recovery is fostering price stability. Therefore within our mandate, BOU is prepared to do whatever it takes to control inflation,” he added.

The Chairperson of Uganda Bankers Association, Ms Sarah Arapta
The Chairperson of Uganda Bankers Association, Ms Sarah Arapta

The Chairperson of the Uganda Bankers Association, Ms Sarah Arapta, said this year’s Annual Bankers’ Conference will aim to facilitate a focused discussion between financial service providers and players in the manufacturing, tourism/hospitality and agribusiness sectors on efforts being undertaken to revive the economy. One of the ways it is to be done is through supporting and financing manufacturers along with SMEs.

The fifth edition of the annual bankers’ conference is set to continue on Tuesday 26th July 2022. 

Business Times Uganda

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