Lack of records limiting SMEs’ access to credit

Mr Keith Kalyegira (R), chief executive officer CMA speaks at the conference in Kampala last week as Chartered Secretaries and Administrators Uganda’s Jane Okot P’Bitek, looks on. PHOTO BY FAISWAL KASIRYE

What you need to know:

Reason. The enterprises are considered high due to lack of records.

Kampala. Accessing credit by small and medium enterprises (SMEs) in Uganda is still difficult as interest rates hover above the 20 per cent mark.
The enterprises are considered a high risk to lend to by bankers because they are looked at as most likely to default on loans.
Mr Michael Jjingo, the chief manager business growth at Centenary Bank, said for businesses that don’t keep records, accessing loans is much more difficult.
“When we are assessing the quality of credit, we look at whether the person has the capacity to pay back the loan. And how do we do this? By looking at your books,” he said.
He was speaking at a media briefing organised in the run up to the Capital Markets Authority (CMA) and Institute of Chartered Secretaries and Accountants conference that takes place on February26.
Mr Jjingo says having proper books of accounts is an indicator of good governance. He emphasises that informal market traders will still be able to borrow albeit at high interest rates for a short period of time.
“Some of them (SMEs) are good at the practical corporate governance especially in managing cash-flows but not the academic governance that requires bringing an accountant on board. Increasingly, it is becoming harder for banks to lend to you if you’re not filing returns,” he added.
Notably though, Mr Keith Kalyegira, the chief executive officer CMA insisted that for small enterprises to grow, commercial bank debt is not the solution.
“Bank debt cannot facilitate the economic growth we want as a country. Businesses will need to look at alternative financing forms like capital markets for growth,” Mr Kalyegira said.
Adding, “These alternatives however require proper governance structures, among them, opening up your books for investors to see.”
He said some SMEs are not ready to open up their books for closer scrutiny, yet they want to raise longterm funds.
It has been a struggle getting the SME’s to source funding from Uganda’s capital markets.

Formalising entities

There are moves by government to have the informal sector formalised and get enterprises to file returns. The Uganda Registration Services Bureau (URSB) recently published a list of more than 500 non-compliant companies. According to Ms Jane Okot P’Bitek,Institute of Chartered Secretaries and Administrators Uganda Chairperson, the moves by URSB will “improve governance in the way businesses operate.”