Govt Covid fund has not helped small businesses, BoU concedes  

Small businesses cannot access money from the Small Business Recovery Fund due to restrictive requirements. Photo / File 

What you need to know:

  • Bank of Uganda says the Small Business Recovery Fund has failed to register reasonable uptake partially due to restrictive operational guidelines.

Bank of Uganda has conceded that the Small Business Recovery Fund has not performed as expected despite an acute lack of access to affordable capital among small and medium enterprises.  

Addressing a meeting of financial institutions about the performance of the Agricultural Credit Facility and the Small Business Recovery Fund in Kampala, Dr Michael Atingi-Ego, the Bank of Uganda deputy governor, said whereas micro, small, and medium enterprises employ more than three million Ugandans, account for more than 90 percent of private sector activity and contribute more than 70 percent of gross domestic product, they continue to lack access to affordable financing, which has been worsened by Covid-19. 

Covid-19, he said, excessively affected small businesses, therefore, to address the new challenge and create a stream of capital for business recovery, government established the Small Business Recovery Fund in July 2021, through which, businesses would access concessional loans. 

Reasonable uptake

However, despite the initiative, the Fund has failed to register reasonable uptake, with only Shs6.58b disbursed as of December 31, 2022, partially due to restrictive operational guidelines.

Through the Fund, government had sought to facilitate provision of loans to small businesses that had suffered financial distress arising from Covid-19 related disruptions.

The Fund was created in a way that government would remit Shs100b to Bank of Uganda to capitalise it, which would be matched by at least eight participating financial institutions, making a possible Shs200b available for onward lending.

However, Dr Atingi-Ego indicated that only Shs6.58b had been disbursed by December 31, 2022, which represents a very low uptake. 

The Fund requires that for a business to benefit, they must have a turnover and total assets of Shs10m and Shs100m, respectively, employ between five and 49 persons and that money borrowed must not be used to pay existing loans.  

The above requirements, including others such as the maximum limit of Shs100m, Dr Atingi-Ego noted, could be restrictive and have been key in locking out small businesses, many of which continue to struggle with Covid-19 related effects. 

However, some of the requirements have been amended, providing for two employees instead of five while benefiting businesses have now been allowed to use some of the borrowed money to refinance existing loans.   

Bank of Uganda also expressed disappointments over low uptake of the Agricultural Credit Facility, which for 13 years, has operated under a partnership between the Central Bank, participating commercial banks, Uganda Development Bank, among others.  

During the period, the Agricultural Credit Facility has grown in both volume and value, disbursing Shs751.3b to about 2,970 during the year ended December 2022. 
Improving uptake 

According to Dr Atingi-Ego, despite the Agricultural Credit Facility’s success, it is yet to get its full potential due to several challenges such as failure by some participating financial institutions to fully participate, in addition to inadequate sensitisation. 

Bank of Uganda is currently reviewing the Agricultural Credit Facility to address gaps and improve uptake. 

Ms Winne Mulisa, the acting head of the Agriculture Credit Facility, says they are engaging participating financial institutions to increase lending, scale up uptake of block allocation and encourage taking up agriculture insurance.

Ms Mulisa also notes that they are encouraging farmers to work in organized groups such as cooperatives and Saccos to ease monitoring, strengthen collaboration to scale up awareness.