Govt, SMEs in discussions to save small businesses

Ministry of Finance and Small and Medium Enterprises (SMEs) are in discussions to come up with a Shs200b stimulus package that will be key in recovery of more than 300,000 small businesses.

Preliminary discussions, according to sources privy to the deliberations, are being held between the Ministry of Finance and the leadership of the Federation of Small and Medium Enterprises (FSME). 

It has already been determined that at least Shs200b will be needed as a stimulus package to lift about 300,000 SMEs.  

Mr John Walugembe, the Federation of Small and Medium Enterprises executive director, confirmed the discussions and during a status briefing organized for small and medium enterprises, he said noted that stimulus package will only benefit small businesses. 

“This is because government already [has programmes that target] micro businesses through the microfinance support centre. It [also has arrangements that target] medium sized businesses through the Uganda Development Bank,” he said, noting that micro and medium sized enterprises will not benefit from the Shs200b.  

Mr Walugembe also noted that Uganda currently has about 1.5 million micro, small and medium sized enterprises, the bulk of which are micro businesses. 

Small businesses make up only 20 per cent, representing about 300,000 enterprises. A small business is defined as one that employs up to 50 people and makes between Shs10m to Shs100m in annual revenue.  

Mr Walugembe also revealed that the stimulus package will primarily offer low interest credit and not grants, which will be disbursed through participating financial institutions. 

The interest rate of the stimulus package is expected not to be exceed 12 per cent. 

However, Dr Fred Muhumuza, an economist and a Makerere University lecturer, said the package is unlikely to reach intended targets, noting that a number of small businesses have no access to financial institutions, through which the programme is expected to be implemented. 

“That is when government begins to lose the targeting. How many small businesses go to financial institutions? That is why the Agricultural Credit Facility and UDB have struggled to attain their targets. It will become complicated to identify and appraise which businesses need assistance,” he said.  Asked about the effect of the informal nature of small businesses on money channel through commercial banks, Mr Walugembe said that the Federation had asked government to build capacity of the businesses to formalise and attain required prerequisites in order to benefit from the stimulus.  

Mr Walugembe also told medium sized businesses during the status update that Uganda Development Bank was in the process of refining its portfolio to ensure that they address the needs of their businesses. 

Get  involved  
According to Mr Walugembe, small businesses must be involved in determining how the stimulus is designed to benefit them by sending through their suggestions.

The Ministry of Finance is expected to announce itself on the final position and modalities of how the stimulus package will work.