High loan fees strain SMEs

Bank of Uganda Governor Emmanuel Tumusiime-Mutebile share a moment with Kenya’s former Central Bank Governor Njuguna Ndungu at the inaugural Annual Bankers Conference in Kampala last week. SMEs say high fees stifle business. Photo by Stephen Otage

What you need to know:

  • Disturbing. SMEs also blame banks for the bureaucracy in the loan application process.


High loan application fees restrain Small and Medium Enterprises (SMEs) from accessing credit facilities to grow their businesses, Daily Monitor has learnt.

During a workshop organised by Enterprise Uganda in Kampala recently, SMEs blamed banks for their high loan application fees and bureaucracy in the application process saying banks fail to give businesses financial support.

This, they said, reduces the SMEs’ trust in financial institutions.

Speaking at the function, Bank of Uganda (BoU) Governor Emmanuel Tumusiime-Mutebile said there has been no credit growth in the economy since 2015.

Over the last five years, looking at the volume of applications, loan demand has grown by about 17 per cent annually.

Out of these, banks approved 70 per cent, a figure has fallen to 51 per cent in the first four months of 2017.
Mr George Mpagi, the managing director of Image Crusade Advertising, said banks assign their own surveyors that usually under evaluate your collateral and underrate the loan amount that should be given to borrowers.

“When you ask for a loan, they choose their own surveyors whom they pay by deducting money from your account. The minimum amount I pay is usually around Shs500,000. They do not have standards that are approved; they are usually beneficial to the bank.”

However, at the Annual Bankers Conference held in Kampala last week, the chairperson Uganda Bankers Association, also managing director Centenary Bank, Mr Fabian Kasi, said high fees are caused by statutory and regulatory costs such as taxes on title mortgaging which are not determined by banks.

He also advised commercial banks to always rationalise the costs to find affordable fees to enable SMEs effectively take loans. Mr Kasi insisted that surveyors are necessary for any bank and that this cost cannot be avoided. He, however, said that standardisation needs to be put in place to protect loan applicants from high surveying charges.

Ms Luna Namubiru, the managing director of Luna Enterprises Uganda Limited, an SME, said after winning a bid for making sweaters for a school, even with a Local Purchase Order (LPO) - an agreement for future payment for a tender, was asked for an Electronic Fund Transfer (EFT) of the company to prove that they will pay the loan after she delivered her services, she was denied a loan.

Mr Micheal Malang, the manager Compuscan, a firm licensed by BoU to do risk assessment of individuals or companies to ascertain their creditworthiness, said the company aims at helping banks identify creditworthy customers and track their payment records.

“All banks report their data to Compuscan on a monthly basis,” he said, adding the database combats the problem of multiple borrowers.

Why rates are high
According to the BoU Governor Emmanuel Mutebile, the high interest rates are because of the high cost structure of banking. The average annual operating costs of Ugandan banks as a percentage of their income earning assets is currently around 11 per cent, which is very high by international standards.


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