Small businesses fail to access govt’s Covid loans over tough requirements 

A number of small businesses continue to struggle with the effects of Covid-19, almost two years after the economy was reopened. Photo / File 

What you need to know:

  • According to Bank of Uganda, the uptake of the Small Business Recovery Fund remains low due to restrictive conditions 

Bank of Uganda has conceded that the requirements set for small business to borrow from the Small Business Recovery Fund are restrictive. 

In details contained in the Bank of Uganda 2021/22 Annual Report, the Central Bank noted that the uptake of the Fund had remained low due to restrictive conditions of accessing financing.   

The Fund, which was established in November 2021, 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 from the Fund cannot be used to pay existing loans. 

The above requirements, including others such as the maximum limit of Shs100m, the Central Bank noted, have been key in locking out small businesses, many of which continue to struggle with effects of Covid-19. 

However, Bank of Uganda noted it has already engaged the Ministry of Finance and participating financial institutions for a way forward.

“Discussions were held with Ministry of Finance, BoU and participating financial institutions with proposals to amend the [Fund] with the aim of increasing uptake,”  Bank of Uganda said, noting that money was available under the Fund for onward lending. 

A number of stakeholders, among them Mr John Walugembe, the Federation of Small and Medium Sized Enterprises executive director, have previously argued that the requirements set by government for beneficiaries under the Small Business Recovery Fund were prohibitive.  

Government created the Small Business Recovery Fund to facilitate provision of loans to small businesses that had suffered financial distress arising from Covid-19  related disruptions. 

The Fund had been 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. 

Therefore, this meant that at least Shs200b would be available for small businesses in any particular year.  

However, according to the 2021/22 Annual Report, as of June 30, Bank of Uganda had received 305 applications worth Shs4.76b, of which 188 applications worth Shs3b, had been approved. 

Uganda largely depends on small and medium sized enterprises in terms of economic development, innovation and job creation. 

Small businesses, according to Bank of Uganda, account for about 90 percent of private sector, employing more than 70 percent of the population.

However, they remain largely underfunded yet they were some of the businesses that were most hit by the effects of Covid-19 due to restrictions on travel and closure of border points. 

Increasing access

According to Bank of Uganda, to increase access to the Fund requirements, particularly in regard to business turnover and assets, number of employees given that most small businesses employ between one and two persons and opening the Fund to the possibility of paying off existing loans and increasing the maximum accessible limit to more than Shs100m, will be reviewed. 

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