Gov’t, Commercial Banks launch Shs 200billion Recovery Fund for SMEs

Government through the Ministry of Finance, Bank of Uganda and Commercial Banks under the Uganda Bankers Association(UBA), has launched the Micro Small and Medium Enterprises Fund to provide liquidity assistance to small businesses affected by the Covid-19 pandemic.

During his address on July, 30, 2021, President Yoweri Museveni pronounced that government will establish a Micro Small and Medium Enterprises Fund to support businesses affected by Covid-19.

The president therefore directed the finance ministry and Bank of Uganda to establish the fund and inform the public on how to access it.

Now, announcing the fund at the Ministry of Finance Planning and Economic Development (MOFPED), Headquarters on Tuesday, the MOFPED, minister, Matia Kasaija noted that the fund will provide loans at concessional terms to small businesses that were in operation by the time Covid-19 pandemic struck.

Kasaija noted that they will support the businesses that suffered financial distress because of the pandemic to recover.

The Permanent Secretary/Secretary to the Treasury, Ramathan Ggoobi, noted that the decision to create the fund was informed by research and extensive consultationw with various local and international stakeholders.

Ggoobi noted that research has showed that there ate mainly four binding constraints to Uganda’s economic development which includes, cost of capital, cost of transport, cost and efficiency of power and cost of adaptation.

Ggoobi noted that the intervation of the fund, seeks to address the first constraint of the relatively high cost of capital and high interest rates.

“Our motivation for this approach, is to stimulate these Enterprises with the multplier effect to enable economic recovery and save the majority of the population who are employed by the businesses,” he said

He added, “The goal of the fund is to enhance the capability of small businesses to recover and resume operations at the levels and beyond positions they were at before Government instituted the standard operating procedures.”

Fund Size
Government will provide an initial amount of UGX 100bn for the commencement of the fund which shall be administered by Bank of Uganda in conjunction with eligible Participating Financial Institutions (PFI).

The PFIs, will match the government contribution of UGX 100bln by adding UGX 100bln to form a consortium pool of UGX 200bln.
COST OF LOANS
According to Kasaija, the government component to the PFIs will be interest free so as to reduce the cost of funds and ensure that PFIs lend at a concessional interest rate.

He revealed that the chargeable by the PFIs shall not exceed 10% per annum on a reducing balance basis, and facility fees charged by the PFIs to eligible borrowers will not exceed 0.5% of the total loan amount and shall be a one off charge.

“For example of you get 20 million from the bank, the interest will be on the 10 million from the financial institutions, and this interest shall not exceed 10% per annum.” He said.

Kasaija noted that the legal documentation, insurance fees and registration costs shall be borne by the borrower.

Kasaija noted that the loans to eligible borrowers will be extended for periods of a minimum of six months and a maximum of four years, which shall include a grace period of a maximum of onr year depending on the nature of the project as agreed upon.

The Deputy Governor Bank of Uganda Michael Atingi-Ego. noted that the loan facilities under the fund will be secured by collateral of any form as agreed upon by the PFI’s lending policies.

Eligibility to the Fund
The Finance Minister noted that all business operated by individuals, groups, partnerships and companies employing 5-49 people and with an annual turnover of UGX 10 million-UGX 100 million, are eligible under the fund.

The fund, is accessible only once, and multiple borrowings through more than one PFI shall not be allowed.

“If you get a loan/ the fund from Bank x, don’t expect to get another loan, from KCB or DFCU, you only get once,” he said.

Kasaija also said businesses or activities under the Agricultural Credit Facility (ACF), are not eligible for funding under the fund.

He noted that the maximum loan amount to the borrower under the fund shall be UGX 100 million, with no minimum amount.