“It is indeed very tough for most of us”, is the feedback any passer-by gets, as they visit enterprises for a business-related conversation.
Post full Covid19 lockdown, the business leaders through their umbrella bodies like KACITA, FSME and others, have clamored for several recovery measures to support the ailing business community, ranging from accrued rental waivers, interest free loans, loan subsidies and others. The measures are envisaged to contribute to resuscitation of the businesses that are limping, but indeed seeing light at the end of the tunnel.
In as much as Covid 19 started as a matter of Hebei Province, in China, it has indeed had a toll on many businesses, thus rendering them vulnerable, closed and some struggling. Some business coaches have advised Small and Medium Sized enterprises (SMEs) to operate in new ways to plug supply chain interruptions, address shifts in customer demand, optimize costs, and also mitigate risks to workforce health. The SME’s ability to respond to Covid-19 effects is crucial for the business in the perspective of continuing business.
SMEs in Uganda suffer from lack of finance for survival and growth. This prevalent liquidity emergency necessitates struggling businesses to find alternative sources outside the conventional bank lending, which many times are more expensive, thus precipitating their quick downfall. With Covid-19 effects, that forced most of the SMEs to eat into their working capital, due to the continuous business limiting lockdowns, a recovery fund is pertinent.
A recovery in overall economic growth is already being felt, and much awaited in hard-hit sectors like: Education, Tourism, Entertainment that have faced a decrease, and in some cases a stall in revenue streams and severe liquidity constraints. This is despite the recent opening of the lockdown, that saw businesses like Salons, Arcades reopened, and ‘Boda-Boda’ riders – bicycle and motorcycle taxis allowed to operate.
The Government of Uganda through Bank of Uganda, working with participating supervised financial institutions, has arranged an economic stimulus package for SMEs, to be actioned in the medium term, in the financial year 2021/22, in order to support economic growth, and turn the economy out of the slowdown, resultant of COVID-19 and the effects. This offer is very good, and should surely support the struggling businesses.
The total Small Business Recovery Fund (SBRF) amount is 200 billion with the Government of Uganda contributing 100 billion, and the participating banks 100 billion. The borrowers shall be those Covid 19 distressed SMEs, employing 5-49 people, with a turnover of 10m to 100m, total assets 10m to 100m, with high potential for recovery if supported, and planning to borrow once (10m to 100m) from this fund.
The loan processing fees shall be 0.5%, with a tenor of 6 months to 4 years. Collateral requirement shall depend on the participating bank.
This fund will go a long way in supporting the ailing SMEs, who have particularly lost the hope of recovery, but most especially those that have depleted their working capital, while accumulating sizeable amounts of outstanding debts, due to Covid.
They will not only access cheap funding at 10%, but also receiving it at very amenable terms, like having a grace period of 1 year, within the highlighted 4 years. This is definitely a trajectory towards recovery.
Small businesses across the country are faced with extreme economic challenges due to the Covid-19 pandemic. The package seeks to restore household incomes, re-ignite business activity through; the provision of business development services, an increase in government spending, lowering interest rates and a spotlight on provision of access to credit to support Small and Medium Enterprises (SMEs), amongst others.
It is also significant to note that SMEs, schools and other firms affected as a result of the COVID pandemic and subsequent national lockdown, and other containment measures, would be able to access that much needed recovery finance, to certainly improve their cash flows, and to restore business back to momentum, then the later normalcy. To restore supplier confidence, they surely have to be supported by some recovery fund to jump start the business.
In a nutshell, all the meriting SMEs should prepare their documentation, working through the qualification criteria, as they plan to access these funds.
Special gratitude goes to the Government of Uganda, Bank of Uganda, and the participating supervised financial institutions, that have heard the deep cry from the SMEs, and come out to support them. We cannot thank them enough!
The writer is the General Manager Commercial Banking at Centenary Bank