KAMPALA —During panel discussions held at Sheraton hotel, Kampala, on Wednesday, February 23, 2022, Human Capital International (HCI) alongside other business partners devised means through which banks can ably support and ensure sustainability of Small and Medium-sized Enterprises, and start-up Enterprises in the post-COVID-19 era.
The discussions were held during the 4th Strategic Leader’s Summit 2022 hosted by HCI under the theme: Africa’s Start-ups and SMEs in the AfCFTA Era: Rethink, Retool, Innovate, Digitalize and Transform.
Presenting a keynote speech at one of the panel discussions, Richard Mugera, an Associate Partner and Country Director of Ascent Capital Uganda (Ascent Uganda) said SMEs were greatly impacted by the COVID-19 pandemic. Mugera said 89% of businesses reported a decrease in turnover, on average by 49%, and 73% of SMEs have current cash flow problems.
“Two thirds of businesses (SMEs) experienced lower demand for their products,” he added, noting that 41% said they have received government support, mostly inform of material, and that 90% have received bank support, with restructured loans being the most important support.
With this brief background, panelists discussed and devised means on how SMEs and start-ups can be supported to ensure their survival and sustainability.
One of the panelists Peace Ayebazibwe, Executive Director, Housing Finance Bank and an expert in mortgage financing advisory services on real estate investments in Uganda, said SMEs face two major challenges, one being survival and another being growth. “Businesses Uganda have a high mortality rate. Most of the businesses in Uganda die in one to two years,” she added.
Discussing how these SMEs can be financed and their sustainability ensured, Badru Ntege, Director of NFT consult said Uganda has a high mortality rate of start up SMEs because banks feed them “adult food”.
“Our banks are feeding SMEs adult food. Would you feed a baby adult food? Because if you do, they will die,” said Ntege, who noted that banks have many rules that he described as archaic because these rules are not supporting the future generation.
Speaking further, one of the listeners in the audience, Charles Odongtho, a professional Journalist and Lawyer, expressed his concern about the high interest rates on loans imposed by banks. Odongtho noted that the 25% interest rate is too high for start-up enterprises and SMEs.
Inaddition to the interest rates discussion, Michael Mukasa, the Chief Commercial Officer of Roke Telkom said as a result of high bank interest rates, SMEs and start-ups have resorted to investment clubs and phinitex that offer interest rates as low as 10 or 15-20%. However, Mukasa noted that phinitex are complemented by banks because phinitex companies like mobile money can not do large scale lending like banks.
Addressing the concern of high interest rates, Peace Ayebazibwe the Executive Director, Housing Finance Bank revealed that banks have high interest rates because there is no money in banks. She attributed this to the low saving rate, thus encouraging Ugandans to adopt a saving culture.
More to that, Ayebazibwe said due to insufficient money, banks are forced to borrow from other banks in Europe. “Banks are charged 11% as they borrow from Europe, so if bank costs like operation costs, risk costs and margin costs are added, interest rates accumulate to 25%,” she revealed.
As a matter of fact, Ayebazibwe advised start-ups to opt for their own money or other sources to start up and then, banks can come in.