Uganda development bank
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By all accounts, the Uganda Development Bank (UDB) must step in to support local MSMEs in their post-Covid-19 recovery efforts. Over the last two years, the pandemic impacted businesses on a national and global scale. Governments in many other developing countries introduced severe containment measures, involving restrictions on economic activity and mobility, to curb the spread of the pandemic.

In Uganda, public transport and non-essential businesses were closed during the two lockdowns (March-June 2020, and June-August 2021).

Other sectors such as education and tourism were closed for two years. The night quarantines and hence the closure of the night economy took a toll on businesses in Uganda.

The Covid-19 lockdown greatly impacted micro, small and medium enterprises (MSMEs). Indeed, World Bank (2021) indicated that over 89 percent of MSMEs reported a decrease in turnover by about 49 percent. This resulted from low demand for their products and services because of the pandemic.

 Notably, Uganda has an extensive MSME sector that accounts for approximately 90 percent of the private sector. Over 80 percent of manufactured output, and contributes about 75 percent to the GDP.

The sector employs over three million people, which makes it one of the largest employers in the country, according to the Uganda Bureau of Statistics (UBOS).

In January 2022, Uganda fully opened its economy for business after nearly two years of pandemic-related lockdown.

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Now, the perceptions about doing business are optimistic as reflected by the Business confidence index at over 50.

Uganda development bank logo
Image: Uganda Development Bank logo

According to the Bank of Uganda’s latest statistics, the Business Tendency Index increased from 52.1 in December 2021 to 52.8 in January 2022.

This is above the threshold of 50, a sign of improvement in the level of economic activity due to the release of pent-up demand as Covid-19 vaccination picks up.

However, Ugandan MSMEs continue to face operational challenges because of limited capital.

Many businesses lost operating capital due to the increase in operational costs, and the significant losses incurred during the Covid-19 lockdown.

This challenge is exacerbated by the limited access to affordable and patient finance. Finance is needed to give birth to MSMEs through the facilitation of access to other factors of production such as land and labor.

In Uganda, about 70 percent of MSMEs close shop before celebrating their second birthday.

This is mainly attributed to their lack of ability to raise finance due to inadequate collateral to secure loans, information opaqueness.

Others are low technical and management skills, competition, and inability to afford long-term financing among others.

Development financial institutions worldwide play a key role in closing the funding gap faced by MSMEs.

The UDB as an example has set out to enhance MSMEs access to affordable and patient credit through several initiatives.

For instance, on 14th December 2021, UDB launched Special programs to implement and manage interventions.

This was done in the categories of SMEs, Women, Youth, and Business Advisory Services from start-ups to existing businesses with appropriate financial and non-financial solutions.

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 To this effect, the Bank established SME Kazi loans, women prosper loans and youth step-up loans.

Specifically, SMEs Kazi loans intervention enables access to affordable financing and Business support to promote sustainable growth of SMEs and build their resilience against business shocks.

UDB’s SMEs Kazi loans initiative is key in accelerating Post Lockdown recovery of MSMEs in Uganda.

The bank offers SMEs business acceleration facility that covers Short-term working capital, trade facilities, invoice discounting, contract financing with a minimum of UGX50 million and a maximum of UGX720 million.

Relatedly, UDB offers SMEs business expansion facility products, purposely to facilitate SME businesses with demonstrated potential for expansion (both start-ups and existing) with capital investment.

The bank also provides SMEs asset financing facilities. The product enables SMEs to acquire assets necessary for production, collateral pegged to the acquired asset.

As UDB strives to support the resilience and growth of MSMEs, its products come with many advantages. These are in form of low-interest rates, adequate grace period, and patient capital among others.

Uganda Development Bank scales up lending operations by offering cheaper credit (10-12 percent) and long-term project financing, 1-15 years (tenors).

In the recent past, the Bank positioned itself to play the risk absorption role during economic downturns.

It revamped collapsing SMEs and large-scale enterprises and supported the sectors which were in dire need of credit during the crisis (Crisis resolution vehicle).

In addition to these SMEs’ Kazi loan products, UDB offers Business Accelerator Program for Successful Entrepreneurship (BASE).

 The bank provides advisory to clients on management best practices, good governance, record keeping, financial management, etc., based on the Bank’s wider knowledge of the business, operating environment, and experience gained from funding, implementing, and monitoring such projects.

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This is done by way of training and technical support to develop and implement the required processes in the businesses.

The objective is to have professionally run businesses and enterprises which result in reduced risk of default of financed projects.

Bob Twinomugisha is an economist at the Uganda Development Bank
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About the author

The writer is a former Serviceman at the Kenya National Youth Service with a passion in digital marketing and Entrepreneurship. He is the founder of The Inside Entrepreneur, Kenya.