Commercial banks should consider providing long-term financing to manufacturing and SMEs if the latter want to recover from the effects of the Covid-19 pandemic.
This was during the annual bankers conference which kicked off in Kampala on Monday, July 25, 2022.
Several panelists said that in the wake of the pandemic, banks have avoided financing manufacturers as well as SMEs due to the risks involved.
Anthony Kituuka, Chief Executive of Equity Bank, said “as bankers, we need to understand the challenges facing these sectors (manufacturing, tourism and agribusiness) and define something that can be executed to their advantage.”
“We have launched a bold plan, the “African Recovery and Resilience Plan”. One of the pillars of the plan will be food and agriculture to enable coordinated, connected and capable supply chains and mechanization to scale up production,” he said.
Former PwC Uganda Senior Partner Mr. Francis Kamulegeya said banks need to rethink asking for collateral as credit collateral.
“Some SMEs have huge contracts worth millions of dollars without the standard guarantees required by banks. This is an opportunity for banks to lend as they support SMEs,” Mr. Kamulegeya said.
“Many, many years ago we came here to talk about asset-based financing and leasing, and I’m glad that today most of the bankers here have implemented that, but I want them to embrace a new concept today which is value chain finance,” he added.
“value chain finance” (VCF) refers to the use of a value chain and how it supports participants by tailoring services and products at one or more points in the value chain to reduce the risk and cost of financing, and increase the efficiency of the value chain as a whole.
Mr. Kamulegeya said that according to the Bank of Uganda report, loans and finance given to agribusiness normally go to manufacturing, but the country has a larger production value chain.
“I love people like aBi Development Finance who have gone the extra mile to understand the agribusiness value chain and I implore other financial institutions to follow their lead,” he implored.
Daniel Birungi, executive director of the Uganda Manufacturers Association (UMA), said banks hold the key to manufacturers’ recovery.
“Walk with us to support the growth and recovery of SMEs. We are moving into new markets such as DR Congo, we would like to see more of our banking footprint move to these markets. There are opportunities for entry,” he said.
“We want to come down as bankers and get our hands dirty preparing people who come to borrow because it’s a win-win situation, once the SMEs win, the banks also win,” Birungi added.
Mrs. Géraldine Ssali, Permanent Secretary at the Ministry of Commerce and Industry, also urged banks to remove bureaucracies involved in access to credit.
“The bureaucracy for funding applications is just too much, so please bankers, share the services on, say, a phone so we can eliminate all the paperwork…” she said.
Ms. Ssali also called for import substitution.
“If we can get the top 10/15 products that we import and replace imports with our own raw materials with the help of significant funding from the manufacturing sector, the economy will definitely recover on its own,” he said. she added.
Mr. Moses Kaggwa of the Ministry of Finance acknowledged that the current funds provided by the government through the Uganda Development Bank (UDB) are not sufficient for all manufacturers.
“There is also a mismatch between available credit and the needs of the manufacturing sector. As a government, we have tried to put more money into the UDB but the demand is outstripping the supply,” Mr Kaggwa said.
“We have a plan to reduce government borrowing. When you look at the money borrowed here and abroad, it’s not bad and it affects our interest rates”. Banks have $4 trillion tied up in unresolved disputes – this also affects interest rates,” he added.
He said this reduction in borrowing and the resolution of banking disputes could lower interest rates, which could allow for better and affordable rates in the market.
For her part, Mrs. Winnie Lawoko Olwe, Director of National Investment at the Uganda Investment Authority, urged banks to help profile SMEs.
“Can bankers provide a portal for rating these SMEs to help us understand what stage a particular SME is at. There is enough information that can give us traceability and fair judgment,” she said.
“One of the key issues we need to look at is formalization to help SMEs that have the potential to formalize to be able to access funds and support to grow and thrive,” she added. .
Bank of Uganda Deputy Governor Dr. Michael Atingi-Ego said the banking sector can play its part in the economic recovery as it remained strong and resilient after entering the pandemic with capital reserves and sufficient liquidity.
“Uncertainty caused by the current economic situation has deterred banks from financing businesses due to possible risks…” he said.
“The Bank of Uganda’s most important contribution to supporting economic recovery is to foster price stability. Therefore, within our mandate, the BOU is ready to do whatever it takes to control inflation,” he added.
The President of the Uganda Bankers Association, Ms. Sarah Arapta, said that this year’s Annual Bankers Conference will aim to facilitate a focused discussion between financial service providers and stakeholders in the manufacturing, tourism/hospitality sectors. and agribusiness on efforts to revive the economy.
The conference continues on Tuesday.