Government and commercial banks launch 200 billion shillings stimulus fund for SMEs

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

During his address on July 30, 2021, President Yoweri Museveni said that the government would establish a fund for micro-small and medium enterprises to support businesses affected by Covid-19.

The President therefore directed the Ministry of Finance and the Bank of Uganda to set up the fund and educate the public on how to access it.

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

Kasaija noted that they will support businesses that have suffered financial difficulties due to the pandemic to recover.

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

Ggoobi noted that the research showed that there are mainly four constraining constraints to Uganda’s economic development, including the cost of capital, the cost of transport, the cost and efficiency of energy and the cost of adaptation.

Ggoobi noted that the fund’s intervention aims 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 businesses with a multiplier effect to enable economic recovery and save the majority of the population who are employed by businesses,” he said.

He added: “The aim of the fund is to improve the ability of small businesses to recover and resume operations to the levels and beyond the positions they held before the government instituted standard operating procedures.” .

Fund size
The government will provide an initial amount of UGX 100 billion for the launch of the fund which will be administered by the Bank of Uganda in collaboration with eligible Participating Financial Institutions (PFIs).

PFIs will match the government contribution of UGX100 billion by adding UGX100 billion to form a consortium of UGX200 billion.
According to Kasaija, the government component of PFIs will be interest-free to reduce the cost of funds and ensure that PFIs lend at a concessional interest rate.

He revealed that the fees charged by IFPs will not exceed 10% per annum based on a declining balance, and that credit fees charged by IFPs to eligible borrowers will not exceed 0.5% of the total loan amount. ready and will be invoiced in one go.

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

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

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

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

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

The fund is accessible only once and multiple borrowings from more than one PFI are not permitted.

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

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

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

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