Four financial institutions have teamed up to create a platform that will offer comprehensive support to Small and Medium Enterprises in Africa. The intervention will also boost their recovery from the global economic slowdown.
These include the Arab Bank for Economic Development in Africa (BADEA), the African Guarantee Fund, the Africa SME Champions Forum and the Uganda Development Bank, UDB. This came after the announcement of USD 20 million (76 billion shillings) funding to UDB by BADEA, for onward lending to Ugandan SMEs.
The coalition aims to ensure that enterprises that funded projects are given extra support to effectively achieve the desired growth. It is also aimed at ensuring that more financial institutions are attracted to lending to SMEs, by responding to concerns of risk or non-bankability which are usually forwarded by the lenders when rejecting loan applications.
BADEA Director-General, Sidi Ould Tah said that while there are many initiatives around the world, complaints of inadequate support persist, hence the need for a joint comprehensive solution. He was speaking at the 7th edition of the Africa SME Champions Forum hosted by Uganda together with BADEA.
Speakers at the forum agreed that Uganda is not short of funding because “banks hold so much liquidity,” but that there is not enough innovativeness to enable the entrepreneurs to access it. Patricia Ojangole, the Chief Executive of UDB said the partnership will help them overcome the challenges that make the enterprises, not bankable.
One of the ways in which to overcome the fear of risk by banks when lending to small and medium-sized enterprises is having a guarantor that the loan will be paid back. But also, having the credit facility shared among more than one lender so that the risk is spread, hence reducing the burden per lender.
The African Guarantee Fund, AGF will act as a guarantor in the funding programs, to give confidence to the lenders that there will be no loss, according to Jules Ngakam, the AGF Group Executive Director.
Ngakam sats that it is a mistake to neglect SMEs because they have the capacity of driving the recovery of the economy, adding that most of the big corporations today started tomorrow.
The private sector in Uganda and most of Africa contributes less than 50 per cent to the economies in those countries. This is too low compared to other regions like Europe, North America and Asia, where they contribute between 60 and 90 per cent to the economies.
According to Didier Acouetey, the Chairman of the Africa SME Champion Forum, because of the low contribution to the economy, SMEs in Uganda are given little attention, yet they employ the majority of the workforce.
The coalition members hope that the move will also help reverse the trend of Ugandan enterprises collapsing soon after they are established. Reports say that more than half of the enterprises fail before they make five years, a trend blamed on the lack of prior market research, lack of access to capital for expansion and poor managerial skills.
However, Ojangole says that Uganda ranks among the most entrepreneurial communities, despite the high enterprise mortality rate, and that the availability of innovative people remains an asset that investors or lenders can rely on.
The BADEA funding to UDB will be extended to the sectors considered critical to the recovery of the economy, with a trade finance line of credit worth 10 million US Dollars (38 billion Shillings), to be used exclusively to finance eligible import transactions from the Arab countries and the other 10 million US Dollars to finance eligible private sector projects for the benefit of sub-borrowers within Uganda.
This will bring the total number of lines of credit extended to the Bank by BADEA to six. Also signed was the unconditional grant of USD 500,000 for the economic empowerment of rural households in the Kalungu district to be implemented by the Hikma Community Development Initiative.
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