By Francis Kagolo and Priscillar Alinda
Prof. Charles Kwesiga, the executive director of Uganda Industrial Research Institute (UIRI), wants the Government to encourage the establishment of commercial banks dedicated to supporting small businesses (SMEs).
Kwesiga said a number of prospective entrepreneurs fail to take off due to the high interest rates charged by commercial banks.
He said Uganda’s hope to achieve an industrialised economy hangs in balance unless the Government moves fast to reduce the cost of borrowing.
According to Kwesiga, a country needs appropriate technology, strong skills base especially technical skills and affordable financing to move from a subsistence economy to industrialisation.
“Skills have been created but the only missing link now is affordable financing to small and medium enterprises (SMEs),” he said. “Today we cannot set up small scale industries until we avail affordable capital. I can train and equip small entrepreneurs with the requisite skills but we cannot go far without affordable financing.”
Kwesiga made the remarks while addressing a group of visiting Asian and African parliamentarians at the institute’s head office in Kampala Monday.
The group is in the country under the auspices of the Uganda parliamentary forum on food security, population and development and the Asian population and development association.
A New Vision survey in September last year revealed that commercial bank lending rates in Uganda are the highest in East Africa which affects credit growth and increases non-performing loan ratios.
The average rate in Uganda was 20% last year, compared to Kenya’s 15%. Lending rates in Tanzania, Rwanda and Burundi are safely below the 20% mark.
“We must create a financial infrastructure that can offer affordable financing especially to SMEs,” Kwesiga said. “This infrastructure can involve capitalising the Uganda Development Bank (UDB) and have a section of commercial to support SMEs as has been done in the Asian tigers like Thailand, Malaysia and India.”
Created in 2006, the UIRI has mainly focussed on incubating young entrepreneurs’ business plans by offering technical training and other requisite start-up facilities. However, Kwesiga explained that a number of the incubatees had failed to take off due to the high cost of borrowing.
Others, he explained, have been forced into risky activities or simple businesses that are non-productive like retail shops.
Citing his failure to acquire a sh80m loan to buy a tractor for commercial farming at a 20% interest rate, Kwesiga said the cost of start-up capital has failed many potential businessmen.
Kakuuto County MP Mathias Kasamba said there was need to promote value addition to accelerate economic growth and development.
The MPs toured UIRI’s incubation centre where staff are making paper bags out of banana fibre. Other businesses under incubation include ceramics, production of pasteurised milk, meat processing, metal works and fabrication, juice making and carpentry.
The institute has also supported mass production of a thermo-stable vaccine against the Newcastle disease in poultry, the first in sub-Saharan Africa