Financial institutions told to scale down loan requirements to SMEs

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KAMPALA - Financial institutions have been advised to scale down on their requirements during the appraisal of loan applicants, to enable small and medium-scale enterprises (SMEs) gain quick access to development finance.

Patricia Ojongole, the Uganda Development Bank’s (UDB) managing director said the notion of lack of easy access to finances has persisted for a long time in Uganda's business terrain.

“This is mainly a problem in the SME sector because the reasons for lack of requirements have not been well internalised. When they go to any formal financial institutions they're asked for a long list of things,” she said, adding: “They'll say what does the business look like, do you have a business plan? What exactly do you do, do you practice record management and corporate governance in your organisation?”

Col. Edith Nakalema, the Head of the State House Investors Protection Unit, said the EDP has served as a beacon of opportunity and growth, equipping businesses with the skills and knowledge needed to excel in a competitive environment. (Credit: Mary Kansiime)

She made the remarks as Uganda Development Bank flagged off 60 SMEs after undergoing three months of training in their inaugural Enterprise Development Program (EDP).

 EDP is an initiative of UDB’s Business Acceleration for Successful Entrepreneurship (BASE) designed to foster business growth and enhance investment readiness through an incubator model.

The training provides participants with essential management skills best practices, corporate governance, record-keeping, risk management and financial management, among others.  

Incubation of the first cohort, who graduated at Hotel Africana on Friday, commenced in April 2024 and has been running for three months.

Col. Edith Nakalema, the Head of the State House Investors Protection Unit, said the EDP has served as a beacon of opportunity and growth, equipping businesses with the skills and knowledge needed to excel in a competitive environment.

“Our commitment to support these businesses reflects our belief in their potential to drive economic transformation and create a lasting impact,” she said as she presided over the graduation.

She urged the graduates to positively contribute to Uganda’s economic development by adhering to rules and regulations and meeting their tax obligations.

Col. Edith Nakalema (L), the Head of the State House Investors Protection Unit and Patricia Ojangole (R), the Managing Director Uganda Development Bank Limited hand over a graduation certificate to Phoebe Kalega Byabakama (C), the Director Kisirizi Excellence Centre E.A LTD during the Uganda Development Bank cohort1 graduation at Hotel Africana on August 9, 2024. (Credit: Mary Kansiime)

Conducted in partnership with the Uganda Management Institute (UMI) and Makerere University Business School’s Entrepreneurship, Innovation and Incubation Centre (MUBS-EIIC), the overall objective of EDP is to train, support, and incubate selected private businesses, enhancing their readiness for credit facilities from UDB and other financial institutions.

“Before joining EDP, I was operating my business informally. My business was not registered, nor did I have clear book records. After this training, things have changed,” said Katherine Nassali, the proprietor of Legacy Trust Limited, and one of the graduates.

The training was based on the Bank’s wider knowledge of the business, the operating environment, and experience gained from funding, implementing, and monitoring such projects.

It is implemented alongside the Bank’s partners including Uganda Registration Services Bureau (URSB), Uganda National Bureau of Standards (UNBS), Uganda Revenue Authority (URA), Uganda Investments Authority (UIA), National Social Security Fund (NSSF) and Uganda Women Entrepreneurs’ Association Limited (UWEAL).

 CPAU advises 

In their report titled Alternative Finance Mechanisms for SMEs, the Institute of Certified Public Accounts of Uganda (ICPAU), said commercial banks are generally biased toward large corporate borrowers because they usually provide better-prepared business plans, have credit ratings, more reliable financial information, better chances of success and higher profitability for the banks.

“When banks do lend to SMEs, they tend to charge them a commission for assuming risk and apply tougher screening measures, which drives up costs on all sides,” ICPAU says in the report.