“We need to get rid of this misconception that you can go to a bank and get 100 percent debt financing for a start-up SME. It is not going to happen, and it should not happen.”
Thinking about starting a business? Pondering about where to get start-up capital for your business idea? Contrary to what you may think, a commercial bank is probably not the right place to look, according to Patrick Mweheire, the chief executive officer of Stanbic Bank Uganda
Speaking on Wednesday at an enterprise conference organized by the bank in Kampala, Mweheire also shot down the notion that banks are the only source of capital.
"There is misconception in Uganda that capital means bank financing. I want to dispel that myth today. There are certain things that banks can do, there are certain things that banks cannot do, and should not do," he said.
"We need to get rid of this misconception that you can go to a bank and get 100 percent debt financing for a start-up SME. It is not going to happen, and it should not happen."
Instead of obsessing with debt financing from banks, Mweheire says the time is now for Ugandans to improve their saving culture to create a bigger pool of financing.
"When an economy grows, banks start to account for less than 30 percent of financing in the economy. 70 percent comes from more traditional and stable sources of funding like pension funds, hedge funds, mutual funds," he said.
"We have a savings rate of 15 percent of GDP, but we need to make investments of 30 percent of GDP. There is a gap of 15 percent which is massive. This gap cannot be filled by bank financing."
Access to affordable credit is one of the biggest challenge facing Small and Medium Enterprises (SMEs) in Uganda. A study by the Financial Sector Deepening (FSD) Uganda titled "The National Small Business Survey (NSBS) of Uganda," says 74% of Micro, Small and Medium Enterprises (MSMEs) in Uganda struggle to get access to finances.