The European Union (EU) has extended Shs1.8 billion to Uganda to boost growth of medium and large enterprises.
The funds were given under the project dubbed ‘Deal Flow Facility’ which will be run by the Financial Sector Deepening Uganda (FSDU).
In a statement, the EU said the funds are meant to help at least 220 medium and large scale enterprises invest in long-term growth or expansion of investment programmes.
The funds will be channelled to the recipient companies in form of venture capital, as opposed to direct loans or grants.
Venture capital allows the investor or owner of the capital to invest in an enterprise to boost growth, and is a long-term investment, usually allowing the investor to be part of the company.
The selected enterprises will have access to business development support to increase their competitiveness and place them on an accelerated growth path.
The project will then make the companies ready to attract other kinds of investors.
FSDU Executive Director Rashmi Pillai says the facility was created to respond to the cries by Ugandan companies which needed non-bank financing which is otherwise short-term and expensive.
Apart from the funds, these companies benefiting from venture capital are supported to put in place adequate governance, accounting and operational structures that will guarantee growth and scale.
Keith Kalyegira, the Capital Markets Authority – Uganda CEO pointed out that the Deal Flow Facility will play a vital role in mobilising saving and channeling them into productive investments for the creation of jobs and national development.
He says these are roles that commercial banks cannot provide due to the nature of their financing, which involves staking 100% collateral, among others.
Businesses globally and in Uganda are suffering the economic consequences of the COVID-19 pandemic, with a decline in consumer demand, and hence, companies are taking on huge losses.
The partner in the program say this situation does not take away the fundamentals of a good business and whether the business has the potential to grow and scale once we have all overcome this external shock globally.
The Private Sector Foundation Uganda, Head of Skills Development, Ruth Biyinzika Musoke says the high cost of finance is among the top three challenges to entrepreneurial development in Uganda, especially for SMEs.
The European Union Programme Manager for Finance, Agribusiness and Land, Adolfo Cires Alonso said there is a lot of idle capital with equity investors and other long-term funds, but Ugandans are too used to commercial banks because of the ease with which the loans are acquired.
He says because the banks only need you to have collateral and agree to their interest rates.