Overview:
Several panellists said following the pandemic, banks have shunned away from financing manufacturers as well as SMEs.
Commercial banks and other financial institutions have been urged to do more to help the manufacturing sector and SMEs get the much needed funding to recover from the effects of the Covid-19 pandemic.
Speaking on Day One of the Annual Bankers Conference in Kampala on Monday, 25 July 2022, several panellists said following the pandemic, banks have shunned away from financing manufacturers as well as SMEs.
The former country senior partner of PwC Uganda, Mr Francis Kamulegeya, said banks need to rethink asking for collateral as security for credit.
“Some SMEs have huge contracts worth millions of dollars without the standard collateral that banks require. This is an opportunity for banks to lend as they support SMEs,” Mr Kamulegeya said.
“Very many years ago, we came here to speak about asset-based financing and leasing, and I am glad to that today, most bankers here have implemented this but I want them to embrace a new concept today which is value chain financing,” he added.
“Value chain finance” (VCF) refers to the use of a value chain and the way in which it supports participants by tailoring services and products to one or more points in a value chain in order to reduce the risk and cost of financing, and increase the efficiency of the value chain as a whole.
Mr Kamulegeya said according to the Bank of Uganda report, the lending and financing given to agro-processing normally goes to manufacturing yet the country has a bigger production value chain.
“I love people like aBi Development Finance who have gone the extra mile to understand the agribusiness value chain and I implore other financial institutions to follow suit,” he implored.
Daniel Birungi, the executive director of Uganda Manufacturers Association (UMA), said banks hold the key to manufacturers’ recovery.
“Walk with us to support the SMEs grow and recover. We are moving to new markets such as DR Congo, we would want to see more of our banking footprint move into these markets. There is scope for entry,” he said.
“We want to get down as bankers and get our hands dirty in preparing the people who are coming to borrow because it is a win-win situation, once SMEs win, banks also win,” Birungi added.
Ms Geraldine Ssali, the Permanent Secretary at the Ministry of Trade and Industry, also urged the banks to remove the bureaucracies involved in accessing credit.
“The bureaucracies for application for funding is just too much so please bankers, share the services on let’s say a phone so that we can eliminate all the paperwork… ” she said.
Ms Ssali also called for import substitution.
“If we can get the top 10/ 15 products we are importing and do import substitution with our own raw materials with the help of extensive financing to the manufacturing sector, the economy would definitely recover on its own,” she added.
Mr. Moses Kaggwa from the Ministry of Finance acknowledged that the current funds given by government through Uganda Development Bank (UDB) are not enough for all manufacturers.
“There’s also a mismatch between available credit & what the manufacturing sector requires. As the government, we have tried to put more money in UDB but the demand exceeds the supply,” Mr Kaggwa said.
“We have a plan to reduce government borrowing. When you look at the money borrowed here and abroad, it is quite a bit and affects our interest rates”. Banks have 4trillion stuck in unresolved disputes – this too affects interest rates,” he added.
He said this reduction in the borrowing and resolving the banking disputes could bring down the interest rates that could enable better and affordable rates in the market.
On her part, Ms Winnie Lawoko Olwe, Director of Domestic Investment at Uganda Investment Authority, urged banks to help profile SMEs.
“Can the bankers come up with a portal for appraisal of these SMEs to help us understand what stage a particular SME is. There’s enough information that can give us traceability and fair judgment,” she said.
“One of the key issues we need to look at is formalization so that we help those SMEs that have potential to formalize to be able to access funds and support to grow and thrive,” she added.
Dr Michael Atingi-Ego, the Deputy Governor of the Bank of Uganda, said the banking sector can play its role in economic recovery because it remained solid and resilient having entered the pandemic with sufficient capital and liquidity buffers.
“The uncertainty brought about by the current economic status has made banks shy away from financing businesses due to possible risks…” he said.
“The bank of Uganda’s most significant contribution to sustaining economic recovery is fostering price stability. Therefore within our mandate, BOU is prepared to do whatever it takes to control inflation,” he added.
The Chairperson of Uganda Bankers Association, Ms Sarah Arapta, said this year’s Annual Bankers’ Conference will aim to facilitate a focused discussion between financial service providers and players in the manufacturing, tourism/hospitality and agribusiness sectors on efforts being undertaken to revive the economy.
The conference continues on Tuesday.
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