Bank of Uganda raises small business loan cap to Shs500m

Small businesses are set to benefit from improved access to affordable credit after the Bank of Uganda (BoU) revised its lending framework, raising the maximum loan size under the Small Business Fund (SBF) to Shs500 million and easing conditions that had previously limited uptake.

The reforms are part of a broader effort to stimulate borrowing under the facility, which has struggled to attract demand since its introduction in 2022. Under the new guidelines, businesses can now borrow more, repay over longer periods, and even access additional loans, provided they meet repayment conditions.

Originally introduced as the Small Business Recovery Fund (SBRF) during the Covid-19 pandemic, the scheme targeted firms directly affected by the crisis and imposed strict eligibility requirements, including limits on turnover, employee numbers, and proof of pandemic-related losses.

Financial sector players say these conditions discouraged many businesses from applying. The revised framework removes these restrictions, opening the fund to all small businesses regardless of when they were established, in what officials describe as a shift informed by lessons from the fund’s slow uptake in its early years.

In addition to increasing the loan ceiling from Shs200 million to Shs500 million, BoU has introduced more flexible repayment terms. Borrowers can now access funds for up to four years, including a grace period of up to one year, a move expected to support enterprises with irregular cash flows such as traders, schools, and construction firms.

Interest rates remain capped at 10 percent per annum and are calculated on a reducing balance, making the loans more affordable compared to conventional commercial lending. The reforms also allow repeat borrowing, enabling businesses that have successfully serviced previous loans to access additional credit for expansion.

A notable addition is the provision for debt consolidation, which allows businesses to use part of the loan to clear existing high-interest commercial debts. Analysts say this could ease financial pressure on firms struggling with expensive credit, particularly those that borrowed during or after the pandemic, and improve their chances of survival by freeing up cash flow for operations.

Despite the expanded access, experts caution that financing alone may not be enough to transform small enterprises.

Mr Joseph Lutwama, director of research and insights at Financial Sector Deepening Uganda, said while the changes address key barriers, businesses also need support in areas such as market access, innovation, and skills development. He noted that earlier limitations, including restricting access to certain tiers of financial institutions, had constrained uptake and limited the fund’s reach.

BoU governor Michael Atingi-Ego said the fund has so far disbursed about Shs72.4 billion to 3,640 enterprises across sectors including agriculture, trade, manufacturing, education, and small-scale industries. He said the central bank is simplifying eligibility requirements and strengthening financial literacy to ensure more businesses benefit, noting that awareness remains one of the biggest challenges.

To further expand reach, BoU has brought Savings and Credit Cooperative Organisations (Saccos) into the programme following regulatory changes. Large Saccos that meet capital and asset thresholds are now eligible to channel funds to small businesses, a move expected to extend credit access to underserved areas where formal banking services remain limited.

However, some constraints persist. All loans must still be backed by adequate collateral, which may continue to exclude smaller or informal businesses. In addition, agricultural lending is not fully covered under the current arrangement, leaving a critical sector with limited access to the facility. BoU says it will continue reviewing the programme to address these gaps and improve its effectiveness, as it seeks to unlock more financing for small businesses and support economic recovery.

The fund was launched on February 24, 2022, to improve access to affordable financing for micro and small enterprises (MSEs). It targets up to 50,000 businesses, with at least 40 percent women-owned and 30 percent youth-led enterprises, as part of efforts to accelerate recovery from the effects of the Covid-19 pandemic. The initiative aims to provide much-needed capital injections to support business growth and stability.

The fund benefits small businesses operated by individuals, groups, partnerships, and companies employing between two and 49 people, with an annual turnover ranging from Shs10 million to Shs300 million.

Funds are accessed through participating financial institutions, including commercial banks, licensed credit institutions, and microfinance deposit-taking institutions regulated by the Bank of Uganda.