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More than a thousand small businesses sought credit support from the Bank of Uganda Small Business Recovery Fund in the period ended June 2023, according to the Central Bank annual report.
The Fund, which had performed dismally in the same period last year due to stringent requirements, Bank of Uganda said in its annual report, recorded a massive turnaround with applications rising from 305 to 1,129.
In its June 2022 annual report, Bank of Uganda indicated that the Fund had failed to serve its purpose with many smaller business owners avoiding it over prohibitive requirements. Subsequently the Central Bank asked that provisions are revised. Ministry of Finance then revised the requirements to encourage borrowers.
During the period ended June 2023, Bank of Uganda noted that the value of applications increased by Shs9.91b to Shs14.6b, which was higher than the Shs4.7b recorded in the same period in 2022. However, out of the 1,129 applications, only 899 were approved, for which Shs10.4b was disbursed.
In the same period in 2022, out of the 305 applications, only 22 were approved against a disbursement of Shs1.7b, which the report noted that loan disbursements for the period ended June had increased by Shs8.78b.
“The increase was attributed to the amendment of the Small Business Recovery Fund Memorandum of Agreement, which removed the restrictions to the uptake of the fund,” the report reads in part.
Last year, government amended requirements for borrowing from the Uganda Small Business Recovery Fund, increasing the annual turnover from Shs100m to Shs300m , while at the same time it reduced the number of employees from five to two since most of the targeted beneficiaries are informal in nature. The loans carry a discounted annual interest of 10 percent.
Government also allowed part of the funds borrowed under the Fund to be used to settle existing loans since majority of the beneficiaries had non-performing loans and increased the maximum amount from Shs100m to Shs200m
It also introduced the provision for Block Allocation to accommodating small business that did not have the registered collateral required under conventional banking.
“These amendments … have yielded some good results as exhibited in the performance,” the report reads in part, noting that the Central Bank had automated the loan application process, which had improved the turnaround time for loan processing.
We are optimistic that this, along with continuous awareness, will lead to additional increase in the update of the Fund going forward.
Demand for agricultural loans grows
Meanwhile, demand for agricultural loans increased by 14 percent in the period ended June 2023, signaling an increase in mechanisation and commercialisation of agriculture.
In details contained in the Bank of Uganda 2022/23 annual report, the Central Bank noted that loan applications to the Agricultural Credit Facility rose to 1,458, which represented an increase of 14 percent compared to 1,275 applications that were received in the same period in 2022.
The corresponding value of loan applications significantly increased by Shs100.9b from Shs65.82b to Shs166.73b, which represented a percentage growth of 153 percent.
The report indicates that a total of 1,125 projects were funded with Shs123.38b, for which government contributed Shs61.71b, while the rest was contributed by participating commercial banks.
Disbursements increased by Shs48.5b from Shs74.88b to Shs123.38b disbursed, which represents a 65 per cent increase.
Uptake of block allocation, which is provided for borrowers without registered collateral required by formal banking institutions, also increased with Shs5.63b disbursed to 851 micro borrowers under this arrangement, which represents a 72 percent increase in loans disbursed under this category.
Over the last 13 years, the scheme has had several innovations aimed at enhancing financial inclusion such as providing 100 percent financing for primary production and primary processing, as well as the introduction of block allocation that allows micro borrowers to access financing using unregistered collateral.
The report noted that the scheme continues to support mechanisation and value addition of the agricultural sector through provision of medium to large-scale financing to farmers and agro-processors along the various agricultural value chains.
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