How banks can finance SME industries

A woman works at Krystal Ice Limited in Luzira, a company that uses fresh frozen fruit pulp to produce ice pops. PHOTO BY ERONIE KAMUKAMA 

In Summary

Commercial banks have underlined a number of other factors that limit the provision of credit to SMEs – lack of collateral requirements, financial sector structures, clear financial plans, high-interest
rates

By Ronald Kasasa

It is estimated that less than 40 per cent of Small and Medium Enterprises (SMEs) in Uganda have access to bank loans while 80 per cent of the SMEs are still unserved or underserved by financial institutions.

Challenges
Virtually, many SMEs finance their projects through personal funds, family contributions, and friends’ funds. The biggest impediment to the development and blossoming of SMEs in developing and developed countries is financial support and Uganda is no exception.

Over the years, financial institutions have been increasing the availability of finances to fund SMEs despite the fact that the access to these funds is still low or many SMEs owners might not have knowledge on how to access these credit lines. Commercial banks have underlined a number of other factors that limit the provision of credit to SMEs – lack of collateral requirements, financial sector structures, clear financial plans, high-interest rates, the low net value of entrepreneurs in terms of capital (assets and liability).

With a lot emphasis being put on the growth of the SMEs industry in Uganda, in the drive to increase development, reduce the rate of poverty and curb unemployment, commercial banks are playing a big role in ensuring this by readily providing numerous financial related services to SMEs.

Yet, it is common knowledge that at times getting financial support from commercial banks can be difficult for budding indigenous entrepreneurs as well as those who have been in the manufacturing business for the long term.

Practices
However, this is changing – commercial banks now undertake robust practices aimed at specifically servicing SMEs. They create and participate in investment funds for SMEs, some commercial banks such as dfcu Bank have dedicated focus and product portfolios strictly for servicing SMEs.
Additionally, upskilling SME’s to enable them take advantage of local content opportunities is high on the bank’s agenda through the Accelerator programme. Our doors at dfcu Bank are always open for the SMEs that are looking to grow and make a positive contribution to the economy.