Small businesses in Uganda have shown increased interest in accessing affordable loans through the Uganda Small Business Recovery Fund. The Bank of Uganda’s latest annual report reveals a significant change in the Fund’s performance, with applications surging from 305 in the previous year to 1,129.
The Uganda Small Business Recovery Fund, designed to aid the recovery of small businesses impacted by the COVID-19 pandemic, experienced a considerable improvement in loan applications in the period ending June 2023. This transformation is in stark contrast to the same period in 2022, where the Fund struggled to attract borrowers due to strict requirements. The Bank of Uganda attributed this turnaround to the removal of restrictive provisions in the Fund’s Memorandum of Agreement, which has made it more accessible to small business owners.
The Ministry of Finance played a crucial role in revising the Fund’s requirements, aiming to encourage more borrowers. These revisions included increasing the annual turnover requirement from Shs100 million to Shs300 million, reducing the minimum employee count from five to two, and allowing the use of the funds to settle existing loans. Additionally, the maximum loan amount was raised from Shs100 million to Shs200 million. These changes have proven to be effective in boosting loan uptake.
In the period ending June 2023, the value of loan applications increased significantly, from Shs4.7 billion to Shs14.6 billion, reflecting a substantial rise in demand. However, out of the 1,129 applications received, only 899 were approved, resulting in Shs10.4 billion disbursed. In contrast, the same period in 2022 saw only 22 approvals out of 305 applications, with a disbursement of Shs1.7 billion.
Bank of Uganda’s annual report states that the improved performance is attributed to the removal of restrictions on accessing the fund, the introduction of Block Allocation for borrowers lacking conventional collateral, and the automation of the loan application process, which has sped up processing times. Continued awareness and these positive changes are expected to further boost Fund utilization in the future.
Meanwhile, the demand for agricultural loans also saw a notable increase, rising by 14 percent in the period ending June 2023. This surge signals a growing trend toward mechanization and commercialization in the agricultural sector. The Bank of Uganda’s 2022/23 annual report reveals that loan applications to the Agricultural Credit Facility reached 1,458, a 14 percent increase compared to the 1,275 applications in the same period in 2022.
The corresponding value of loan applications saw a significant rise, increasing by Shs100.9 billion from Shs65.82 billion to Shs166.73 billion, representing a remarkable 153 percent growth. The report indicates that a total of 1,125 projects were funded with Shs123.38 billion, of which Shs61.71 billion came from government contributions, with the rest contributed by participating commercial banks. Disbursements also increased by Shs48.5 billion, rising from Shs74.88 billion to Shs123.38 billion, marking a 65 percent increase.
Additionally, the use of Block Allocation, designed to assist borrowers without registered collateral, increased with Shs5.63 billion disbursed to 851 micro-borrowers, reflecting a 72 percent increase in loans disbursed under this category. Over the past 13 years, the scheme has introduced various innovations to enhance financial inclusion, including 100 percent financing for primary production and primary processing. It also introduced the concept of Block Allocation, enabling micro-borrowers to access financing without registered collateral.
The report underscores that the scheme continues to support mechanization and value addition in the agricultural sector by providing medium to large-scale financing to farmers and agro-processors involved in various agricultural value chains.
