KAMPALA: The Small Business Recovery Fund (SBRF), established in October 2021 as a public-private partnership between the Government of Uganda (GoU) and Participating Financial Institutions (PFIs), was designed to provide credit to small businesses financially distressed by the COVID-19 pandemic but with potential for recovery. The fund, with an initial allocation of Shs 100 billion from the government and a matching contribution (Shs 100 billion) from PFIs, was aimed at reviving Uganda’s small business sector, but its uptake has been notably low.
As of September 30, 2023, only UGX 16 billion had been disbursed—just 8% of the UGX 200 billion available, according to a report by the Economic Policy Research Centre (EPRC). This low disbursement rate, after nearly two years, has raised concerns about the effectiveness of the fund in reaching its intended beneficiaries.
Why Is SBRF Underutilized?
Several factors contribute to the low uptake of the SBRF, and a closer look reveals a mix of institutional and structural challenges.
Lack of Promotion by PFIs
Most financial institutions involved in the program have not actively promoted the fund. Five out of the eight PFIs—including Finance Trust Bank, Housing Finance Bank, Diamond Trust Bank, Centenary Bank, and DFCU Bank—have received and disbursed fewer than 30 loans in nearly two years. The institutions have not significantly engaged their customers in promoting the fund, which has contributed to the fund’s limited visibility among small businesses, according to the report titled; FACT SHEET.
In contrast, Opportunity Bank performed relatively better, receiving 1,360 applications and disbursing 1,162 loans, representing 85.4% disbursement. However, other PFIs lagged, with Post Bank Uganda, for example, disbursing only 20.6% of the loans it received applications for, reportedly due to liquidity challenges.
Short Loan Repayment Period
Another major hurdle is the short average loan repayment period of 14.8 months, which discourages borrowers from sectors requiring patient capital, such as manufacturing. Opportunity Bank offered the shortest repayment period at 12.5 months, while Pride Microfinance offered 19 months. This short timeframe limits the appeal of the fund to businesses needing longer to generate returns, making it more attractive to those in retail and wholesale trade, which accounted for 72.5 percent of beneficiaries.
Low Awareness of the Fund
A significant portion of non-beneficiaries, nearly 70 percent, are unaware of the SBRF’s existence. Among those aware, 44.3 percent heard about it through word of mouth, and 64.3 percent expressed dissatisfaction with the clarity of the information provided. The fund remains little known outside key urban centers, with the largest share of beneficiaries coming from South Buganda (42.1%), particularly Wakiso, followed by Kampala (19.2%) and North Buganda (11.9%).
Stringent Collateral Requirements
One of the biggest barriers to accessing the fund is the stringent collateral requirements imposed by PFIs, with most institutions demanding land or buildings as security for the loans. This requirement hinders many potential beneficiaries, especially women-owned and micro businesses, from accessing the funds despite the existence of a block allocation arrangement that should provide flexibility.
Skepticism Among Business Owners
There is also a level of disbelief among some business owners regarding the accessibility of the fund. Many are skeptical, with some businesspeople expressing doubts about the fund’s existence or accessibility. One key informant in Kampala voiced this concern, saying, “I don’t believe that money is there, government seems to be playing on us.”
Strategies to Improve SBRF Uptake
To increase the uptake of the Small Business Recovery Fund, several key interventions are necessary:
- Strengthening Partnerships with Committed PFIs
The government should focus on collaborating with PFIs that have demonstrated a strong commitment to the fund, such as Opportunity Bank, Post Bank Uganda, and Pride Microfinance. Strengthening these partnerships could lead to increased promotion of the fund and, subsequently, higher disbursements. - Extending the Loan Repayment Period
Extending the loan repayment period could make the fund more attractive to businesses in sectors like manufacturing that require longer-term capital investments. - Raising Awareness of the Fund
The government and PFIs should invest in promoting the fund more widely across the country, particularly in underserved regions, ensuring that small business owners are aware of the fund’s benefits and how to access it. - Promoting the Block Allocation Arrangement
Encouraging PFIs to embrace the block allocation arrangement, which allows businesses without traditional collateral like land or buildings to access the fund, could expand access for women-owned and micro businesses. - Building Confidence in the Fund’s Availability
Working with beneficiaries who have successfully accessed the SBRF to share their experiences can help demystify the belief that the fund is unavailable or inaccessible, building confidence among potential applicants.
While the Small Business Recovery Fund has the potential to play a significant role in reviving Uganda’s small business sector, overcoming these challenges will be critical to ensuring that the fund reaches those who need it most.