Long- term financing cited as critical bottleneck to the growth of the SME sector

Lack of long term funding for investment projects and the development of small businesses has been cited as a major obstacle to private sector development in Uganda by European Investment Bank (EIB).

EIB, the development finance institution of the European Union (EU), also argues that lack of fixed rate financing instruments to cushion enterprises against interest rate volatility, has further hindered the development of the sector. “Projects should be eligible, technically sound and financially viable,” said Mr Carmelo Cocuzza, head of regional representation of East and Central Africa during an EIB workshop in Kampala on Monday.

He said projects should show a positive impact on the economy from a social and economic development perspective and comply with environmental protection and procurement regulations.
EIB has been a strong supporter of SME development in Uganda since 1995 through an apex global loan schemes. EIB statistics show that to- date, the bank has provided Euros 110 million for SME development in the country.

In the last 10 years, EIB has extended Euros 253million in form of credit to Uganda. MTN Uganda received Euros 11million for network construction in 1999. It gave Euros 100million for Bujagali Hydropower project in 2007, Dfcu Leasing Global Euros 15million in 2004 and 2006 respectively among others.

Dfcu Bank Managing Director, Juma Kisaame said Dfcu is the largest beneficiary of the EIB funding. “Over the last 30 years, Dfcu has secured over $100 million, which we used for lending to SMEs,” he said.

Mr Kisaame, however said faulty business plans, failure to develop the market, incompetent management and over expansion has led to failure of most projects. “There are a lot of copycats on the market. They copy what somebody has done and they have no clear vision when they start. All they think is making money and in the end they collapse,” he said.

“You need a well thought business plan, a clear roadmap that will determine resources at your disposal. Most businesses lack corporate governance. They don’t want to employ experts because they think they can do things on their own, which is wrong,” he added.

Created in 1958 to provide long term finance for projects promoting European integration, and subscribed capital of Euros 163.7billion , EIB shareholders are the 27 member states of the EU.

Mr Cocuzza said EIB’s financing to Uganda’s private sector has now reached a tune of Euros 30million (Shs70billion) as of October 2008 through Approved Financial Institutions (AFIs). The AFIs include Crane Bank, Dfcu Bank, Bank of Africa Uganda, Centenary Bank, Diamond Trust Bank and Centenary Bank.