Kampala, Uganda | Independent | Ugandan businessmen, with support from financial institutions, have decided to lead the effort to establish an industrial bank.
The proposed National Industrial Bank of Uganda will help reduce the cost of finance, which the private sector has always faced as a major challenge to its growth.
This was one of the resolutions at the just concluded two-day financial symposium and exhibition organized by the Uganda Manufacturers Association (UMA) at the Lugogo trade fair grounds.
The idea arose after manufacturers realized that all available funding sources did not fully and comprehensively meet their needs.
Francis Ogwuan, Uganda Country Manager at the East African Development Bank, agreed with manufacturers that other alternatives were needed, noting that many countries are developing agriculture, industry, manufacturing, international trade, etc. It added that it has a dedicated bank for each major sector.
Although he believes in economic growth driven by the private sector, he said more government intervention is needed on the financial front, with at least $1 billion set aside to lend to the private sector.
Speaking about its uniqueness from other available long-term financial institutions such as the Uganda Development Bank, Mr. Ogwan said the Industrial Bank should not be regulated by the central bank.
He said that the Industrial Bank does not have enough space to sustainably fulfill its purpose due to the strict nature required for the central bank to control the operations of commercial banks.
According to Mr. Ogwang, industrial banks are needed to provide both financial, advisory and business development services to small and medium-sized enterprises and large enterprises, especially in mobilizing capital specifically for industrial investment. Another key reason is that it can reduce competition for limited financial resources between governments and the private sector, and between traders and businessmen.
Ogwang said the Bank of Industry could have financing partners such as the International Finance Corporation, Afreximbank and the African Development Bank, which would allow for cheaper mobilization of funds.
Manufacturers expressed frustration that available funding sources did not meet their needs.
They also rejected government intervention in the Small Business Recovery Fund, which was created two years ago as a relief measure for businesses hit by the coronavirus. The UMA director general said there was a big problem with banks, which are mandated to manage the funds, and accused them of “hiding” information about projects and promoting their own expensive products instead.
The recovery fund's interest rate is 10%, and the agricultural credit scheme's interest rate is 12%, both significantly lower than the average rate of 17% set by commercial banks.
Alex Lwanja, Director of SBRF and Agricultural Credit Facilities at Bank of Uganda, said ACF has been doing well since 2011, disbursing about Sh800 billion, but SBRF has only disbursed just over Sh13 billion. said. 200 billion of which will be set aside. He attributed the introduction of the law to the strict conditions set by the Ministry of Finance, but added that the Ministry of Finance is pushing for reforms and some conditions have now been amended.
These include opening up the fund to companies established post-pandemic, the number of employees beneficiaries must employ, and a cap that was previously set at Sh300 million.
He hoped this would encourage more people to apply for the credit scheme.
Mr Lwanja also urged entrepreneurs who have been told by their banks that ACF and SBRF are not available to call them immediately.
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