“Businesses can use this money and be able to partake of bigger resources and be able to use them to support their value chains and take advantage of the market” Gideon Badagawa Chairperson START Facility Management Board.
According to the Uganda Business Impact Survey 2020, 85 percent of small and medium enterprises (SMEs) in Uganda will experience distress after three months of lockdown measures to curb the spread of the COVID-19 pandemic.
As the lockdown is now moving into its third month, even the best positioned businesses are now approaching the bottom of their cash reserves after almost two and half months of lockdown. Although government has moved to ease the lockdown restrictions, many companies may not be able to resume their business without access to liquidity.
On 26th May 2020, the Support to Agricultural Revitalization and Transformation (START) Facility Management Board approved UGX 830,000,000 (approx. €200,000) initial capital towards the new Small Business Recovery Fund to help SMEs in Northern Uganda secure money to overcome their liquidity problems. Through the facility, small businesses will access working capital at zero-interest rate with a flexible repayment plan not exceeding 12 months. Under the recovery fund, Businesses can get up to UGX 40,000,000 (approx. €10,000) based on the assessed individual businesses cash flow challenges.
The facility will serve to revive selected SMEs facing severe threats from COVID-19 related challenges and accelerate their capacity to access medium term concessional funding from Uganda Development Bank (UDB) and other financing institutions.
“Businesses can use this money and be able to partake of bigger resources and be able to use them to support their value chains and take advantage of the market,” remarked Gideon Badagawa Chairperson START Facility Management Board.
By providing zero interest loans also known as reimbursable grants, the START facility will provide the much needed emergency response to SMEs to ensure economic recovery, by supporting businesses to meet their obligations on accumulated/outstanding payments including suppliers and production costs, salaries and related administrative costs, which they cannot pay because of the reduced cash inflows due to the lockdown measures. This will ensure business continuity and sustainability during and beyond the COVID-19 crisis and will allow the SMEs to benefit from the START concessional lending at a later time.
“Most of the targeted businesses are first time borrowers, we have taken the approach of the zero interest loans to test the ability of these businesses to repay with smaller amounts while solving their COVID related challenges before taking on bigger loans to focus on long-term growth” explains Deus Tirwakunda START Facility Manager.
UNCDF will be responsible for the day to day management of the fund, working together with Private Sector Foundation Uganda (PSFU) to identify, verify, and select beneficiaries under the Fund. UNCDF will work with the selected SMEs to develop the required documentation necessary for approval by the START Facility Board. The tenor and repayment schedules will be customised to the situation of each individual business. Repayments by SMEs will be capitalized under the START facility for further technical assistance and concessional loan financing.
The Small Business Recovery Fund is envisaged for a limited period to kickstart a bigger recovery facility funded from other sources. We expect all loans extended to SMEs under the recovery fund from START facility to be recovered by December 2021. However, the fund is designed to allow willing institutions such as development partners, philanthropies, foundations and the government to support SMEs during and after COVID-19 by contributing financial resources to this fund over a longer time period.
UNCDF has “boots on the ground” with its Kampala based office and teams of investment professionals which allows the organization to swiftly take the pulse of the market and develop relevant financial instruments to SMEs in need. UNCDF’s mandate and mission also allow the organization to work on smaller ticket sizes, which is exactly what is needed to support SMEs and small‐scale projects in a post‐surge COVID‐19 environment. UNCDF has several tailor‐made instruments in its toolbox that are used in such crisis including business development services , grants, zero‐interest loans and partial credit guarantees.
The START Facility implemented by UNCDF, Private Sector Foundation and UDB with the financial support of the European Union is structured as a blended finance facility providing a customized mix of business development services, project development and finance structuring services, and financial products listed above. The START Facility is designed to support the implementation of the Development Initiative for Northern Uganda (DINU) programme’s food security and nutrition component. DINU is a Government of Uganda programme supported by the European Union and coordinated through the Office of the Prime Minister with the goal to consolidate stability in Northern Uganda, eradicate poverty and undernutrition and strengthen the foundations for sustainable and inclusive socio-economic development. UNCDF Is one the implementing partners.