How SMEs can navigate the financing maze

Small and Medium Enterprises (SMEs) play a crucial role in Uganda's economy, contributing significantly to employment and Gross Domestic Product (GDP). Money is the language that many businesses understand.  Without it, businesses can not run smoothly. SMEs require funds to cover day-to-day operational expenses, such as salaries, rent, utilities, and inventory purchases. To enable them to expand their product lines, enter new markets, or increase production capacity, there is a demand for more capital than some of them are making.

This is where financial institutions come in to enable SMEs and their clients to access finances for growth and even scale their businesses to the global scene. According to the Uganda Bureau of Statistics, nearly 40 percent of small and medium-sized enterprises in Uganda are owned by women and these businesses employ millions and support numerous households. Equity Bank has introduced tailored products that offer financial planning, investment advice, insurance coverage, and financial literacy training for women’s savings and cooperative groups. This initiative provides access to unsecured financing, mentorship, and networking opportunities for women in business. 

In addition, there are supplementary initiatives that are being implemented by third parties where SMEs and business owners can engage and have access to financing. The Ugandan government has recognised the importance of SMEs and has implemented various initiatives to support them. Programmes such as the Uganda Development Bank's financing schemes and the Youth Livelihood Program which aim to provide financial assistance and capacity building for SMEs.

  Uganda has seen the rise of fintech companies which has enabled access to financing. Several digital lending platforms are providing SMEs with quicker and more convenient access to loans, often with less stringent requirements than traditional banks. After a business owner’s due diligence and research, this innovation has the potential to bridge the financing gap for many SMEs across the country.

Uganda has also attracted interest from international development organisations and investors looking to support SMEs across various sectors from entities like the World Bank and the African Development Bank providing grants and low-interest loans to foster the growth of SMEs. One such loan includes the Generating Growth Opportunities and Productivity for Women Enterprises (GROW) project, spearheaded by the Ministry of Gender, Labour, and Social Development in collaboration with the Private Sector Foundation and funded by the World Bank.

The GROW loan product presents an invaluable opportunity for women entrepreneurs across Uganda. This initiative facilitates easier access to entrepreneurial services through loans, helping women entrepreneurs scale their businesses from micro to small or from small to medium enterprises.

International funding and partnerships usually come with increased awareness and training with an emphasis on financial literacy and business training for entrepreneurs.
Access to financing remains a persistent challenge for many SMEs in Uganda, hindering their growth and sustainability across the country. 

Despite the availability of financing options, many SMEs face high interest rates that make borrowing unaffordable because traditional banks often perceive SMEs as high-risk, leading to elevated costs of capital.

Addressing these challenges through targeted policies, improved financial literacy, and innovative financing solutions will be essential for unlocking the full potential of SMEs in Uganda's economy. 

By fostering a more inclusive financial environment, Uganda can empower its SMEs to thrive and contribute to sustainable economic development.

James Olany is the strategy and business manager, Equity Bank.