Agriculture and manufacturing are the second and third biggest sectors in Uganda, after services, contributing 23.7% and 27.4% respectively, after services (41.5%).
Regardless, when it comes to private sector credit extension, the two sectors’ portion of lending does not reflect their sectoral contribution to GDP, a situation made worse by the Covid-19 pandemic.
A 2020 survey by the United Nations Capital Development Fund (UNCDF) – the Uganda Business Impact Survey 2020, that examined the Impact of COVID-19 on formal sector small and medium enterprises showed that agriculture and manufacturing would be one of the most hit by the pandemic.
For example, whereas according to the Bank of Uganda State of the Economy Report of June 2021, annual growth in the stock of Private Sector Credit (PSC) grew on average by 8.9 per cent in the quarter to April 2021 mainly on account of the rebound in economic activity and lower interest rates, most of this growth went to other sectors.
According to the Ministry of Finance’s Economic Performance Report for July 2021, agriculture and manufacturing, accounted for only 10% and 9.31% of all lending as of June 2021, compared to trade (18.6%), personal and household (31.3 %) and real estate (14.8%).
Particularly for agriculture, as if that is not bad enough, whereas general base lending rates in the quarter to April 2021 stood at 18.9%, interest rates for agriculture on the other hand went up to 21.8 per cent, up from 20.5 per cent in March 2021- according to the BoU figures.
Matter of fact, interest rates for the agriculture sector according to BoU figures, have always been above the base lending rate, probably one of the reasons the sector has the highest non-Performing loans- 7.3% compared to an overall NPL ratio of 5.4% as of March 2021.
Government to the rescue
To strengthen the resilience of these two vital sectors, the government of Uganda through the Uganda Development Bank, created a stimulus fund to support the recovery of businesses in these two sectors from the impacts of COVID-19.
UDB subsequently, entered a strategic partnership with the government of Uganda’s wholly-owned PostBank, availing up to UGX40 billion for onward lending to small, medium and large enterprises, at a preferential 13%.
The package is tailor-made for businesses in the production of essential goods and services for import replacement and export promotion in sectors such as primary agriculture, agro industrialization and manufacturing/industry.
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Commenting about the facility at PostBank Uganda, Julius Kakeeto, the Managing Director, said: “At PostBank we believe in tailoring local banking solutions to address local economic challenges. We’re delighted to partner with Uganda Development Bank to provide much-needed solutions at the most critical times.”
The product is aimed at boosting production for local, regional and international markets. The targeted UDB/PBU fund beneficiaries’ economic activities are in categories such as production of essential goods and services, import replacement and export promotion, medical equipment and products including machinery and ventilators and Personal Protective Equipment (PPE).
Coverage categories
For streamlining and impact the purpose, the package has been designed to be specific and focused on sectors that were most devasted. The funding of up to UGX. 2Bn addresses interventions like the acquisition of farm inputs, acquisition of mechanization equipment, purchase of agro-processing equipment needed to add value to the agriculture produce, purchase of machinery needed in the manufacturing process and construction of factory warehouses among others.
To date, the bank has issued up to UGX. 12 billion financing to over 50 eligible business owners and MSMEs. An additional UGX10 billion is in the pipeline, while about UGX20 billion is still available for borrowing.
Requirements for businesses to benefit from the package
Beneficiaries will be required to open a PostBank account, provide bank statements for the last 12 months from their current bankers and adequate security for the proposed borrowing.
Other requirements will include business registration documents, a copy of the financial card and audited books for the last 3 years for loan deals above sh100M.
This package will include both financial and non-financial interventions with general loan terms of up to 10 years and interest rates as low as 13% per annum.
This package can be assessed from any PostBank branch across the country or through an online application.
