Across the world, small and medium enterprises (SMEs) form the backbone of every economy, usually employing many people. In Uganda, the SME sector makes up over 70 percent of the economy and contributes approximately 20 percent of the Gross Domestic Product (GDP). Yet it continues to struggle to access affordable credit from financial institutions.

In an effort to increase access to financing for SMEs involved in agro processing and value addition, the United Nations Capital Development Fund (UNCDF) alongside the Private Sector Foundation Uganda (PSFU) and the Uganda Development Bank (UDB) launched the Support to Agricultural Revitalization and Transformation (START) facility, a dedicated blended finance facility that provides affordable mid-term financing, business development support and technical assistance to SMEs working in agro value addition in Northern Uganda. The facility is part of the Development Initiative for Northern Uganda (DINU), a development programme funded by the European Union and implemented by the Government of Uganda.

The launch and initial call for proposal (CfP1) in May 2018 was received with great excitement and expectation. For many business owners it was a golden opportunity. Hopefuls from across the northern part of the country submitted their applications and waited for a response. Out of 342 applications, 49 were longlisted, 17 shortlisted and six applications brought to financial closure. Additionally, over 40 businesses received BDS support.

When Tom Anyii Okello first heard about the START Facility, he was interested but hesitant to apply. Tom is the Managing Director of TAF Assured Mixed Enterprises Ltd, an apiary farm, processing honey and other bee related products, wax, propolis and bee venom based in Ngetta sub-county, Lira district, Northern Uganda. The apiary farm also provides training and beehives to other beekeepers around Northern Uganda.

Fruit trees are necessary for the ecosystem needed for a healthy apiary farm

“I saw the advert in the newspaper, but I did not think we could meet all the requirements,” he shares. Nonetheless, he applied.

Almost a year to the date he first saw the START facility advert, Tom received his loan offer from UDB which manages the START lending window. He had been successful alongside six other applicants from the first call for proposals. The concessional loan of UGX 193.5 million for the upgrade of the honey processing equipment, construction of storage facilities and purchase of a transport truck had been approved and disbursed through UDB.

However, the process was not easy. There were times he believed the loan would not be approved.

“There were many times that I thought that we would not receive the money because the process took long,” Tom recalls.

Why did the process take so long?

Given the informal nature of SMEs in Uganda, many of the businesses lack proper documentation, detailed financial records, proper governance structures, compliance requirements and qualified staff for the smooth running of the enterprises. Therefore, credit institutions including commercial banks usually find it difficult to assess their bankability as information is not readily available. It takes longer to get the necessary information to support the loan application to get the SMEs ready for financial closure.

Before any of the businesses move on to UDB for financing, they must go through rigorous screening, due diligence, project development and structuring process with a team of investment officers at UNCDF.

“We work closely with shortlisted applicants to ensure that they have the right financial and business systems and structures in place, to make them investment ready before they can receive the concessional funding through UDB,” explains Deus Tirwakunda, START Facility Manager.

As a blended finance facility, the START facility has come up with modifications to suit the nature and needs of the target SMEs, yet enabling the businesses fulfill the regular processes any borrower would go through with a commercial financial institution to ensure the business is investible.

The START facility not only provides affordable medium-term finance (up-to 5 years with a 12 months’ grace period in form of concessional loans and partial credit guarantees) but also offers a customized mix of business development services, project development, technical assistance and structuring services to create an enabling environment for sound business to thrive.

“I really appreciate the team at UNCDF, we went through everything, planning, budgeting, forecasting, documentation, together to get the project ready for UDB. It was a long process, we walked together, and I learnt a lot,” remarks Tom.

Tom has since received the full disbursement of his loan from UDB, installed anew honey processing equipment and completed the construction of the storage space, and acquired a truck for business operations. TAF is already servicing the concessional loan normally that was obtained at 10 percent.

The newly constructed honey storage facility at TAF Mixed Enterprises in Lira

A total of 12 projects from the first and second calls for proposals including TAF Assured Mixed Enterprises Ltd have been advanced to UDB for financing. In addition to TAF, three more projects have accessed concessional funding from the START facility to a tune of over UGX 1.5bn (or over $400,000).

“UNCDF is doing a good job supporting the SMEs on project structuring, business development, and technical assistance, it's a rigorous task, but they are managing it very well as evidenced by the good quality of proposals submitted to UDBL for financing, it simplifies our work” John Peter Emoi, Investments Manager Agriculture.

The projects include:

Kana Grain Millers Ltd, a private limited company based in Omoro District processing maize grain into various products that are marketed throughout Uganda and the neighbouring countries. The company owns and operates a maize milling machine with a capacity of 24 tonnes in 24 hours. Using funding from the START Facility, Kana Grain Millers Ltd will provide alternate power, improve on grain cleaning and drying process, enhance storage capacity of the factory to increase output.

Honey Pride Arua (U) Ltd (HPA) based in Arua City, processes honey and other bee products and uses an “inclusive business model” where rural communities are included at various stages in the value chain that includes rural beekeepers as major suppliers of bee products, i.e. honey, wax and bee propolis. HPA interest is in targeting the youth and women to join this honey enterprise for sustainable livelihood. The company is using the funds from the START Facility to improve its honey processing capacity by purchasing additional honey settling tanks, filters and electric honey press.

Okoro Coffee Growers’ Cooperative Union (OCGCU) - found in Zombo District in the high lands bordering Congo in the North western part of Uganda. With funding from the START facility, the cooperative aims to revive the coffee factory that has not operational for over 10 years. The project is intended to enhance Arabica coffee processing, value addition and market access in order to improve the livelihoods of the small-scale coffee farmers, create employment and rural development in West Nile sub region.

The START Facility is designed to support the implementation of the food security and nutrition component of the Development Initiative for Northern Uganda (DINU) programme by improving access to finance for SMEs engaged in agricultural value addition in Northern Uganda.

For more information:

Deus Tirwakunda
START Facility Manager
deus.tirwakunda@uncdf.org

Joan Alupo
Communications & Knowledge Management Specialist
joan.alupo@uncdf.org