If you had attended a meeting of the START Management Board in March 2019, you could have heard a rather unusual statement coming from the Board members: “Money is not an issue. There is enough affordable finance for agribusiness SMEs.” But if money is not an issue, then what is?
In May 2018, the Support to Agricultural Revitalization and Transformation (START) Facility issued its first call for proposal attracting a total of 342 proposals. Of the total proposals received, 49 were longlisted, 17 shortlisted but only five identified for further project development to bring them to financial closure.
This outcome followed an elaborate and lengthy process to screen and vet the proposals as majority of the applicants failed to present proposals that meet industry standards and qualify for debt finance. Even the shortlisted companies found it difficult to demonstrate the financial and commercial viability of their proposals due to the inadequacy of basic financial analysis that underlies their business models. A due diligence exercise carried out by the United Nations Capital Development Fund (UNCDF) in February 2019 revealed that most of the companies lacked proper financial and business management skills and capacities to ensure their business survival and sustainability.
“Most applicants lacked the basic records for running a business nor did they have qualified accountants to prepare detailed financial records to guide decision making. They don’t have a detailed understanding of the enterprise/business they have proposed to undertake as part of START facility. Therefore, it was difficult to sustain discussion on critical business aspects of their project, such as source of supplies, management of supply chain, marketing, required machinery and relevant costs, working capital needs and so on. Most companies did not have feasibility plans and business plans,” reported Mr. Deus Tirwakunda, the START Facility Manager during the Management Board meeting.
But this is not unique to the START applicants or Northern Uganda. Many small and medium enterprises across the country experience similar systemic issues. They do not keep proper financial records, lack qualified staff for the task, often do only minimum accounting for tax purposes and under declare profits. This results in inaccurate information, which does not support management decisions and processes and makes it hard for financial institutions to evaluate the chances of recovering money back in cases of borrowed capital.
The concerns remain the same with the START Facility: without clear financial projections and plans from the businesses it is difficult to predict the impact of the businesses in terms of economic growth and food security in Northern Uganda. The issue now moves from access to capital to proper financial and business management to ensure that the businesses that receive financing are not only able to survive but thrive beyond the programme lifecycle for lasting impact in the region.
This was the focus of the last Management Board meeting in March 2019. Considering the recurrent issues and the high rejection rate from the first call for proposals, the Management Board agreed there is a need to strengthen business and financial management capacities to boost the chances of uptake in subsequent calls. To achieve this, the facility is taking deliberate steps to provide technical assistance to small and medium enterprises starting with the 32 companies that did not make it to the shortlist. UNCDF and the Private Sector Foundation Uganda (PSFU) will provide advisory services as well as training and mentoring on basic bookkeeping and accounting, financial projection, feasibility studies and general management. This echoes the priority needs identified in the 2015 National Small Business Survey, which indicated that SMEs are particularly challenged in three areas: loan application and other financial services (40% of respondents); business planning services (37%); and business management information (33%).
“We hope with this support the businesses will change their thinking and learn how to manage their finances and other resources better to build long-standing investments that offer returns both to the business owners and community,” Patricia Ojangole, Chairperson of the START Management Board.
The expectation is that once the businesses have the right systems in place, they can ably compete in subsequent calls for the START facility and other funding opportunities that may arise. The next call for proposal is expected in July 2019.
START is a blended finance facility providing affordable medium-term finance for agro-value addition in Northern Uganda through provision of a customized mix of business development services, project development and structuring services and seed capital in form of loans, grants and reimbursable grants. The facility is implemented by UNCDF, PSFU and Uganda Development Bank Ltd to support the implementation of the food security and nutrition component in the context of the Development Initiative for Northern Uganda (DINU). DINU is a Government of Uganda programme financed by the European Union under the overall oversight of the Office of the Prime Minister.