Ugandan entrepreneurs continue to face the challenge of high interest rates in banks because they have failed to take advantage of available alternative recourses which has seen most of their businesses failing in their first years.
This was revealed during the private equity and venture capital conference that was organized by Uganda Investment Authority (UIA) in partnership with other private investment organizations with the intention of helping small and medium private entrepreneurs tap into capital market finances.
According to Denis Mugalya, order the chairman UIA, more about Ugandan investors continue to struggle with bank loans because they have failed to understand the concept of venture capital/equity capitals which would help them sustain their businesses through strong partnership with the investors.
Mugalya says 95% of SMEs in Africa continue to borrow from banks to invest in businesses that they have not well thought about compared to the USA where 60 percent of the entrepreneurs get funding from the capital market hence their continued failure in the short run.
According to him, view the “resources for private equity and venture are in abundance” in Uganda.
However, the entrepreneurs who are seeking these resources are unqualified to receive them because they lack the management structures necessary to make them bankable.
“Equity capital is based on the incense of partnerships and shared interests. However, for the entrepreneurs to access these funds, there is need to have a business plan that is concrete and the structures for managing the businesses must be transparent enough to make it easy for the investor to trust that his funds will be secure enough,” Mugalya said.
He added; “This is lacking in most business plans that are presented for financing because Ugandans are still doing business informally. Even those who have tried to formalize their businesses have done it only on paper just for the sake of accessing funds. The investment institutions are formal entities that deal with other people investment money. Therefore it will be hard to just invest in a business that is not clearly laid out.”
Currently, Uganda’s investment capital base stands at 9trillion shillings.
Only 2 percent of this money is being invested in private ventures although the allowed percentage is 15 percent.
Kenneth Katariko, the CEO African Alliance during the same function said the private entrepreneurship will make themselves more attractive for investments if they introduced a formally acceptable rating agency that will rate the performance of these companies over years so that information is availed to the inventors incase they want to invest in that certain project.
“As much as these entrepreneurs keep books of accounts, it is hard to be trusted by investors because Ugandans are known to be untrustworthy. It is therefore important that we introduce some rating strategy that is acceptable internally and externally. That way, it would be easy to access these funds,’’ he advised.
The executive director UIA Jolly Kaguhangire said if the economy was to grow, the private sector should be at the forefront because they are the majority.
She added that the private sector can only grow if they have access to development funds that do not incur a high interest.
“It is therefore our duty to make sure that we educate these entrepreneurs about the availability of these funds and how they can be accessed,” she noted.
However, the private sector has blamed the investment institutions for being bureaucratic and that the process of getting these funds is longer and unclear hence the preference for bank loans.
Racheal Mulindwa, a lecture at Makerere University Business School and an entrepreneur noted that as much as the investors are blaming the entrepreneurs for being semi structured and not organized, they also have not done enough to ensure information concerning the available resources and who qualifies has not been put out to the real beneficiaries who are the business people.
She asked the investment authority to get out of their offices and go down to the real people and teach them about investments and partnership.