NTF III: Access to Finance Programme Devised for ITES and BPO SMEs in Uganda and Kenya to Boost Export

ITC is set to assist SMEs in Uganda and Kenya that have been constrained by the inaccessibility of long term finance and high interest rates, the lack of collateral, the information asymmetry, and poor financial management skills.

Yaya Ouattara, ITC Adviser on Access to Finance for SMEs, met SMEs and trade support institutions (TSIs) in the IT Enabled Services (ITES) and Business Process Outsourcing (BPO) sector and financial institutions in Uganda and Kenya to discuss these financial constraints and develop appropriate technical assistance to promote exports in the sector.

According to Jeremiah Okello, Director of Outsourcing Services KITOS, SMEs in the sector need case studies that would encourage them and make financial institutions and other investors more comfortable to lend to SMEs in the sector. KITOS can lobby at the government level so that an enabling environment is created for ITES and BPO sector to better attract funding from financial institutions (FIs).

”Empowering KITOS can be part of the solution as they will advocate for decision makers and financial sector levels to extend funding to SMEs in the sector,” said Mr. Okello.

From the perspective of financial institutions (FIs), their reluctance to finance SMEs in the sector is explained by their limited sector knowledge, perceived high risk, and lack of guarantees.

Taking stock of these findings, Mr. Ouattara agreed with SMEs, TSIs and FIs on a holistic solution that specifies which activities will be rolled out from January 2015.

The technical assistance programme that will be developed will entail providing pre-finance and post-finance mentoring to SMEs through five or six locally trained and certified Financial Management Counsellors (FMCs) in each country. Trainings will be organised for FIs to be better equipped to respond to the financial needs of ITES and BPO SMEs.

To convince FIs to finance the ITES and BPO sectors, ITC can mobilise a credit line from DFIs and/or private sector foundations. Venture capital (VC), business angels and crowdfunding are also alternative sources of finance for SMEs in the sector that will be considered by ITC.

Though at an infant stage, there are a few VC companies and crowdfunding platforms that are operational and increasing slowly in Kenya. FMCs will undergo training to be able to assist SMEs to apply for those non-traditional SME funding sources.

As a solution to the collateral requirement by FIs and other financiers, credit guarantee schemes can be mobilized from development finance institutions (DFIs) for investment loans. Once the experience has been successful, FIs will be more comfortable to lend to ITES and BPO SMEs.

“Such a comprehensive approach will surely make banks like ours very comfortable and confident to finance enterprises/projects in the ITES and BPO sector”, said Philip Nyagweth, Regional Manager of SME Banking, Chase Bank, Kenya.

SMEs will be charged by TSIs to benefit from the capacity building to cover the logistics and their administrative costs. This will constitute an income-generating activity for ICTAU and KITOS, which will continue supporting other SMEs at the end of the project using the associations of FMCs that will be formed. FIs will pay some fees to TSIs for the logistics and administrative expenses.

“All SMEs in the sector are excited to benefit from the ITC NTF III,” said Brian Ndyaguma, Operations Manager of Hive Colab Uganda.

“The Access to Finance component is very timely as some of us are constrained by finance to expand and reach the regional and international markets. It is our dream that this promising project can help us become internationally competitive and tap into the opportunities in the sector. I would recommend a good monitoring and evaluation plan to ensure the activities yield the expected short, medium and long term results,” added Ndyaguma.

The Access to Finance component is part of the Dutch / CBI-funded Export Sector Competitiveness Programme (ESCP), also called the Netherlands Trust Fund phase III Programme (NTFIII). It has the mandate to assist IT Enabled Services (ITES) and Business Process Outsourcing (BPO) enterprises in Uganda and Kenya in accessing finance to export their services. ESCP/NTF III also aims to enhance export competitiveness of selected sectors in selected countries through an integrated approach to sector competitiveness.