Capital Markets Amendments Bill draws mixed reactions from SMEs, experts

Business
Capital Markets Amendments Bill draws mixed reactions from SMEs, experts
Dr. Fred Muhumuza

The proposed Capital Markets Amendment Bill has sparked mixed reactions from economists, legal experts, and small and medium enterprise (SME) owners. While some see it as a potential solution to cash flow constraints and a magnet for venture capital, others worry it creates a harsher regulatory environment that doesn't address their unique needs.

For SMEs, often heavily impacted by COVID-19, banks were the only source of financing, but interest rates exceeding 15% were a major burden. Economist Dr. Fred Muhumuza attributes this to an unattractive capital market riddled with hurdles.

“What the amendments seek to address is easing access which would be in the best interests of the banking sector. What banks have been suffering from is risky businesses that lack equity to cover up for their debt,” Muhumuza explains.

Commercial Lawyer Louis Namwanja Kizito raises concerns about potential conflicts of interest with the Bank of Uganda acting as both issuer/seller and regulator.

“There is nowhere in the world where the issuer (seller in finance) keeps what they have sold to you,” Kizito explains.

The Bill introduces the concept of virtual assets, which are already being traded, despite the Bank of Uganda and Ministry of Finance's opposition to cryptocurrency.

But, without a commodities exchange or a vibrant stock market, the Bill's impact on SMEs remains unclear.

John Walugembe, the Executive Director of the Federation for Small and Medium Enterprises says the absence of a provision for commodities exchange is a major shortcoming of the bill.

“By now, we could have had commodity exchanges and we thought that these amendments would address that but we do not see that,” he remarked.

While the Bill swiftly makes its way through the regulatory process, it remains uncertain whether alternative funding models with "patient capital" can cater to the often informal nature of SMEs.

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