Improving access to finance for small- and medium-sized enterprises in the road sector: the CrossRoads Guarantee Fund in Uganda

01.06.2014
Credit guarantee funds are a tried-and-tested instrument to improve access to finance. This paper aims to share experience from the CrossRoads Guarantee Fund in Uganda. The Fund was established in 2012 as one of the interventions under the CrossRoads Programme funded by the Department for International Development (DFID) and the European Union (EU) to build capacity and competitiveness in Uganda's roads sector. The objective of the Fund is to improve access to finance for contractors/consultants. The Fund has created significant benefits and impacts that include enabling contractors to secure bid securities and performance bonds valued at Ugandan Shillings 11.7 bn (US$4.7 m); improving relationships between financial institutions and contractors; and significant crowding-in by financial institutions. Important lessons to guide scaling up or replication of similar initiatives are emerging. First, a guarantee fund creates significant behaviour change on both the supply and demand sides of the financial services market. Second, high leverage and impact can be achieved from a modest investment. Third, fund access conditions should be stringent enough to minimize moral hazard. Fourth, fund utilization, leverage, and outreach depend on work flow. Finally, protracted procurement processes raise costs and undermine the effectiveness of a guarantee fund.