An elderly woman after receiving SAGE funds from Post Bank staffEmerging trends in technology, analysis and Artificial Intelligence (AI) are evident that Uganda’s banking sector ought to abandon its outdated, collateral-heavy approach and instead adopt a new philosophy that funds ideas, sweat equity, and early-stage enterprise. I contend that what Ugandan banks call impossible has already been solved globally through practical models that finance beginnings rather than only established businesses. My central argument is that banks should fund the seed, not the forest, by recognising non-traditional forms of security and supporting first-time builders. The old banking system demands a two-year track record before a bank provides fuel, while the new banking rewards demonstrated effort with wings. That may sound cryptic to the ordinary person but simply put, sweat equity such as warehouses built from savings, machinery purchased after selling cattle, or personal assets sold to raise capital, should be recognised as collateral worth more than a land title in an upscale Kampala neighbourhood. In the ever-evolving business world, this approach is described as superior because the entrepreneur has ‘personal skin in the game’ and is part of the process. From my vantage point of view, this seven-step working model can fund young entrepreneurs in Karamoja, Katwe, Kyotera, and Mbulamuti without incurring losses. First, an idea audit rather than an account audit, modelled on 19th century Germany. Banks such as Deutsche Bank and KfW funded ideas rather than existing shops, supporting Krupp industrial dynasty when the founder had only a small iron shed; no accounts, and no collateral. So, I urge Ugandan banks to create start-up technical desks staffed by engineers, agronomists, and climate officers who can verify that a briquette machine or waste-to-charcoal operation actually works. Bankability should mean workability, not audited accounts. Second, sweat equity can be equated to collateral. This was modelled by post WWII Japan. After 1945, Japanese banks accepted hands and effort as collateral. If a youth has built a wall worth Shs 50m and bought machinery worth Shs 100m, that Shs 150m constitutes his collateral, which he loses first if he fails.The bank tops up the balance to make the project run. Third, milestone release rather than bulk lumpsums, modelled on Silicon Valley and the United States Small Business Administration. Under this arrangement, funds are disbursed in stages tied to verifiable achievements such as prototype, customers and sales. For a waste-to-charcoal entrepreneur, Shs 10m might pay for testing, Shs 30m for suppliers, and Shs 60m for producing the first 10 tonnes and securing a buyer contract. So, cash is paid directly to growth, preventing diversion, as Henry Ford received money garage by garage rather than his factory at once. Fourth, we have to adopt the community guarantee rather than land title model. Take the Grameen bank of Bangladesh. In 1983, founder Yunus started with $27 lent to 42 women without collateral, using group guarantees. Five women guaranteed one and if one failed, the other four would push her. The result was a 90 per cent repayment, nine million borrowers, and with it, a Nobel Prize. In Uganda, all it takes to achieve this model are five mango juice ladies in Busembatya or five briquette boys in Mutonto to form a group or Sacco. The bank funds the group, and the group disciplines its members. So, the community becomes collateral. I could go on and on about this model but let me end with this famed Rwandan model of contract as collateral rather than building. In Rwanda, it requires 30 per cent of bank loan books to go to start-ups and guarantees 70 per cent of youth loans. For instance, a local purchase order from Roofings, Mukwano, or UNHCR for 10,000 tiles is money; so, the bank should discount 80 per cent and provide cash to produce. A buyer is more important than two years of operation. In all this, I call on the Bank of Uganda to act immediately and introduce a start-up quota law requiring 30 per cent of loan books to go to first-time builders and green projects, with penalties for failure. The key takeaway is; fund the beginning, and the beginning will fund you. The author is an investor, contractor, and football enthusiast.The post We need new banking model for Uganda’s start-ups appeared first on The Observer Media Ltd.