Private sector to benefit from UDB’s 15 per cent rate offer
Posted Thursday, March 14 2013 at 02:00
The high cost of doing business, exacerbated by the high cost of borrowing is crippling business.
Unlike most commercial banks whose interest rates are currently hovering around the 20 per cent mark, private sector players now have an opportunity to borrow at 15 per cent from Uganda Development Bank.
About Shs100 billion is said to have remained idle at the Uganda Development Bank (UDB) as its intended beneficiaries, the private sector, grappled with high borrowing costs.
For years, the money kept under wraps for unclear reasons, was meant to facilitate private sector business, including farmers who are struggling to access favourable credit facilities as they seek to shift from subsistence (farming) to commercial agriculture.
UDB new board chairman, Mr Samuel Sejjaaka, was forced to fire 13 senior managers to rejuvenate the financial institution. He says they could have done better in dispensing the money rather than keeping it stagnant for years.
“I found Shs100 billion lying idle instead of being lent to the private sector,” Mr Sejjaaka, also a Makerere Business School lecturer told manufacturers recently.
Uganda Manufacturers Association board chairman Kaddu Kiberu, said one of the biggest challenges crippling the growth of the economy in the country is the high cost of doing business, exacerbated by the high cost of borrowing.
“It is very difficult to thrive in a situation where instead of re-investing the profits you pay most of it as an interest to a bank.”
He continued: “We applaud UDB’s new initiatives and still believe it can get better as all businesses need favourable terms of credit to grow and support the economy.”
The head of Private Sector Foundation, Mr Gideon Badagawa, is of the view that financial institutions should move away from short-term financing to long-term, arguing that it is much cheaper (to borrow and repay) compared to short-term financing.
Meanwhile, Professor Sejjaaka also wants UDB to be given the mandate to manage the Shs30 billion that the government earmarked for farmers involved in commercial agriculture.
He believes that under the UDB dispensation, commercial agriculture beneficiaries would access resources at an interest rate of about 9-10 per cent.