‘Uganda Development Bank prepared to float on its own’

Mr John Baptist Malinzi harvests hot pepper from a garden at Katende Harambe Rural-Urban Training Centre in Namugongo, Wakiso District. Agriculture is a key sector that attracts financing from Uganda Development Bank. PHOTO BY ERONIE KAMUKAMA

What you need to know:

  • UDB has secured the approval of government to increase the latter’s capital contribution from Shs100 billion to Shs500 billion. Government was represented by the minister of Finance in the protracted discussions. Daily Monitor’s Eronie Kamukama spoke to Mr Martin Roy Lukwago, the head of treasury at UDB, and below are the excerpts:
  • Briefly tell us about Uganda Development Bank.
  • One of the things we are focused on doing as well is to support our customers but also being very vigilant on monitoring and evaluation because if we do not do this on the projects that we finance, we will not have a story to tell and we will not convince other people to come aboard.

Uganda Development Bank (UDB) is 100 per cent owned by the government. It was incorporated in 1972 and became a limited liability company in 2000.

UDB is majorly focused on aligning itself with the National Development Plan because it is a national bank. Its emphasis is to throw a lot of weight on the sectors that spur development in the country so it is only imperative that it aligns itself with the National Development Plan. There are key sectors that have been identified by the National Development Plan 2040 that will be in position to spur development. This is all driven by the National Planning Authority (NPA), so we work closely with it.

Last month Parliament approved a sovereign guarantee application for a number of loans to UDB. What are these loans?

The bank has been in discussions with the shareholder, represented by the minister of Finance. The clear fact right now is that the shareholder has agreed to increase the share capital/capital contribution from the current approved Shs100b to Shs500b. That means that the Shs400b is to be raised by the shareholder through various ways.

What this means is that government is fully committed to re-capitalising the bank. There have been quite a number of efforts but because we know government’s priorities are quite many, we cannot sit back and wait for government. This is a time when the country needs food and there are so many other pressing needs. If you are very hungry and there is drought, you appreciate anything that anyone brings to help you while you think of other ways.

We are waiting for clearance from the solicitor general for the three lines and once that is done, we are going to organise for signing of the agreements to be signed by the development finance institutions (DFIs) and the minister.

What channels can the bank use for capitalisation?
If you are speaking about liquidity of the bank, there are various ways including taking debts or raising fund. Debt can be through various ways and the bank is looking at issuing a bond but that is not something in the near term. We know that is something we need to prepare ourselves for. We have been in many discussions with firms that can help us in this regard.

One of the things we are doing to organise ourselves is rating the bank so we are getting prepared to go through that process.
The other form of taking debt could be obtaining lines of credit from development finance institutions. I must mention with confidence that the government is being very supportive at a time when we know we needed to grow our balance sheet. Our balance sheet has pretty much doubled in the last three years. It is such a great phenomenon that the bank has realised. We believe that because of the demands out there for long-term affordable financing, the bank is in position to do a lot more. So what we need is actually more of the liquidity, more of the financing to enable it meet its goals.

This kind of capitalisation requires assistance from companies with a strong financial arm. Are you working with some financial institutions in this regard?
We have been having discussions with several development DFIs such as Badea, Islamic Development Bank, Africa Development Bank, PTA Bank, Exim Bank, China Exim, Development Bank of South Africa, Kuwait Fund and Islamic Development Fund.

We have been having engagements with Parliament and other stakeholders such as the Cabinet to get approvals for these lines. Then we went to Parliament while working with the executive director of NPA. But this very moment, we have just got approval from Parliament.
Of the lines I am talking about, two are from Badea and the third is from Islamic Development Bank. The two Badea lines include the $10m (Shs35.8b) trade finance line which is a one year line but revolving for two years. Essentially, it is going to run for two years but we are going to have regular discussions. Trade finance requires a lot of money and in short term, so it is supposed to be taken and we looked at taking this line to support the companies that we finance on long-term so that we also come in and support them on credit finance.

The other one is a $6m (Shs21.5b) line for long-term financing and it is an eight-year facility from Badea while the third line is a $10m (Shs35.8b) line for asset financing from Islamic Development Bank to run for 10 years.
We got an asset financing tool to help us to support customers whose collateral may not be sufficient at the time. We are majorly targeting the Small and Medium Enterprises.
The approval of this application by Parliament came off as a huge milestone for UDB. Why is this so?

In its history, the bank had never gone to Parliament for more than one line of credit. These lines of credit take a while to close. Going to Parliament to seek approval which by the way is not approval for government to borrow, we took up these lines of credit with the support of government which offered to avail a guarantee.

When the government offers a guarantee, the component in pricing of a sovereign guarantee is waived. We do not anticipate that we will fail on these lines of credit because of what we have done in the last four years. We have done a lot to prepare the bank to float on its own in the next years.

What are UDB’s priority sectors in terms of financing?
Our key sectors of financing include agriculture and agribusiness especially focusing on products that would enhance exports and essentially bring in foreign exchange or any areas that would by way of import substitution enable the reduction of pressure on the Shilling.

We are looking at tourism, manufacturing and processing, health sector, education, mining though we do not have the capacity to do the gigantic projects. So we are looking at exploration of mining, extraction and other support functions that come into play and we will need financing.
All the business community needs is the technical assistance, and financial support at affordable and long-term pricing. Through partnerships, the bank is looking at how it can reduce the financing pressure on itself.
We are in discussions with John Deere which sells agriculture implements in the area of primary production. With John Deere’s financial fund, we are trying to see how best we can avail services to the farmers.

How will the country benefit from the capitalisation of UDB?

We have negotiated very good terms with the DFIs. Because from the borrowing side the terms are very favorable, we believe we can pass on good terms to our customers in the private sector.

Because of the tenures, prices, terms, we can still afford to avail long-term financing. Long-term financing is not something that is easily availed by the commercial banks. While commercial banks are fairly liquid, we do not take deposits and that in a way marginalises us in the aspect of availing liquidity for on-lending.

But again it has got its pros and cons because of the fact that we are a national bank, very many international DFIs are very willing and committed to working with UDB.
In fact, everybody who goes to DFI to borrow for whichever size of investment, they will refer you to UDB. That recognition and support from government has given us an extra edge on seeking favourable terms of finance from these DFIs.

One of the things we are focused on doing as well is to support our customers but also being very vigilant on monitoring and evaluation because if we do not do this on the projects that we finance, we will not have a story to tell and we will not convince other people to come aboard.
We are in a society with many informal businesses but once people get to know that there is registered progress in the sector, other players will come on board.