Dfcu secures Shs24.9 billion loan to boost credit access

L-R: Dfcu Bank MD Juma Kisaame, Head of Legal DFCU Bank Agnes Tibayeita and CDC Investment Executive, Financial Institutions, Debt and Structured Finance Dalia Aga at the signing of the loan agreement. Photo by Faridah Kulabako.

What you need to know:

Only 20 per cent of 33.9 million people in Uganda have a bank account.

Dfcu retail and small and medium sized enterprise customers will now access affordable loans after the bank secured a loan from the Commonwealth Development Corporation (CDC).

The seven-year $10 million (about Shs24.9 billion) loan from the United Kingdom’s Development Finance Institution is also expected to strengthen dfcu’S capital base and increase its lending capability to support SMEs and retail customers.

Insufficient liquidity
Dfcu managing director Juma Kisaame said the funding will help address the challenge of insufficient liquidity and inadequate long term development finance to the SME sector which is a key driver of economic growth in this country.

“With this facility, we (dfcu) are well placed to consolidate our position as a leading provider of long term development finance,” Mr Kisaame said, adding that the loan agreement marks another milestone in the long standing relationship with CDC, which has been a dfcu shareholder since 1964.

CDC, which co-founded dfcu with the Ugandan government, reduced its shareholding in May this year from 60 per cent to a directly managed 15 per cent.

CDC sold majority of its stake which had been managed by London-based equity fund, Actis, to the Norwegian Investment Fund for Developing Countries (17.48 per cent) and Rabo Development B.V (27.54 per cent).

Mr Holger Rothenbusch, the CDC’s managing director for Debt and Structured Finance, said access to finance is still one of the key factors holding back business growth and employment generation in developing countries.

“By expanding its activities in retail banking and agriculture finance, dfcu will have a powerful development impact and reach a large under-served market,” he said in Kampala on Monday.

According to the World Bank, only 20 per cent of 33.9 million people in Uganda currently have a bank account, with nine per cent having received a loan.

Mr Rothenbusch said despite recent economic growth and a growing interest in Africa, local banks still struggle to raise cheap capital and long-term funding from both local and international sources.

This is partly responsible for the high bank interest rates, which have now forced many potential borrowers to postpone borrowing.

According to Bank of Uganda, local currency denominated lending rates fell marginally from 23.15 per cent in July to 23.10 per cent in August, indicating subdued growth in private sector credit.

CDC said the signing of the loan agreement reflects its broader commitment to give direct support to financial intermediaries like banks and microfinance institutions that operate in developing countries.

Mr Rothenbusch added that the strong local networks and customer bases held by financial institutions mean that CDC’s capital can be used to provide financial services to thousands of businesses and individuals, many of whom would otherwise be excluded from mainstream finance.