By Mulengera Reporters
Though it currently derives its authority to exist and to operate from the Public Enterprises Reform & Divestiture Act (PERDA) and the UDB Act (2002), Uganda Development Bank (UDB) was first established in 1972. It was a through a Presidential Decree proclaimed by Idi Amin.
UDB, which is Uganda’s premier public development finance institution, is also governed by provisions of the Public Finance Management Act (2015), the Investment Code Act (2019), the country’s Industrial policy and to an extent the UN-imposed Sustainable Development Goals (SDGs). These provide the legal, policy and strategic foundation guiding UDB’s operations.
As early as 1972, Idi Amin purposed UDB to be the Bank wholly dedicated to promoting and financing the development of Uganda’s very strategic sectors such as agriculture, industry, tourism and housing too. The Amin government had limited finance means as of that time, hence the decision to be receptive of funding support from AfDB, IDA/WB, European Investment Bank, European Economic Community and BADEA.
Amin had an ambitious industrialisation program which he sought to fund through development banks like UDB whose founding was in part inspired by the African Development Bank (AfDB), Asian Development Bank (ADB), Industrial Development Bank of India (IDBI) and the Development Bank of Japan etc.
These banks had a lot in common including being dedicated to sectors that commercial banks couldn’t viably prioritise (viz agriculture, infrastructure, industry etc). Dedicated to availing long-term financing or patient capital, they were also profit-driven. They had a primary mission of promoting inclusive growth and inequality reduction while fostering structural transformation of society.
To this day, they fund high-impact projects which generate broad socio-economic benefits related to roads infrastructure, power generation, education, renewable energy and healthcare etc. Commercial Banks always avoid these areas because they don’t find them to be commercially viable. The development banks also prioritize capacity building to ensure that the projects they fund adhere to corporate governance to be run well and succeed. In Uganda’s case, UDB has been instrumental in attracting, facilitating and enabling the private sector to participate in high-impact sectors where patient capital is required.
Like development banks do elsewhere, UDB is primarily concerned with amplifying the GoU’s national development priorities as articulated in both the Vision 2040 and the NDP4. Its wholly owned by the GoU, which also provides more than 65% of the funding it requires.
In the five-year period (2018-2022), UDB invested or readied up to Shs3.23trn for lending to Uganda’s private sector. 67% (or Shs2.18trn) of this was sourced from the GoU as capitalisation. The remainder Shs1.06trn or 33% was sourced from UDB’s 11 international development partners. To its credit, the GoU also injected another Shs1.5trn (in 2021) to enable UDB provide emergency funding to support private sector businesses cope against COVID19-related vulnerabilities.
Because its cash is cheaply obtained mostly from the GoU as capitalisation, UDB is able to sustainably lend at a maximum interest rate of 12%. This is great improvement from the 1990s when UDB used to lend at 22% interest.
12% is the ceiling, otherwise in some cases, UDB cash can be lent out at as low as 6% and this is so in case of wholesale lending. The GoU as the sole owner is represented by the Minister of Finance and his/her deputy as the two shareholders.
But apart from the GoU, what are the other sources from which UDB sources its cash? The answer is contained and well illustrated in the recently-published impact assessment report that was authored by researchers from NPA.
The National Planning Authority impact assessment report on UDB was directed or ordered for by the Ministry of Finance, whose top officials wanted evidence-based advice on the reforms that must be effected at UDB to enable the Bank have even greater impact (on job creation, export volumes and foreign exchange earnings etc) under the NDP4 period (July 2025-July 2030).
The impact assessment report discloses sources from which UDB mobilizes funding to include BADEA which, as of last July, had availed two active facilities namely the $4.5m loan which was lent to UDB at the interest rate of 2.5%. The other BADEA loan to support the Ugandan private sector is of $6m given at 9% interest.
The others are: $10m loan from Islamic Development Bank at 2.53% interest; India Exim Bank’s $10m at 7.99%; AfDB’s $15m at 4.24%, another $5m from AfDB at 5.8%; the $7m grant/free money from the Kuwait Special Fund; OPEC Fund’s $20m at 5%; International Islamic Trade Finance Cooperation (ITFC)’s $10m at 4.9%; the $2.5m grant from UNCDF Capital Fund and the $6.3m grant from the European Union.
Each of these is secured by the government of Uganda leveraging or using the sovereign guarantee instrument. The overall total, as disclosed in the NPA report, comes to $101,263,158. In Ugandan money, at the current exchange rate, this comes to over Shs400bn.
It’s being proposed in the report that the GoU mobilizes and injects into UDB up to Shs3.5trn in the next five years so as to improve the cash flow situation in UDB, whose management is simultaneously being pressurized to lower the lending/interest rate from the current 12% to mere 8%. This will enable UDB become more inclusive and able to more viably lend underserved groups such as SMEs and women/youth-owned enterprises more. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
