By Mulengera Reporters
The Minister of State for Finance, Henry Musasizi, has defended the government’s request to borrow over UGX 1.004 trillion for the capitalization of Uganda Development Bank Limited (UDBL), citing the need to provide affordable long-term capital to Uganda’s business community.
Musasizi made the remarks while appearing before Parliament’s National Economy Committee on February 10, 2025, as he formally introduced the loan request and the government’s plan to guarantee UDB’s external borrowing.
“UDB’s funding needs have exponentially grown over the last two years, requiring the bank to disburse an average of UGX 1 trillion annually in new loans. This growth is driven by economic expansion, business development, and UDB’s favorable lending terms. The bank offers loans at a minimum of 12% per annum for up to 15 years, making it the only institution that provides long-term, affordable capital in Uganda,” Musasizi explained.
UDB’s Funding Needs
The loan request comes as Uganda’s public debt continues to rise. The March 2024 Report on Public Debt, Grants, Guarantees, and Other Financial Liabilities for the 2023/2024 financial year indicated that, as of December 31, 2023, the government’s active loan guarantees stood at US$120 million (UGX 438.2 billion), an increase from US$104.9 million (UGX 383.1 billion) in December 2022.
According to the report, Uganda Development Bank Limited accounts for US$101 million (UGX 368.8 billion) of these guarantees, with the Islamic University in Uganda holding US$19.07 million. Key creditors include the Islamic Development Bank (US$29.1 million), the Arab Bank for Economic Development in Africa (BADEA) (US$26 million), and the OPEC Fund for International Development (US$20 million)—the same institutions backing the latest UDB loan request.
Breakdown of the Loan Facility
Documents before the committee show that the government seeks to borrow:
- US$100 million (UGX 365.2 billion) from BADEA (private window)
- US$50 million (UGX 182.6 billion) from BADEA (public window)
- US$25 million (UGX 91.3 billion) from the OPEC Fund for International Development
This brings the total loan facility to UGX 639.1 billion.
Additionally, UDB has requested the government to guarantee its direct borrowing of:
- US$40 million (UGX 146.1 billion) from the Islamic Development Bank
- US$30 million (UGX 109.6 billion) from the Islamic Corporation for the Development of the Private Sector
- US$30 million (UGX 109.6 billion) from the International Islamic Trade Financing Corporation
This brings the total guaranteed amount to UGX 365.2 billion, making the overall loan and guarantee package UGX 1.004 trillion.
Purpose of the Loan
Minister Musasizi stated that the loans are intended to increase UDB’s capacity to finance trade, support small and medium-sized enterprises (SMEs), and fund infrastructure projects in Uganda, thereby accelerating the bank’s strategic goals.
“UDB is a government-owned financial institution mandated to drive socio-economic transformation by providing affordable capital to key growth sectors. It plays a critical role in Uganda’s development by offering financing tailored to enterprises in need of long-term capital,” Musasizi emphasized.
Parliamentary Scrutiny
Lawmakers raised concerns about UDB’s lending practices and the impact of additional borrowing on Uganda’s debt burden.
Jonathan Ebwalu (Soroti West) called for a review of UDB’s beneficiaries before approving the loan, stating, “Before we approve this loan, the Ministry of Finance and UDB should allow us to visit some beneficiaries and verify the minister’s claims about the bank’s impact.”
Moses Ogwal Goli (Dokolo North) questioned why UDB’s lending rates remain at 12%, similar to commercial banks, despite receiving concessional financing. “If the facility has an interest rate of 5.9%, what is its equivalent in Uganda Shillings? Why should UDB’s rate reach 12%?” he asked.
Fadhil Chemaswet (Soi County) raised concerns about the terminology used in Islamic financing, arguing that referring to loan interest contradicts Islamic principles. “We should use ‘supervisory costs’ instead of ‘interest rate’ when dealing with Islamic funding,” he asserted.
He also questioned the finance minister’s claim that a Certificate of Financial Implication was unnecessary, saying, “This certificate is not just about financing burdens but also the impact of borrowing on the economy, including exchange rate fluctuations.”
Committee Chairperson John Bosco Ikojo tasked the Ministry of Finance with presenting legal and statutory compliance documents to determine whether the borrowing aligns with Uganda’s Public Finance Management Act and Bank of Uganda regulations. “We need clarity on whether this is a sovereign or non-sovereign guarantee and whether it includes collateral from the state,” he stated.
Patricia Ojangole, UDB’s Executive Director, refuted claims that the bank prioritizes well-connected individuals over SMEs. She highlighted the bank’s special programs tailored for youth and women entrepreneurs.
“These programs have relaxed requirements to facilitate SME access to financing. We don’t require audited financial statements because most of our clients are startups. UDB financing is not just for the wealthy,” Ojangole explained.
Uganda’s Public Debt
The loan request comes at a time when Uganda’s public debt continues to rise. According to the Accountant General’s statement attached to the Auditor General’s report, Uganda’s public debt increased from UGX 97.5 trillion in June 2023 to UGX 109.8 trillion by June 2024.
As Parliament deliberates on the request, concerns remain over the sustainability of Uganda’s borrowing and the effectiveness of UDB in fostering inclusive economic growth-Parliament Watch. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
