By Mulengera Reporters
Recently, desirous to accelerate movement towards the realization of President YK Museveni’s 10 fold growth strategy (transitioning Uganda’s economy side/GDP from $50bn to $500bn by 2040) and also the ideals embedded under NDP 4 which commenced July 2025, the Finance Ministry tasked the National Planning Authority (NPA) to assess the impact, performance and sustainability of the GoU’s several wealth creation funds which continue to be operationalized through Uganda Development Corporation (UDC), Microfinance Support Centre (MSC), Uganda Agricultural Insurance Scheme (UAIS), the Agricultural Credit Facility (ACF) and Uganda Development Bank (UCD), which will be the focus of this news report.
UDB is uniquely important because its the one the GoU is counting on to unlock and make available long-term development financing/loans to accelerate growth and access to affordable finance for the private sector players involved in the productive sectors of the economy. For decades, limited access to long-term credit had been a problem impeding private sector growth and effective participation in the economy’s productive sectors.
Even when it can never have enough money for everything that needs to be done, the GoU has always prioritized and found money to facilitate the recapitalization of UDB because the crucial role it’s mandated to play in Uganda’s economic transformation can’t be played by any of the commercial banks which seldom have such patient credit. Through UDB’s recapitalization, the GoU has been able to increase on the availability of patient capital to finance long-term investments into areas like agriculture, industrialization, manufacturing, tourism and infrastructural development.
Between 2018 and 2022, UDB lent out a total of Shs3.23trn of which Shs2.18trn (or 67%) was capitalization from the GoU as the remaining Shs1.06trn or 33% was contributed by the development partners.
The GoU exhibited more commitment to a robust and resilient UDB when it prioritized and injected in a whopping Shs1.5trn at the height of the COVID19 pandemic. This enabled UDB to continue lending out long-term financing to private sector businesses at the time of such great vulnerability.
In their assessment report, the NPA researchers highlighted the opportunities, areas where UDB has done well and also recommended interventions and reforms that ought to be undertaken to enable the country’s only development bank do even better.
The report authors are proud of the fact that UDB is prioritizing the availing of long-term financing for projects and sectors which ordinarily can’t attract commercial bank lending. Agriculture, which employs majority Ugandans, continues to be deliberately funded to the extent that, as of 2024, 37% (or Shs611bn) of UDB’s total loan portfolio of over Shs2.5trn had been invested into agri-based projects. As of that time, Shs828bn was out there invested to support business enterprises’ long-term financing needs and another Shs427bn into medium-term ones.
Before pointing out areas that require urgent reform and improvement, the NPA report authors also approvingly take note of the fact that UDB, which lends out huge sums of money with longer repayment period at just an interest rate of 12% compared to commercial banks’ 22%, is already outperforming it regional peers namely the Development Bank of Rwanda, Namibia and Botswana. This, indeed, is phenomenal.
The report also points out what needs to be done for UDB to perform even better and impact even larger numbers of private sector borrowers. The report recommends operational reforms coupled with further capitalization, which can pave way for reduced interest rates at which private businesses can access long-term financing from UDB to facilitate greater job creation, more impactful value addition, higher productivity and greater export volumes.
On the need to reduce on UDB’s reliance on the GoU for capitalization and also on external funds’ sources via the GoU-backed borrowing from international partners (which makes the country’s only development bank susceptible to fiscal pressures and donor-imposed constraints), the NPA assessment report proposes that, to strengthen UDB’s funding model, the institution’s financial autonomy begins to become a top priority.
The report authors propose ways through which this can be achieved including through diversifying the funding sources and strengthening the bank’s own revolving fund. That it’s high time we got to a point where UDB becomes self-sustaining and no longer depends on the government’s public finances which are already constrained due to competing needs.
Continuing to collect up to 70% and more of the lent out funds, the NPA report asserts, will ensure UDB has sufficient revolving funds and therefore capital to keep creating new lending opportunities. The Board is called upon to ensure that enlarging the revolving fund becomes one of the key performance indicators (KPIs) on which management performance can be measured. Robust loan recovery and disciplined redeployment of the recovered funds should equally be prioritized among other Board-imposed KPIs.
Yet that isn’t all. The UDB management must also become innovative and leverage opportunities like issuance of development bonds so that additional financing can be mobilized from domestic or locally-available savings resident in pension funds, insurance companies and also the diaspora. All this can diminish reliance on the GoU for capitalization. The report authors somehow rebuke UDB over its failure to adequately utilize the $10m (roughly Shs37bn) available under the Islamic Development Bank-enabled facility.
The report unmasks the painful reality that only 29% of that money has so far been processed and lent out to businesses in need for patient credit. This slow absorption is attributed to limited market awareness and general averseness of the players in Uganda’s finance markets regarding sharia-compliant financing. Overcoming these constraints, going forward, will enable UDB positively impact the Ugandan market segments that remain underserved.
UDB, whose staff have limited understanding of sharia-compliant financing, is called upon to deliberately reach out and forge partnerships with financial institutions or lenders possessed with greater capabilities regarding sharia-compliant financing examples being Salaam Bank and Tropical Bank.
These already have distribution networks, more resilient technical expertise and a base of customers or potential borrowers/up takers who are already familiar with borrowing or development financing which is sharia-compliant. The report asserts that Islamic finance, such as the one being availed by the Islamic Development Bank, is potentially a scalable instrument which managers at UDB must leverage to achieve more inclusive lending and growth.
UDB is also called upon to become more deliberate about replicating arrangements like the one they currently have with the African Guarantee Fund (AGF), which covers/secures 75% of all the SME loans it gives out to would-be collateral-constrained borrowers like youths and women, especially those involved in greening-enhancing projects.
The report observes that replicating such guaranteeing arrangements will go a long way in alleviating access to development finance-related constraints for almost 90% of business enterprises in Uganda (chiefly women and youth-owned ones) which remain excluded from formal credit access largely due to collateral-related constraints.
UDB is also called upon to build synergies and work with commercial banks more deliberately in order to increase awareness and influence lending behaviour; all aimed at popularizing this guarantee partnerships’ arrangement since the same has potential to attract the private sector more as a potential source for additional capitalization for UDB.
The report authors remind UDB of its obligation to shape market practices in order to expand access to development finance while reducing constraints to borrowing especially by SME-level private sector. Mobilizing more such would-be excluded SME borrowers to begin affording borrowing would, according to the NPA report, accelerate the realization of President Museveni’s 10-fold GDP growth strategy (from $50bn to $500bn).
In view of the fact that the volume of funds allocated for long and medium-term lending has gradually been declining, even when UDB is Uganda’s only national development bank dedicated to availing businesses with patient capital, the NPA report calls on UDB management to prioritize and become more deliberate about reaching out to avail patient credit to emancipate private sector players focused on the high-impact ATMS sectors which President Museveni has consistently been elaborating to depict (a) Agro-Industrialization, (b) Tourism, (c) Mineral-based Industrialization and (d) Science, Technology & Innovation. Ordinarily, these are perceived as high-risk sectors and remain underserved by commercial banks, something the NPA report calls on UDB to leverage to deepen its impact.
As the Bank prioritizes going into the ATMS, some of which may be entirely new areas, the NPA report advises on how to ensure that the core patient capital objective (of focussing on long- and medium-term financing needs) isn’t departed from. And the suggestion has to do with ring-fencing up to 70% of UDB funds to continue being strictly annually dedicated to long term and medium-term financing. The Board and shareholders should ensure this 70% ring-fencing remains a key KPI to be annually reported upon by the management. That UDB should remain up to 70% focussed on long-term loan financing as was the case pre-COVID.
There is also need to become deliberate about geographical inclusiveness while ensuring that UDB financing is evenly distributed across all geographical regions of Uganda as opposed to today when Buganda or Central region is dominating and having a lions’ share.
The NPA report regrets the fact that as of end of 2023, 54% of the UDB-funded projects were in Buganda and 83% of the actual money, in trillions, loaned or lent out had gone to business enterprises situated in the same central region. Western region had 24% of the projects funded and only 7% of the actual money lent out. Northern region had 12% & 5% respectively. Eastern region had 10% of the projects and 4% of the money.
The plausible explanation for this geographical imbalance has to do with the fact that most of the bankable business enterprises in Uganda are located in the Greater Kampala Metropolitan Area districts of Kampala, Wakiso and Mukono all of which are located in Buganda/Central region.
The report asserts that this should make managers at UDB to realize and develop appetite to tap into the northern and eastern regions’ untapped potential since these are regions with high poverty levels but also with strong prospects for inclusive growth at the same time, once the appropriate long-term development financing needs are ascertained and responded to.
The Board and shareholders should, according to the NPA report, impose attainment of geographical regional funding quotas as one of the formal key KPIs upon which the Bank’s management performance has to be assessed going forward. Management should also allocate or designate a quota of the funds available for long-and medium-term lending out or loans, in favour of all the currently underserved geographical regions.
Management should also become more deliberate about investing money into ensuring that incubation and business formalization-enhancing undertakings are undertaken to emancipate underserved regions so that UDB bankable enterprises don’t remain being exclusively concentrated only in the Central region.
The UDB management should also support financial literacy, outreach programs and partnerships with area local governments, cooperatives and trading associations with a presence in those underserved regions. Many of these currently underserved regions have high development potential and therefore possibilities to create additional demand and uptake for the long-term financing loans which UDB specializes in and is, by law, mandated to deliver.
The resultant spatially-inclusive growth, that is well spread out across the Country’s geographical regions, is a GoU inclusive growth ideal that is well articulated and captured under Vision 2040 and also the NDP 4-in whose realization UDB is envisaged to play a significant role. This NPA-UDB impact assessment reporting will be continued! (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
