Parliament has approved a motion authorizing the Uganda Development Bank (UDB) to take two loans amounting to $84.8m (UGX305.5b) that will be used to finance operations and extending more credit to the private sector in the country.
The two loans are going to be secured from different financiers outside the country according to the report of the Committee on National Economy which processed the loans.
It is a relief to the management of the UDB as Executive Director Ms Patricia Ojangole told this website that the bank was appreciative of the Parliament and government support to ensure that its strategy is not suffocated.
“The government as a shareholder has been supportive of the bank and Parliament has always supported us and this will make the bank stronger. This money will help increase the bank’s capacity to provide loans to the private enterprises” Ojangole said by telephone.
According to the documents seen by this website, the first loan worth $19.8m (approximately UGX71.3b) will be secured from the Kuwait Fund for Arab Economic Development (KFAED) to support the program of operations in the bank for the period from 2020 to 2024.
The second loan amounting to $65m (approximately UGX234.2b) has been sourced from different financing institutions. These financiers are; European Investment Bank, International Islamic Trade Finance Corporation, OPEC Fund for International Development, and, Arab Bank for Economic Development in Africa.
The Committee report on the loans that were first tabled in Parliament by the Minister of Finance, Matia Kasaija on June 25, 2020, indicates that the bank convinced the MPs that it intended to explore various avenues to increase and diversify its funding sources.
“The bank will also leverage its resources to increase and catalyze investment in the initiatives detailed in its Strategic Plan” the report reads in part.
Details available before Parliament indicate that the bank wants to raise $500m (UGX1.8 trillion) over the planned period.
Ms Ojangole who is going to implement the two loans said that; “the bank is supposed to continue its operations and supporting the private sector development providing them with the fund”
UDB Capitalization
The Committee report indicates that to-date the authorized share capital of UDB stands at UGX 2 trillion as at 31st December, 2020.
Energy Ministry Orders UEDCL Board to Investigate Top Management Over Performance GapsOf this, the total paid up capital is UGX 859.8b inclusive of direct injection by the Government of Uganda of UGX797.8b, retained earnings of UGX62b and capitalization using the Kuwait Fund of UGX 34.5b.
Committee Chairperson, Syda Bbumba however stated in her report that; “the Bank still remains undercapitalized thus limiting the Bank’s ability to carry out its core business of providing affordable short, medium and long term loans to the private sector”.
Information available to this website indicates that by the time the loan request was presented before Parliament, UDB had a pipeline of about UGX709b of SMEs that need long-term financing because they are involved in business in sectors that are financed by the bank.
When the funds are finally secured, the bank is expected to lend the money to SMEs at an average interest rate of 7% on dollar loans and 12 % on shillings loans in order to cover credit risk and operational costs inherent in lending and ensure financial sustainability.
UDB was last year handed UGX451b as stimulus package to be disbursed to private sector enterprises that were negatively impacted by the Covid-19 pandemic. However, the MPs have been raising questions on the guidelines that were put in place to the borrowers as they have suspected abuse of the fund.
The Committee on Finance, Planning and Economic Development is expected to table a report detailing how the stimulus package advanced to UDB was disbursed.
Other loans approved
Meanwhile, Parliament also approved a loan of Euros 327.10m (UGX1.41 trillion) from the African Development Fund, African Development Bank, and the Corporate Internationalization Fund of Spain. This loan will be spent on the refurbishment of the Kampala-Malaba Meter Gauge Railway Project.
Meanwhile, Parliament deferred for one week the approval of a motion seeking authorization to government to borrow $78.2m (UGX281.7b) worth of special drawing rights from the International Development Association (IDA) of the World Bank Group to finance investment in forests and protected areas for climate smart development project.
Speaker Rebecca Kadaga heeded to the demands by the MPs who challenged the State Minister for Environment Beatrice Anywar to make additional components to the loan and also provide the title deeds for the forests that are going to be protected with the money.
