By Bob Twinomugisha
Uganda Development Bank (UDB) was established in 1972 by a presidential decree purposely to finance technically feasible, economically viable and socially desirable projects.
Between 1973 and 1985, UDB financed 691 projects worth $170 million with major investments in the industry, livestock, fish processing, tea, coffee, cotton, sugar, and cement sectors among others.
The civil unrest that the country experienced between 1982 and 1994, adversely affected the Bank’s performance creating a slowdown in project implementation and project supervision resulting in a distressed investment portfolio.
By 1996, the Bank suffered huge accumulated losses and servicing external credit was a burden to the Government of Uganda. The Bank also experienced high rates of non-performing loans (NPLs) linked to poor collections at the time.
In 1997, the Government of Uganda, implemented deliberate efforts to revamp UDB operations. The GOU placed UDB under restructuring (till 2000), purposely to turn round the Bank (into an efficient, self-sustaining institution, capitalised & with adequate reserves).
New lending was frozen at the time. In May 2001, Uganda Development Bank Limited (UDBL) was incorporated for autonomy and the Bank’s Turn-round process commenced.
The Bank’s mandate was redefined to profitably promote and finance viable economic development projects in Uganda.
The investment portfolio was restructured. The profitable projects were retained while the non-performing assets (NPAs) were moved to Non-Performing Assets Recovery Trust's (NPART).
From 2013 to date, there has been a renewed growth trajectory year-on-year across the entire institutional portfolio (capital, lines of credit & investment of reflows, asset base, profitability, human, and technology among others).
The Bank’s total assets increased by 60,110% from Shs 199.3 billion in 2013 to Shs 1.2 trillion in 2021. The Bank’s growth is attributed to the good governance, astute leadership, and strict adherence to compliance.
The Bank provides financial and non-financial services to Small and Medium Enterprises (SMEs) and large scale enterprises in key growth sectors including agriculture, industry, tourism, infrastructure, human capital development and other cross cutting areas such as Climate Change, SMEs, Women and Youth among others purposely, to reduce poverty levels, build sustainable food system and industrialize Uganda, as we strive to improve the livelihood of Ugandans.
The financial products offered by the Bank include term loans, asset finance, private equity, trade and working capital, project finance and farmer group financing.
In 2021, the Bank introduced non-financial products i.e, Business Accelerator for Successful Entrepreneurship (BASE) and project preparation services.
Through BASE, the Bank provides advisory services to clients pertaining to management best practices, good governance, record keeping, and financial management among others.
This is done, by way of training and technical support, to develop and implement the required processes in the businesses. The objective is to have professionally run businesses and enterprises which in result reduces the risk of default of financed projects.
UDB also provides project preparation services to fill the gap of inadequate stock of bankable projects that are required to propel development, including public projects.
The Bank supports in moving identified projects from concept design, pre-feasibility studies, feasibility studies, financial structuring and to commercial operations.
Fundamentally, UDB has played a key role in addressing the key failures and distortions in the credit market through provision of cheaper loans for medium to long term projects.
Currently, the Bank provides concessional loans, 10-12 percent interest rates per annum.
Secondly, UDB continues to play a counter-cyclical stabilization role by scaling up lending operations when other financial institutions experience temporary difficulties in providing credit to the private sector.
Thirdly, it plays a risk absorption role for the state during economic downturns. This has been done by revamping collapsing industries and supporting the sectors in dire need for credit during a crisis (crisis resolution vehicle).
During the pandemic, the Bank supported the hardest hit sectors such as tourism and education. In 2020 and 2022, UDB in partnership with the European Union, allocated funds in the form of grants attached to a loan to enable the tourism sector to revive through the hardship of Covid-19 pandemic.
Over the last five decades, UDB has been striving to maximize social welfare as opposed to profit maximisation, charging low interest rates, low appraisal fees, offering patient capital and adequate grace period.
The Bank has been driving economic structural transformation through industrialisation, agricultural productivity, infrastructure development and contributing to the transition of enterprises from the informal to the formal sector.
The manufacturing and agriculture sectors account for over 75 percent of the Banks’ portfolio, signalling increased investment towards economic transformation.
The Bank promotes foreign trade through interventions like export enhancement and import substitution. Recently, the Bank launched an import replacement/substitution and export-oriented program.
This initiative supplemented the trade and working capital solutions, which the Bank has been offering over the last five decades.
Additionally, the Bank continues to promote the development of entrepreneurs. It facilitates entrepreneurship development by providing training to entrepreneurs to develop leadership and business management skills.
To this effect, UDB established the Business Accelerator Program for Successful Entrepreneurship (BASE).
The Bank also co-finances with the private sector, mainly in development projects that need relatively large capital. UDB has an equity unit that can invest up to 25%, into identified projects that require equity to unlock their potential.Development Banks (DBs) have historically been established for economic and social reasons.
In fact, Development Banks have been identified as fundamental institutions to support the Sustainable Development Goals (SDGs) agenda, to modernize and expand existing infrastructure in developing and developed economies, which all work to lift millions of people out of poverty.
The UN estimates that $5 trillion to $7 trillion per year between 2015 and 2030, is needed to achieve a set of SDGs globally, with the estimates being $3.3 trillion to $4.5 trillion per year in developing countries, mainly for basic infrastructure, food security, climate change mitigation and adaptation, health and education.
Worldwide, several economies have achieved high growth rates and faster social economic transformation by undertaking key development projects whose success have been facilitated by a relatively lower cost of capital.
UDB continues to accelerate socio-economic development through sustainable financial interventions in priority sectors in line with the National Development Plan (NDPIII) and Vision 2040.
The author is a Senior Economist, Macroeconomics and Trade with the Uganda Development Bank Ltd
