Uganda Development Bank (UDB) remains undercapitalised and is in dire need of financial capital to help it carry out its core business of giving out loans to the local private sector, a report of parliament’s Committee on National Economy says.
The undercapitalization is persistent at the time when the authorized share capital of UDB stands at Shs500 billion as close of last year. UDB has a total paid up capital of about Shs200 billion, made up of government injection of Shs166.5 billion and capitalisation using the Kuwait Fund of Shs33.7 billion.
The arrest the situation of undercapitalization the Ministry of Finance Planning and Economic Development (MFPED) now wants government to guarantee lines of credit of US $5 million from the Export-Import Bank of India and US $15 million from the African Development Bank (AfDB).
The report notes that low paid up capital for UDB limits chances of accessing funds from lenders and capitalization through foreign sources. An outstanding balance of about Shs300 billion is badly needed, according to the report.
The report says UDBL has a pipeline of about Shs306 billion of Small and Medium Enterprises (SMEs) that are in need of long-term dollar and shillings-based financing. “These SMEs are involved in businesses in sectors financed by the Bank mentioned above, with credit requirements between US $100,000 to US $5, 000, 000,” the report says.
The required money, the report says, will be used largely to increase capacity of the SMEs in the various sectors. “Over 47 SMEs have applied to UDBL for financing and, it is estimated that about 30 – 47 SME’s would benefit from the proposed lines of financing,” the report adds.
The bank currently finances projects in various sectors of the economy that include; Agriculture (Production and Agro-Processing, Manufacturing, Education, Health, Tourism, Infrastructure and housing development.
The bank’s lending portfolio is mainly funded by government of Uganda capital contributions, lines of credit from the Kuwait Fund (Loan of US $10.4 million and grant of US $7 million), the Arab Bank for Economic Development in Africa (BADEA) US $4.5 million), Private Sector long term loan of US $6 million and the trade finance short term loan of US$ 10 million and the Islamic Development Bank Asset finance loan of US $10 million.
The BADEA and Kuwait Fund loans have been fully utilized by the bank. In addition, the bank is also a beneficiary of the Government’s Agricultural Credit Facility at the Central Bank totaling Shs39 billion