Parliament delays approval of sh1 trillion loan package for UDB

By John Odyek

Parliament has postponed the approval of loans worth $275 million (sh1 trillion) intended to boost the lending capital of the Uganda Development Bank (UDB).

On Tuesday (February 25), finance state minister for general duties Henry Musasizi introduced the loan request for a second reading in Parliament. 

He explained that UDB aims to increase its private sector lending capacity, noting that its annual lending has surged to sh1 trillion due to expanding business opportunities and favorable interest rates of 12 percent per year for up to 15 years.

Musasizi further revealed that UDB's portfolio has exceeded sh1.4 trillion, and by the end of November 2024, the bank's capitalization stood at sh1.5 trillion. This included sh1.242 trillion from government contributions and retained earnings of sh211 billion. 

But despite this progress, UDB remains undercapitalized, which limits its ability to effectively execute its core mandate.

Chairing Tuesday's plenary, Speaker of Parliament Anita Among requested a schedule of borrowers and information on the loan recovery rate. 

She said these details would help MPs assess UDB's management capacity before making a decision on the loans.

The loan package includes $100 million (sh368 billion) from the Arab Bank for Economic Development in Africa (BADEA) private window, $50 million (sh184 billion) from BADEA's public window, and $25 million (sh92 billion) from the OPEC Fund for International Development (OFID). 

These funds are intended to further capitalize UDB.

Others parts of the loan requirement were guarantee UDB to borrow up to $40 million (sh148 billion) from the Islamic Development Bank, $30 million (sh110 billion) from the Islamic Corporation for the Development of the private sector and $30m from the International Islamic Trade Finance Corporation.

Musasizi argued that the terms of the loans, including repayment periods, grace periods, and fees, were reasonable. 

But lawmakers expressed concerns over the high interest rates attached to the loans.
John Bosco Ikojo, the chairperson of the Parliamentary Committee on the Economy, presented a report on the loan package.

He stated that the committee had not received enough detailed information on all the loans to approve the full amount. 

Ikojo recommended that only the $25 million loan be approved for now.
He also highlighted UDB's growing role in the private sector, noting that the bank's share of total private sector credit had reached 7 percent as of March 2024. 

Notably, UDB had contributed 28.9 percent of total credit to the manufacturing sector.
UDB indicated it has a pipeline of projects worth over sh1 trillion aimed at supporting small and medium-sized enterprises (SMEs) with long-term financing. 

This funding is also seen as crucial for increasing access to financial services in key growth sectors of Uganda's economy.

Katikamu South MP Hassan Kirumira (NUP) presented a minority report against the loan approval. 

He raised concerns about the absence of President Yoweri Museveni’s consent for the loans and the high lending rates UDB charges, which he argued should be reduced from 12 percent to 10 percent. 

Kirumira noted that UDB secures loans at around 7 percent but lends them highly. 
He also questioned the source of the interest rates on the loans from Arab institutions, which typically do not charge interest due to Islamic banking principles.

Kirumira criticized the lack of information about due diligence on the loans and the absence of an appraisal for UDB's borrowers.