2 December 2013

CDC’s US$10 million loan to strengthen Uganda’s leading local bank

CDC continues its long-term support for DFCU by strengthening capital base 

CDC, the UK’s development finance institution, is today announcing a US$10 million subordinated loan to DFCU, one of Uganda’s leading local banks. DFCU is a commercial bank with a focus on retail customers and small and medium-sized enterprises (SMEs). CDC’s seven-year loan will allow DFCU to increase its lending capability and strengthen its capital base.

The subordinated loan, qualifying as Tier 2 capital, will enable DFCU to support more of the SMEs which are vital to the economic development of the country. In recent years, DFCU has been able to broaden significantly its range of products and services and has established a strong local brand with a country-wide outreach.

Today’s announcement, which was marked by a signing ceremony in the Ugandan capital, Kampala, reflects CDC’s broader commitment to give direct support to financial intermediaries like banks and microfinance institutions that operate in developing countries. The strong local networks and customer bases held by these institutions mean that CDC’s capital can be used to provide financial services to thousands of businesses and individuals, many of whom would otherwise be excluded from mainstream finance. According to the World Bank*, only 20% of the population in Uganda currently has a bank account, with 9% having received a loan.

CDC has a long association with DFCU, having created the bank in 1964, alongside the Ugandan government. In May this year CDC reduced its shareholding in the bank, which had been managed by the fund manager Actis since 2004, from 60% to a directly managed 15%. The new loan announced today reinforces CDC’s continued partnership with DFCU.

Welcoming the announcement, CDC’s Managing Director for Debt and Financial Institutions, Holger Rothenbusch said:

Access to finance is one of the key factors holding back businesses growth and employment generation in developing countries. DFCU is a great example of how CDC’s funds can strengthen the bank’s capital base and support thousands of local small and medium-sized businesses.

“By expanding its activities in retail banking and agriculture finance, the bank is having a powerful development impact and reaching a large and under-served market. But despite recent economic growth and a growing interest in Africa, local banks such as DFCU still struggle to raise capital and long-term funding from both local and international sources. Our role as a development finance institution is to provide that capital and show other investors that it’s possible to invest successfully and responsibly in banks like DFCU.”

 Mr. Juma Kisaame, Managing Director DFCU Bank said:

“The signing of this loan agreement marks another milestone in the long standing relationship with CDC, which has been a shareholder in DFCU since 1964. As a Tier II loan, this funding reinforces the confidence CDC has in DFCU Bank and will further strengthen the Bank’s capital adequacy and capacity to grow its business. The funding goes a long way in addressing the challenge of inadequate long term development finance to the SME sector which is a key driver of economic growth in this country. We are therefore well placed to consolidate our position as a leading provider of long term development finance”. 

  * http://datatopics.worldbank.org/financialinclusion/country/uganda

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