BACKGROUND INFORMATION

Establishment

The Uganda Development Bank (UDB), the first development finance institution of Uganda was established under a Decree of 1972.  Since its establishment, the institution has been wholly owned by the Government. 
The main objective of the Bank is to promote and finance development in various sectors of the economy with particular emphasis on agriculture, industry, tourism, housing and commerce.  In order to achieve its objective, UDB is empowered, by its statute, to provide financial assistance in the form of loans and by way of equity participation.  To enable it to finance the various projects, UDB is empowered to borrow funds from both local and foreign sources, within the borrowing limit determined by the Ministry of Finance, Government of Uganda.

The commencement of UDB’s operation coincided with the expulsion of non-Ugandan-Asians and the subsequent realisation of their business enterprises to inexperienced indigenous Ugandans who could not qualify for credit from commercial banks.
Therefore, the establishment of UDB in 1972 was intended to create facilities that could enable the new entrepreneurs to take off.  Consequently, UDB started its operations by providing short term commercial credits (popularly then known as “Operation Mafuta Mingi”).  The Bank also extended, to a limited extent, medium term loans to small-scale enterprises.  This continued until 1979, when the post Amin-era Government came to power and Uganda regained access to the international arena especially to the bilateral and multi-lateral donor community and international financial agencies.

In 1980 the new Government adopted a staggered reconstruction and development programme, focusing on rehabilitation and restoration of macro-economic stability.  Being the country’s apex Development Finance Institution (DFI), UDB was expected to play an important role in the country’s economic reconstruction and recovery programme by mobilising external resources and deploying them in viable projects.  UDB pursued this mission earnestly and succeeded in obtaining large credits from external financiers, like ADB, IDA, EIB, EEC, OPEC Fund and BADEA.  With these funds in hand, UDB’s focus of activities shifted to financing medium and long term projects in agriculture, industry and tourism.

Financing

The Bank obtained two types of funds.  Trust funds from Government on-lent to UDB at specified rates and repayment periods, and direct borrowing from multinational financial institutions but guaranteed by Government.
As per the decree establishing it, UDB was required to finance projects that are technically feasible, commercially and economically viable and socially desirable.  Priority was given to:

• Existing projects requiring small assistance to improve their operations
• Projects with a scope to maximise the country’s resources and adding value to product
• Projects aiming to produce quality products at internationally competitive prices targeted for export
• Projects creating new job opportunities for the local people.

1. UDB has in the past been heavily exposed to financing agricultural projects.  Agriculture forms Uganda’s main economic activity (contributing 50% of GDP) with its main cash crop, coffee accounting for about 65% of the country’s export earnings.  The country is largely self-sufficient in food.

Of recent the Bank has invested in a highly specialised form of agriculture, namely, floriculture aimed at producing high/grade cut flowers for export to Europe.
The industrial sector comprises food processing, textiles, steel and metal products, and various assorted building materials industries catering mainly for the domestic market. Generally, the industrial sector accounts for about 12% of GDP.

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