All loans and projects applications submitted to UDBL are subjected to an initial screening process (clearance in principle) before they are enlisted on the Bank’s pipeline for resources to be committed to a full and detailed appraisal.

UDBL provides lending assistance in the form term or project finance loans based upon the following considerations:

Institutional Capacity

The capacity of the promoters to implement the project should be clearly demonstrated. Consideration shall be given to, amongst other things, the adequacy and effectiveness of existing or proposed corporate governance structures; the academic and professional qualifications as well as experience and skills levels of executive management and key staff and business continuity arrangements in place such as succession plans.

The contractual capacity of the legal entity used to execute the project should not be in doubt, that is, it should enable all facets of the project to be implemented legally. The project’s legal status should therefore be stated and supporting documentation provided.

Regulatory and Statutory Compliance

The project application should demonstrate compliance with all regulatory and statutory requirements for the nature of business. Regulatory and statutory requirements should be clearly stated and relevant evidence of compliance such as licenses, permits and certificates of compliance provided.

Where compliance to international and regional treaties is required, this should be so stated and confirmation of/milestones to compliance given.

Technical Feasibility

It is a requirement that all project submissions be accompanied by a summary of the project’s feasibility report covering technical issues, technology and back-up support arrangements. The summary must clearly illustrate that the proposed technology (equipment, plant etc) is appropriate for its intended purpose i.e. that it is proven and reliable. The capacity of the proposed technology (units of production/product range) as well as the availability of skills to operate it should be commented upon.

A technical due diligence summary commenting on the design, construction, origin, age and life span of the technology, as well as its contractual obligations such as warranties and back up support and performance guarantees/contracts must be provided. Arrangements for insurance cover for the equipment should be stated. The technology must also be benchmarked against conventional/international standards. It is expected that supporting documentation such as feasibility studies, technical reports, equipment manuals and other relevant documentation shall be provided.

Commercial Viability

Project sponsors / promoters are expected to subject their projects to commercial viability tests. In the case of long term projects, long term investment appraisal methods such as capital budgeting ratios must be employed. The common capital budgeting ratios include the Net Present Value (NPV), Internal Rate of Return (IRR) Debt Service Cover Ratio (DSCR) and the Pay Back Period (PBP). Cash flows covering the life of the proposed facility must be sensitized (sensitivity analysis) on key variables such as interest rates and inflation rates to measure the project’s vulnerability to changes in such variables.

Historic and/or projected financial statements must be analyzed and any emerging trends commented on. An attempt should also be made to benchmark project performance against industry benchmarks and to account for any variances.

The financial statements must be prepared using acceptable international accounting standards. Whilst it is expected that historical financial statements will generally be used, the Bank may at its discretion request for inflation adjusted accounts for certain projects.

Proposed Funding Structure

The project’s full funding requirements must be outlined and broken down into its local and foreign currency components as well as short, medium and long term financing requirements.

A project finance plan matching the financing requirements with the proposed sources of funds must be provided. The funding requirements may be classified in terms of debt/equity mix, local/foreign currency components, contingent liabilities such as guarantees, etc. The proposed sources of funds may be promoters’ own contribution, facilities from financial institutions and private investors. In most cases, the Bank will require project promoters to contribute a portion of the funding requirements of the project as a sign of commitment to the success of the project.

Projects may also be structured as Public Private Partnerships (PPPs) which may take the form of Build Own and Transfer (BOT), Build Own Operate and Transfer (BOOT) and Joint Venture arrangements. In such cases, this must be clearly stated in the project proposal, as well as any potential partners identified and all relevant documentation such as shareholders agreements, joint venture agreements and management contracts/agreements provided.

Project sponsors are expected to show commitment by assuming some risk in their project. The promoters are therefore required to contribute in cash and/or in kind towards the finance plan.

All sources of funds (including syndications) and their respective terms and conditions must be stated. Any assumptions made must also be mentioned.

Security

The project promoters must provide details of collateral security proposed to cover the facility applied for. Such details should include the security type, its value (as determined by registered professional valuers accredited by the Bank) and its insurance cover. The proposed security should be acceptable to the Bank covering the loan at a ratio of 1.2 minimum.

Social and Economic Development Impact

An attempt should be made to quantify the social and economic benefits of the project. These might include employment creation, poverty reduction, and import substitution/use of local raw materials, foreign currency generation, and contribution to Gross Domestic Product (GDP) growth, indigenization, industrialization and decentralization of industry.

Projects which foster the involvement of the community (community buy in) and have identifiable social and economic benefits are preferred. The document should state whether sensitive groups such as religious bodies, traditional leaders and other interest groups have been consulted and how they will be managed in the event of displacements and other activities that impact the community.

Environmental Impact

The project’s actual and potential impact on the environment should be stated and measures to minimize any negative effects outlined. Such effects might include pollution, land degradation and any other disturbances to the ecosystem. Similarly any environmental factors such as climatic conditions which impact on the project should be identified and measures to manage their effects stated. Sustainable development can only be assured when all facets of the project operate in harmony with the environment.

It is therefore expected that supporting documentation such as environmental impact assessment reports and related documentation shall be provided.

Implementation Progress Report

In the case of ongoing projects or projects already under implementation, the stage of implementation should be stated and any performance variances against targets highlighted in terms of target dates and related cost over runs. The milestones to full implementation and related costs to completion should be given. The reasons for implementation delays and corrective action to be taken must be recorded.

In addition, this documentation may include a risk analysis (main risks, as perceived by the sponsors and their mitigation) as well as any relevant information on the project and its background (e.g. bidding process, if applicable). Identifiable risks may include market risk, legal risk, technical risk, financial risk, etc.

The above criteria is designed not only to ensure that commercially viable and economically sustainable projects are supported but also to align such projects with the Bank’s economic and social developmental role as enshrined in the National Development Plan of the Republic of Uganda.

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