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World Bank/FSDT-Workshop on SME Financing Leasing: The DFCU Experience Moses K. Kibirige Executive Director, DFCU Ltd.-U

World Bank/FSDT-Workshop on SME Financing Leasing: The DFCU Experience Moses K. Kibirige Executive Director, DFCU Ltd.-Uganda Delivered by Juma Kisaame - July 27th. Dar es Salaam-Tanzania. DFCU Founded in 1964 Survived the turmoil of the 70s and 80s

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World Bank/FSDT-Workshop on SME Financing Leasing: The DFCU Experience Moses K. Kibirige Executive Director, DFCU Ltd.-U

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  1. World Bank/FSDT-Workshop on SME Financing Leasing: The DFCU Experience Moses K. Kibirige Executive Director, DFCU Ltd.-Uganda Delivered by Juma Kisaame - July 27th. Dar es Salaam-Tanzania

  2. DFCU Founded in 1964 Survived the turmoil of the 70s and 80s Uganda Leasing Co. established in 1994 (by DFCU,IFC,DEG,CDC and Nile Bank) July 1999 – acquired Uganda Leasing, became DFCU Group Sept 1999 – acquired 63% of Rwenzori Properties Ltd. May 2000 – acquired 100% of Gold Trust Bank, renamed DFCU Bank Listed on Uganda Stock Market in October 2004 History of DFCU

  3. Who we are • Established 1964 Shareholders Include: • CDC (60%) - Britain • Norfund (10%) - Norway • NSSF (11%) – Uganda’s Pension Fund • 4,000 other Private & Institutional Shareholders (19%) • Listed on the Uganda Securities Exchange, October 14th, 2004. • Sound, reputable shareholders, good brand, sound track record and respected • Share price at listing shs.230/= October 2004 • Share price currently shs.400/= June 2007 • 4th. Largest bank group in Uganda

  4. DFCU Ltd Holding Co. Mortgage Financing Long/ Medium term loans Leasing DFCU Bank 100% subsidiary Loans/ Overdrafts Deposit taking Financial Advisory ATMs International transfers Treasury services DFCU GROUP -FINANCIAL ENTITIES

  5. Support from strong shareholders Good Corporate Governance Strong Management Team Diversified Product Range Rapid Growth Innovative Funding Human Resource Development Listed on the Uganda Securities Exchange Diversified Financial Institution-Bank and non Bank operations STRENGHTHS OF DFCU GROUP

  6. Private sector is key engine of development Majority of businesses are SMEs > 90% SMEs provide jobs through which people can acquire skills and raise income (50%) SMEs contribute 2/3 of national income Strong developmental impact - bottom up Powerful force for poverty reduction Foundation for a middle class IMPORTANCE OF SMES

  7. Start ups with limited or no credit history Lack of suitable collateral – LEASING is appropriate Under capitalized Corporate Governance High costs of monitoring Red tape and regulation of business Fragile sector – informal, no strong voice, lack of sustainability/survival CHALLENGES OF FINANCING SMES

  8. Under developed – less than 1% market penetration Accounts for 4.8% of total private sector credit Currently with three players; East African Development Bank (Mkt Share 20%) DFCU Leasing (Mkt Share 45%) Stanbic Bank (Mkt share 30%) Uganda Microfinance Ltd. (MFI New entrant 5 %) Simple finance leases – ( 2- 5 yrs) Focus on SMEs - $5,000 - $500,000 OVERVIEW OF LEASING IN UGANDA

  9. Agreement between the lessor and the lessee.  Lessor transfers the use (butnot the ownership) of the asset to the lessee.  Lessee compensates the lessor for the use of the asset, usually in the form of rent.  After the pre-determined period of use (the lease term), which should not exceed the asset's economic life, the lessee returns the asset to the lessor or, depending on the arrangements, may have an option to purchase it or lease it for a secondary period at a lower rental. ATTRIBUTES OF A LEASE

  10. For Lessees Accessibility; especially to SME’s Minimal collateral - leased equipment Duration - medium term Alternative source of finance Minimum capital outlay Easy budgeting. Rentals tailored to lessee cash flow (structured) Flexibility and process time Funds usage - effective credit delivery Benefits of Leasing

  11. For the Economy Deepening of domestic capital markets Supports development of SMEs –GDP, Widens Tax Base Technology transfer- Increase productivity Creates employment opportunities, skills development, growth of service industries (mechanics, artisans). Increased access and usage of banking systems BENEFITS OF LEASING (cont’d)

  12. 1. Enabling environment – Tax, Regulation and Legislation 2.Court system improvement. 3.Market awareness for leasing. 4.Building capacity and local expertise in leasing. 5.Suitable and appropriate funding-local currency with a long tenor 6.SMEs – Quality, Size, Trustworthy and Management Challenges of Leasing in Uganda/Africa

  13. SME Finance Most DFCU Leases tend to be US $ 5,000 to US$ 500,000. The target sectors are Mainstream economic sectors; Transport, Manufacturing, Construction, Agro-processing and value added exports. Education, Health and MFIs (wholesale lending & Support) Consumer Leases – individuals Finance and Operating Lease Innovative Schemes DFCU LEASE FINANCE

  14. Size of facility: between Ush 10 million and Ush 500 million. Transactions outside this range are considered on a case by case basis Lease currency: UGX and/or US$. Repayment period: Normally between 2 - 5 years Cash collateral: deposit between 10-20% of amount financed. STRUCTURE OF A DFCU LEASE FACILITY

  15. No grace period after commencement of the lease. Pre-delivery interest: Finance charges accruing between disbursement and delivery may be paid at the time of delivery or added to the cost price. Nature of equipment: durable and identifiable. Lessee identifies the asset(s) STRUCTURE OF A DFCU LEASE FACILITY

  16. Title of ownership of the asset can pass to the lessee at the end of the lease period. Value Added Tax is not part of the amount financed. Maintenance is by the lessee at all times during the lease period.  Assets is insured by the lessee at all times during the lease period. STRUCTURE OF A DFCU LEASE FACILITY

  17. Funding sources; 1. Lines of Credit-EIB, IFC, FMO, KfW etc. 2.Borrowing from local financial institutions 3. Cash guarantees from clients cash deposits. 4.Donor grants – DFID, USAID, Shell Foundation Others; Bonds, IPOs, and securitisation Funding Lease Operations

  18. Funding Challenges • High cost of funds - Libor • Inappropriate tenor • Currency Restrictions • Sector Restriction • Borrowers – SMEs • BDS providers • Economy - status • Environmental Risk

  19. Innovations introduced; 1. Flexibility of Deals 2. Upcountry branches 3.Financing second hand Assets 4.Leasing software – IT and MIS 5.Cash deposit by clients 6.Risk Management Operational Efficiency

  20. Responsive to Small and Medium Enterprises (SME) Innovative products (harness supply chain) Leverage Donor Funds Operate profitably to attract Funding Economies of scale – optimum size Build local skills/expertise Investment in IT SUCCESS OF THE DFCU MODEL

  21. DFCU LEASING: TOTAL ASSETS AND LIABILITIES

  22. DFCU LEASING:TOTAL INCOME AND EXPENSES

  23. Group 2006 - Financial Performance5 Year trend

  24. Group 2006 - Financial Performance5 Year trend

  25. END THANK YOU

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