World Bank/FSDT-Workshop on SME Financing
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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.-Uganda

Delivered by Juma Kisaame - July 27th. Dar es Salaam-Tanzania


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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)


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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


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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


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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


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No grace period after commencement of the lease. million. Transactions outside this range are considered on a case by case basis

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


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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


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Funding sources; the end of the lease period.

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


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Funding Challenges the end of the lease period.

  • High cost of funds - Libor

  • Inappropriate tenor

  • Currency Restrictions

  • Sector Restriction

  • Borrowers – SMEs

  • BDS providers

  • Economy - status

  • Environmental Risk


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Innovations introduced; the end of the lease period.

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


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Responsive to Small and Medium Enterprises (SME) the end of the lease period.

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


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DFCU LEASING: the end of the lease period.TOTAL ASSETS AND LIABILITIES


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DFCU LEASING: the end of the lease period.TOTAL INCOME AND EXPENSES


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Group 2006 - Financial Performance the end of the lease period.5 Year trend


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Group 2006 - Financial Performance the end of the lease period.5 Year trend


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END the end of the lease period.

THANK YOU


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