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
Leasing: The DFCU Experience
Moses K. Kibirige
Executive Director, DFCU Ltd.-Uganda
Delivered by Juma Kisaame - July 27th. Dar es Salaam-Tanzania
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 2004History of DFCU
October 14th, 2004.
Long/ Medium term loans
Treasury servicesDFCU GROUP -FINANCIAL ENTITIES
Good Corporate Governance
Strong Management Team
Diversified Product Range
Human Resource Development
Listed on the Uganda Securities Exchange
Diversified Financial Institution-Bank and non Bank operationsSTRENGHTHS OF DFCU GROUP
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 classIMPORTANCE OF SMES
Lack of suitable collateral – LEASING is appropriate
High costs of monitoring
Red tape and regulation of business
Fragile sector – informal, no strong voice, lack of sustainability/survivalCHALLENGES OF FINANCING SMES
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 - $500,000OVERVIEW OF LEASING IN UGANDA
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
Accessibility; especially to SME’s
Minimal collateral - leased equipment
Duration - medium term
Alternative source of finance
Minimum capital outlay
Rentals tailored to lessee cash flow (structured)
Flexibility and process time
Funds usage - effective credit deliveryBenefits of Leasing
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 systemsBENEFITS OF LEASING (cont’d)
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 ManagementChallenges of Leasing in Uganda/Africa
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 SchemesDFCU LEASE FINANCE
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
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
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
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
Bonds, IPOs, and securitisationFunding Lease Operations
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 ManagementOperational Efficiency
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 ITSUCCESS OF THE DFCU MODEL
END the end of the lease period.