Centenary Bank Uganda. Many banks in Uganda are grappling with bad loans. Photo/FILE
By BERNARD BUSUULWA The EastAfrican
In Summary
- DFCU Bank is keen to exploit the penetration of its investment club campaign that targets small individual savers seeking cheap sources of credit.
- The bank projects its market share to reach 10 per cent in five years’ time.
After marking 50 years of operations DFCU Bank
Uganda is banking on financial inclusion programmes, agriculture and a
rising middle class to grow its business.
The lender is keen to exploit the penetration of
its investment club campaign that targets small individual savers
seeking cheap sources of credit, senior executives say.
Investment clubs are expected to stimulate the
growth of cheap deposits for DFCU, cut funding costs and extend credit
to untapped customer segments.
The clubs sponsored by DFCU Bank have a minimum of
four people, and are entitled to borrow as much as 150 per cent of
their savings based on the existing prime lending rate, with repayment
periods of five years.
Deposit rates applied to the savings lie in the
range of 3.5-6.5 per cent per year, roughly 2.5 per cent less than the
average interest rate earned against time deposits with a 12-month
duration, according to latest financial market reports.
However, these deposits offer underwritten
collateral for loans issued to investment clubs — a source of relief for
borrowers who are usually constrained by lack of land titles.
Acquisition of real estate properties and project
start-up loans have so far gained considerable popularity among
investment clubs, sources say.
Deposits attributed to investment clubs on DFCU’s
balance sheet rose to about Ush23 billion ($9.1 million) in 2013, while
the investment clubs have grown to more than 3,000.
“We believe pooling more domestic resources
through investment clubs will gradually lower our funding costs and
ensure more sustainable credit growth,” said Juma Kisaame, DFCU Bank’s
managing director.
The bank projects its market share to reach 10 per cent in five years’ time.
Meanwhile, Rabobank’s entry into the DFCU
boardroom last year has also inspired fresh synergies for its
agriculture lending business, which relied on expensive foreign credit
lines in the past. With a 27.5 per cent stake in DFCU Ltd, Rabobank is
poised to deepen the bank’s role in the agricultural sector.
Besides offering bigger but cheaper credit lines
for agriculture lending, Rabobank plans to use its technical skills to
manage borrowers engaged in cultivation, animal husbandry, food
processing, warehousing, transportation and exportation.
Previous acquisitions executed by Rabobank in
Rwanda, Tanzania and Mozambique also offer opportunities for
correspondence banking suitable for cross border clients engaged in
various transactions — a future source of transaction fees in DFCU
Bank’s operation
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