The Parliament of Uganda this week approved a request by the Ministry of Finance authorizing government to guarantee UDB to borrow a total of US$65 million from different international banks.
US$15 million will be borrowed from the European Investment Bank, US$10 million from Islamic Trade Finance Corporation, US$20 million from OPEC fund for International Development and US$20 million from the Arab Bank for Economic Development.
But the approvals come against latest reports made in Parliament that billions of shillings that were put in UDB for purposes of lending to manufacturers as a way of a stimulus package, was instead given to a connected official to build an arcade in Kampala.
Presenting the report on the request, during the plenary sitting onApril 21, 2021, the Chairperson of the Committee on National Economy, Syda Bbumba said the funds are being deployed in the agriculture, manufacturing and agro-industrial sectors.
She added that the bank only received funding to implement a component of the government stimulus package which was specifically to mitigate and support the faster recovery of the economy from the negative impacts caused by the Covid-19 pandemic.
“UDB has not received any funding to bail out struggling businesses and funding received was not meant to be given out as package or grant to struggling businesses,” she said.
MPs welcomed the loan but raised concern over the high interest rate of 13 per cent arguing that it is not favourable for farmers who are already struggling to stay in the sector.
“If I can borrow an example from the agricultural banks in Thailand, if you are a community and you are borrowing, the interest is 0.01 per cent and if you are an individual, maximum interest rate is 6 per cent. These are factors we need to consider if we want to empower our people,” said Hon. Lawrence Songa (NRM, Ora County).
Adjumani District Woman Representative, Hon Jessica Ababiku, said that while Ugandans have been yearning for such a loan to boost farmers, majority of the borrowers will be constrained to borrow because of the high interest rate.
“The interest rate needs to be reduced because majority of borrowers are constrained by capital. If we say interest rate is at 13 per cent, it will not help the small borrowers; it will only be advantageous to huge borrowers,” said Ababiku.
Jack Wamanga-Wamai (FDC, Mbale Municipality) said that the high interest rates demotivate Ugandans from venturing into the agricultural sector.
“Government should attract people to engage in agriculture by giving loans with low interest rates. When you keep interest rates high, people will shun agriculture and come to the city to look for white collar jobs,” said Wamanga-Wamai.
The Leader of the Opposition, Betty Aol Ocan expressed concern about local farmers who cannot afford loans with high interest rates.
“These loans go to those who are already established and yet majority of our farmers are still in subsistence farming. They cannot access loans with high interest rates,” Aol Ocan said.
Gilbert Olanya (FDC, Kilak South County) asked government to ease accessibility of the loan to farmers upcountry by opening branches countrywide.
“UDB should liaise with other banks in the districts because it becomes difficult for farmers upcountry to travel to the city to process the loan,” said Olanya.
Syda Bbumba said that the high interest rate is attributed to the cost of borrowing the loan. She also told the MPs that UDB does not work directly with consumers but through government owned banks including Pride Microfinance, Housing Finance and Post Bank.