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. History of DFCU 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

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

5. STRENGHTHS OF DFCU GROUP
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

6. IMPORTANCE OF SMES 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

7. CHALLENGES OF FINANCING SMES
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

8. OVERVIEW OF LEASING IN UGANDA
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

9. ATTRIBUTES OF A LEASE Agreement between the lessor and the lessee.
Lessor transfers the use (but not 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.

10. Benefits of Leasing 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

11. BENEFITS OF LEASING (cont’d)
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

12. Challenges of Leasing in Uganda/Africa
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

13. DFCU LEASE FINANCE 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

14. STRUCTURE OF A DFCU LEASE FACILITY
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 years
Cash collateral: deposit between 10-20% of amount financed.

15. STRUCTURE OF A DFCU LEASE FACILITY
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)

16. 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.

17. Funding Lease Operations
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

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

19. Operational Efficiency
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

20. SUCCESS OF THE DFCU MODEL
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

21. DFCU LEASING: TOTAL ASSETS AND LIABILITIES

22. DFCU LEASING: TOTAL INCOME AND EXPENSES

23. Group 2006 - Financial Performance 5 Year trend

24. Group 2006 - Financial Performance 5 Year trend

25. END
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