The evolving role of national development banks
The Uganda Development Bank (UDB) recently convened a high-level meeting with prominent stakeholders on the sidelines of the International Monetary Fund (IMF) and World Bank spring meetings in Washington DC. The aim of this strategic engagement, which was led by UDB chairman Felix Okoboi and CEO Patricia Ojangole, was to foster partnerships, exchange insights on the evolving role of national development banks in Africa, and chart a course for UDB’s transformation.
In his opening remarks Henry Musasizi, minister of state for finance, planning and economic development for Uganda, made a compelling case for greater government support for national development banks. Unlike commercial banks and private lenders, development banks have a longer-term investment horizon and lend at more competitive rates.
As a result of this important and complementarity role, these banks across the continent should be better equipped and better capitalised. “Capitalisation of national development banks should be at least 10% of GDP. Uganda has demonstrated this by capitalising UDB to the extent that it is the most capitalised national development bank in the African continent. We pledge our continued support to help them achieve their purpose to transform the quality of life of Ugandans.”
Vote of confidence
Musasizi observed that UDB has been instrumental in advancing the East African country’s economic goals, as outlined in the national development plan. By focusing on sectors often overlooked by private financial institutions, such as agriculture and agro-processing, UDB has positioned itself as a crucial facilitator of industrial growth and job creation. Moreover, UDB’s commitment to providing not just financial support but also training and capacity building to aid clients with business development and project preparation reflects a holistic approach to economic empowerment.
He expressed confidence in UDB’s ability to continue playing an enabling role as an agent of structural economic transformation in Uganda, citing sustained improvements in the Bank’s operations, financial performance, and governance structures as crucial underpins for continued success. Strong governance is critical for these national development banks to be able to engage with international actors, such as other continental development finance institutions (DFIs) as well as other actors, such as philanthropies and private sector players.
In light of this, the minister highlighted the work that UDB had done to provide comfort to international partners. “UDB has consistently secured a triple-A national long-term rating with a stable rating by Fitch. It has achieved an A class rating from the Association of African DFIs and has the lowest cost-income ratio in the development banking sector in Africa.”
SMEs and green financing
Ojangole has been CEO of the bank for a little over a decade. She has seen its balance sheet increase more than ten-fold over this time. She welcomed the government’s pledge of support, noting that the lender would not rest on its laurels but would speed up innovation in the face of a fast-changing business environment. “The bank is on the right trajectory in terms of growth and we’re continuously innovating as the business environment is changing so fast.” She mentioned several initiatives that the Bank is pursuing to stay ahead of the curve, including adopting gender-lens financing to close the gender equality gap and rolling out digital financing platforms to reach the unbanked.
She reaffirmed the Bank’s commitment to small and midsize enterprises (SMEs), noting that this was the sector with the greatest potential for impact in terms of job creation, economic growth and prosperity. “We have a commitment to support underserved sectors such as SMEs. This is crucial as SMEs play a very critical role in the economy and constitute the largest percentage of our private sector.”
Ojangole recognised the detrimental effects of climate change on critical sectors of Uganda’s economy, particularly agriculture. The Bank has committed to allocating additional resources toward climate change mitigation and green financing in the years ahead, she disclosed.
Governance and cross-border collaboration are key
In the ensuing panel discussion, Okoboi noted that national development banks aspiring to replicate the success of UDB needed to have an unrelenting commitment to good governance. “When I look at any entity on our continent, the ones that fail are not necessarily the ones that can’t access capital, but the ones with bad governance.” Moreover, he drew a compelling connection between the governance practices of national development banks and the governments supporting them. “The history of national development banks that have had bad governments shows that the banks have not performed.”
Admassu Tadesse, group president and managing director at the Trade and Development Bank (TDB), also emphasised the need for strong governance in national development banks, especially for those seeking investment and collaboration from regional and global lenders. He asserted that national development banks can tap into global markets “as long as they can give confidence on the institutional framework they have in terms of the governance, management, supervision and skill”.
Tadesse asserted that regional and global financial institutions are keen to partner with national banks that have built credibility. “National development banks that build credibility will succeed in attracting global partners. To build credibility takes time, but once you build it and gain trust then you discover that people are willing to participate. The capital is there and everyone wants to step up,” he remarked.
Okoboi noted that UDB would capitalise on the growing interest from regional and global financial institutions to bolster its balance sheet in the coming years. This follows an almost tenfold increase in the lender’s balance sheet in the past decade. “We want to beef up our interventions in infrastructure and large-scale syndication. These require a sizable balance sheet and as our balance sheet grows we will be able to do this much easier.”
In a move that underscores the shared vision of digital innovation and support for small and medium enterprises (SMEs), Haytham El Maayergi, executive vice president, Global Trade Bank at Afreximbank, highlighted the synergies between the Uganda Development Bank (UDB) and Afreximbank. El Maayergi pointed to the recently-unveiled Africa Trade Gateway (ATG) as a testament to Afreximbank’s commitment to pioneering digital-first financial solutions. The ATG, a collaborative effort with the African Continental Free Trade Area (AfCFTA) secretariat, comprises five integrated digital platforms, establishing a unified portal to enhance the bank’s capacity to facilitate critical services, thereby bolstering African trade and aiding the enactment of the AfCFTA.
Diab Karrar, director of operations in the public sector department of the Arab Bank for Economic Development in Africa (BADEA) also noted that BADEA would focus its efforts on technology and digital innovation, underscoring the significance of the theme among development banks on the continent.
Ousmane Fall, director of non-sovereign operations and private sector at the African Development Bank (AfDB) stressed the need for national development banks to build robust risk-management systems in order to strengthen their appeal to regional and global financial institutions, including the AfDB. He reaffirmed AfDB’s commitment to support national development banks and the strategy was for the AfDB to leverage its triple-A credit rating to make capital available to national development banks, as well as other national, regional and continental institutions, through innovative instruments.
Risk-tolerant and patient capital
Sander Glas, a programme officer at the Bill and Melinda Gates Foundation, argued that philanthropic entities such as that Foundation played a unique role because of their long-term focus. “The kind of capital we have, which is grants, is very risk-tolerant and patient, so is well suited for development banks.” Glas, who had lived in Uganda and worked for the International Fund for Agricultural Development (IFAD), noted that the Foundation was looking to work more closely with national development banks. “We are broadening our mandate beyond multilateral development banks to include national development banks, because they’re able to leverage financing from their governments and lend it into the real economy,” he said, adding that “in Uganda we are a strong supporter in agriculture, health and education. UDB’s portfolio is aligned to this.”
The panel concluded with a clarion call from the participants for greater collaboration between African financial institutions, particularly national development banks which are well positioned to serve as agents of transformation amid emerging opportunities like AI and growing risks such as climate change.
The session concluded with a unified appeal for enhanced synergy among African financial institutions, especially national development banks. These institutions are uniquely situated to act as catalysts for change, leveraging burgeoning sectors such as technology and artificial intelligence, while also navigating the escalating challenges posed by climate change.
Panellists also noted that national development banks in Africa, having put in place the proper governance structures, should partner with global financial institutions to amplify impact. By pooling resources, they can expand the capital options available to support development projects at scale, especially in the current context where national governments are hampered by fiscal limitations and acute social needs.
This post first appeared on African Business
