dfcu Bank’s experience in developing and growing a successful SME Bank

Norfund Summer ConferenceOslo, Norway

By: Juma KisaameManaging Director, dfcu Bank

Thursday, 28th August 2014

Facts about Uganda

Land linked country of : 241,038 sq. km.

Member of the East African Community, COMESA.

Demographics: Population: approx. 37m, with 60% below 22 years. Urbanization at 16%, with over 75% engaged in Agric. Potential spending power – growing Middle class

Stable macro economics policies/ liberalization.

Economic growth: 5.2% (FY13) and est. at 5.5% (FY 14).

Strong capital inflow; FY12 FDI: $ 1.2bn, high return.

Massive resource concentration: Mineral deposits Oil & gas – over 3.5 billion barrels. Tourist attractions– natural, cultural sites.

Comparative advantage in Agriculture.

Overview of Uganda’s Banking Sector

25 licensed commercial banks, 3 Microfinance deposit taking institutions (MDIs), and thousands of Microfinance Institutions/SACCOs.

Commercial banks, MFIs and MDIs are regulated by the Bank of Uganda

Strong regulatory environment (FIA 2004)

Approx. 54% of the adult population have access to financial services, of which only 23% use formally regulated financial institutions.

Stiff competition within and emergency of mobile money transfer services: of the adult population, 31% use MM services vs. 23% using formal FIs..

Shortage of long term funding for development projects.

Nascent financial/capital markets.Source: Uganda 2013 FinScope III report, Bank of Uganda

Key themes shaping the Banking sector

Financial inclusion: Outreach / financial literacy.

Innovation: Product differentiation & diversification.

Demographics and growing affluence

Digital revolution – convergence of banking and mobile money transfer services, internet banking, etc.

Tightening regulatory framework.

Agency banking ??

A dfcu customer checks her bank account transactions using mobile banking

dfcu - Who we are

VisionTo be the preferred Ugandan financial institution providing a broad range of quality products to our chosen customer segments.

Mission statement

To grow shareholder value while playing a key role in transforming the economy and enhancing the well-being of our people.

Evolution of dfcuDevelopment Finance Company of Uganda (dfcu Limited) was started by the CDC, IFC, DEG & GOU to provide long term financing and Equity to SMEs.

1964

Diversification into Leasing, Property Development and mortgage financing.

dfcu Limited acquired Gold Trust Bank, thus extending the services of the Group to include Commercial banking.

dfcu Limited was listed on the Uganda Stock Exchange. NORFUND acquired 10% stake in company.

Integrated Development Finance the dfcu Bank to create a ‘one stop shop’.

Shareholder realignment results in Rabo Bank and NORFUND acquiring stakes in DFCU Limited of 27.5% each. ACTIS down to 15%201

3

2008

2004

2000

1995-99

Lost decade, scaled down operations to 2 clerical staff.1974-85

dfcu Ltd ownership at 31 December 2013

Mr. Kjell Roland of NORFUND receives a dummy certificate from the Uganda Minister of Finance confirming the increment of stake in dfcu Limited to 27.5%

Shareholder % Ownership

Norfund 27.54 Rabo Development 27.54CDC Group 15.00Others 29.92

Board of DirectorsA&L Committee

Risk & credit Committee

Remunerations Committee

Audit Committee

Corporate Governance Structure

dfcu Organization Dynamics

The Business

InternalAudit

Legal/ Co. Sec

Credit

Risk

PMO/strategy

Finance

Human Resources

Operations & IT

Marketing & Service

dfcu at a glanceOver 50 years in business.

USD 550 m in total assets

Over 300,000 customers.

Built Own Head Office.

Focus on Retail and SME segments.

43 branches (48 by y/e 2014).

Mobile and internet banking solutions.

Over 800 dedicated staff.

Wide range of products: “One-stop shop”

Funding Mix

Equity

Customer deposits

Lines of credit

KFW

DEG

IFC

Proparco

FMO

EIB

Norfund

Savings

Demand deposits

Fixed deposits

Our product offering – Assets & Services

RetailPersonal loans

Home loans

Overdrafts

Bus. Growth Loans

Banking services

Funds transfer

Agency

Women in Business program

Treasury servicesInterbank lending

T-bills & bonds

FX trading

CorporateCommercial loans

Term finance

Commercial

mortgages

Commercial leases

Overdrafts

Bridge financing

Trade finance

Agri-business

dfcu Women in Business training

Focus sectorsAgribusiness

Education

Manufacturing

Kampala University

The new Igara Tea Factory

A production line at Wavah mineral water Plant

Focus sectors

Trade & commerce

Transport

Tourism

Real estate

Infrastructure development

Oil & gasA rural road being upgraded by Spider Construction Company

Quality Shopping mallBrovad Hotel

ChallengesInternal

High funding cost – external debt.

High cost of operation.

Skills gap.

Low customer base.

External

Low levels of financial literacy.

Climate change and environmental challenges.

Regional instability.

Poor infrastructure, especially in the rural areas.

Competitive environment.

Effects of the global uncertainty – Euro zone crisis

Low levels of income and lack of collateral

Opportunities for growth

Oil and Gas investments – US$ 10b?

Agribusiness potential.

Manufacturing and service industries.

Population demographics and urbanization.

Infrastructure – rail, energy, roads…

ICT penetration/evolution.

Financial Inclusion.

Regional integration

Business Focus 2014/18

Build a robust Retail Operation with multiple distribution channels - (1.2 million

customers).

Consolidate our position as key provider of long term

funding to the SME market segment.

Become the leading Bank for Agribusiness

In pursuit of Financial inclusion

Build a robust retail operation with multiple distribution channels. Target: 1.2m customers by 2018.

Provision of long term financing to SMEs.

Enhancement of Risk management processes.

Consolidation of activities in the new Head Office.

Collaboration with mobile operators and roll out agency banking.

Launched Quantum Leap Project in 2014 to drive efficiency

• Business process re-engineering.

• Internal capacity building.

• Product innovation / market segmentation.

• Agri-business value chain analysis.

dfcu Performance Trends 2008-2013

2008

2009

2010

2011

2012

2013

- 20 40 60 80 100 120 140 160 180

63

77

91

114

136

161

Shareholders Funds (UGX Bil-lions)

2008

2009

2010

2011

2012

2013

- 100 200 300 400 500 600 700 800

255

347

481

525

591

704

Customer Deposits (UGX Billions)

2008

2009

2010

2011

2012

2013

- 100 200 300 400 500 600 700

283

326

397

496

555

624

Loans & Advances (UGX Bil-lions)

2008

2009

2010

2011

2012

2013

- 200 400 600 800 1,000 1,200 1,400

496

612

802

954

1,001

1,230

Total Assets (UGX Billions)

(Euro 1 = UGX 3,525)

Started as an NGO food project in 1994 and a

Microfinance operator in 2001.

Norfund has been invested since 2007.

Is among one of the top 4 MFIs in Cambodia and is

moving towards being the leading, sustainable

microfinance provider, helping clients to succeed in

their businesses.

Employs 1872 people, of which 541 are female.

We have provided equity funding, loans in both local

currency and in US dollar and an emergency liquidity

credit line, when there was political turmoil.

Strategic plan initiated to transform to a fully fledged

SME/ Micro finance banking group.

Company Background Shareholding Structure

Performance - Loan portfolio

Strong shareholder group who have been consistently supportive to HKL’s growth.

Local SH

17.49%19.73% 19.75%

19.87% 23.16%

2007 2008 2009 2010 2011 2012 2013 1H 20140

50

100

150

200

250

Unit: USD million

As of June 2014, loan portfolio stood at USD 194 million with PAR>30 of only 0,04%.

Microfinance : Hattha Kaksekar Limited, Cambodia (HKL)