Uganda manufacturers squeezed by costly credit as DTB pledges cheaper loans

Uganda’s manufacturers are being squeezed by the high cost of borrowing, with a government minister urging commercial banks to cut lending rates as one lender pledged to expand cheaper, longer-term credit for the sector.

David Bahati, Minister of State for Trade, Industry and Cooperatives, said the gap between what factories earn and what they pay to borrow made expansion difficult. He put the internal rate of return for manufacturers at between 8% and 12%, against commercial lending rates that typically run from 18% to 24%.

“Borrowing money for manufacturing at 18 percent or 20 percent and expecting to break even and make profits within five years is almost impossible,” Bahati told the Uganda Manufacturers Association (UMA) financial symposium in Kampala. He described manufacturing as an organised and bankable sector, and called on lenders to design products suited to its needs.

Answering that call, Douglas Damba, head of business banking at Diamond Trust Bank (DTB) Uganda, said the bank would expand longer-term lending to manufacturers, including equipment and asset financing, trade finance and working capital facilities. He argued that short-term credit alone could not deliver the country’s growth ambitions.

“Manufacturers, agribusinesses and growth-oriented enterprises need access to structured capital, asset financing, trade finance and investment products that enable expansion, improve productivity and accelerate value addition,” Damba said.

The event was held under the theme of financing Uganda’s “tenfold growth” agenda, the government’s long-term plan to expand the economy from about $50bn to $500bn by 2040. Launched in 2023 and anchored on agro-industrialisation, tourism, minerals and technology, the strategy is one of the more ambitious economic targets in Africa — and one economists have questioned as achievable within the timeframe.

Manufacturing is among Uganda’s larger economic sectors, and the association said it accounts for 16.5% of gross domestic product and 30.7% of domestic tax revenue. But access to credit remains thin: by the symposium’s figures, fewer than a quarter of manufacturing small and medium-sized enterprises — 22.9% — can obtain formal financing.

UMA chairman Aga Sekalala Jr welcomed the commitment but said affordable, long-term finance remained one of the biggest barriers to industrial growth, calling for closer collaboration between manufacturers, banks, government and development partners.

Bahati said the government was working to widen access to long-term finance, including through increased funding for the state-owned Uganda Development Bank and reforms such as new rules to allow Islamic banking.

DTB Uganda, part of the DTB Group and a member of the Aga Khan Development Network, operates 36 branches in Uganda alongside more than 1,000 agent banking outlets.