By Jeff Mbanga
Another financial institution is up for sale. Pride Microfinance,
Uganda’s most profitable microfinance deposit-taking
institution, is being prepared for sale barely a month after
Kenya’s Equity Bank bought Uganda Microfinance Limited
Uganda government owns the company that it took over in
2003. It now wants to relinquish its entire stake to private
investors, The Weekly Observer has been told.
“We have been told government is planning to sell
Pride Microfinance. The government is showing little interest
in continuing to run it,” said a source that is conversant
with the matter.
However, the decision to privatize the company has been
delayed by a court case filed by some people who claim to
have had a stake in Pride Uganda—as the company was
previously called before takeover by government.
“Government wants to sort out this problem first before
it goes ahead with the privatization,” said another
source in the Ministry of Finance Planning and Economic
Development, who did not want to be identified.
“Discussions have been held to privatize Pride Microfinance
but no clear decision has been reached yet,” the source
By privatizing the company, Pride Microfinance would be
changing hands and name for the fourth time since its inception.
Pride Microfinance started as Pride Africa in late 1995,
but the mainly donor-funded project changed names in 1999
to become Pride Africa Uganda Limited after it was incorporated
as a limited company.
The company that was mainly supported by the Norwegian Agency
for Development Cooperation was created to offer credit
to the poor, targeting those in the agricultural sector.
In May 2001, the company underwent another change when
the Articles and Memorandum of Association were amended
and became Pride Uganda. Pride is an acronym for Promotion
of Rural Initiatives and Development Enterprises.
In 2003, however, government took over the company, changing
the name to Pride Microfinance Limited, a company limited
Pride Microfinance was also supported by AfriCap Microfinance
Fund, a private equity fund, which, last year, invested
$1 million in the company. By their nature, private equity
funds operate in a short time frame, exiting after the company
has performed well and can sustain itself. AfriCap also
has holdings in Equity Bank of Kenya.
The government has been shopping for a private investor
to take over the company for a long time. This has however,
been hindered by the current business structure of the company.
“That is why they had to first turn it into a microfinance
deposit-taking institution so that it can become attractive,”
our source that worked with the company until last year
More resistance to the sale of the company is said to have
come from the Minister of State for Microfinance, Gen. Salim
Saleh, who reportedly wants it to be used for the disbursement
of the ‘prosperity for all’ funds.
The Weekly Observer has also been told that the government
wants to bring in more players because the law does not
permit a single shareholder to own more than 30% stake in
Anthony Opio, Bank of Uganda’s director Non-banking
Financial Institutions, said he was not aware of discussions
to privatise Pride Microfinance.
“I haven’t received any letter from the Ministry
of Finance. Or if it is there, I haven’t yet seen
it,” he said.
Details of how much government is willing to sell off from
its 100% shareholding and at what price remain scanty. What
is known is that the company is under restructuring. Jim
Mugunga, the Public Relations Officer, Privatization Unit
(PU) confirmed the restructuring.
The PU is a statutory body that handles the privatization
of parastatals, the statute does not cover Pride Microfinance.
this means that PU may not be involved in the process.
He however said that the on-going restructuring was only
meant to enable the company operate smoothly and improve
its competitiveness in the microfinance business.
Yet, going by its books of accounts, one would think that
Pride Microfinance does not need any form of government
intervention to become competitive.
Last year, the company declared net profit of Shs 2.8 billion
up from Shs198 million in 2006 –a more than 1,200%
increase. This is bigger than what some commercial banks
made during the same period.
It is anticipated that this good performance would enable
the government get a good price if it went ahead to privatise
However, the Shs16 billion of borrowed funds could turn
out to be a debt burden for government.
Should the sale happen, and the company changed its current
status, it will bring down the number of microfinance deposit-taking
institutions (MDI) to two – a blow to Bank of Uganda’s
efforts to promote MDIs. The idea of MDIs was mooted four
years ago in a bid to improve Uganda’s fledgling saving
levels. And the trick has worked.
Concentrating on the lower market segment, microfinance
institutions have reached out to many small savers, previously
locked out by commercial banks.
This resilience among the MDIs – revealed in their
first published books of accounts is expected to rattle
banks into refocusing their business strategies.
Using the Microfinance Deposit taking Institutions Act
2003, the MDIs have taken the advantage of maintaining a
lower minimum paid up capital than the Shs 4 billion required
of commercial banks to widen their services and make remarkable
For example, Uganda Finance Trust more than doubled its
net profit – moving up from Shs 437.9 million the
previous year to Shs 888 million.
FINCA also had quite a good year, seeing its profit increasing
from Shs 742.5 million to Shs 1.3 billion. All three MDIs
recorded debt ratios below one – a sign that they
are not depending on loans to stay in business.
Such strong performance only emphasizes the profitability
that comes with targeting those customers that are left
out of commercial banking halls.
Customer deposits from Pride Microfinance increased from
Shs 5.3 billion in 2006 to Shs 8.5 billion in 2007, rivaling
banks in winning the attention of customers.
Uganda Finance Trust also saw its customer deposits go up
from Shs 6 billion in 2006 to Shs 7.7 billion last year.
While client savings within FINCA went up from Shs 5.8 billion
in 2006 to Shs 6.8 billion in 2007. The increase in customer
deposits represents a growing level of trust in MDIs after
they were placed under the supervision of the central bank.
This positive performance also grabs the attention of private
investors. Sub-Sahara Africa’s economic growth level
that averages 6% and is better than levels experienced by
more developed regions, has caught the excitement of investors.
Pride, whose assets now total Shs 50.9 billion up from
Shs46.5 billion at the end of 2006, would offer an investor
a formidable head-start in doing business in Uganda. It
has 29 branches - more than what some banks have spread
throughout the country. With the fight for retail customers
among commercial banks heating up, buying into Pride would
give an investor a good chance to take this battle to the
banks’ own backyards.