aBi Finance

aBi Finance provides Lines of Credit (LoCs) to Financial Institutions for on-lending to agribusinesses across the entire value chain. aBi Finance also runs an Agriculture Loan Guarantee Scheme (ALGs) for Financial Institutions to share losses incurred through defaulting loans. As at December 2017, aBi’s financial products generated over 231 thousand new loans to producers and businesses. Under the Financial Services Development (FSD) Programme, aBi Finance provides matching grants to FIs to build institutional capacity for enhancing the provision of financial services and increase outreach in rural areas. As at December 2017 about USh 17bn in grants was disbursed to 44 FIs.

During the 2019-2022 Business Plan period, aBi Finance will substantially expand its LoC and ALG components. This will be done by expanding the capital fund from which these components are financed and indemnified, and by increasing the share of the capital fund that is dedicated to the LoC component from 70% to 74%. The LoC product shall be increasingly focussed on Tier III and Tier IV organisations. This will cause loan sizes to remain relatively low, although expected to grow over time to around USh3.5 million per outlay. In addition, aBi will promote ways and means to make the FI loan products more attractive for medium-term financing.

Objectives of aBi Finance

  • Provide funding to aBi Development Limited to enable it execute its programmes activities in a sustainable manner.
  • Promote provision of credit facilities to agricultural based small and medium sized enterprises.

The Agribusiness Loan Guarantee (ALG) was inherited from the previous ASPS DANIDA program to promote Agribusiness financing to SMEs, expand lending to the Agricultural Sector and exhibit additionality. The ALG is for SMEs dealing in agribusiness only and can be accessed through our Implementing partners who are Financial Institutions.

There are 3 types of Guarantees that we offer:

  • Individual
    The Individual guarantee is where a Financial Institution needs to refer the loan to the Guarantor (aBi Finance) before issuance for approval.
  • Portfolio 
    The Portfolio guarantee is where a Financial Institution does not need to refer a loan below a specified threshold (agreed upon by the FI and Guarantor) for aBi Finance approval
  • Portable
    The Portable Guarantee is where aBi Finance makes a recommendation for an SME to source around for financing with the best terms and conditions from a Financial Institution of its choice.

The ALG is beneficial to the SMEs majorly because it allows them access to finance, reduces collateral requirements for them and allows expansion of lending to the perceived riskier areas in agriculture

Features

  1. Agribusiness focused Small & Medium Enterprises
  2. Maximum cover is 50% of loss of principal outstanding.
  3. Maximum Loan amount of USh500 million

aBi Finance offers Lines of Credit to Financial Institutions (FIs) in order to facilitate lending to agribusinesses across value chains.

Prequalification is mandatory before placing a fixed deposit with any Financial Institution. It shall be done annually or more frequently if decided by aBi using the following procedure:

a) Latest audited financial statements for all regulated financial institutions are consolidated in a single spreadsheet to consider both key ratios and qualitative analysis.

b) The key ratios for each financial institution are calculated, including:

  • Leverage, computed as total liabilities divided by equity
  • Profitability, computed as after-tax profit divided by equity
  • Liquidity, computed as (cash + near cash) divided by current liabilities

c) Institutions satisfying the criteria by scoring among the top 75% of the industry in capital and profitability and the top 50% of the industry in liquidity for at least two of the ratios are considered.

d) Qualifying institutions are shortlisted.

When aBi wishes to invest, prequalified institutions are sent solicitation letters or emails requesting their offers for interest to be paid for fixed deposits.

Criteria for accessing aBi guarantees and lines of credit Financial Institutions

To be eligible for accessing aBi guarantees and lines of credit Financial Institutions (FIs) must meet the following criteria:

  • Legal registration in Uganda,
  • Favorable report from BOU or relevant regulator, and
  • Demonstrated adequate procedures, internal controls and systems for borrower appraisal, credit approval, monitoring, and risk management.

 Once aBi determines that the FI is eligible, it proceeds with an appraisal/due diligence as follows:

a) Annual financial reports for the financial institutions to be appraised are collected.

b) The key ratios for the financial institution are calculated including:

  • Leverage, computed as total liabilities divided by equity.
  • Profitability, computed as after-tax profit divided by equity.
  • Liquidity, computed as (cash + near cash) divided by current liabilities.

c) Audited annual accounts are collected and must demonstrate at least 3 years of competent management and growth.

d) Financial institutions must demonstrate sound project/loan appraisal and monitoring skills through portfolio reports, skills sets, and documentation on credit files.

e) The financial institution must reasonably satisfy the Trust that it has sound governance and management in place as well as other institutional factors such as human resources and good systems and structures.

f) The financial institution must demonstrate that over 3% of its total loan portfolio is invested in agribusiness and that this portion of the portfolio is performing at least as well as the financial institution’s average portfolio in terms of annual yield and aging of arrears for the trailing 12 months.

Promising institutions with strong interest and business vision for agribusiness who through due diligence are judged as not ready for a guarantee or line of credit can be assisted through aBi’s Financial Services Development business unit with technical assistance to improve their business capacity to the level where they are able to benefit from aBi Trust’s lines of credit and guarantees.

The current fund management contract with DFID to manage the £2M worth CGF to the benefit of the Uganda local road contractors sector ended in December 2018 and will be liquidated and handed over to the fund sponsors- DFID in 2019. The Fund supported the local road contractor industry from 2012 to 2018 by providing FI partners guarantees in providing bid bonds, performance bonds, advance payment guarantees and finance leases to local road contractors, which are critical to them accessing finance and equipment in order to compete for and execute road construction and repair contracts.