Demand from local sources for letters of credit (L/Cs), as well as other types of trade and corporate finance is on the increase in Uganda, according to the central bank.

The Bank of Uganda (BoU) says local banks are meeting demand from corporates as Ugandan business people steer clear of Western banks.

West abandoned

According to BoU, while credit remains both tight and costly in Western financial markets, Ugandan sources of finance, particularly commercial banks, are offering cheaper terms and are more willing to take credit risks.

"Private sector credit has gone up mainly because local institutions that used to borrow from overseas banks are resorting to local sources of credit. The cost of domestic borrowing is lower and the liquidity is higher," says acting director of research at BoU, Mary Katarikawe.

Burgeoning demand

At least one local bank is seeing increased L/C demand as corporates look to local sources of finance.

"Our credit market remains huge, with a high risk appetite. We are seeing increased demand for L/Cs and export guarantees," a senior official of Orient Bank told local media.

He reckons the impact of local companies' recent preference for local sources of borrowing rather than from foreign lenders is likely to benefit Uganda's larger banks most.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.