BIG STORY: Smear Campaign Targeting Banks Threatens Uganda’s Economy

On June 28, 2019 Fitch Ratings Agency maintained B+ sovereign credit rating with a stable outlook for Uganda, expressing optimism about the performance of the country’s financial sector and general economy.

Similarly, in May 2019, Standard & Poor’s Rating Agency’s credit assessment of Uganda was maintained at B with a stable outlook.

According to Bank of Uganda Governor Tumusiime Mutebile, the rating is “driven by Uganda’s record of relative macroeconomic stability supported by a relatively high degree of exchange rate flexibility and central bank independence that operates under an inflation targeting framework.”

Another driver, according to Mutebile, is the “country’s growth prospects underpinned by the ongoing public infrastructure investments.”

Fitch Rating Agency believes that real GDP growth would pick up to about 6.3 percent in 2019.

These independent assessments are important for investors to gauge the credit worthiness of the country and therefore have a big impact on the country’s borrowing costs as well as in attracting foreign direct investments.

However, these impressive projections are being undermined by the negative publicity especially on social media platforms targeting the banks’ reputations and the executives.

Last year, dfcu Bank threatened to sue and demanded a public apology from Rajiv Ruparelia, a major figure in the Ruparelia Group business empire, for allegedly sponsoring and paying for a sustained social media and online websites attack against dfcu and its senior managers with the view of destabilising the bank.


“You have variously paid operators of online new sites and blogs (sic) to spread malicious falsehoods about our client and its senior management, all to create an impression that our client is in a precarious situation and an ownership and management crisis whereas this is not the case,” the notice written by the bank’s lawyers, Kalenge, Bwanika, Ssawa and Company Advocates and seen by Daily Monitor, reads in part.

Sudhir Ruparelia with his son Rajiv (R) at the Commercial Court in 2017

While Rajiv denied the claims, attacks on dfcu have continued unabated.

The fake news campaign against dfcu compelled governments of Norway and Netherlands, where the main investors are based, to write to Finance Minister Matia Kasaija urging him to intervene,

The European governments expressed concern over a sustained string of “rumours” and “negative propaganda” against Dfcu bank Limited, the owners of Dfcu Bank, saying the false information could “impact investor confidence and foreign direct investment in Uganda.”

The major shareholders in dfcu are Arise B.V., a joint venture comprising Norfund (the Norwegian Investment fund for developing Countries), Rabo Development BV (rated triple A in Europe) and FMO (the Dutch Development Bank).

FMO Dutch development bank – bank of Netherlands balance sheet is more than $13bn, about half the size of the Ugandan economy.

Because of the investment from the Dutch, dfcu has so far sunk more than Shs 280bn in agricultural financing in Uganda, providing vital credit to local farmers to increase their output.

Additionally, in July 2018, SN Power – the Norwegian hydro power company fully owned by Norfund (shareholders of dfcu) – bought two thirds (65%) of the shares of Bujagali Energy Limited (BEL) from the investment company Blackstone.

SN Power will, with their experience from operating other hydropower projects around the world, contribute to an effective operation of Bujagali.

Most importantly, the National Social Security Fund (NSSF) owns 7.7% of dfcu, attracting billions of shillings for savers every year.

“So whoever is fighting dfcu is an enemy of the people,” said Callixte Mwebesa, an economic analyst in Kampala.

“How many banks are capitalized like dfcu? Government needs to come out strongly to protect investors lest we forget about growing the economy. We’ve seen some financial institutions take hit simply because of false rumours,” he said.

It remains unclear, as lawyers claimed, why Rajiv Ruparelia sponsors malicious campaigns against dfcu.

It is understood dfcu spends $42,000 (Shs 160m) per month on renting dfcu Kampala road branch from Rajiv’s Crane Management services.

Dfcu further incurs $14,000 per month on renting 6th street branch, $8,000 on Banda branch and $7,000 on Luwum branch – all paid to the Ruparelia group of companies.

Mwebesa, whom we approached with figures, said “attacking such a bank means piercing the heart of the financial sector and the entire economy. The farmers who get credit; the worker at the bank who earns a salary; suppliers of services such as technology, food and furniture and government which receives taxes from dfcu, will all pay a price. If dfcu gets a problem, everybody will fill the pinch.”

Dfcu pays 30 percent of its profits, almost Shs 40bn per annum, to Uganda revenue Authority.

The bank also employs 1,200 staff and has so far enrolled 1,500 agents, creating opportunities for young people in the digital financial sector.

Dfcu last year spoke about claims that the Executive Director, William Sekabembe had resigned.

It was established that Sekabembe turned down the position of Managing Director, KCB.

Propaganda worries

Governor Mutebile recently said the propaganda against the backs would “fail” but little has been done to check the perpetrators.

Quoting the 2018 Bank of Uganda (BoU) Financial Stability Report, Mutebile said the performance of ‘domestic systemically important banks’ (DSIBs) in Uganda remained “resilient” much as profitability had narrowed.

D-SIB means that the bank is too big to fail.

Such institutions’ operations are subjected to intense scrutiny by the regulator as their downfall could lead to the collapse of a country’s economy.

In Uganda, the DSIBs are Stanbic Bank, Standard Chartered Bank and DFCU Bank.

According to the Financial Stability report, “Overall, indicators show that the DSIBs remained financially sound over the year to June 2018.”

The three banks accounted for 40.4 percent of total bank assets at June 2018, a decline of 2.4 percent from June 2017. A problem in one banks poses a systemic risk across the financial sector.

BoU further said the DSIBs’ capital adequacy ratios “remained above minimum regulatory limits, signifying strong resilience.”

Investors’ concerns

The Dutch and Norwegian diplomats told Kasaija they were “made aware of rumors and negative propaganda in the media, particularly social media platforms, against Dfcu Bank limited, and we wish to express our concern over these rumors, which may impact investor confidence and direct investor confidence and foreign direct investment in Uganda.”

They said “some of the rumors or fake news falsely reported that Arise would disinvest from Dfcu Bank Limited. This as you might see from the enclosed memo from Arise to the Embassies of Norway and Netherlands, is a misrepresentation of facts.”

Arise also expressed concern, saying the “likely intention of these unsubstantiated rumors was to undermine the operations of Dfcu Bank and to cast doubt on the bank’s long-term viability.”

The two governments, which spend millions of dollars on development aid to Uganda, urged Kasaija to intervene.

“In the interests of nurturing and fostering good business relations between Norway, the Netherlands and Uganda, we would appreciate your intervention in mitigating the possible consequences of these rumors to Dfcu Bank Limited and the local financial services sector in general,” said the Dutch and Norway governments in a letter to Kasaija.

The European governments appeared to be mobilising support from government to act on the source of the smear campaign against Dfcu Bank but never got help.

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