A few weeks ago the IGG had senior officials of Uganda Development Bank (UDB) hauled before the courts, alleging that they had victimized a whistleblower.
The whistleblower earlier this year had reported to police
that there was something irregular with a $11m loan being processed for
Savannah Commodities Ltd. Savannah needed the money to increase their grain
processing capacity. More on that later.
It always plays well before the gallery when the big fish
are arrested and paraded before the public. The clamour for something to be
done about corruption is palpable wherever you go.
The financial system is not immune to its share of
shenanigans but the way you confront corruption in the financial system cannot
be the same way you confront the village thief, still licking his fingers after
disposing of the stolen chicken.
The financial system is based on confidence, you undermine
that confidence and nothing will be worth anything. If you think about it the
money we carry in our pockets is just a coloured representation of our
confidence in the government and our financial system. A dent to that
confidence leads to debasement of the currency – the reason governments come
down hard on money counterfeiters.
A bank’s biggest asset is the confidence of its clients and
business partners. That is how bank’s can collect deposits many times the size
of their shareholders’ capital.
No economy can grow or sustain growth without a financial
system which commands the confidence of the population. Ask the western
economies. At the heart of the recent global financial crisis was a collapse in
confidence in the financial system.
The law enforcement agencies should investigate all criminal
allegations to their logical conclusion wherever it is suspected that they have
been committed.
However one has got to wonder about the current case against
UDB’s officials.
At the center of the case is the loan to Savannah
Commodities. The whistleblower brought this to the police attention because it
seemed to contravene banking laws. According to the law a bank cannot lend to
one player more a certain percentage of its capital. The $11m being processed
for Savannah well exceeded this limit.
What the whistleblower neglected to mention to the police is
that the loan to Savannah was not from UDB. The multi-million dollar facility
was to come from the Cairo based African Export Import Bank with UDB serving as
its agent in Uganda. So UDB was not bursting its own limits in facilitating the
loan.
Of course as a result of the brouhaha the loan has not been
disbursed, which may be the lesser loss in this whole sordid affair.
As for victimizing the whistleblower the court proceedings
will make for interesting reading too and may serve as a useful opportunity for
the IGG to re-examine its procedures.
To sustain development of any economy development banks are
a key piece of infrastructure. Development banks have access to long term funds
which can be used to finance the big projects in infrastructure, manufacturing
and real estate, which take a long time to show results and therefore cannot be
helped by short term loans offered by commercial banks.
For the law enforcement agencies run rough shod over an
institution like UDB on the strength or weakness of an allegation you wonder
about uncoordinated troop movements in the government.
On one hand we are talking about attaining middle income
status in the next decade or so and with the other hand we are ripping out the
guts that will make that aspiration real.
Again the law enforcement agencies have every right to go
after suspected errant officials, and given the current climate in the country
they will have plenty of people cheering them on. But they must be sensitive to
the reality that their actions have far reaching repercussions for the country.
Millions of dollars in much needed long term finance to this
country have now been frozen or cancelled all together on the basis of a case
that the courts I suspect will make short work of. And for what? So that some
official can earn cheap marks?
In our exuberance to fight corruption we need to be careful
that we do not throw out the baby with the bathwater.
