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Planet Rating East Africa
A branch of Planet Rating SAS

Murtala Courts - Plot 33 Lumumba Av.
Société par Actions Simplifiée au capital de 580 000 EUR

PO Box 36179, Kampala Uganda
Immatriculée sous le n° 483 538 369 R.C.S. Bobigny

t:+256 414 236 745
rating@planetrating.com - www.planetrating.com
HOFOKAM Ltd., Uganda

HOFOKAM Limited was incorporated as a company limited by guarantee on July 9, 2003 by the Catholic Dioceses of Hoima,
Fort Portal and Kasese upon a merger of its respective microfinance projects who date back as early as 1994. As such, it is
classified as a Tier IV institution not regulated by the Bank of Uganda and is not allowed to pursue financial intermediation.
HOFOKAM operates in western Uganda in and especially around the towns of Hoima, Fort Portal and Kasese with a strong
rural focus. As of March 2007, HOFOKAM has a gross loan portfolio of 1.47 M USD and serves 14,270 borrowers with both
group and individual loans.

GIRAFE Rating

Rating
C

Outlook
Positive

Date of the rating
May 2007
Valid until April 2008

Rating per evaluation area
0
1
2
3
4
5
G
I
R
A
F
E

G o v e r n a n c e In f o r ma t i on Ri sk
A c t i v i t i e s Fu n d i n g E f fi c i e n c y

Planet Rating Contact
Otto Wormgoor
owormgoor@planetrating.com
+256 414 236 745

MFI Contact
Januario Ntungwa
PO Box 228, Fort Portal, Uganda
+256 483 422 234
hofokamhq@yahoo.com

REF: OW/150607
Rating highlights

HOFOKAM is not yet profitable (-5.8% ROA in 2006), but ROA levels show
steady improvement over time; HOFOKAM could break even in 2007; this
improved performance is mainly driven by a significant drop in operating expense
ratio from 100% in 2004 to 41.2% in March 2007;

Cost structure improved partially due to post-merger rationalization (though not yet
optimized) and economies of scale benefits derived from a growing portfolio; this
trend is expected to continue if HOFOKAM pursues further rationalization;

Committed Board of Directors to make clearer strategic trade-offs on level of focus
on rural vs. peri-urban areas and social vs. financial bottom line; it would be
beneficial to include more private sector profiles to bring in risk-based perspective;

Skilled and capable top management although broadening of management team
skills is necessary; current branch management set up is not optimal to manage the
portfolio; competitive rural edge in Western Uganda although main growth has
been in peri-urban areas and town centers in the past two years; and

Urgent need for formalized Internal Audit function and more training needed for
lending staff to align their capacities with new loan products.

Outlook
The positive outlook is granted based on the following reasons:

Clear commitment to and strong likelihood to break even in 2007;

Good capacity to raise external borrowings for future growth; support from CRS is
likely to continue given its strong link to the Church and its resources; and

Ongoing improvements in lending operations.

Performance indicators
USD , unless otherwise stated
Jun. 2004
Jun. 2005
Jun. 2006
Mar. 2007*
Assets
782,529
992,972
1,504,524
1,978,067
Growth
5.4%
23.4%
60.9%
27.2%
Loan portfolio
558,169
783,835
1,080,762
1,471,909
Growth
25.7%
36.6%
46.4%
31.8%
Active borrowers
10,645
10,235
11,555
14,270
Staff
63
58
65
63
ROE
(31.7%)
(28.2%)
(6.2%)
5.7%
ROA
(31.0%)
(27.4%)
(5.8%)
5.2%
Liabilities / Equity
0.04x
0.02x
0.11x
0.09x
Portfolio Yield
48.0%
62.0%
57.9%
50.8%
Operating expense ratio
100.0%
102.9%
67.9%
41.2%
PAR 31-365
12.9%
3.1%
2.7%
9.4%
PAR > 365
0.0%
0.0%
0.0%
0.3%
Write-off ratio
0.0%
2.2%
3.6%
0.0%
* March 2007 indicators are based on financial statements that do not include loan loss provision or write-offs.
GIRAFE Rating HOFOKAM, Uganda May 2007


www.planetrating.com


2

Microfinance sector

The Uganda microfinance sector is characterized by a
diverse set of MFIs organized via the Association of
Microfinance Institutions in Uganda (AMFIU) and regulated
through a tiered regulatory system. The commercial banks
comprise Tier I and include one commercial microfinance
bank (CERUDEB). Tier II consists of Credit Institutions of
which one is focused on microfinance (CMF Ltd.). Since the
passing of the Micro-Deposit Taking Institutions Act in 2003
four MFIs have transformed into an MDI, comprising Tier
III of the regulatory system (FINCA Uganda Ltd., Uganda
Microfinance Ltd., Pride Microfinance Ltd. and Uganda
Finance Trust, Ltd.). The Upper Tiers, or Tier I through III,
are regulated by the Bank of Uganda (BoU) and can pursue
financial intermediation of clients savings.

However, the majority of microfinance institutions,
estimated at 750
1
, fall in to Tier IV who are not regulated by
the BoU. The majority (600) of the Tier IV institutions are
Savings and Credit Cooperatives (SACCOs) that are allowed
to intermediate savings and are governed by the Co-
operatives Regulations Act of 1992. SACCOs experience
limited supervision from District Cooperative Officers.
Other Tier IV institutions (NGOs, Companies) are not
allowed to take deposits.

The market share for savings and loans of the different Tiers
is shown in the two tables below. These figures exclude data
from several thousand Village Savings and Loans
Associations (VSLAs) and Community Based Organisations
(CBOs) that provide financial intermediation by and for
village members.

MFI type
MFIs
Active borrowers
Outst. loan portfolio
Tier I
1
57,880
12%
53 M USD
40%
Tier II
1
6,826
1%
5 M USD
3%
Tier III: MDI
4
142,296
30%
39 M USD
30%
Tier IV: SACCO
600
80,000
17%
11 M USD
8%
Tier IV: other
150
190,000
40%
25 M USD
19%
Total
756
477,002
100%
132 M USD
100%

MFI type
MFIs
Savings accounts
Outstanding deposits
Tier I
1
488,213
39%
97 M USD
63%
Tier II
1
53,216
4%
4 M USD
3%
Tier III: MDI
4
310,474
25%
17 M USD
12%
Tier IV: SACCO
600
215,000
17%
18 M USD
12%
Tier IV: other
150
180,000
14%
7 M USD
5%
Total
756
1,247,176
100%
142 M USD
100%
Source: Tier I-III: www.mixmarket.org; Tier IV: Census Tier IV MFIs by
MoFPED, FSDU, DCC. Data: Dec. 2005

Overall the Uganda microfinance sector shows a skewed
distribution with most microfinance services concentrated in
southern and south western Uganda most notably in urban

1
Including only active MFIs
and peri-urban areas with high cross-indebtedness of clients.
Rural areas on the other hand, especially in the north and
north east, remain underserved.

The proposed government program Prosperity for All, which
targets to set-up and support a SACCO in each of the
estimated 900 sub-counties in Uganda, combined with the
closing of many of the long-time microfinance support
projects (DFIDs FSDU, EU/GoUs SUFFICE, USAIDs
Rural SPEED), will make the coming year a crucial test for
the Uganda microfinance sector to show its maturity and
resilience.

Political & economic environment

The impact of the drought on farm production and
hydropower generation in early 2006 slowed economic
growth and affected a still relatively underdeveloped
processing industry. Dynamic services and civil engineering
sectors nonetheless kept economic growth at satisfactory
levels. Subject to adequate rainfall, forecasts for 2007
project a growth still notably underpinned by energy sector
investments in thermal and hydropower stations.

Reflecting its lack of diversification, the countrys tax base
is still narrow despite the strengthening of fiscal
management with social, investment, and security spending
remaining substantial and major imbalances undermining
public accounts. Similarly, external accounts have suffered
from the increase in imports (oil, capital goods) and the
vulnerability of