Finance function

Finance doctor

THE FINANCE FUNCTION

Every business is in effect a financial entity. Finance is the life blood of a business. Management requires finance to make certain crucial decisions in an organization. For both new and already existing companies, decisions may be made with respect to the following:-

o Plant and machinery to buyo How much to invest in inventorieso What should be the credit policyo How to monitor financial performance

The above decisions carry important financial implications, (profitability Vs liquidity). Before the industrial revolution, finance needs were limited as most of the production was labour intensive and also businesses were small. However, after the industrial revolution, businesses expanded. Industries become more capital intensive and therefore more capital was required to run businesses efficiently. However, this could not be raised by individuals. It was such a situation that led to the growth of financial institutions and insurance firms to try and provide the so much needed capital.

Today, finance plays a major role in a modern economy. In fact, various scholars have attributed the gap between developing countries and developed countries to capital differences.

Functions of the Finance Manager

a) Estimating required finances and purposes for which they are neededb) Identifying the cheapest sources of financec) Planning a fair return to the shareholdersd) Planning and controlling the utilization and financing to ensure most efficiency of operations and also ensure

that the firm remains solvent.e) Generating and building internal surplus to finance growth and expansion

Scope of the Finance Function/Financial Management

1. Acquisition of fundsThis involves determining the financing mix/capital structure of the firm. Funds have to be raised from the cheapest and most effective sources in order to maintain an optimal capital structure.

2. Utilization of fundsFunds raised have to be invested or utilized in the most efficient manner. Management therefore has to make a decision on how much to invest in both current assets and fixed assets.

Current assets include inventory, receivable, cash and marketable securities. While investing in current assets, management has to trade off between profitability and liquidity. The decision on how much to invest in fixed assets requires management to carry out capital budgeting.

Capital Budgeting is the evaluation of the long term investment proposals that a company has on hand.

Capital Rationing is the selection of the best investment proposal after evaluation given the financial constraints

DETERMINING CAPITAL REQUIREMENTS MIX AND SOURCES

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It is the responsibility of the management of a company to plan its finances so as to ensure that a company earns sufficient profits. It is essential that a company is neither under-capitalized nor over-capitalized. Management must find the cheapest sources of finance and put these to use in the best possible manner. This generally involves estimation of fixed capital requirements, determining working capital requirements and the capital structure to be adopted by the company. It also involves examining the various sources of finance.

Determining Fixed Capital

Fixed capital is the investment in fixed assets like plant and machinery, land, building, furniture and patents. Fixed assets are used to meet the long term obligations of a company. The amount of fixed capital acquired usually depends on the nature and

Determining working capital

Working capital is the capital invested in current assets like inventory, debtors and bills receivable. Working capital meets the short-term obligations of a company.

*Refer to the working capital management cycle.

Factors that determine working capital

1. Labour intensity2. Proportion of the cost of raw materials to total cost3. Length of the production process4. Rapidity of turnover5. Terms of credit granted to customers6. Terms of credit given by suppliers7. Seasonal variations8. Market conditions (competition)9. Reliability of suppliers10. Nature of the business11. Source of funds-debentures used encourages payment of interest hence increase in working capital

CAPITAL STRUTUREThis refers to the composition of a firm’s long term sources of finance. It also refers to the mix of both owners’ and borrowed capital adopted by a firm.

Organisations are normally faced with a problem regarding the proportion of funds to be raised by issue of shares and that to be raised through borrowing.

Factors that determine capital structureTrading on equity: This is the ability of the firm to employ debt in its capital structure to magnify the earnings of its equity shareholders. A firm is said to trade on equity if the cost of debt is less than the benefits realized from employing debt. The general return on investment is higher than the fixed rate of interest and fixed preferred dividend. Equity shareholders, therefore get additional profit.

Control of the company


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When companies want to retain the prepared shareholders and where promoters want to retain control of the company, they will raise a larger part of the capital by issues of debentures and preferred shares because these don’t want to lose any of their voting rights.

Nature of the BusinessLess debt should be employed for high risk businesses and the opposite is true.

Legal requirementsSometimes, the law dictates as to what classes of shares and debentures are to be issued. Companies have to comply with this. In addition, the controllers of Capital Issues Act usually requires companies to have a debt-equity ratio of 2:1

Growth rateRapidly growing firms need to rely more on debt in order to sustain their growth.

ProfitabilityFirms that are highly profitable usually use little debt in their capital structure.

Interest on debt is a tax deductible expense whereas dividend payment is not. Therefore, the higher the tax rate, the greater the incentive to employ debt capital.

Attitude of ManagementConservative managers fear to take risk and therefore tend to rely on use of more equity capital than debt in the company’s capital structure.

Attitude of lenders – willingness of the lenders to provide borrowed capital.

Timing in the MarketPrices of shares Vs the interest charged on borrowed capital

SOURCES OF FINANCE

An organization has got various sources of finance to choose from in order to finance its fixed and working capital requirements.

a) Owned capitali) Share capitalii) Retained earnings

b) Borrowed capitali) Debenture issueii) Loans

III) Capital markets products.

Sources from the point of view of length of period

Long term sources1) Equity shares2) Debentures3) Retained earnings


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4) Loans from financial institutions5) Preference shares6) Bonds

Medium term sources1) Term loans2) Debentures 3) Preference shares

Short term sources1) Trade credit2) Overdraft (Bank credit)3) Short term loans4) Purchase/discount of bills5) Letters of credit6) Factoring

LONG TERM FINANCING

Issue of SharesA share is a participation in the provision of capital for a company. In case of public companies, issue, of shares is done by inviting members of the public through the prospectus to buy shares.

Types of Shares1) Ordinary/equity shares2) Preference shares

Ordinary sharesThese shares have got the following features:-

o Equity capital cannot be paid back during the life time of the company.o The rate of dividend got by the shareholders depends on profits earnedo The dividend on ordinary shares is paid after paying the dividend on preference shareso Ordinary shareholders have full voting rights therefore the control of the company lies with them.o In case of liquidation, ordinary shareholders are the residual claimants of the assets of the company.o Ordinary shareholders are risk takers hence the capital they provide is sometimes referred to as venture

capital

Advantages of Ordinary shareso They do not place a burden on company resources because dividend depends on profit.o Provide long term finance to the companyo Do not create a charge on the assets of the companyo Shareholders have full voting rights and can therefore control the companyo In times of profits, dividends can be very high.

Disadvantages of Ordinary shareso Excessive issue of ordinary shares may lead to over capitalization if capital is not profitably used.o In reality, equity shareholders are usually scattered and ill-organised hence they don’t have controlo Residual claimants in case of liquidation


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* Preferred sharesThese shares which carry a preferential right regarding both payment of dividends and return of capital

Features of Preferred shareso Preference shareholders receive a fixed rate of dividendo Preference shareholders carry preferential voting rightso The dividend on preference shares is paid before that of equity shareholderso Preference shares may be participating or non participating, redeemable or irredeemable, cumulative or non-

cumulative and convertible or non-convertible. NB: Look for Advantages and disadvantages of preferred shares

DebenturesA debenture is an acknowledgement, under seal, of a debt or a loan. A prospectus or statement in lieu of a prospectus is issued inviting the public to buy or subscribe to debentures.

Features of Debentureso Debentures create a fixed charge on the assets of the companyo They carry a fixed rate of interest which has to be paid regardless of whether the company has made profits or

not.o They are normally redeemed after a specified periodo When a company is forced into liquidation, debenture holders are paid out first.o Interest on debenture is paid before payment of dividend to shareholders.

Advantages of Debentureso Debenture issue allows a company to trade on equityo Debentures provide long term finance to the companyo Creditors face smaller business risk because they are assured of interest whether the company has made

profits or not..

Disadvantages of Debentureso Debenture issue creates a charge on the assets of the companyo Debenture issue places a burden on company resources because interest has to be paid even during times for

poor performance.o Companies that do not have collateral security cannot issue debentureso Excessive issue of debentures may cause over capitalization.

Retained EarningsThese are undistributed portions of profits of the company. A company ploughs back profits which are converted into reserves and used for the financial requirements of the company. Ploughing back of profits or internal financing is especially useful in times of depression.

Advantages of retained earnings


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o Cheap source of financeo Retained earnings do not create a charge on the assets of the companyo Facilitates a stable dividend policy as a company is able to meet deficits in non-profitable years by paying out

of the retained profits.

Disadvantages of retained earningso Shareholders may be dissatisfied thinking that the company is retaining profits at the expense of paying

sufficient dividends to them.o Retained earnings carry an opportunity cost which is the cost of the alternative foregone.

NB: Look for Long term loans (definition, features, advantages and disadvantages). Features,advs and dsadvs similar to debentures.

MEDIUM TERM FINANCING

Term loansThere are medium term loans which are usually issued for a period of about 3-7 years. They are usually issued by commercial banks and development banks like the Uganda Development Bank (UDB) in Uganda. The interest on these loans is slightly higher than that on long term loans but at the time lower than that charged on short-term (commercial) loans.

In Uganda, the procedure for getting such loans is very lengthy and this may lead to loss of profitable opportunities by companies that wish to acquire such loans.

SHORT-TERM FINANCINGTrade CreditThis is credit given by manufacturers, wholesalers and retailers at the incidence of sale. The usual duration of such credit is usually 30-90 days no interest is expressly charged.

Factors to consider while determining trade credito Earnings record over a period of time. A firm with high earnings is looked at favourably by suppliers.o Liquidity position of the firm.

This is usually measured by studying the acid test and current ratios of the firm.o Record of paymentThis helps in determining the credit worthiness of the firm.

Bank OverdraftThe customer is allowed by the bank to overdraw against his current account and pay interest on it. The borrower can draw as often as he requires provided the outstanding do not exceed the overdraft limit. He also enjoys the facility of paying back and when he requires. Interest is charged only on the running balance, not on the limit sanctioned.

AccrualsAccruals are normally regarded as a “free source of financing because the firm doesn’t pay any interest on them. Accruals usually increase when the level of activity in the firm expands.

On the contrary, payment period is determined by the practice in the industry and provisions of the law. Any delay in tax payment, for instance, may lead the concerned firm into payment of penalties.


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Short term/Commercial loansThese are advances of fixed amounts which are credited to the current account of the borrower. Interest is charged on the entire loan amount, irrespective of how much he draws. Loans are payable on demand or in periodical installments using post dated cheques or demand promissory notes. Penalty interest is charged if payments are made on time.

Purchase/Discount of BillsA bill arises out of a trade transaction. The seller of goods draws the bill on the purchaser. A bill may be either clean (not supported by any document) or documentary (supported by a document like a railway receipt or bill of lading). The purchaser accepts the bill then the seller offers it to the bank for purchase or discount. When the bank purchases the bill, it releases the funds to the seller. The bank presents the bill to the purchaser (acceptor) of the bill on the due date and gets its payment.

Letters of Credit (Indirect form of bank credit)Is an arrangement whereby a bank helps its customer to obtain credit from his suppliers. When a bank opens a letter of credit in favour of its customers for some specific purposes, the bank undertakes the responsibility to honor the obligation of its customers should the customers fail to do so.

FactoringA factor is a financial institution, which offers services relating to management and financing of debts arising from credit sales.A factor selects accounts of the client and assumes responsibility for collecting the debt. He then advances money to the client against not yet collected debts. The amount advanced is normally 70% to 80% of the face value of the debt and carries an interest rate, which may be higher than that charged by commercial banks.

Factors normally charge a commission of 1 to 2% of the face value of the debt factored.

CAPITAL MARKETS These are similar to other markets but differ interms of products traded and their organization .Capital markets deal with trade of financial products such as shares, bonds issued by gov’t or private companies, Commercial paper and debentures. The financial products can also be referred to as securities and are traded on a Stock (Securities) Exchange. In Uganda the market where these securities are traded is called the Uganda Securities Exchange.

CAPITAL MARKETS AUTHORITY (CMA)DefinitionThis is a semi autonomous body responsible for promoting, developing and regulating the Capital Markets industry in Uganda, with the overall objectives of investor protection and market efeciency.It was established in 1996 following the enactment of the Capital Markets Authority Act. (Cap 84)

OverviewFrom the start, the CMA (Capital Markets Authority) adopted a licensing policy to ensure that capital markets in Uganda will have the capability to mobilize savings from domestic, regional and international markets. In this regard, CMA’s licensing policy concentrates on the following criteria:

Investor policy


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Financial viability Potential to develop the securities market

There are currently 5 firms licensed to carry out the functions of broker / dealer and 8 firms or individuals licensed as investment advisors, 3 fund managers, 1 unit trust trustee and 1 unit trust manager. The industry players include the Uganda Security Exchange and licensed professionals who facilitate the operations of the capital markets industry.

What CMA Does Regulate and promote the development of Capital Markets in Uganda. Approval stock Exchanges License broker / dealers investment advisors, fund managers and collective schemes. Approve all offers of securities to the public.

How to join the industry

There are various ways in which you can join the capital markets industry in Uganda; Issuing company shares to the public. Inviting members of the public through the prospectus to buy

shares. A prospectus is a legal document that gives general information about the firm which is offering it’s shares to the public like the firm’s history, operations, products and services. It contains information about the company, amount of issues, purpose of the issue, whether it’s guaranteed or not, repayment terms e.t.c.

Listing your company on the Uganda Securities Exchange i.e. a company whose any part of its equity or loan securities has been officially admitted on the Exchange. Listing of companies done through brokers.

Issuing Commercial Paper – It’s a borrowing document used by blue chip companies i.e. high performing companies (A companies) e.g. Shell, MTN, Stanbic, Caltex in Uganda. A company sells this document to an individual / firm at a price and it circulates on the Security Exchange and the last person on the maturity date takes it to the issuing company and is paid. It carries an interest rate and maturity date and can only be paid on the maturity date.

Issuing a Bond – It’s a document issued by the company to borrow money. Has a maturity date and carries interest rate. Usually a long term source of finance.E.g. MTN’s 54m and UTL’s 12bn for 8 years.

Obtaining a broker/dealer, investment advisor, fund manager, unit trust manager or unit trust trustee license.

UGANDA STOCK MARKETUganda’s stock exchange is growing with the Uganda Securities Exchange (USE) formally commencing trading in January 1998 of the East African Development Bank (EADB) bond. Another fixed income security, the PTA bond is being traded on the USE.

Uganda Clays Ltd is the company whose shares were first listed on USE on October 3, 2000.First listing of a non- Ugandan company, East African breweries Ltd (EABL) was on April 2001 increasing USE’s market capitalization to over shs 69m.Due to the volume of instruments on the exchange, trading of equities takes place twice a week on Tuesdays and Thursdays.

Trading for fixed income securities may take place anytime through a licensed broker/dealer and trades must be reported to the Exchange during working hours.

Trading is conducted at the USE floor under continuous open outcry auction trading system in which trade is effected when a bid and offer are matched.


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The USE council has approved the establishment of electronic trading, clearing and settlement and central depository mechanisms.

Government also announced plans to issue longer – term dated bonds to provide a basis for pricing risk and return and promote an efficient market yield curve in the domestic financial market. For the investors, the announcement by government that transfer of shares listed on USE will be exempt from stamp duty is a boost to development of the capital market.

Corporate bonds, Municipal bonds, ordinary shares, Treasury Bills, Commercial paper are other securities set to be traded on the securities exchange.

Discussions are underway at a regional level to establish a regional stock exchange, which will mobilize private sector savings that stimulate productivity and increase the standard of living.

For a developing country, like Uganda, Use is critical in raising funds for long term investments as well mobilization of savings for investments in productive enterprises. Because of listing rules, USE provides an environment for full disclosure of financial information, which results in a more efficient management of companies.

With a fully – fledged privatization programme, the USE will facilitate the divestiture of government owned companies through the floatation of shares on the secondary market.

Listing on the stock exchange;

The official list of the Uganda Securities Exchange (USE) is categorized into three different market segments, each having different eligibility and listing criteria. The three market segments are; Main Investment Market Segment (MIMS), Alternative Investment Market Segment (AIMS), Fixed Income Securities Market Segment (FISMS).MIMS is the main quotation market segment with stringent (strict) eligibility, disclosure and listing requirements.

1. Main Investment Market Segment (MIMS) – Involves primary markets i.e. where a company goes directly to market and issues its new shares e.g. Stanbic. Usually done by blue chip companies.

Eligibility requirements for listing on Main Investment Market Segment – MIMSRequirement Criteria Incorporation status - A company limited by shares, incorporated or registered under the Companies Act (Cap 110) as a public limited Liability Company or a foreign company registered under part X of the Companies Act.

Share Capital - Minimum authorized, issued and fully paid up share capital of Ugx 1 Billion.

Net Assets - Minimum net assets of Ugx 2 Billion before public offering.

Profitability - Positive profits after tax in at least 3 of the last 5 years prior to the date of the offer.

Financial - 1. Audited, IFRS complaint financial statements of at least five Statements years for the accounting period ending on a date not more

than 6 months prior to the date of the offer. 2. Where more than 6 months have elapsed since the last audited financial statements, the issuer shall prepare IFRS


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complaint un - audited financial statements for the period ending not longer than 3 months from the date of offer. 3. Financial statements for the latest accounting period should have been prepared on a going concern basis.

Loan covenants - Should not be in breach at the date of application.

Competency and - As at the date of application and for the last 2 years prior,Suitability of Directors no director,& Management 1. May have been adjudged bankrupt and subsequently been

been discharged or any winding – up petition pending or threatened against it (for a company). 2. May, have in the 10 years prior to application date been convicted of any felony. 3. May have been subject of any court ruling or any governmental body that permanently or temporarily prohibited him/ her from acting as a director of a public issuer.

Share ownership - Immediately after the IPO, at least 20% of the shares should Structure be held by at least 1,000 share holders.

Letter of no - Issuer should obtain one if subject to regulations of any otherObjection regulatory authority.

Fees - 0.2 % of the issue.

2. Alternative Investment Market Segment (AIMS) – Involves secondary markets where issued shares are the existing ones. Used by relatively small companies.

Eligibility requirements for listing on Alternative Investment Market Segment - AIMS Requirement Criteria Incorporation status - A body corporate or registered as a public issuer Limited by shares under the Companies Act (Cap 110)

Share capital - Minimum authorized, issued and fully paid up share capital of Ugx 200 million.

Net assets - Minimum assets of Ugx 400 Million before public offering. Financial statements - 1. Audited IFRS complaint financial statements for at least 2 yrs 2. Audited financial statements should not be older than 4 months before the date of listing.

Track record and - Issuer should be in existence in the same line of business forfuture prospects at least 2 years with good growth potential, save for a

subsidiary with an operating performance record of at least one year, whose parent company has a 5 year track record.

Loan Covenants - Should not be in breach by the date of application.

Competence and - As at date of application and for at least 2 years prior, no


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Suitability of directors director, & Management 1. May have been adjudged bankrupt and subsequently been

discharged or any winding up petition pending or threatened against it (for a company). 2. may have, in the 10years prior to application date been convicted of a felony. 3. may have been the subject of any court ruling or any governmental body that permanently or temporarily prohibited him/her from acting as a director of a public issuer.

At least one third of the Board of Directors should be non – executive and independent directors.

Senior Management 1. Should be suitably qualified with relevant experience of at least one year prior to application. 2. Should not have committed an offence that may be considered inappropriate for the management of the issuer.

Share ownership - 1. Minimum number of shareholders immediately after IPO Structure should be 100 2. Existing shareholders, related persons or other group of

controlling shareholders should undertake to USE not to sell any of their shareholding before expiry of 2 years after approval of the listing.

Restriction on use - Proceeds should not be used to redeem directors’ or of proceeds of issues shareholders’ loans acquired prior to issue.

Fees - 0.2% of the issue.

3. Fixed income Securities Market Segment (FISMS) – Is where fixed securities such as bonds, commercial papers and some debentures are traded.

Eligibility requirements for listing on Fixed Income Securities Market Segment – FISMSRequirement Criteria Incorporation status - A company, a Government, a Local Government or any other body corporate. Should not be insolvent.

Net assets - Minimum net assets of Ugx 2 Billion or a guarantee from a bank or other financial institution acceptable to the committee.

Financial statements - 1. Audited IFRS compliant financial statements for 3yrs for a period ending on a date not more than 6 months prior to the date of offer.

2. Where more than 6 months have elapsed since the last Where more than 6 months have elapsed since the last un audited IFRS complaint financial statements not longer than 3 months from the date of offer. 3. If offer is made more than 6 months after the last


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audited financial period, applicant should publish un audited interim financial statements for the period ending not longer than 3 months from the date of offer. 4. Financial statements for the last accounting period Should be prepared on a going concern basis.

Profitability - 1. Positive profits in 2 of the last 3 years preceding the Issue or obtain a guarantee from bank or other financial institution acceptable to the committee. 2. Issuer should not be insolvent.

Debt ratios - 1.Total indebtedness of issuer (including new issue) shouldn’t exceed 400% of the issuer’s net worth or gearing ratio of 4:1 as latest balance. 2. Ratio of funds generated from operations to total debt for 3yrs preceding the issue should be a weighted average of at least 40%

Loan covenants - Should not be in breach by date of application.

Competence and - 1. Directors and senior management should have Suitability of directors appropriate expertise and experience for the

and senior Mgt management of the business. 2. Directors should be free of conflict of interest.

Letter of no - Issuer should obtain one if subject to the regulationsobjection any other regulatory authority.

Guarantee - 1. If the guarantor is a bank or insurance company, Requirements consent of relevant regulatory authority is required.

2. Guarantor should provide to the USE a financial capability statement certified by its auditors.

Listed Companies

There are currently six local companies listed on the Uganda Securities Exchange and three cross border listings. These are;

1. Uganda Clays Ltd listed in January 2000.2. British American Tobacco (BAT) Uganda Ltd listed in October 20003. Bank of Baroda (U) Ltd listed in November 20024. DFCU Ltd listed in October 20045. New Vision Printing and Publishing Co Ltd listed in December 20046. Stanbic Bank Uganda Ltd listed in January 2007

And cross border listing7. East African Breweries Ltd listed in March 2001 8. Kenya Airways listed in March 20029. Jubilee Holdings Ltd listed in February 2006

What is Stock Exchange?


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This is a place where buyers and sellers meet to trade shares and securities. The stock market of Uganda is known as the Uganda Securities Exchange.

Difference between Capital Markets Authority (CMA) and Uganda Securities Exchange (USE)CMA is the regulatory body that overseas the Capital Markets industry in Uganda where as the USE is the actual market where Capital Markets products are traded. This market is sometimes known as the Stock Exchange .The USE is licensed and regulated by CMA.

Products available in Capital Markets IndustryThere are various products available in the capital markets industry. However in Uganda’s capital markets industry, currently there are 3 products in which one can invest i.e. shares, collective investment schemes, government and corporate bonds.

What is a Share?A share is a unit of ownership of a company .Buying a share means becoming a part owner in that company or shareholder of that company.

How does one benefit as a shareholder? As shareholder, you are involved in making certain decisions regarding the future of the company and

participate in sharing of the company’s profits in form of dividends. Capital Growth: If the company is growing, the value of the shares will also grow. Capital gains: When shares are sold at the price at which they were purchased, this represents a profit.

This profit is called a capital gain. Voting rights: Shares give a shareholder the right to attend and vote on important company policies at the

company’s Annual General Meetings. Collateral security: Shares may be accepted as collateral security e.g. security for loans. Transferability: Shares can be passed on from one person to another e.g. can be inherited.

Disadvantages of Investing in Shares Shares prices can go down or up depending on numbers of factors such as performance of the firm, the

economy, demand and supply factors. If the firm’s profits fall the dividends will fall and if the firm makes losses, it may not pay dividends at all. If the company goes into liquidation, shareholders are paid last.

How does one become a shareholder?

There basically two ways. Buying new shares – This is where the company floats its shares for the first time to the members of the

general public. E.g. With the privatization of Uganda Clays and British American Tobacco Uganda Ltd where the government was diversifying its ownership in the two companies by selling their shares to general public was a new issue also termed as an Initial Public Offer (IPO).These are sold for the first time in the primary market.

Buying existing shares – This involves buying shares on the secondary market. Secondary markets take place at the Exchange to allow selling and buying of existing shares at the Stock Market. This is done in the secondary markets and through a licensed broker / dealer.

What is a Primary Market?This refers to the market in which a company offers its shares to the members of the public for the first time. Its known as an Initial Public Offer (IPO).Prices are determined by evaluation process. So far the listed companies


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had their shares ranging from Ushs 70 to Ushs 4000 at the IPO and one was required to buy either in multiples of 100 or 10 depending on the price of the shares. Once the shares start traading, the price is determined by forces of demand and supply. There must be a prospectus. If the offer is over subscribed (applications exceeding the number of shares available), the shares available are divided among applicants according to the allotment criteria and the investor then receives a refund for the shares paid for but not received.

What is a Secondary Market?It’s a market in which fixed securities and existing shares are traded on the stock exchange. Securities can only be brought / sold through a licensed broker / dealer. Secondary trading takes place at the USE on Monday, Tuesdays and Thursdays from 10:00am to 12:00pm.

Who is a broker/ dealer?This is a licensed financial professional certified to buy and sell shares on behalf of clients. Guides clients on selection and management of investments. Normally advises on the prevailing market prices at which the shares are trading. A broker will charge a commission for service. Choice of a broker will depend on what type of service is required.List of licensed brokers/ dealers on the Uganda Securities Exchange

Uganda Securities Exchange (USE) – Stock Exchange Baroda Capital Markets Ltd – Broker / Dealer Dyer and Blair Uganda Ltd – Broker/ Dealer Crane Financial Services Ltd – Broker/ Dealer MBEA Brokerage Services Ltd – Broker/ Dealer Equity Stock Brokers Ltd – Investment Advisor and member of USE Inter Alliance International (Uganda) Ltd – Investment Advisor Crested stocks and Securities Ltd – Broker / Dealer Iroko Securities – Investment Advisor Mr. Andrew Franklin – Investment Advisor PKF Consulting Ltd – Investor Advisor Price water house Coopers (Ltd) – Investment Advisor Dero Capital Uganda Limited – Investment Advisor African Alliance (Uganda) Ltd – Fund manager, Unit Trust Manager, Investment Advisor, Broker/Dealer

and member of USE Bullion Capital Limited – Investment Advisor Stanbic Investment Management Services – Fund manager and Investment Advisor ReNaissance Capital (U) Ltd – Fund Manager, Investment Advisor, Broker/ Dealer and member of USE AIG Global Investment Company (East Africa ) Ltd – Fund Manager and Investment Advisor DFCU Bank Ltd – Trustee in Collective Investment Schemes.

Decision to buyMembers of the exchange require that forward payment for shares is made to reduce default. On making the buying order, the client will fill a client information form, an order form and sign a purchase transfer form and then pay for the number of shares wanted and the broker will issue the client with a receipt. On the day the order is executed at the exchange, the broker then will send the buying client a purchase contract note showing the number of shares purchased, the price per share and the commission chargeable. A purchase contract note is a legal document that acts as proof of ownership until the share Certificate arrives therefore it must be kept safely.

The broker will then, forward the signed Purchase Transfer Form to the registrar through the Exchange. The registrar upon receiving the transfer form through the broker issues a new certificate in the name of a client. This certificate is a legal document confirming ownership and should be kept safely.


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Collective Investment Schemes (CISs)These are private financial arrangements that pool resources of many small savers, generating a large pool. The resources are then invested in various assets like shares, bonds, property and treasury bills with the sole purpose of generating high returns while maximizing risk through diversification of investments. CISs are also known as Unit trusts or mutual funds.

What do I need to invest in collective Investment Schemes?In, Uganda there are three types of Unit trust funds in which one may invest, each with different requirements. These are;

o The Balanced Fund: This is a long –term fund whose asset allocation is mainly in long term products and securities like bonds, shares, debentures, commercial papers e.t.c. The minimum amount required to invest in this fund is Ushs 50,000 only.

o The High Yield Fund: This is a fund whose asset allocation is in medium – term securities and products. The minimum amount required to invest in this fund is Ushs 50,000 only.

o The Money Fund: This is a fund which invests in short – term products and securities like treasury bills, current accounts e.t.c. This fund is better suited for people who wish to save money over a short period of time. The minimum amount required to invest in this fund is Ushs 250,000 only.

General Listing Rules on the USE

The issuing firm should comply with the listing Rules. These are; Memorandum and Articles of Association of the company should permit the issuance of shares or relevant

securities to the public. The shares and securities should therefore be freely transferable. The necessary approvals including the approval of the Capital Market Authority, must been duly obtained. The company must have filed accounts for a period of three to five years depending on the listing applied

for. Those audited financial statements must comply with international accounting standards to ensure that financial records are reliable.

Once a company complies with the listing rules and approval has been granted by the Capital Markets Authority and the Governing Council of the Exchange, the securities will be admitted to the official list of Exchange.

While the company remains on the official list, it is required to comply with the continuing listing obligations of the Exchange. These include;

Specified Reports such as financial statements and Annual reports. Announcements of material information .This includes any information that impacts in any way on investor

perception and ultimately on the company market price e.g. declaration of dividends, annual General meeting and Extra - ordinary meeting.

Forms, Registers and Certificates. Listed companies must maintain a share register showing full details of all entries relating to the registration of shares entered or deleted under a particular name. Each shareholder is entitled to a certificate that clearly details the shareholder’s name, the number of securities represented by the certificate and the certificate number. The company should design a proxy form in such a manner that a shareholder appointing a proxy can indicate how he will like his proxy to vote in relation to each resolution.


Documents

Finance function