Banks across Uganda are preparing themselves for one of Uganda’s largest financial sector changes in recent years with the new credit bureau and customer identification services.

Fingerprints for Borrowers

All Bank’s are required to positively identify their borrowing customers through the use of the new financial card ID system that is being delivered by Compuscan. Each borrower must have their fingerprints and a photo recorded. The information is used to generate a new number that will be used throughout the banks as a borrower’s master ID number. According to Malan, MD of Compuscan, this aspect of the project (identifying borrowers) is a key part of the project’s success and relies heavily on the support of the banks themselves. The roll out of the technology has already commenced across the Northern, Western and Eastern regions of Uganda and will soon be installed in Kampala at all branches.

Creating Credit Profiles of Repayment Behaviour

Compuscan who have been selected by the Bank of Uganda and who are contracted with every Bank, credit institution and MDI in the country are required to gather loan repayment information reflecting how borrowers are repaying their debt. The information is then used to build a credit profile which is linked with the financial card’s ID number.

Banks to Share Loan History Information

The banks are required through regulation to share certain loan information with Compuscan about how debtors repay their debts. This information is loaded to the database and then made available to the using banks that have access rights. At the time of taking a new loan or generally reviewing their credit risk, a bank may enquire to the credit bureau database to see how a particular borrower manages their (individual) accounts. Already Compuscan has collected 700 000 loan records in Uganda which is reported to only have 500 000 borrowers.

Benefits to Banks and Borrowers

The benefits of the credit reporting system in Uganda is significant for banks as well as for borrowers. Banks get the opportunity to reduce exposure risks in uncertain lending transactions on the one hand and they can increase their exposure risks on the other hand (but in a more controlled environment). Borrowers get the opportunity to see reduced pricing on loans with the stimulation of competition when the banks start implementing policies to offer favourable loans to individuals (or companies) who can prove that they are responsible at managing debt and they are identified as good creditors.

Can Uganda’s Loan Volumes Grow Even More?

In 2007 Bank of Uganda published figures showing that commercial banks had increased loans and advances by more than 27% on the previous year. Malan believes that this figure can grow again as banks develop faith in the information contained on the credit reports. Once banks accept that they can make decisions based on credit bureau data the most likely course of lending will be the introduction in Uganda of traditional unsecured lending. This is a normal high volume mass market retail banking offering that is not being properly used in Uganda because borrowers are required to always have collateral. This trend is already starting in Kenya and it is only a matter of time before banks adopt this lending model. When unsecured lending as a methodology hits Uganda the volume of loans will skyrocket and loans are likely be offered aggressively by many banks to attract or keep good customers.

Compuscan’s Message to All Borrowers

Malan tells us that the timing before the credit explosion in Uganda is still a few months away. The credit information being collected, coupled with the new competition in Uganda is a recipe for things to get really hot. Borrowers should use these months to ensure that they keep their credit records in order, pay up on any overdue and old outstanding debts and ensure that monthly instalments are paid. Borrowers should focus on developing their credit reputation to show that they are good payers because when the opportunities for borrowers come about in Uganda, the borrowers should be ready.

Regional Presence

Compuscan has also been selected by Banque National Rwanda (BNR) in Rwanda to provide credit information services to the banking and MFI sectors in one database to cover the entire lending spectrum. In a similar strategy to how Compuscan successfully won the hearts of lenders in Southern African countries as a credit bureau provider, with a newly established and firm base in Uganda it is considering market entry into other East African countries that fit the company’s target profile, however Malan declined to share further information about which countries were being considered.