Bank of Uganda has awarded a license to Metropol Corporation to operate a credit reference bureau.
Metropol is a Kenyan firm established in 1996 as a business information and credit management company. Metropol and Global Credit Rating (GCR) partnered in 2006 to provide credit rating services that enable corporates to raise capital and meet their financial needs. Apart from getting the recent license from the Central Bank of Uganda, Metropol is also licensed by the Central Bank of Kenya to provide Credit Reference Bureau services to all Kenya Banks in Kenya.
In Kenya, Metropol was the first Kenyan firm to have received an agency license. The other two firms are all foreign firms. They include Global Credit Rating Company of South Africa and Agusto and Company Limited from Nigeria.
Metropol Corporation Ltd focuses on providing credit ratings to SMEs to increase their potential to access money diversified capital sources.
Compuscan was given a contract by the BOU in 2008 until 2012 when the monopoly ended. Metropol has been waiting for this license for over two years. Metropol comes on board with a strong capacity having operations in Kenya, Tanzania and Rwanda and further south in Zimbabwe.
Credit reference Bureau
The parliament of Uganda passed the Microfinance Deposit taking institution Act 2003 (MDI Act) and the Financial Institutions Act 2004 (FIA). These two acts propelled the process of establishing a Credit Reference Bureau in the country.
The FIA mandates the Central Bank or its appointed agent or any other person authorized by the Central Bank to establish CRB for the purpose of disseminating credit information among financial institutions.
The advantages of a credit reference bureau are as follows;
- The credit reference bureau makes lending and borrowing easier, faster and cheap hence improving the performance of the Ugandan financial sector.
- If you have a positive credit history, you can use it as “collateral” to access credit facilities and even bargain for more competitive terms from different financial institutions.
- Through a functioning credit reference bureau, the trust between lenders and borrowers can be enhanced, which will result and increase volume of credit in the economy, bringing in more competition.
- Banks are able to make more informed decision because they have assess to data that they did not have in the past. For example, a lending institution will have information regarding your repayment history.
- As more information becomes available, banks will spend less resources evaluating borrowers, collateral requirements will be streamlines and this will ultimately bring down the price of loans.
- With the availability of information and supporting ICTs banks will be in position to design and offer new products on competitive interest rates.
Infrastructural ICT constraints
One of the reasons that led to lengthy delays in having a credible CRB infrastructure in Uganda was luck of a national ID. Although the National ID project has started, this has been long overdue. As a result, South Africa Compuscan provided not just the back office and ICT infrastructure of a credit reference bureau, but also a safe means of identifying customers. Borrowers are fingerprinted and, on the basis of their fingerprints, assigned a borrower number. This information is then included on a smart card.
In retrospective, a credit reference bureau cannot entirely eliminate debt; bad lenders will shift to those institutions that mainly focus on low income clients, for example the Microfinance institutions. Therefore, as CRB becomes very functional and robust in the Ugandan market, microfinance institutions may likely to start facing bad debtors thrown out of the traditional financial institutions.
The period that a CRB has been operational has not allowed Ugandan borrowers to start using their positive credit rating as collateral to assess credit. It is hoped with time, borrowers will be able to negotiate cheaper facilities and use their positive credit rating as collateral. With the licensing of Metropol in the Ugandan economy, it is hoped the Bank of Uganda is moving forward to achieving that goals for Uganda consumers.
The CRB system requires precise addresses of borrowers such as Plot numbers, Street names, postal addresses etc. However, most Ugandans do not have such information. Such information needs to be updated regularly at the CRB for accurate reporting.
Some of the other constraints include; Limited internet connectivity especially for the upcountry branches leading instabilities in connectivity; Absence of a reliable unique identification system for companies, Non Government Organisations, schools, Churches and dioceses.