UGANDA, Kampala | Real Muloodi News | The Financial Institutions (Credit Reference Bureau) Regulations, 2022 have been introduced to address a critical gap in credit risk management and to include credit providers not regulated by the Bank of Uganda in the Credit Information Sharing (CIS) mechanism.
These regulations aim to improve the CIS space by allowing various credit providers to share credit data with Credit Reference Bureaus (CRBs). This move is expected to enhance credit risk assessment and support all players in the credit business.
One significant aspect of the regulations is that they open up the CIS space to all credit providers in Uganda.
This includes commercial banks, credit institutions, Microfinance Deposit-taking Institutions regulated by the Bank of Uganda, as well as Non-deposit taking Microfinance Institutions, SACCOs, money lenders regulated by the Uganda Microfinance Regulatory Authority (UMRA), trade credit providers, car dealers, landlords, insurance companies, utility companies, and entities providing goods and services on credit.
This broader inclusion of credit providers ensures comprehensive credit data collection and supports the credit assessment process.
The regulations also introduce mandatory bureau checks for all financial institutions, Microfinance deposit-taking institutions, and registered societies when customers apply for credit.
This requirement enables individuals borrowing even small amounts to have their credit profiles created at the bureau.
Over time, borrowers can build positive credit profiles, increasing their chances of accessing finance from lenders.
Having a credit history at the CRB simplifies the credit assessment process and reduces turnaround time for borrowers.
It is crucial for credit providers to adhere strictly to this requirement and conduct bureau checks for borrowers of all loan amounts, submitting their credit data to the bureaus.
In terms of CRB operations and CIS mechanisms, the regulations are comprehensive. They provide detailed guidance on operating a credit reference business in Uganda, including collecting credit data, disseminating credit information, ensuring data privacy and confidentiality, accrediting credit providers interested in sharing data, addressing anti-competitive practices, and establishing dispute resolution mechanisms.
Notably, the regulations introduce the use of the National Identity Number (NIN) and company registration number as primary identifiers for individual and non-individual borrowers, respectively.
The regulations aim to address information asymmetry, a key factor contributing to high-cost credit in Uganda.
Information asymmetry between lenders and borrowers inhibits the flow of capital, making it challenging to obtain external financing.
By enabling a wide range of credit providers to share data with CRBs, the regulations bridge the credit information gap.
This comprehensive credit data allows lenders to make more informed credit decisions, reducing the probability of default.
Borrowers with positive credit histories will have increased access to finance, contributing to robust economic development.
The new regulations also address challenges such as moral hazard, adverse selection, and loan defaulters taking advantage of gaps in credit information sharing.
Previously, loan defaulters from Bank of Uganda-regulated financial institutions could seek credit from other providers without their credit histories being known.
However, with the implementation of these regulations, loan defaulters will no longer be able to escape their credit obligations and access credit from other lenders.
The introduction of the National ID Number (NIN) as the primary identifier for individual borrowers simplifies the identification process, eliminating the need for costly financial cards and making borrowing more affordable.
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