There is need for widening the Credit Reference Bureau (CRB) market in order to capture all bank credits as well as all forms of credit ahead of its liberalization in November this year, a CRB expert has said. The Ministry of Finance plans to open the operations of the CRB to more players, breaking the three-year monopoly by Compuscan, a Bank of Uganda mandated firm.
There is a need for widening the Credit Reference Bureau (CRB) market in order to capture all bank credits as well as all forms of credit ahead of its liberalization in November this year, a CRB expert has said.
Speaking with Uganda Radio Network in an exclusive interview, Michael Malan the managing director of Compuscan, a Bank of Uganda-mandated South African firm that started the CRB service in Uganda in 2008, said opening the market before widening its base is likely to affect the growth of the sector.
The Ministry of Finance plans to open the operations of the CRB to more players come November, breaking the three-year monopoly by Compuscan.
A credit reference bureau, like Compuscan, supplies credit providers like commercial banks, microfinance deposit taking institutions and credit institutions with information on client’s credit history. It is this information that the banks use to take a decision on whether to extend credit services to a particular client.
The information that is on the database is sourced from banks across the country under the supervision of Bank of Uganda. Presently, the information is only limited to the 25 commercial banks and four microfinance deposit taking institutions.
It is this limited market base that Malan believes could curtail the growth and development of the CRB market in Uganda. He reasons that two or more players will engage in a cut-throat competition that could actually weaken them or cause their eventual collapse.
Malan says another scenario is that the most established CRB firm may crowd out the new entrants because it already has a bigger market share or the new entrants could bring down the former by undercutting prices.
He says although the clients would love lower prices, the service providers might find it very difficult to operate in the long run.
Malan argues that before liberalization of the CRB market, there is a need for Bank of Uganda and government to open it to include all financial institutions like village banks, fund managers, social security services like NSSF, communication companies, utilities like Umeme and National Water, trade and industry and among others.
For example, he reasons that there are oil companies and manufacturers who offer their clients items on credit and it would be good if they knew the credit worthiness of such clients before entering into any transactions.
Malan says credit is a factor in many transactions outside the financial system that is why including many actors would make the CRB market even more buoyant and competitive. Overall, he says, a widened CRB market is good for the country.
According to Malan, there is an urgent need to re-enact the Financial Institutions Act as soon as possible in order to widen the CRB market. He says any delay will be dangerous for the nascent sector.
Presently, Compuscan is handling over 750,000 card holders with debt value of 25 percent of the Gross Domestic Product, which is about 2.5 trillion shillings.
Peter Ngategize, the National Coordinator of Ministry of Finance’s Competitiveness and Investment Climate Strategy Secretariat, says there is a need to facilitate the re-enactment of the Financial Institutions Act to enable the CRB market grow.