Emmanuel Tumusiime-Mutebile: Regulatory framework for the exchange
and use of credit information in Uganda
Speech by Prof Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda,
at the Chief Executive Officer (CEO) Executive Breakfast Briefing on "The regulatory
framework for credit information exchange and the wider economic importance", Kampala,
20 October 2010.
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Distinguished Guests
Ladies and Gentlemen
It is my pleasure and honour to address this distinguished gathering of top bankers. My
remarks this morning are on the regulatory framework for the exchange and use of credit
information; this is a subject which is of great relevance for both the development of the
financial sector and customer protection. The interests of both the financial institutions and
their customers must be properly balanced.
The nature of financial transactions means that financial markets are information sensitive
markets. Market imperfections in financial markets mostly emanate from some sort of
informational problem. In extreme cases, lack of adequate information causes markets to fail
completely; a phenomenon which has been analysed extensively by economists such as
Josepth Stiglitz and George Akerlof, who were awarded Nobel prizes for their work.
Access to credit information on prospective borrowers enables lenders to better evaluate the
creditworthiness of the borrowers. This reduces the information costs of lending and hence
should allow more credit to be made available at lower interest rates. Better credit
information can reduce the extent of credit rationing which is a serious problem in financial
markets.
Because credit information helps credit markets to function more smoothly, thereby
generating social benefits, such information has some of the characteristics of a public good.
The sharing of credit information among all lenders yields social benefits which cannot be
realized if each lender were to retain the information which itself has gathered for its own
private use. Evidence suggests that information sharing significantly increases the breadth of
credit markets, especially where creditors' rights and foreclosure mechanisms are weak,
partly compensating for the lack of effective law enforcement.
The social benefits to be derived from the sharing of credit information provide the rationale
for a centralized agency to collect data on borrowers and disseminate this data to its
members. That is the reason why the Bank of Uganda has promoted the Credit Reference
Bureau. In essence the CRB is a tool intended to facilitate the growth of credit markets,
improve access to credit and reduce its cost.
The sharing of information on prospective borrowers, however, also carries risks. Such
information can be misused by those who have access to it, to the detriment of bank
customers. Moreover such misuse would severely damage the trust between banks and their
customers, discouraging customers from using the banking system. Consequently, the Credit
Reference Bureau must be governed by an enabling legal framework which guarantees the
confidentiality and accuracy of the information passed to it and ensures that customers give
their consent to any information about them being given to the CRB.
The legal framework in Uganda for the Credit Reference Bureau is the MDI Act of 2003 and
the Financial Institutions Act of 2004. The latter mandates the Bank of Uganda to establish a
Credit Reference Bureau.
The Bank of Uganda has issued regulations and guidelines to govern the operations of the
CRB. These regulations allow information relating to the performance of a borrower to be
submitted to the Credit Reference Bureau. The regulations stipulate that the written consent
of the borrower must always be obtained in order to submit credit information to the CRB.
Moreover, the onus of obtaining and keeping a record of the borrower's consent rests with
the lender, which must be able to demonstrate that it had obtained this consent in the event
of any dispute.
The Bank of Uganda has issued guidelines to the financial institutions that participate in the
CRB to protect the rights of borrowers and to ensure that data are not misused. Financial
institutions are required to put in place internal control procedures to ensure that access to
the CRB is restricted. They must use this information only in connection with their lending
operations and with the borrower's consent. Guidelines have also been issued to enable the
borrower to obtain access to his or her credit report held by the CRB, in order to verify
whether the data are accurate.
The regulatory framework for the CRB is not yet complete. Within the next year or so we
intend to establish a neutral ombudsman who can resolve disputes between customers and
the CRB on the veracity of the credit information held by the CRB.
Currently there is no law in Uganda that ensures the protection of personal data. In future, it
would be desirable for Uganda to enact a law on credit data protection which would replace
the existing CRB guidelines. Data protection legislation could also allow non financial
institutions, such as utility companies, to participate in the CRB.
In conclusion, I would like to stress that a good regulatory framework that conforms to
international best practice, is essential for the efficient operation of the CRB and to ensure
that the CRB commands the confidence of bank customers. The legal framework should deal
with data protection, dispute resolution and the timely sharing of data between lenders. We
have begun to put this framework in place, but the task is not yet complete.
Thank you.