WORKSHOP ON MAKING FINANCE WORK FOR AFRICA – NAIROBI, KENYA 5-6 MARCH 2007

1. REGIONAL COLLABORATION ON BUILDING CREDIT REPORTING SYSTEMS; PRIORITIES AND OPPORTUNITIES IN THE EAST AFRICAN COMMUNITY BY JUSTINE BAGYENDA, EXECUTIVE DIRECTOR SUPERVISION - BANK OF UGANDA WORKSHOP ON MAKING FINANCE WORK FOR AFRICA – NAIROBI, KENYA 5-6 MARCH 2007

2. Agenda • Introduction • Where are we now in the East African Community? • Priorities for Regional Co-operation • Possible Benefits of a Regional Approach to Credit Reporting Systems • Practical Consideration • Uganda’s Experience Making Finance Work for Africa

3. Introduction • Credit reporting refers to the exchange of borrower payment history information between lenders. - data in credit reports enables lenders to better evaluation risk. - provides for automation of credit decisions process. - Reduces time and cost of extending credit – often results in: (i) expansion of credit markets (ii) more competition Making Finance Work for Africa

4. Where are we now in the East African Community? • Monetary Affairs Committee of Central Bank Governors of the three Partner States i.e. Kenya, Tanzania and Uganda Resolved: “The three Central Banks are urged to hasten the operationalisation of the CRBs. (Arusha Tanzania May 2006)” • In all the three Partner States, Efforts have been intensified with regard to Establishment of CRB. • No significant provider of Credit information in the East African Region Making Finance Work for Africa

5. Priorities for Regional Co-operation • Legal and Regulatory Framework. • Identity verification system both for enterprises and customers • Construction of national database for credit information of enterprises and customers. • Promotion of public awareness: (mobilize customers to take part in the establishment of credit reporting system) • Standardisation of the credit reporting industry. • Development of appropriate telecommunication system and technology. Making Finance Work for Africa

6. Possible Benefits of a Regional Approach to Credit Reporting Systems • Credit Reference Bureaus (CRBs) and Access to credit markets. • CRBs are tools intended to broaden the access to credit markets. • Banks often do not lend to individual customers lacking physical collateral • ….and therefore restrict their credit to their wealthiest customers Making Finance Work for Africa

7. Possible Benefits of a Regional Approach to Credit Reporting Systems (contd) • Access to Credit Markets • A good credit record represents an alternative and “wealth free” collateral: “a reputational collateral”. • ……that allows banks to lend to all customers independently from their wealth. • World Bank research done in 2004 shows that lending may increase substantially without increasing the risk exposure when banks supplement their own information with that provided by Credit Reference Bureaus. • Evidence from Argentina and Brazil shows: that a small bank when adding CRB data in its credit worthiness assessment could increase its lending up to 30% without increasing its risk. • Gains are higher for smaller banks. Making Finance Work for Africa

8. Possible Benefits of a Regional Approach to Credit Reporting Systems • Credit Risk Management 2. Credit information sharing makes it possible for banks to: • Improve their risk assessment • Extend credit to new but previously rationed creditworthy customers. N.B. By affecting credit origination, CRBs improve the access to bank credit • Measure the aggregate risk of their loan portfolios improving risk management • Market Access and Risk Management are in fact two faces of the same coin. Making Finance Work for Africa

9. Possible Benefits of a Regional Approach to Credit Reporting Systems • Risk Based Supervision 3. Credit Reference Bureaus may be a tool for more advanced risk based supervision: - What proves useful for Banks’ risk assessment is also useful for Supervisors’ control of banks’ risk exposures. Supervisors have used CRB data for: (i) on-site supervision (ii) off-site supervision (iii)control credit risk concentration • CRBs favour competition. Making Finance Work for Africa

10. Possible Benefits of a Regional Approach to Credit Reporting Systems • Government and Society • Information availability – timely, accurate, up-todate. • Stable business environment for future investments. • Recognize the value of information to all stakeholders. • Borrowers consolidated positions. • Exposures with foreign lenders. • Information on loans after default. • Reject clients who deliberately apply for credit in many institutions and end up in delinquency or bad debt. Making Finance Work for Africa

11. Practical Considerations to a Regional Approach to Credit Reporting Systems • Coordinated Regional approach is an excellent way to exploit synergies and gain economies of scale in providing credit information affordably to what is, regionally, a relatively small market. But there are a number of practical considerations: • Legal Framework - There may be disparities between countries (e.g. on data/consumer protection/privacy laws) which may be difficult or at least very time-consuming to harmonise. Making Finance Work for Africa

12. Practical Considerations to a Regional Approach to Credit Reporting Systems (contd) • Setting regional standards (e.g. concerning CRB operations, date, codes of conduct) of course a worthy goal, but how long does it take to achieve. • Sensitivity of information: • There is a political risk that the general public may object to confidential personal information being stored ex patria. • Agreeing on what to do between the various countries and the much large number of actors. Making Finance Work for Africa

13. 1. Uganda: Experience • Legal Framework provides for the Establishment of the Credit Bureau Provider • Credit Bureau Provider was selected by BOU • Participating Institutions (PIs) are yet to agree on the pricing structure • World Bank, KFW and GTZ/EU are willing to financially support the implementation of the CRB project. • Service level agreement between PIs &the Credit Bureau Provider will be signed by March 30th 2007. Making Finance Work for Africa

14. THANK YOU.