The introduction of Credit Reference Bureaus in Uganda was major milestone to reducing barriers to growth in private sector credit, as well as reducing the cost of credit. The need for establishment of such services in any financial system arises because of the information asymmetry between lenders and borrowers. The bureau gathers credit information on borrowers and helps participating institutions (mostly lenders) assess their clients’ credit behavior, level of indebtedness and credit worthiness with the objective of avoiding or minimizing the risk of default.
Today, lenders in Uganda are making quick and well-informed credit decisions using bureau data. This is demonstrated by the improvement in loan application turnaround time and increased confidence in adoption of non-traditional credit delivery models. New service delivery channels such as the internet and mobile phone have been embraced by the lenders as one of the many ways they can reach out to their clients. The use of technology to integrate with the bureau enables customers to access loans instantly without going through the lengthy loan application process. Integration allows the bank’s core banking system to pull bureau information into the bank’s direct-to-consumer solutions thereby facilitating automated loan processing.
However, to maximize the value of credit information services, lenders need to do much more, including:
Automation of Credit Decisions
Using bureau data, lenders can automate the credit decision-making process. The decision-making matrix of CODIX is a loan application tool designed to help automate decision-making for consumer credit products based on specific business rules. The rules are designed and defined by the lender based on the lender’s risk appetite, loan policies and procedures. In addition to automation of the credit decisions, CODIX assists the bank to manage high lending volumes and ease the interpretation of credit information. The rules are verified online for each application submitted by the branches to head office. This tool also eases the monitoring of loan processing speed across the bank and can be used to identify delays in the closing of loan applications at both credit officer and branch levels. CODIX’s tool is designed for institutions that strive to achieve the highest level of efficiency and effectiveness in the management and automation of their credit decision-making process.
Read more: Ugandabankers.org Magazine 2019