Bank of Uganda bans financial card issuance for borrowers

AfriCareers

13 August 2024

5 min read

Bank of Uganda has forbidden the issuance of financial cards for borrowers and will now require financial institutions to use the national IDs of borrowers to identify them and, by extension, rate them and issue a credit score. This means that credit reference bureaus will use more than banking history to determine whether borrowers are creditworthy.

Bank of Uganda bans financial card issuance for borrowers

Bank of Uganda has issued a new directive that bans the use of financial cards for borrowing purposes. This means that you will no longer be able to use your debit or credit card to access loans from financial institutions. Instead, you will have to use your national ID as the only form of identification and verification for borrowing.

Why did the Bank of Uganda make this change?

According to the central bank, the main reason is to improve the efficiency and accuracy of credit reference bureaus, which are responsible for collecting and sharing information about borrowers' credit history and behavior. By using national IDs, the credit reference bureaus will be able to access more data sources, such as utility bills, tax records, mobile money transactions, and other non-bank financial services, to assess your creditworthiness. This will also help to reduce fraud and identity theft, as well as promote financial inclusion and literacy.

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What does this mean for you as a borrower?

The new policy has both advantages and disadvantages for borrowers. On the positive side, you may benefit from a more comprehensive and fair credit scoring system, which will take into account your overall financial behavior and not just your banking history. This may improve your chances of getting approved for loans, especially if you have a good track record of paying your bills and using other financial services responsibly. You may also enjoy lower interest rates and fees, as well as more tailored and flexible loan products, based on your credit profile.

On the negative side, you may face some challenges and risks with the new policy. For one thing, you will have to update your information with all the financial institutions that you deal with, and make sure that they have your correct national ID number. This may take some time and effort, and you may encounter some errors or delays in the process. For another thing, you will have to be more careful about managing your finances, as any default or late payment will affect your credit score and reputation. You will also have to protect your national ID from theft or misuse, as it will be linked to all your financial transactions and records.

How can you prepare for the new policy?

As a borrower, you should take some steps to prepare for the new policy and make the most of it. Here are some tips:

Check your credit report regularly. You can request a free copy of your credit report from any of the licensed credit reference bureaus in Uganda. You should review your report for any errors or discrepancies, and report them to the bureau or the financial institution concerned. You should also monitor your credit score and understand what factors affect it.
Pay your bills on time. One of the most important ways to improve your credit score and reputation is to pay your bills on time, whether they are utility bills, tax bills, mobile money bills, or loan repayments. This will show that you are a responsible borrower who can manage your finances well.
Use financial services wisely. You should use financial services that suit your needs and goals, and avoid overborrowing or overspending. You should also compare different loan products and providers, and choose the ones that offer the best terms and conditions for you. You should also read and understand the contracts and agreements that you sign, and ask questions if anything is unclear.
Protect your national ID. You should keep your national ID safe and secure, and report any loss or theft immediately to the authorities. You should also avoid sharing your national ID number with anyone who does not have a legitimate reason to ask for it. You should also be wary of any scams or frauds that may try to trick you into giving away your personal or financial information.

The new Bank of Uganda policy is a significant change for borrowers in Uganda, but it is not necessarily a bad one. If you follow these tips, you can adapt to the new policy and benefit from it.