The long awaited Credit Reference Bureau was launched last week, but the absence of the other market indicators means that it will be long before interest rates on credit will decline to favourable levels.

While launching the CRB, a system that will store information about borrowers, the central bank Governor, Tumusiime Mutebile said that the system will unlock lending to the private sector as financial institutions share information on borrowers’ risk profile. “The CRB is expected to improve the performance of the Uganda’s financial sector and stimulate economic development by making lending and borrowing easier faster and ultimately cheaper” said Mutebile at the launch.

According to plans, borrowers will be required to register at a commercial bank, a microfinance deposit taking institution or a credit institution. Borrowers will be required to present information detailing their nationality, job description, date of birth, just to mention a few. The borrowers will then get a financial card, which will have a memory chip that can only be read by the CRB. Mutebile said that the information will remain private and used only for purposes of assessing the borrowers’ risk. The financial card can also be used as collateral to access loans.

In knowing the credit history of borrowers, banks are expected to lower their interest rates. Mutebile said that with the launch of the CRB, banks are expected to unlock credit to the private sector, which has largely shunned loans due to the high interest rates. Uganda’s commercial banks charge interest rates of 20% and above, one of the highest in Sub Saharan Africa.

Yet in all benefits that it comes with, it is still difficult to see how banks will lower their interest rates. Many bank managers argue that they price their interest rates based on the cost of doing business and foreign exchange. For as long as banks find electricity bills high – a key element in operating their business – interest rates are expected to be high.

Then the interest rates are expected to stay up if the shilling continues to depreciate against the dollar. Having an unstable currency, as is the case with the shilling, banks are expected to keep the interest rates up.

Banks are expected to watch the movement of the exchange rate in relation to inflation. A high rate of inflation puts further pressure on keeping interest rates up.

Then banks continue to complain that there are no market indicators in the economy. For example, bankers say that there are no yield curves to show the price movements in the value of land and houses. The bankers also point out that there is no independent analysis or credit ratings of some of the crucial products in the market, like mortgages and bonds.

Until this huge information gap is closed, lowering interest rates based on financial institutions sharing information about borrowers will remain a dream.

Jeff Mbanga jeff@observer.ug writes for The Weekly Observer