BY F MALE: The Uganda Microfinance Regulatory Authority (UMRA) has rallied Tier 4 financial institutions to adopt international credit rating standards to secure global funding.
UMRA believes that integrating international credit ratings will bolster Tier 4 institutions and enable them to attract lower-cost global credit facilities.
This initiative targets Savings and Credit Cooperative Organizations (SACCOs), Non-Deposit Taking Institutions (NDTs), Microfinance Institutions (MFIs), and individual money-lending companies.
A credit rating evaluates the creditworthiness of borrowers, indicating their ability to repay loans and their risk of default. A high credit rating serves as a globally recognized endorsement for accessing credit, much like bonds or other financial instruments.
Edith Tusuubira, UMRA’s Executive Director, while at the introduction of ICRA reddit rating assessor for the tier 4 institutions, emphasized the regulator’s role in supporting the health of licensees, especially those facing capital challenges.
Tusuubira highlighted that credit ratings offer a chance for institutions to enhance their operational standards and capital base. She also announced that ICRA has partnered with Morningway to provide credit facilities to institutions with strong credit ratings.
Tier 4 institutions make up to 76 percent of Uganda’s credit market, making their development a priority. Tusuubira also discussed the implementation of a loan shop to regulate interest rates, enhance competition, and give borrowers more choices.
Additionally, a credit information-sharing mechanism is being established to combat multiple borrowing issues, which often lead to losses for lenders.
Rachel Vanessa Muhwezi, UMRA Manager for MFIs, noted that high-interest rates in Uganda’s credit market are largely due to the high cost of capital. She expressed optimism that the new initiative will address this issue.
UMRA reports that several Tier 4 licensees are struggling with liquidity issues, often leading to their closure.
Muhwezi added that there are several institutions which start operations but fail to maintain liquidity, leading to their eventual closure.
Sanil Bansal, Chief Executive Officer of ICRA, explained that they have so far rated over 120 tier 4 institutions in Uganda.
However, he mentioned that tier 4 institutions lack comprehensive documentations , corporate governance policies, and proper record-keeping to receive funding.
He revealed that ICRA’s partners are prepared to invest up to USD 3 million in well-rated institutions, with potential for funding between USD 30 million to USD 50 million through ICRA’s extensive network of international investors.