Research is a vital activity of AMFIU and the organization tries to generate relevant, up-to-date and meaningful information to support sector growth. Recently, AMFIU published a report on a study on client over-indebtedness among microfinance institutions that are not regulated. The topic was the major study area demanded by members of AMFIU during the member satisfaction survey. The problem has been viewed as escalating in the sector.
The study revealed that majority of the financial institutions believed that a poor PAR percentage was linked to client over-indebtedness. The use of the Credit Reference Bureau in Uganda is very limited because currently, it can only be accessed by the regulated financial institutions. However, the study findings also revealed that the use of informal data sharing between financial institutions in order to establish the clients’ credit history is minimally used. Therefore, despite having established client appraisal systems, the lack of information on a client’s credit history will always render the appraisal incomplete and stands the risk of giving the client a higher credit rating than they should have.
Additionally, much as financial institutions have put effort in establishing and implementing systems to analyze client repayment capacities, this has not been compounded with the staff incentive system to maintain a high portfolio quality. A lot of interest is placed on portfolio growth in terms of numbers and value of loans disbursed other than quality of the portfolio which ends up undermining the appraisal systems as the field staff are under pressure to disburse more and bigger loans.
Notably, there was increased awareness of the board and management of the issue of microfinance institutions over the risk of client over-indebtedness. However, the gap still remains in monitoring and actively setting up and implementing policies that could lead to a reduction of client over-indebtedness.