Businesses in Uganda and Tanzania expect an improved environment with the news that Uganda and Tanzania are to start issuing national identity cards.

A major hurdle for regional businesses venturing into the two countries has been the identification of individuals as it currently involves the use of multiple documents.
Identity cards will establish a single, widely accepted, identification document.

Uganda started issuing identity cards on July 8 to a section of the over 5 million voters who were registered by the electoral commission just before the 2011 general election. This is part of a pilot project that will see all Ugandans above the age of 16 receive identity cards before the 2016 general election.

READ: (Opinion) Why do I get a haunting feeling that new IDs aren’t a good idea?

Last month, Tanzania’s Minister of Finance, William Mgimwa, signed a $54.3 million concessional loan agreement with South Korea’s Exim Bank to finance the construction of data centres for the country’s national identity system which is being rolled out ahead of the polls in 2015.

For financial institutions, the lack of IDs increases the cost of doing business.

Businesses particularly banks, mainly from Kenya, which have been expanding into the region, expect this will make doing business slightly easier.

Ugandan and Tanzanian citizens do not have have a national identity card, creating a unique risk for the bankers, who make money by lending, a business that is based on knowing your customer.

John Okulo, managing director of NIC Bank in Uganda, said that the bank accepts either a passport, or driver’s licence, voter’s card, address confirmation by way of utility bills, along with a passport photo.    

“It will make it easier to identify our clients,” said Mr Okulo.

According to the World Bank, 20 per cent of Uganda’s population had an account at a formal financial institution, nine per cent had a loan and 10 per cent had a debit card in 2011.

As at the end of March, the ratio of non-performing loans to total loans in Uganda’s banking sector stood at 4.7 per cent, compared with 4.2 per cent as at December last year.

According to Sam Omukoko, chief executive of Metropol East Africa, a credit reference bureau, some banks in Uganda have opted for a biometric system where they issue customers with a financial card.

The institutions include Housing Finance, Standard Chartered, EcoBank, Equity Bank and Pride Microfinance.

Biometric cards

The biometric financial cards, however, come at a cost to the customer and the financial institution, significantly increasing the cost of credit and financial services.

“[The loan books will improve] significantly, particularly for banks who do not have biometric. For us, it will reduction costs because biometric is much more expensive,” said James Mwangi, Equity Bank’s group chief executive.

“In South Sudan and Uganda, we went biometric because it was the surest way of identifying the customer, but in Kenya, we have relied on the identity card, so you can see how identity cards facilitate inclusivity in financial services,” he said. 

As at the end of last year, lenders in Uganda had issued 802,906 financial cards, up from 667,412 in December 2011, a 20.3 per cent increase.

Kenya’s banking sector, whose ratio of non-performing loans to gross loans stood at five per cent at the end of March compared to 4.5 per cent as the end of December last year, is the most developed in the region.

At the end of 2011, 42 per cent of the population had an account at a formal financial institution, 10 per cent had a loan and 30 per cent had a debit card, according to the World Bank.

The country has 44 banks, 11 of which have operations in the other four East African countries and South Sudan, six deposit taking microfinance institutions and two credit reference bureaus.

In 2011, in Tanzania, 17 per cent of the population had an account at a formal financial institution, seven per cent had a loan and 12 per cent had a debit card.

At the end of March, the ratio of gross non-performing loans to gross loans was 7.1 per cent compared with 7.5 per cent at the end of March 2012.

Bank of Tanzania, which supervises the country’s financial sector that has 34 lenders and one credit reference bureau, has been pushing banks to bring the ratio of gross non-performing loans to gross loans down to the targeted ceiling of five per cent.

Reliable document

Pankaj Kansara, managing director of NIC Bank Tanzania, said that the bank has been relying on a passport, driving licence, voter’s cards and introductions by local authorities.

He said that a national identity card is a more permanent document unlike the rest which have expiry dates and tend to be unreliable, except for the passport, which is not held by many.

Tanzania Women’s Bank executive director Margaret Chacha said that banks had to work under a risky environment as far as reliable information on its customers was concerned.

“The country has lacked uniform identification cards for its citizens since Independence. Since there was no other way than to trust our customers, we just had to take the risk by believing in what the customer told us,” said Ms Chacha.

She said banks were faced with the threat of losing money especially from customers applying for loans without firsthand information on whether they had acquired loans from other banks and absconded.

In Rwanda, 33 per cent of the population an account at a formal financial institution compared to seven per cent in Burundi, eight per cent had a loan compared with two per cent in Burundi and five per cent of the population had a debit card compared with one per cent of the population in Burundi.

Bankers in Tanzania and Uganda say that the requirement for each citizen to have an identity card would help track borrowers, increase the number of account holders and bring down the cost of credit in the two countries.

Tracing defaulters

“The biggest problem is trying to track people down when they default. The identity card system like in Kenya’s case tracks people to the village level but with the biometric system (in Uganda) information is specific to the person,” said Mr Omukoko.

The Tanzania National Identification Authority (NIDA) is in its first phase of enrolling and issuing the identity cards with the expectation that the cards will be used in the coming general elections.

NIDA said that the project will be carried out in phases based on availability of funds, manpower and equipment.

NIDA said that the government has allocated Tsh151 billion ($90.3 million) for the project in fiscal year 2013/14 but the total cost of the project is estimated at Tsh237.6 billion ($149 million) for the issuing of the identity cards to between 23 million and 25 million people.

The tender to supply equipment was awarded to a Malaysian company, Iris Corporation Berhad.

According to NIDA director general Dickson Mwaimu, government leaders, leaders of special groups including the religious community, business and military and some other nationals’ representing Dar es Salaam, Kilombero and Zanzibar have been given their identification cards.

“This month, the agency will start taking photographs and fingerprints of part of the registered voters in Temeke district,” said Mr Mwaimu.

He said that at the end of December last year, 2.6 million Dar es Salaam residents had been registered.

By David Mugwe, Benedicta Asiimwe, Rosemary Mirondo and Hellen Nachilongo