Using Credit Cards by Ugandans , a new culture in a predominantly cash economy

17-April-2012

Almost three years after the first commercial bank introduced the credit card facility in the market to ease payment for goods and services, the method of payment is yet to gain popularity as most Ugandans still prefer transacting using cash and cheques.

Credit Cards – a non-cash payment form – which was first introduced in 2009 in the local market by Stanbic Bank, is still being shunned by most Ugandans. According to Bank of Uganda, cash is the most widely spread payment system in the country, accounting for about 85 per cent of retail transactions.

Mr Sam Bulenzi, the Head of Personal Loans, East Africa at Standard Chartered Bank says the slow pace in the adoption of credit cards in the market is because the local market is used to a spend-now-pay-now mode, yet credit cards allow one to spend-now and pay later.

“Uganda being a peculiar cash economy, people are yet to fully warm up to the concept of ‘spend now, pay later’, although signs of opening up are now showing in a few places,” he says. Unlike debit cards which are common with most people who own bank accounts where funds are withdrawn directly from the cardholder’s bank account to physically pay for the goods and services, credit cards don’t require the holder to withdraw money from the account, rather, the bank pays for the goods and services on behalf of a customer up to a pre-established credit limit.

Each month, the credit card user receives a statement indicating the amount owed and must pay the bill by a due date, or may choose to pay a higher amount up to the entire amount owed.
The other difference between credit cards and debit cards is that with a debit card you use your money to transact while with a credit card, you can go way above your balance up to a given limit as discussed with your banker.

Ecobank Uganda managing director, Mr Michael Monari, who estimated the rate of Credit Card usage in the country to be at about 0.1 per cent of the banked population, told Prosper in an email exchange that the limited uptake is mainly because the product targets high-end customers, who are the smallest percentage in the country.

Mr Peter Ochienghs Patel, aBi Trust financial services manager also echoed similar sentiments.
“The biggest percentage of Uganda’s population are the low income earners who can’t afford such a high-end product. The product is tailored for high-income earners who are few. So picking up will take quite some time,” he said.

‘Plastic’ money users
Barclays, for instance, one of the five banks that issues credit cards in the market limits it to clients with a monthly income of at least Shs1.2 million while Stanbic only gives customers with a minimum monthly income of Shs750,000 among other conditions, which close out the biggest percentage of the banked population.

The other banks that offer credit card facilities are Crane Bank and Orient among others.
Although it has not yet started issuing credit cards, it is said that Standard Chartered is seriously considering introducing the product, although Mr Samuel Bulenzi, the General Manager retail and consumer banking at Standard Chartered Bank Uganda, said the matter is still under discussion.

The shunning of the product by most commercial banks and an inadequate point of sale network also explain the low uptake of the facility in the market and why cash remains king in most transactions since the uptake also depends on a wide network of outlets accepting such cards to settle transactions.

For instance, the number of places where one can use a credit card are limited to supermarket malls, hotels, travel agencies and a handful of apparel shops mostly located in the central business district which mainly attract middle-class and affluent individuals.
Stanbic Bank managing director, Mr Philip Odera, however, said that Stanbic has got decent usage of credit cards. More people, especially those who travel are getting comfortable with using the card rather than carrying cash.

Putting both credit and debit cards together, Uganda, however, comes second in the East African region in using plastic cards, although Kenya, the leading country in the region beats it with a big margin.

Kenya, for instance, has over three million plastic cards with transactions estimated at $350 million annually compared to Uganda’s 700,000 cards. Rwanda and Burundi have about 5,000 cards in use while Tanzania has 300,000 cards.

Kenya also has 9,000 Visa Point-of-Sale (POS) machines compared to Tanzania and Uganda’s 450 each. Rwanda and Burundi have about 100 and five outlets, respectively. Transacting using credit cards, however, comes with safety and convenience that is not associated with cash-based transactions where the rate of inconveniences and risks including fraud, robbery and violence are high.

If well developed, credit card usage also translates to increased income for financial services firms such as banks and increased sales for companies and suppliers through fees and commissions as they attract higher interest rates than most consumer loans or lines of credit. Mr Monari, however, says that for credit cards to pick up in the market, it will require a high degree of financial discipline among the public.

“Financial indiscipline contributed a lot to the economic meltdown in the United States of America: people spent money that they had not yet earned and eventually started defaulting,” he explains. “Now banks in our region are conscious of this and are proceeding cautiously. This explains the slow progress.”



Credit cards have a temptation for people to overspend, which affects one’s ability to save and also requires that banks install the necessary systems to avert crime-related elements and hacking that may arise. Due to technology, it could also be difficult for most Ugandan banks to track people in case they default due to lack of a good identification system.

Stumbling blocks
The uptake of credit cards in the market might, however, be hampered by the introduction of mobile money transfer – a mode of payment that allows one to use a mobile phone to pay for goods and services. Despite having been introduced in the market at almost the same time or shortly after credit cards, mobile money has gained more prominence compared to credit cards.

For instance, telecoms have signed up partnerships with a number of companies ranging from schools, piped water providers, insurance companies and Pay TV service providers to enable customers pay for goods and services using their mobile phones.

For credit cards to pick up in the country, Mr Bulenzi says there is need to invest in the relevant technology including water-tight fraud prevention and expertise. There is also need to increase literacy about using credit cards. The use of credit cards, like debt cards, is prone to fraud cases.

Mr Bulenzi, however, stressed the need for critical mass in terms of customer take up before such investments are made.

By Faridah Kulabako: The Monitor Newspaper