Strengthening the effectiveness of Uganda’s consumer protection framework: mystery shopping assessment of credit cost disclosures

Uganda has made substantial advancements in financial consumer protection policy in recent years but understanding whether and how the financial sector complies with these new regulations can be a challenge in the absence of systematic monitoring. Setting rules is insufficient to ensure proper market conduct, so supervision of sales visits is needed to ensure that the rules established are upheld in practice.

To provide a snapshot of current practices and compliance with existing guidelines on consumer credit information provision at the point of sale, we have worked with FSD Uganda and Innovations for Poverty Action (IPA) to conduct a “mystery shopping” exercise of lending institutions in three districts of Uganda.

IPA recruited and trained shoppers fitting profiles reflecting typical Ugandan borrowers. Shoppers portrayed a range of personas and scenarios—limited versus advanced borrowing knowledge, business versus personal borrowing need, male versus female, and varying loan amount requests—to measure how such differences would impact the products shoppers were offered and the information disclosed by loan officers. IPA also analyzed publicly available data on the cost of credit published by the
Bank of Uganda in order to complement the findings.

The study finds that information on product cost, including the interest rate and the total cost of credit, was not consistently provided by loan officers; pricing information on the loan product was not always forthcoming: only half of the eligible mystery shoppers were informed of the total cost of credit and only 69% of loan officers provided information about interest rates without being prompted.

Based on these findings, the report offers ten key policy recommendations for regulators and financial sector providers in order to increase transparency, promote adherence to consumer protection regulation, harmonise policy approaches and create an enabling environment for simplified loan products.