First credit reference bureau mooted, risky lending to end

To raise our status on the world stage and attract much needed investment, implementing a credit reference bureau is no longer a choice, it’s a necessity.

To raise our status on the world stage and attract much needed investment, implementing a credit reference bureau is no longer a choice, it’s a necessity.

These were words of the National Bank of Rwanda (BNR) governor, Francois Kanimba, telling delegates recently that banks need to reduce the costs of lending.

Stakeholders including Rwanda Investment and Export Promotion Agency (Riepa), government agencies, senior executives of commercial banks and micro finance lenders were meeting to map out strategies of transforming the country’s financial sector to increase the pool of borrowers in an effort to stimulate macro economic development of the financial sector.

They also discussed macro economic stimulation, better access to financial services, reduction of none performing loans, how to reduce reliance on collateral and lower interest rates on loans.

The meeting comes at a time the cost of borrowing money in Rwanda is ‘high’—with most banks lending at an average of 16 per cent. Financial experts say banks push the rate at that partly because they also borrow at a high interest rates. But recent studies show that lack of sufficient information about a borrower’s ability to repay debts in the country is largely responsible for the high rates.

"Banks need to price for their risk," a statement from Rwanda Enterprise Investment Corporation (REIC), a specialist Rwandan private equity and venture capital fund that carried out the study reads in part.

A briefing this reporter got from REIC staff after the meeting says stakeholders agreed that a private credit reference bureau playing a leading role in the economy is timely.

If established, the bureau will improve credit assessment by lenders who will now have access to information on bank customers.

It was also noted that the period customers wait for approval of applications will also be shortened.

With the bureau in operation, assessing individual credit will be a lot easier and more reliable as opposed to the current situation where it is possible for a borrower to take loans from different lenders using the same collateral.

REIC staff however hastened to say that borrowers will also gain since the waiting period will be reduced. Borrowers will have their histories recorded at the bureau and when they seek more borrowings, they will do so according to their profiles on how they have performed on earlier loans.

"The bureau will contribute significantly to reduction in the costs of screening loan applications by enabling the lender to pick out borrowers who have defaulted elsewhere," REIC staff said.

The other advantage is that the system will get an improved pool of borrowers with more unbanked clients becoming eligible for financial services.

Financial gurus say the existence of credit registries is associated with increased lending volume, growth of consumer lending, improved access to financing and a more stable banking sector.

According to Mike Malan, managing director of Compuscan Uganda, a company responsible for the implementation of Compuscan’s drive into East Africa, Rwanda has a unique opportunity to lay the foundations of quality credit bureau reporting from the outset.

He said the environment is already right as banks and micro finance institutions have been reporting both positive and negative data to the BNR managed credit register for several years. As such, credit reporting is not a new concept.

In Rwanda, Malan believes, the financial sector is comfortably manageable for Compuscan due to the relatively few loans granted.

External data sources from other sectors will add to the predictive nature of the data at the bureau. "The participation of the public sector in the workshop has been extremely encouraging. There are few countries globally that have the foresight to include registry information and non sensitive revenue information to a credit bureau." Malan continues that lenders usually need to rely on a borrower’s declaration to get this information when loans are granted. By combining information from the private sector and the public sector together in one central credit bureau.

Rwanda has the opportunity to fast track the benefits that other countries have enjoyed for years. Countries that have access to detailed credit information and related data are able to implement sound credit policies and increase lending aggressively with high levels of comfort that proper adherence to risk management is in order.

Malan believes if there is real commitment from the key stakeholders in Rwanda that the member organisations could be enjoying

the full benefits of a credit bureau before the end of 2008.

Mooting idea

Rwanda’s economic base, effort was made to identify and develop credit bureau initiatives to assist in development of the financial sector.

Compuscan was subsequently selected as among the best suited credit bureau partner that Rwanda could join forces with. REIC had been investigating suitable alternative credit bureau service providers for Rwanda’s specific environment for the last 7 months following the World Bank’s :Doing Business report that highlights that in Rwanda (and other countries) insufficient attention has been placed on proper credit information repositories to reduce risks faced by lenders.

Committee to fast track

A working committee is to be established with REIC and the BNR to create a focus group to ensure that rapid market implementation of the credit bureau is possible. Financial institutions and other industry sector users of the bureau, with input from Compuscan will form a code of conduct to govern the use and purpose of the information that has been collected.

The code will address an individual or companies’ rights to lodge grievance procedures and dispute data accuracy and it will enshrine a person’s rights to view data held by the bureau.

Compuscan is a South African based credit bureau that has a presence in seven African countries, providing credit skills training, credit software and country specific credit bureau solutions.

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