The National Bank of Rwanda (BNR) has succeeded in implementing key credit information reforms and systems that will ease access to credit and boost the country’s ranking in the 2011 World Bank’s Doing Business Report.
The Central Bank says it has put in place a comprehensive legal framework that regulates the establishment and operation of credit information system.
The Credit Information System Law (CIS law) assigns the Central Bank, the role of licensing and supervising private credit reference bureaus.
“BNR’s own credit register has rolled out updated credit risk reports available to the financial system, meeting all Doing Business requirements: positive and negative credit information, present and past historical records going back 7 years; data on loans of all sizes; payment history for the entire financial system,” the Central Bank said on Tuesday in a press release.
While the country previously slipped four places in the World Bank’s Doing Business rankings, particularly under the “Getting credit” indicator from 141 in 2008 to the 145th rank in 2009, in 2010 report it jumped to the lead in the category.
This is largely due to improved regulations to ease access to credit including securing transactions law that allows the use of movables in collateral transactions. The law also makes out –of –court enforcement of movable collateral available.
The newly licensed private Credit Reference Bureau (CRB) Africa, is now offering credit reports on demand, BNR says.
While credit information system will mainly serve banks, microfinance institutions and other credit institutions operating in Rwanda can access it too.
The Central Bank says lack of credit information system has been one of the factors limiting access to credit.
“Small firms and individuals borrow at high rates because of the high risk involved as lenders do not have information on their credit behavior. This usually makes lenders more vulnerable,” François Kanimba, the Governor of the Central Bank said in the release.
The Bank says that the high non-performing rates in the banking and microfinance institutions are proof that lenders lack credible credit information on the borrowers.
According to the monetary policy statement that was released early this year, the net non performing loans ratio, which reflects loans in default or close to being in default, stood at 11 percent way above the 7 percent threshold for each bank.
The Bank said that access to individual or company’s credit history will reduce incidences of institutions lending to habitual defaulters, while rewarding borrowers with good repayment history to continue accessing credit facilities at improved conditions.
“This will not only increase access to credit in the economy but also reduce interest rates in the long run,” However the CIS Law protects the privacy of consumers who can decide not to have their credit history shared with the licensed credit bureaus.
The initiative is also expected to increase bank’s appetite to issue credit to the economy, following Central Bank’s pledge that it will continue to implement a proactive monetary policy boosting liquidity levels within the banking system.