Scarcity of accurate information from financial institutions on the history of borrowers is one of the challenges facing the recently inaugurated Credit Reference Bureau (CRB).
The issue is affecting the effectiveness of CRB Africa, which was licensed by the central bank in July 2010, to gather and provide accurate information on borrowers’ debt profiles and repayment history in order to aide lenders to reduce defaulting rates. The initiative is also meant to give good borrowers a chance to negotiate good deals.
“For a credit reference to function properly, you need data and when we arrived here there was no or low quality data,” Paul Pavlidis, the Chief Executive Officer of CRB Africa Rwanda Office told Business Times in an interview.
CRB has been trying to build up a database of prospective borrowers but the progress is held-back by some financial institutions which still apply manual methods to store data.
The CRB was also meant to allow Small and Medium Enterprises to build a credit history, an asset that can reduce physical collateral to support borrowing for micro loans.
According to Pavlidis, the most challenging situation was the two generations of National Identity cards where both (old and new), which were used by borrowers to secure loans from financial institutions.
“It was difficult to trace our obvious unique identifier because both (new and old) IDs were in use, but am happy we have made substantial progress in database,” Pavlidis said.
Banks are now required to update their client’s details, he added.
According to Lawson Naibo, the Chief Operations Officer of Bank of Kigali (BK), the major challenge for data is the transition from old IDs to new ones where very few have updated.
“The system in CRB should be flexible to accept both data with old IDs and new ones because we can’t say we will have clients’ data updates in one month,” Naibo said.
He said most banks call clients on a daily basis to update their details but some are out of the country while others are nonperforming and not willing to cooperate or even show up at the bank.
Maurice K. Toroitich, the Managing Director of KCB Rwanda said the level of details required by CRB is very expensive and generally, banks may not have been designed to capture this information.
“It is now ten years since the establishment of CRB in Kenya and having data is a process; in fact the process is faster than in Kenya and anywhere in EAC,” he said.
So far, the bureau produces 5,000 financial reports from all commercial banks and 32 Microfinance Institutions.