FULL service credit reference bureaux (CRB) are among the critical market infrastructure on which local financial and credit markets depend for proper functioning.
Omen Muza
NewsDay (ND) financial columnist Omen Nyevero Muza, recently caught up with Andrew D Field (ADF), executive director at the Financial Clearing Bureau (FCB), to establish the state of play in the credit protection space and understand what efforts the company and other stakeholders are making to move the industry forward. Below are excerpts of the interview.
ND: To start off with, you won’t believe the extent of — to put it mildly — lack of knowledge about the operations of credit bureaux among the transacting public. In layman’s terms, what is the fundamental purpose of CRBs? ADF: The purpose of CRBs is to collect and collate data on borrowers so providers of credit (POCs) may assess their credit risk. The benefits of a functional CRB ecosystem include reduced collateral requirements, faster and more consistent decision-making, and interest rates based on risk. Everyone wins.
ND: As a nascent industry, what are you doing or intend to do about bridging this knowledge gap in the market? ADF: I would dispute the industry being nascent. We have been around a long time. FCB is taking a leading role in bridging the knowledge gap at both the POC and borrower level through some innovative initiatives.
ND: Why, in your view, has it taken so long for us to see a full service credit bureau, despite the crying need for such critical market infrastructure? ADF: Three key factors: A collateral-based lending culture, concerns about confidentiality and a lack of appreciation of the value of full credit information sharing.
ND: How can this process be speeded up? ADF: The catalyst for achieving change lies with POCs and borrowers. I am encouraged that the POCs are coming together to address the issue collectively. This year, the three major CRBs formed the Credit Reference Bureau Association of Zimbabwe (CRBAZ) which has a code of conduct. So the process is gathering momentum.
ND: Can you outline some of the key initiatives you have been involved in as FCB and at industry level? ADF: Historically, the FCB has focused on the banking sector, which has an indirect stake in the business and which we have serviced for over 25 years. There have been initiatives to establish new CRBs or partner with existing international CRBs, but these have stalled.
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ND: Please tell us more about the relationship between banks and the FCB? ADF: We enjoy excellent relationships with the banks. We have remained loyal to the banks and they continue to clear their new account and loan applicants through the bureau in increasing volumes. We are moving into new areas, such as farmer scores and small enterprise clearances and ratings that will benefit the banks significantly.
ND: Why hasn’t FCB been more successful in leveraging this long-standing relationship in order to enhance its market position? ADF: The period of hyperinflation stalled the credit market. In addition, FCB operates in a regulated sector so it has to go through several approval channels. We are ready to provide a broader and more valuable positive service.
ND: Lately, we have been hearing that credit providers are “calling” for a joint credit bureau. Is this true and if not, whose responsibility is it anyway, at least according to international best practice? ADF: I am aware of a POC initiative to come together to facilitate credit data sharing. The CRBAZ is actively seeking inclusion in that process. International best practice is to legislate for a number of CRBs, usually privately owned, to operate in a market.
ND: What is stopping FCB and Trans-Union from providing data to assist users to determine the creditworthiness? ADF: The FCB holds a wealth of positive data but, like all CRBs, it needs more. Creditworthiness cannot be determined entirely on the basis of default records, but it does expose a risk. We recently launched a pilot scheme — with central bank consent — for our clients. It will be an incremental process, needing system and operational changes, which will take time to be embraced at each phase. The next step is the introduction by FCB of “positive” credit reports.
ND: We understand that industry stakeholders recently formed the Credit Providers’ Association of Zimbabwe CPA(Z). What is the objective of the association? ADF: The CPA(Z) is still in the embryo stage but, once formed, it may prove to be one of the best initiatives ever for the sector.
ND: Could you outline the FCB shortcomings? ADF: FCB has the largest data pool, much of which is not negative, and the longest track record as a trusted custodian of credit information. We are increasingly bringing non-bank POCs on-board and driving the concept of creating financial identities for the largely unbanked small-to-medium scale farming and SME sectors, which has the potential to positively impact a huge percentage of the population.
