On February 11 2015, Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya issued his second Monetary Policy Statement in which he articulated a number of issues regarding the introduction of a Credit Registry and licensing of private credit bureaus.
NewsDay columnist Omen N Muza (ONM) speaks to Financial Clearing Bureau (FCB) general manager Alan Goodrich (AG) who has experience in setting up Credit Reference Bureaus, about his take on these developments.
ONM: The Reserve Bank announced the establishment of the Credit Registry Department as a unit in the Bank Supervision Division, to co-ordinate the collection of credit information from all banking institutions and microfinance institutions (MFIs) and maintain the databank for the credit registry. How will this development help the Financial Clearing Bureau and other private credit bureaus?
AG: The Financial Clearing Bureau (FCB) views the establishment of the Credit Registry Department as a positive development. Credit information-sharing is a critical component of economic empowerment. In order for the financial services sector to be able to increase access to affordable finance while managing risk, the visibility that credit information-sharing provides is essential. For FCB, any initiative that promotes the sharing of positive as well as negative credit information and raises the public awareness that a credit reference bureau (CRB) is a positive source of information for those that manage their finances well, is a great thing as usage will rise and FCB’s value to the economic growth and prosperity will increase.
ONM: According to the Monetary Policy Statement, the RBZ has scheduled a number of project processes and activities for execution over the next 12 months to ensure a successful roll-out of the Credit Registry and CRB system. What in your view are some of the pre-requisite issues or critical factors for successfully rolling out the system?
AG: Broadly speaking, the critical success factors can be grouped into three categories: technology, legal and market. Technology is key as whatever system adopted to host the credit registry must have a data model to support the kind of information that goes into a credit reference profile, or report, and processes that can efficiently store the information submitted as well as disseminate data to subscribers quickly and easily. Such systems are not cheap, typically costing millions of dollars to procure and implement. A solid legal framework for credit information-sharing is also very important both for the protection of both credit providers and consumers. The market is ultimately what will determine the success or failure of the RBZ’s Credit Registry initiative. The output needs to be understandable and usable to credit providers and consumers. If credit providers are not prepared to use measures such as credit scores to assess the risk of lending and continue to insist on using outdated practices, such as collateral, then the Credit Registry will become little more than a “white elephant”.
ONM: The Reserve Bank says it will engage all the data providers in the sector, such as banks and MFIs, through workshops to build enough capacity, particularly on the preliminary steps such as the data clean-up exercise and usage of credit information and reports. As a CRB that has already been operating for over two decades, what have you got to offer to this process?
AG: FCB has much to offer and bring to the table. We can assist credit providers with expertise and experience when it comes to data clean-up, both from a technical and a business perspective. When a similar exercise was undertaken in Kenya, many credit providers found that their core systems’ data was not only incomplete, but also inaccurate. For example, some demographic fields that would be essential for effective credit scoring models had not been populated at all, or others were populated with default values that made the information worthless — the number of credit providers that had (theoretically) lent money to people born on 01/01/1900, i.e. over 110 years old, was eye-opening. In addition, we can offer training to credit providers on the effective use of credit information and reports from both a risk management and process efficiency perspective.
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ONM: The central bank says it shall, in collaboration with data providers as well as the Credit Providers’ Association and private credit bureaus, work on the development of a standard data submission template to enable data providers to submit data in a standardised format. What are your views on this process?
AG: Again, FCB welcomes the initiative. A standard data submission template is something we have been advocating for and trying to implement among our members. FCB is also a founding member of the Credit Providers’ Association and an active member on the committee. To have the RBZ, credit providers and private credit bureaus around the same table to agree on the templates will be a very positive move towards a level playing field for credit information-sharing.
ONM: What are the benefits of establishing a Credit Registry?
AG: As mentioned earlier, education and sensitisation will be critical to the success of establishing the proposed Credit Registry and its role as a key central source of banking and microfinance sector information for the private credit bureaus to aggregate with other sources, such as trade credit providers, utilities companies and telecommunications firms. Credit reference reports and output to credit providers must provide as holistic a picture as possible of the creditworthiness of an individual or company. If the credit providers and consumers do not adopt modern methods of risk assessment, such as credit scores, and abandon antiquated practices, such as requiring collateral, then the positive impact on economic empowerment of establishing the Credit Registry will be severely limited.
