Sustaining credit growth via credit bureaux Since the conclusion of the banking sector recapitalisation exercise, experts have continued to express optimism that banks are now better placed to provide credit. This they argued is expected to stimulate growth in the Nigerian economy. Lack of credit, especially to the private sector has been largely given as the reason why economic activities have remained low. The trend has been worsened by the global economic crisis and the then banking reform exercise which was initiated in 2009. However, experts have emphasised the need for banks to properly engage the services of Credit Bureaux so as to ensure that the credit recorded so far this year is sustained. In fact, banking sector credit to the private sector was said to have risen to N12.762 trillion as at February 2012. Credit to private sector had recorded a significant year-on-year growth to 41.7 percent in January, 33.3 percent as December, last year, 15.5 percent in November and a 15.9 percent year-on-year growth in October. The data from the Central Bank of Nigeria (CBN) also showed that broad money (M2), which generally is made up of demand deposits at commercial banks and monies held in easily accessible accounts, was N13.151 trillion in the month under review. Credit bureaux play an integral role in promoting financial inclusion in such a way that clients with strong repayment histories benefit from faster service and preferential treatment from institutions they are dealing with. Experts also maintained that banks and other financial service providers would profit from reduced transaction costs and improved portfolio quality if they engage the Credit Bureaux in their operations. Credit Bureaux also improve transparency in financial transactions as it promotes confidence and greater access to services of all kinds. Understanding the Services of Credit Bureaux A Credit bureau can be said to be a ‘library’ of credit information, providing a centralised database of credit behaviour of individuals and institutions. That is, it shows how well banks’ customers’ manage their credit commitments. The roles played by credit bureaux are important as they usually provide vital information to credit providers to prevent over-indebtedness of consumers and the granting of reckless credit. Their existence makes it easier for financial institutions to make informed and responsible lending decisions, in timely manner. These had helped financial institutions in developed economies to alleviate any possibility of serious problems such as fraud. Worried by the level of bank failures resulting from bad loans, coupled with the need to strengthen the risk management processes in the financial system, the CBN established the public credit bureau, known as the Credit Risk Management System (CRMS) in 1990. The CBN Act empowers the apex bank to obtain from all banks, returns on all credit with a minimum outstanding balance of N100,000, but has now been upgraded to N1 million and above (principal and interest), to enable it focus on large credits. The aim of the CRMS was to strengthen the appraisal procedures of banks through the identification of delinquent borrowers, checking of over-lending and ensuring the consistent classification of credits. A report from Latin America showed that Credit bureaux emerged as an institutional response to the problem of lack of information in lending. The report explained that private credit bureaux first emerged in both the United States and Sweden at the close of the 19th century, later countries such as Austria, Finland, Canada, and Germany soon followed. Senior Vice President, Dun and Bradstreet, Mr. Miguel Lienas, described the Credit Bureaux industry in Latin America as a very big industry and a major tool that has facilitated development in the economy of countries in the region. Lienas argued that activities of Credit Bureau had changed the face of the financial industries in countries in Latin America. “I believe that credit Bureaux are one of the most important powerful economic tools in any economy. It is an essential tool to make people part of the financial sector. I strongly feel that Nigerian banks do not fully understand the concept of Credit Bureaux because they (banks) would find out that they will be doing a lot more of business when they engage Credit Bureaux. “The relationship between banks and Credit Bureaux in Dominican Republic helped banks in that country to withstand the shock of the global economic crisis. While banks were attacked in the United States of America (USA), we saw the danger ahead and advised banks in the Dominican Republic,” he said. Way Forward To the Managing Director and Chief Executive Officer, CR Services Credit Bureau, Mr.Taiwo Ayedun, the risk associated with lending would be minimised if banks and other institutions that grants credits subscribe to the services of credit bureaux. Ayedun added: “There is a tremendous opportunity for the banks. The country and the banking sector have tremendous opportunity for growth. Every successful economy is to create credit. There are lots of growth prospects.” He disclosed that about 92 percent of the usage of credit bureaux is always requested by commercial banks, while other industries, such as finance houses, savings and loans firms, discount houses, and microfinance banks and even the government, accounts for the remaining 8 percent. “Anybody or firm involved in lending would benefit from the scheme. If banks give more money as loans, it would boost businesses, employment rate would rise, and they would have more income in their bank accounts. That would also grow the Gross Domestic Product (GDP) of the economy,” he added. However, as part of efforts to strengthen its operations, the credit bureaux in the country said that they had installed anti-fraud biometric technology into their system. Managing Director/Chief Executive Officer, CR Services (Credit Bureau), Mr. Taiwo Ayedun, in a speech presented at a recent conference organised by the Committee of Chief Compliance Officers of Banks in Nigeria (CCCOBIN), said that the move would enable banks effectively identify their customers and combat identity fraud. Ayedun outlined some of the benefits of credit reporting to include: increasing social accountability, economic expansion and wealth creation. He explained that credit bureaux act as social accountability mechanisms that guide people’s behaviour. According to him, while credit bureaux reward good behaviour, it punishes fraudulent acts. Speaking further, he described credit bureaux as one of the most important institutions in any nation, adding that Nigerians were yet to appreciate its importance. Ayedun urged the banks’ compliance officers to ensure that their banks fully comply with the directive that banks should obtain credit report from at least two credit bureaux before granting any facility to their customers. He also encouraged them to obtain quarterly credit report from at least two credit bureaux for all previous loans. On his part, the CBN’s Deputy Governor, Financial System Stability, Dr. Chiedu K. Moghalu, had stressed that the key plank of the on-going CBN reform agenda was to ensure that banks contribute to the real economy, urged banks to engage the services of Credit Bureaux in the country. He also pointed out that this would even be more beneficial for banks as they strive to capture the retail segment of the market. “There is thus a need for banks to re-think this strategy by striking a balance between high street banking and growing their retail banking portfolio. Recent studies by analysts indicate a decline in banking business based on corporate and increasing opportunities for the development of retail banking services. “With a population of about 150 million, a growing middle class, vibrant economy, young population, about 40 million unbanked, yet bankable populations, retail banking offers opportunities of gaining scale for Nigerian banks With improvements in macroeconomic conditions and given the various real sector financing interventions and incentives by the CBN, the banking sector is being primed to contribute to the real economy through accelerated credit growth,” Moghalu added. Managing Director and Chief Executive Officer, CRC Credit Bureau Limited, Mr. Tunde Popoola, described the critical element of banking as the ability of financial institutions to be able to give out loans. This, according to him, is a major way of affecting the growth of any economy. “We want people to understand that the Credit Bureaux infrastructure remains the platform by which you can really achieve this. Meanwhile because this bureau is very new in Nigeria, there are information, knowledge and knowledge gap. We need to begin to address those gaps so that people can see the wonders that Credit Bureaux have done in other countries. “If we can get it right and grant loans to consumers and small businesses, the face of the Nigerian economy would change. The jobless growth that we have been talking about would be a thing of the past. We would be able to talk about growth that is supported by employment generation and empowerment of the ordinary Nigerian,” Popoola argued. He cited lack of a unique identification in Nigeria as a major challenge affecting the operations of Credit Bureaux in the country. Popoola explained: “It is difficult for you to get a proper identification in Nigeria because we don’t have an efficient identification system. Again, the cost of doing business in Nigeria is so alarming. This is because we work on database and the database has to be updated daily. But a situation where power supply is epileptic, our infrastructure is weak, and then all these affect our operations.” Llenas stressed the need for a high level of awareness and enlightenment on the activities of Credit Bureaux in Nigeria. According to Lienas, with Credit Bureaux, institutions will be able to venture into lots of more businesses and share information such that they will be ahead of their peers. “Credit Bureaux are natural instruments for credit expansion and integrated marketing. Microfinance Banking and Small and Medium scale Enterprises are the future of any economy and they have proven to be the greatest beneficiaries of the activities of Credit Bureaux in Latin America,” he added. |