Expectations from national credit reference system

Expectations from national credit reference system
Published: 05 July 2017
The going live of the central credit registry system is a big milestone for the financial services sector in Zimbabwe since the introduction of the multi-currency system.

It is a accepted fact that the central Credit Reference System was a long overdue development in the country given that each and every monetary policy statement that has been announced since 2009 has articulated the hazard of the growing non-performing loan book in the economy.

It had become common knowledge that banks were becoming hesitant to continue lending to defaulting creditors. This process was fast leading to disinter-mediation in the whole financial system in the country hence destabilising the recovery of the economy. The feedback effects from the non performing loan phenomena undermined the recovery of the economy and imposed significant vulnerabilities on the banking sector.

Acknowledging the gravity of the problem, the Central Bank in collaboration with the Bankers Association of Zimbabwe and other stakeholders placed the resolution of the NPLs problem as a priority and devised a number of strategies to tame this big elephant in the room.

It is the considered opinion of bankers and other lenders that the creation of the Credit reference system will assist to check the credit histories of would be borrowers before resources can be advanced to them.

The credit reference system is expected to reduce the cost of banking, reduce the cost of funds, and reduce default rates as borrowers seek to protect their reputation collateral by meeting their obligations in a timely manner.

The system will also increase the motivation for clients to repay their loans; encourage consumers to maintain good credit records; reward consumers who maintain good payment histories as well as providing a more comprehensive picture of consumer financial behaviour.

With these potential benefits in a fully operational credit system, stakeholders have a number of expectations from the system. These expectations of the stakeholders are supposed to be taken aboard. I highlight here a number the expectations that will allow the reaping of full benefits from the system;

The Credit reference system needs to take into account the historical data already in existence, e.g. FCB, TransUnion and XDS. It should also start including data from other business entities (microfinance, utility operators, Zimra, department stores etc). That way the assessment at least takes into account a number of stakeholders.

The credit reference system should have a way of including court judgements in a more formal manner instead of picking newspaper reports which can be sometimes be misleading or not cover all details.

Charges for the use of the system should not be too high. Procedures on how one can "remedy" their blacklisted status should be very clear. Some people are able to rehabilitate themselves. It is important to have procedures on they can seek remedy.

BAZ expects all creditors to be part of the system with no exceptions so that information obtained on any particular client is complete and accurate.

The database should contain both negative & positive data to help in decision making. Transparency of the credit reference system is of paramount importance, banks should be able to log on and do a reference check on anyone desiring credit facilities without fear or favour.

The process should not be discriminatory hence should not be intercepted or manipulated to give a report that depends on who is being checked.

The RBZ should also make it mandatory for anyone desiring credit to have their credit standing checked so that there are no "sacred cows" who are exempted from the process.

Standardised scorecards that are in line with Basel recommendations for all CPA members required. This will help banks since they will be using the same measuring tool for their decision making.

Confidentiality of the system is of out-most importance as failure to abide by this will destroy credibility of the whole system. We expect that there would be penalties for any breaches of any sort. For competitive reasons members should not be able to access information they are not entitled to, maybe with the motivation to "steal" another bank's clients.

We expect an efficient system that will not overly delay the process when assessing the credit worthiness of a client in order to make a lending decision.

Issue of adequate data protection laws to support credit reference should remain top of the agenda. For instance is it legally correct for a bank to "blacklist" a defaulter before obtaining a court judgment etc. Can an aggrieved defaulter blacklist the bank or its officials?

In conclusion let's understand that the introduction of Credit Reference Bureaus in our financial landscape is an effort to encourage sharing of information by institutions so as to reduce the incidences of serial defaults by bank customers as well as minimize the incidences of non-performing loans. Credit reference bureaus are meant to complement the central role played by banks and other financial institutions in extending financial services within an economy hence the system is meant to help all of us.

 Dr Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on numbers 04-744686 and 0772463008
- the herald
Tags: Credit,


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