(July 20, 2009)
The establishment of credit bureaus and the commencement of operations by the pioneers is, to a large extent, responsible for the confidence with which Nigerian banks now embrace consumer lending--a development from which the economy stands to benefit immensely as the direct link between the availability of consumer credit and exponential wealth creation in an economy has since been identified and accepted by financial experts and economists.
To demonstrate this link it has been clearly established that the wide availability of consumer credit directly leads to increase in sales of consumer goods and services; increase in sales directly necessitate increase in production; increase in production necessarily demands increase in the level of employment of labour and other factors of production; increase in the level of employment of labour and other factors of production leads to increase in the payments made for these factors of production which, in turn, leads to an increase in the income available for the purchase of consumer goods and services and therefore, increase in sales.
Beyond stimulating consumer lending, the relevance of Credit Bureaus in the consumer lending chain lies in the fact that, without the exchange of information among lenders facilitated by Credit Bureaus, the entire consumer credit system will collapse for reasons associated with identity fraud and lack of information on the credit worthiness of prospective borrowers, among others. Thus, the relevance of these entities to the smooth running and survival of the consumer credit system has led to increased interest in these entities by the media, lenders, some informed consumers, the legislature and the Central Bank of Nigeria that now has the function of licensing and regulating credit bureaus.
What Credit Bureaus do
Credit Bureaus collect information on the credit history of borrowers from different sources (mainly lenders and other providers of goods and services on credit) and generally make them available to credit providers who have been approached for credit facilities by such borrowers. The information on borrowers is contained in a document called a Credit Report. Thus, Credit Bureaus sell credit reports primarily to lenders who have been approached for credit facilities, and to other persons who are entitled to access credit reports.
Credit Bureaus also assist lenders to appraise the credit worthiness of prospective borrowers by computing and selling to these lenders what is called a Credit Score. A Credit Score is a statistical score that indicates a prospective borrower’s odds of not defaulting. It is a score that indicates a borrower’s creditworthiness relative to other borrowers in the credit bureau database. And it can be particularly useful in making instant credit granting decisions especially for small consumer loans.
Credit Bureaus are not responsible for the accuracy of the data in Credit Reports and the data forming the basis of a Credit Score as they rely on data supplied to them by lenders and other creditors. Thus, consumer protestations about the contents of their Credit Reports will typically be directed by the credit bureau on behalf of the borrower to the lender who furnished the information. In more developed economies, every consumer has a right to a free copy of his Credit Report once every year or when he has been denied credit based on information in his credit report. Some of the Credit Bureaus already operating in Nigeria have stated readiness to adopt this model of dealing with consumer concerns.
How Credit Bureaus Sustain the Consumer Credit Industry
Without vibrant, credible and private sector-led Credit Bureaus that have guaranteed access to information, the entire consumer credit system will collapse for obvious reasons. As already noted, it is in the interest of all stakeholders in the consumer credit industry to share information on the credit history of consumers. In the first place, information sharing reduces the incidence of wilful defaults. Thus, a consumer, knowing that information on his loan performance will be shared with all lenders and other providers of goods and services will strive to maintain a clean slate of credit history and will be deterred from wilfully defaulting as such a course of action will bar him from being able to access credit in future.
Information sharing enabled by Credit Bureaus also builds confidence in the system and encourages credit providers to lend. This is because lenders can now easily access and verify information supplied by loan applicants relating to credit history, personal information and, as provided by CreditRegistry, biometric information.
Furthermore, the services of Credit Bureaus help more people have access to credit than would otherwise have been possible if lenders required asset collateral before extending credit. The credit record of a consumer kept by a Credit Bureau becomes a “reputation collateral” that the target consumer requires in order to continue to access credit in the absence of the traditionally-required “asset collateral”.
Thus, without Credit Bureau services, lenders will remain reluctant to engage in large scale consumer lending, fewer consumers will qualify for credit facilities even if the lenders were prepared to lend and, the opportunity for exponential wealth creation and economic expansion flowing from the wide availability of credit will be lost.
The pioneer, first, and most experienced private credit bureau in Nigeria is CR Services Plc. CR Services is led by Mr. Taiwo Ayedun, a former Software Engineer with Microsoft Corporation in the USA. Mr. Ayedun founded CreditRegistry Corporation and incorporated it in the USA in December 2001. Then subsequently incorporated the company in Nigeria in January 2003 as CR Services Limited. Following a hugely successful private placement of her shares in 2007, CR Services Plc is now adequately capitalised with shareholders cutting across the geographical and economic spheres of Nigeria. Long before the consolidation exercise in the banking industry that many analysts credit as being responsible for the availability of mega funds for consumer lending, CR Services preached the gospel of consumer lending and information sharing and established presence in Nigeria by conducting pilots and feasibility studies with over 48 Nigerian banks between 2001 and 2003.
CR Services prides itself as operating a modern credit bureau that is the first in the world to employ cutting edge biometric technologies to tackle issues faced by creditors in emerging markets where there are unreliable consumer identification mechanisms. CR Services believes that its keen attention to addressing peculiarities involving data sharing in emerging markets will enable it to continue to innovate and deliver remarkable value to its customers. Having gained the confidence of the banking industry, CR Services has currently signed on 27 subscribers including leading banks such as Zenith Bank, First Bank, Intercontinental Bank, Ecobank, GTBank, Stanbic IBTC Bank, among others, and the telecoms giant MTN. Some of these subscribers have been populating CR Services’ database with credit and biometric data since December 2003. CR Services has a long relationship with RIMAN, an association of risk managers in Nigeria, which selected the company in December 2003 as its Technical Partner in the implementation of a credit bureau in Nigeria. The expectation is that CR Services’ modern and robust software and biometrics advantage will lay the foundation for fraud-proof, large-scale consumer credit in Nigeria.
XDS Credit Bureau Ltd is another pioneer credit bureau outfit operating in the country with Ubong Awah, a legal and financial services practitioner as the Managing Director. The company is a joint-venture comprising XDS (Pty) Limited of South Africa and Debenture Trust of Ghana and ICIB of Nigeria. Whilst XDS (Pty) Limited operates one of the three credit bureaus in South Africa, Debenture Trust has been pioneering the first on-line credit bureau in Ghana. Since incorporation in May 2005, XDS Solutions has been actively involved in stakeholder mobilisation and market development activities. The company has established its credit bureau infrastructure using specialised consumer credit software customised to handle the nuances of emerging economies like Nigeria. The system has biometrics capabilities and will be providing credit score using algorithms being developed in partnership with one of the world’s leading experts in the area. The company has a couple of financial institutions – banking and non-banking – on its subscribers list and is committed to adding value to lives and businesses by providing comprehensive credit bureau services to the Nigerian economy.
CRC Credit Bureau Ltd is the newest entrant into the Nigerian credit bureau industry. Promoted by UBA with Accenture as consultant, CRC Credit Bureau was incorporated in Nigeria in June 2006 and formally launched in June 2007. It has twelve Nigerian banks as investors with UBA being the dominant investor. CRC Credit Bureau is partnering with Dun & Bradstreet, an outfit with experience in business information reporting that is now building its consumer information reporting capabilities in the Nigerian market. CRC Credit Bureaured is presently led by Mr. Tunde Popoola and commenced live operations on June 8, 2009. While Dun & Bradstreet’s experience is in business information reporting, it is hoped that the participating banks will help it develop solutions tailored towards consumer credit information reporting in a developing market like Nigeria without reliable means of consumer identification.
Now that the banking and the entire financial industry appreciate the strategic need for the services of Credit Bureaus and now that the issue of information sharing has engaged the attention of the regulators going by the release of the credit bureau guidelines, one hopes that regulatory policies and the actions of all stakeholders will be guided by the principles that have, from the history of the evolution and development of Credit Bureaus in both developed and developing economies, been responsible for the credit revolution ignited and sustained by Credit Bureaus.