When on January 7, 2010, the Central Bank of Nigeria (CBN) launched the first private sector credit bureau, CRC Credit Bureau, the objective was to guarantee the health of the financial system by ensuring that the credit records of customers of banks are collated for reference in future transactions.
It was not surprising therefore that the CBN, in collaboration with the Nigeria Deposit Insurance Corporation (NDIC), has barred all debtors of closed banks from accessing new loans.
Bad loans since 1994, a challenge to the NDIC, were made possible by the absence of Credit Bureau at the time. But the situation seems to be changing as CRC and two other credit bureaux launched subsequently are now strategising to end the bad loan saga that almost wrecked the banking system.
Ahmed Popoola
CRC Credit Bureau Managing Director and Chief Executive Officer, Ahmed Popoola, explains in this interview with Assistant Business Editor, Kelechi Mgboji, how a credit bureau can stop bad loans by providing information lenders need to determine financial customers’ credibility.
He throws light on how the biometric registration of bank customers will check fraudsters who open accounts in several banks with different personal details.
In January 2012, the CBN began a pilot project on cashless policy and in 2013 rolled out the project in some states, with plans to cover the rest of the country this year.
In the excerpts below, Popoola said credit bureau is instrumental to the success of the cashless policy, and also spoke on other issues.
What is biometric registering of customers and how does it concern CRC Credit Bureau?
Biometric registration is an initiative of the Bankers Committee to produce a financial identity (ID). It is about giving a bank customer a unique identification across all financial institutions which describes that customer.
Before now, there was no one means of identifying persons who transact business with the financial services industry as you have with registered businesses. This is why it is convenient for fraudsters to open accounts in several banks with different names, addresses and means of identification. The new scheme will address the challenge.
One of the challenges that confront us as a repository of borrowers’ information is merging information from data collected from various sources. When all this information is collected we have what is called a “credit report” for an individual. The information cuts across all institutions for that individual.
The challenge is that there is no unifying factor that ties an individual together across the institutions. There are names that occur with various variations, in dates of birth, and addresses in particular, as some customers give differing information to different institutions.
However, a single identification would address this issue; it would allow for that unique factor to connect the individual across the board and the credit bureau can do an aggregation better.
The financial ID project makes it easy for us to merge the data we collect from various sources on individuals; makes it easy for our system to efficiently assemble information from various sources on an individual and merge the information.
It also makes it easy for users of our platform to type in a person’s unique number and obtain information on such a person rather than searching with the name, date of birth, address information, and more.
Will you register customers for banks?
Biometric registration will be at financial institutions. Once that information is available, the credit bureau will collect and use it as a basis for connecting the individuals together across various engagements across the financial industry space.
Could you explain credit report to a layman?
A credit report is a statement or report that provides a detailed view of an individual or a business’s credit exposure and history, which will provide a complete perspective of the indebtedness either as a borrower or a guarantor.
It is also a statement of one’s credit activities across the board; not just with banks but any financial institution or non-bank lending institution.
These institutions include banks, microfinance banks, mortgage banks, specialised financial institutions, telecommunications companies, leasing companies, insurance companies.
They also include public utilities such as water corporation, electricity companies, the courts.
The set of information on a credit report includes demographics/firmographics, means of identification, inquiries made on the subject, address details, credit facility details, including returned cheques information, judgments on financial issues.
A credit bureau helps lenders to make informed decisions. It collects information on borrowers from lending institutions and merges them to produce a credit information report, and sometimes a credit score. It encourages information sharing among lenders.
To the layman, that would mean we are trying to help demystify the borrower. The long term aim of the credit bureau is to help the economy. It helps to make life easy for everyone if a large number of individual and businesses are granted credit on the strength of their character and not requiring collateral security.
Do you have details of debtors banks have refused loans because of your advice?
I am not in a position to provide you with specific industry statistics now, but we have cases in point. We have testimonies from financial and other institutions that are members of the credit bureau of how they have been saved from entering into some bad transactions as a result of information provided by the credit bureau.
Also, hopefully, results of financial institutions would begin to show that the ratio of their non-performing loans should decline as a result of credit bureau activities. This is because loan losses typically would come from activities of customers who borrow money from the institution and refuse to pay.
Since there is better information available to institutions, then there is the likelihood of these problems reducing and therefore begin to reflect in their financial results.
Customers themselves are beginning to jealously watch and guard their transactions. Nobody wants to be refused access to finance on account of bad credit information.
Why the rising fraud cases in banks despite the security system?
Fraud is a different case and it cuts across a very wide spectrum. Typically, attempted fraud is always rampant in a technology driven environment. But in the specific area of loan disbursement and loan management, we hope that credit bureau’s activities are helping to reduce the possibility.
But fraud is perpetrated by people and therefore even where a system is in place to ensure that loan practices are properly executed, if there is an intention to defraud, then there is very little such a system can do.
Most financial institutions would have to enhance their staff recruitment process to minimise recruiting the wrong people, and also strengthen the security around their information technology and communication platforms.
The availability of credit bureau and credible means of identification would help to stem the tide. In addition, there is the need to do a lot on customer education on how to protect one’s password and things like that.
Credit bureaux do not generate income for the consortium of banks that own them, so what is their use to banks and clients?
A credit bureau is a credit infrastructure and a business. As an infrastructure, we enable users to access critical information for their business decisions to avoid haphazard selection. We provide a solution to address the challenge of lending in the dark for the country. We enable lenders manage their portfolios more efficiently by having very critical information at their disposal.
We also enhance their turn-around time in processing credit applications as some of them are now migrating to automation of credit process.
We provide solution to the challenge of information asymmetry they have been grappling with for decades. Our platform now provides incentives for banks and other lenders to develop new products, especially for consumers or individuals and small businesses finding it difficult to obtain funds.
However, we are also a for-profit company and it is a wrong notion to say the credit bureau does not generate income for shareholders. The credit bureau is a business, and like all businesses, we are in the business of making money. We are generating income for the consortium of institutions that own it.
It was difficult in the first couple of years, which is the nature of the business, but we have overcome the challenges of data integrity and low patronage.
A credit bureau is like a road infrastructure tolled or a property constructed to provide rental income. The initial capital outlay is always huge, the gestation period long, and it can take a while to break even. But once traffic is gained unto the site, revenue is assured. Investors in the credit bureau business are very much aware of this.
What is your assessment of the implementation of the cashless policy?
A high level of progress has been made, especially by banks pushing automated teller machine (ATM) and mobile platform solutions. There are now a lot of ATMs around the country in various places, including shopping malls. Many businesses now have point of sale (POS) machines.
All bank customers now have ATM cards and can withdraw cash anywhere, including outside the country. People also make payments with their cards.
The fund transfer platforms of many banks make it easy for customers to do all manner of payment settlements from the comfort of their homes once they have access to a computer and the internet services.
The onus is now on the general population to embrace the opportunities presented by these products rolled out by banks.
In several ways, there are a lot of positives. The cashless policy has curbed carrying cash around, which has significantly reduced crime rate. It has helped financial institutions in reducing the cost of cash transactions and also boosted their bottom line.
It has created a new sub-industry around the banking industry space. I am talking in terms of income generation for people outside direct banking industry. It is indeed a very positive and laudable development.
Do you sympathise with banks which complain about over regulation?
I know that quite a lot of significant measures have been taken by the regulators to protect customers, especially on issues relating to arbitrary charges and charges without evidence of value. I also know that with the establishment of the Consumer Protection Department in the Central Bank, a voice has been provided for the customers.
Banks are going to be more creative in bringing out products and it is going to be very beneficial to them and customers. Then it will become obvious how banks can creatively make money by providing legitimate services through products that add value.
I do not see overregulation of Nigerian banks. The banking system plays a crucial role in the management of monetary policy and economic stability. In the management of interest rate, foreign exchange rate and the price level, that is, inflation, the banking system is very central.
The banking system also needs to be supervised to avoid bank failure and systematic collapse of the financial industry. Given what we have seen in recent years in Nigeria and, indeed, in most parts of the world, regulations are being tightened around banks. Nigeria cannot be an exception.
What attributes do you think the in-coming CBN governor should possess?
Nigeria is in a democracy, and we are also a factor driven economy. When you have a factor driven economy, there are always challenges with foreign exchange rate and interest rate. These two have implication for inflation rate.
So a very experienced and strong man is needed in managing the monetary policy of the government because that is what the Central Bank is all about. We have seen in the last few years that it has been very properly managed and we don’t have a burst in inflation rate.
The exchange rate also has been managed to a very tolerable level, although it has been very difficult, and of course the interest rate has been tamed to a large extent. So the Central Bank needs someone who can continue along this path of the three areas that are so difficult to manage.
Inflation has to do with price level and exchange rate, which have to do with reserves and foreign earnings and of course the interest rate which has to do with the cost of borrowing money and deposits.
It is also important to have someone who can work with the executive arm of government, whose responsibility is managing fiscal policy. It is one thing to manage monetary policy, fiscal policy should also have some level of positive linkage and handshake with monetary policy.
So, a very strong personality is needed to deal with the Ministry of Finance, the Presidency and all other arms of government that have to do with funding, especially revenue generation and reporting, among other areas.
Also, an individual with a high level of independent mindedness is important; who won’t succumb to pressure from the other arms of government. That is why the preservation of the independence of the Central Bank is very important for our economy to really make progress and move to the next level.
Also one who understands our banking system sufficiently, because it still occupies a very strategic place in the overall management of monetary policy. We need an individual who really understands the workings, because that is the only way he can make the Central Bank the engine of growth and development.
How many credit bureaux should a country like Nigeria have, and are credit bureaux regulated by CBN?
At the moment, there are three private licensed credit bureaux and I believe that is a good number for now. A lot of jurisdictions have only one or two credit bureaux.
Presently in Nigeria, credit bureaux are licensed and regulated by the Central Bank. In future, it is expected that a law will be passed to support credit bureaux in view of the sensitive nature of our operations.