When Lamido Sanusi assumed office as governor of Central Bank of Nigeria, CBN, in May 2009, he set for himself an agenda to sanitise the financial system, which was at the time in deep crisis created by non-performing credits. Part of the strategies he adopted was the creation of a credit reporting system. This led to the establishment of three credit bureau firms licensed by the CBN to assist in effective management of credit risk within the financial system. The move was also aimed at facilitating access to finance in the economy by providing relevant credit information that enables lending institutions to make good decisions.
The credit bureaus are licensed to establish credible database of aggregated information of credit status and behaviour of borrowers. Under the system, information on borrowers is contained in a document called Credit Report. So far, the licensed operators are XDS Credit Bureau, CR Services Credit Bureau, and CRC Credit Bureau. But five years after the initiative began, the Credit Bureau Association of Nigeria, CBAN, is worried that out of about 55 million active borrowers in the financial system, the operators have credit history of only 18.6 million borrowers. CBAN added that while the operators receive an average of 20,000 enquiries every month, its counterparts in South Africa and Brazil, which are less than a third of Nigeria’s population, receive about the same number of enquiries each month. That simply indicates that the Nigerian system still has a long way to go.
The absence of Unique Personal Identification Number, UPIN, is said to be one of the factors responsible for the slow pace of development of credit reporting in Nigeria. UPIN is a means of identification issued by the government of many countries to track temporary and permanent citizens, clients for the purposes of work, taxation, government benefits, health care and credit reporting among other government related functions.
The existence of that number, which is issued at birth or when a child gets to a legal age, has been the desire of the credit bureau operators since inception. To the operators, this is a major factor because it renders credit scores accurate. Taiwo Ayedun, president, CBAN, explained that the non-availability of the UPIN makes it difficult for lending organisations like microfinance banks, MFB, and mortgage institutions to subscribe to the services of the bureaus. According to him, the number helps provide accurate credit information from the operators.
Ayedun’s view is in line with the experiences of some stakeholders. Wale Olowokere, head, operations, Federal University of Technology, Microfinance Bank, Minna, agrees with him. At the first national credit reporting conference organised by Business Development & Investment Limited, held in Lagos, he shared his experience in a transaction where a customer of his bank obtained a loan facility using the original copies of Certificate of Occupancy, C of O, of his property as collateral and obtained another facility from another MFB using the photocopy of the same document as collateral. The business of the borrower later ran into problem to the point that he couldn’t repay any of the loans when they were due. “That was when we realised his crooked ways of doing business and held unto the collateral and insisted that the proceed from the sale of the property be deposited in our bank. That was how we got our money back while the other bank lost out,” Olowokere narrated. To him, the scheme will eliminate fraud and also help lending organisations access rich, robust and easy-to-read credit reports.
Although the CBN has made it mandatory for all commercial banks to have data exchange agreements with at least two credit bureaus before granting loan facilities, a great number of other financial institutions have not complied with this directive even with the apex bank’s threat to sanction defaulters. That is another reason the level of awareness of credit reporting system is still very low. For instance, Gbenga Ajayi, head, risk management, Infinity MFB, admitted that most of the grassroots banks are not well informed about the importance of credit reporting to MFBs in the process of financing small-scale businesses in the country. He said the inability of MFBs to confirm the credit history of their customers and personal knowledge of clients led to the collapse of many of such banks few years ago. “The conference is an eye-opener to me and my team as we are well informed and educated about the relevance of the initiative,” Ajayi told the magazine.
But Ayedun is of the view that the CBN should extend its credit reporting directive to other financial institutions like primary mortgage institutions, discount houses, leasing companies, insurance companies and co-operative and thrifts bodies. With this, he is optimistic that the level of awareness would increase and further contribute to the growth of ailing small businesses in the country.
To Mobolanle Adesanya, acting managing director, XDS Credit Bureau Limited, a major hurdle before operators of the bureaus is the inability of the financial institutions to provide reliable credit details of their customers. She told the magazine that most of the information submitted by the institutions lack quality, integrity and reliability as some of them are either not sent to CBN while others are not updated. If the institutions fail to send details of credit to the bureaus through CBN or fail to send update when the creditor pays, “we will only publish incomplete or false information and that will be misleading the public and contributing to lack of access to finance which is a major constraint to small business growth in the country.” Garry Marsh, an international expert on retail and consumer lending, says: “Money and information are the two basic inputs of banking. The very survival of a bank depends on its ability to collect and process information efficiently, in screening credit applicants and in monitoring their performance.”
Another factor that hinders the smooth operations of the bureaus is the lack of privacy, which some stakeholders believe should be removed. Comparing the Nigerian market with other developing nations’, Ajayi believes that the ability of a third party to access the credit information is a clause that requires urgent attention of the regulator. To him, credit information is deemed as confidential and names of institutions, which are the original source of the information, should not be disclosed to third parties. For instance, in Pakistan, its Banking Companies Ordinance, BCO, of 1962, ensures that member financial institutions can only access limited information from the bureau database for assessing credit worthiness of borrower but the disclosure of such information to third party or individuals and corporate entities is strictly prohibited under the law.
Financial experts believe that the ongoing banking sector reform will not be complete until the services of credit bureaus are made to complement the various policies being churned out by the CBN. Lending his voice to the call for a symbiotic relationship with the CBN on the banking sector reforms, Ubong Awah, managing partner, Business Development & Investment Limited, explained that experiences of other countries like South Africa show that the Nigerian credit bureaus offer services, that if properly harnessed, can minimise the occurrence of banking crises and facilitate industry growth. He urged Nigerian banks to tap into the opportunities offered by credit bureaus. According to him, one of the ways to achieve this is to ensure that top decision makers in the industry are fully acquainted with these opportunities.
Although the various bureaus licensed by the CBN have been complementing the services of money deposit banks since 2009, industry operators like Femi Oyeshina, an economist, do not believe they have been doing enough in terms of guaranteeing a ready pool of customers’ data needed for taking crucial decisions before credit approvals are given to prospective customers. His argument is that in view of the renewed enthusiasm of banks to lend, and the rising appetite of the banking public to apply for facilities, there is need for increased activity of credit bureau operators. In line with this argument, Fitch Ratings in its latest report tagged, Nigerian Banking Sector: Rapid Credit Growth Returns, pointed out that rapid credit growth in the country’s banking sector may give rise to weakened asset quality and higher impairment charges if left unchecked.
Assuring the operators of Credit Bureau of its support towards providing the required regulatory support, Sanusi disclosed that the CBN has made it mandatory for all financial institutions to run a quarterly portfolio checks before granting any facility to their customers. The check, according to the CBN boss, would enable them determine borrowers’ current exposure to the financial system. Aside from that, he added that the apex bank intends to review compliance levels in the forthcoming months in line with its zero tolerance policy for regulatory infractions and if need be, sanction erring institutions.
While Nigerians await the establishment of the National Identity Management System, NIMS, a scheme that will provide assured identity of individuals through capture of biometric and demographic data, Sanusi disclosed that the Bankers’ Committee is working on a financial sector single unique customer identifier. The innovation, according to him, will address the issue of bank customer arbitraging, which was very prevalent prior to the global financial crisis. The bank/customer arbitraging occurs where a customer having defaulted in bank A could cross over to bank B to obtain fresh credit without bank B being aware of the customers credit default in bank A. “The intention is for the industry identifier to complement the work being done by National Identity Management Commission, NIMC, the agent in charge of NIMS, as it seeks to roll out its national identity initiatives,” he added.
Sanusi boasted that the recent policies of the CBN have gained traction, and have resulted in stability in the sector and a fairly sound financial system. He said the ratio of non-performing loans to gross loan has dropped from 35 per cent to 3.6 per cent.
With over N5 million spent on state-of-the-art database management system that is capable of managing and processing credit information of millions of borrowers, Awah is optimistic that the future is bright for the operators in the industry. He says: “Complete and accurate reporting benefits all actors in the economy and government at all levels.” To him, it is a national asset that must be nurtured to create wealth. He is therefore set to do all it takes to make the sector work.