Getting more people into the financial services net requires strategies, one of which is making credit accessible to people of all classes. Just as banks need information on borrowers, telecommunications companies also need subscribers’ credit data, especially for post-paid customers. That is where credit bureaux services come to play. Our Managing Director/CEO ‘Tunde Popoola speaks with COLLINS NWEZE on the gains of embracing credit bureaux services and steps taken to ensure that other non-financial services providers key into the scheme.
Nine years after credit bureaux operations started in Nigeria, what has been your experience with customers, borrowers and regulators?
Credit bureaux were licensed in 2009. So, the industry will be 10 next year. My experience with customers has, on the whole, been very positive. We have been able to grow our customer base from being largely financial institutions to other sectors. We now have some insurance companies, telecommunication firms, real estate companies, leasing companies that have come onboard.
At the very beginning we used to have many issues with the quality of data submitted by these institutions; but there has been an improvement, although there is still room for improvement. The adoption of standardised common data submission template has helped. Most Nigerian banks’ customers still do not know much about credit bureaux and how they are impacted by their existence. Some also do not know how to seek corrections to wrongs and disputed information submitted to the credit bureaux by creditors.
Many do not know the rights conferred on them by the law on the limited permissible purposes for which their information could be used, and the protection of their data and robust provisions on how to address disputed information. A lot needs to be done in this area. Our experience with the regulators has been positive. The credit bureau industry is a highly regulated one. The CBN granted licences to three private credit bureaux to operate and without a licence no one can operate a credit bureau. From time to time, the CBN issues circulars that guide credit bureaux operations. Last year, the Credit Reporting Act, which lays down the legal framework for the operations of credit bureaux, was signed into law. The CBN continues to grant tremendous support to our industry so that the credit reporting culture would be fully adopted as a way of life.
What are your priority areas as chairman of the Credit Bureau Association of Nigeria (CBAN)?
The industry has come a long way since three credit bureaux were licensed in 2009. The operators have always worked closely, especially since CBAN was incorporated as an umbrella advocacy association in 2012. My tenure will try to deepen some of the achievements we have recorded. We have received significant support from the World Bank Group and the CBN.
The support includes promoting the on-boarding of all categories of financial institutions under the supervision of the CBN as credit information suppliers and users; building the capacity of credit information suppliers and users; creating awareness about the services and products of credit bureaux to the public and providing the strategic input towards the enactment of the National Credit Reporting Act. We realised that there is still a lot to do in this regard. Awareness creation to other stakeholders is also key and we will do a lot more in this area. There will be media engagement and roadshows for business management organisations. We think a lot more needs to be done to sensitise the judiciary and the general public about the National Credit Reporting Act 2017.
What of the financial sector and others?
The financial sector has embraced credit reporting and they are benefitting from it. Other credit grantors in the economy such as the telecommunication companies, distribution companies (Discos), utility companies, insurance companies, cooperative societies, and retailers have not fully embraced credit reporting. We will do a lot of engagements in this area. We appeal to telcos and discos regulators and operators to see embrace credit reporting fully. These sectors and Nigerians will benefit immensely from a credit reporting system that is inclusive of these sectors and other utilities. I hold the view that the adoption by these strategic and critical sectors will deepen financial inclusion and further enhance access to credit even for the unbanked. Nigeria needs to play significant role in credit reporting in Africa.
We started a head of many countries. We will make CBAN play a major role towards an association of credit bureaus in Africa, as some other continents such as Europe. This will enhance peer review, capacity building and promotion of credit reporting in African countries.
The level of non-performing loans in the banking sector is extremely high, far above 15 per cent as against the five per cent regulatory threshold. How does this affect credit bureaux, given that the sector is expected to check bad borrowers?
The credit bureaux do act as a check against bad borrowers. They are a repository of the credit history of individuals and firms and in this way banks can know the individuals and firms with a history of bad debts and refrain from lending to them. It is a testament to the efficacy of credit bureaux that the level of non-performing loans in Nigeria has reduced from 37.25 per cent in 2009 to 12.82 per cent in 2016. However, more can still be done. The current level of non-performing loans in the banking sector is very worrisome. The high level of NPL that we are currently seeing can be traced back to the challenges in the oil and gas sector. The oil companies are some of the biggest borrowers of banks and when the global oil crash occurred it affected their ability to repay back their loans. There isn’t a lot that the credit bureau can do in this case because it is not as if the oil companies had a history of bad debts that the credit bureau failed to report on, but going forward the lesson here for banks is not to concentrate their facility in one sector.
What is your view on the CBN’s plan to institute new private asset management companies to buy up bad loans and how would you assess the impact of AMCON on the level of bad loans in its six years of existence?
The CBN’s plan to institute new private asset management companies is a sound one. It is a move dictated by the current realities in the financial system with respect to the high incidence of non-performing loans. Besides, I believe that a private-sector owned bank will run much more efficiently just like any other private sector initiative.
With regards to the impact of AMCON on the level of bad loans, I would say they have done well though there are certain challenges, which limit the level of achievements recorded so far by the corporation. Such challenges include the slow nature of our judicial system and the poor documentation surrounding the loans consigned to the corporation and backed-up assets. My submission is that if these bottlenecks are not dealt with, the private asset management companies may also experience difficulties in selling assets to third parties.
What are the benefits in the credit bureau industry that would attract more Nigerians to obtain their credit scores?
One major benefit of credit bureaux that should excite Nigerians and make them want to obtain their credit scores is that they help individuals to amass reputational collateral. Reputational collateral is built over time as an individual borrows and pays back on time without defaults. Reputational collateral can stand in place of physical collateral and help individuals get access to finance.
Why are Nigerians reluctant to embrace your services, especially getting and keeping their credit scores?
Nigerians are reluctant to use the services of credit bureaux because they are not aware of them and not necessarily because they don’t see the benefits that come with it.
To this end, we have been organising various programmes to reach out to the populace through our umbrella body: Credit Bureau Association of Nigeria (CBAN). I believe that concerted efforts to create awareness for the services of credit bureaux will see a rise in adoption. Nigerians and Nigerian companies should cultivate the habit of self-check. Good enough, the law enables individuals to obtain one free credit report in a year from the credit bureaux. The law also gives you the opportunity to guestion the credit report used to decline your loan request, if your loan request was turned down on account of negative information in your credit report. Besides, the credit bureaux have developed a number of products that individuals and firms can use to know their credit status at any time.
Consumer lending, which is a critical sector expected to benefit from your operations, is still untapped several years after you came into business.
There are many factors that affect consumer lending in Nigeria. One is that banks have been traditionally wary of lending to consumers compared with lending to corporates because of the perceived risks involved. While the credit bureaux have been able to mitigate these risks by reducing the information asymmetry between banks and borrowers, this mindset still persists. But it is rapidly disappearing.
Can we say operators have not measured up to expectations, and if that is the case, what are the factors stopping you from achieving set objectives?
For instance, in January the total amount of loans to consumers stood at under N1 trillion, while that of corporates stood at about N15 trillion. But things are changing very fast. The amount of loans and the number of consumer loans and loans to SMEs have increased and keep on increasing in recent time. Most banks have now developed consumer products and dedicated desks for SMEs. Many banks are changing their lending model to enable them upscale and lend in few minutes to consumers. Some are even now lending to individuals without bank accounts with them.
In some banks today, you can access loans under 10 minutes if you latch on to their loan application. Things are rapidly changing, but it will take some time before we see the impact. The credit bureaux and the fintechs are the enablers of these new lending models to consumers and SMEs. It must be understood that the credit bureau merely exists as an enabler. We are an infrastructure that helps banks manage credit risks and promote access to finance for individuals. However, we do not directly influence a bank’s decision on whether or not to grant credit. That is still up to the bank and there is nothing that we can do if their model of lending favours corporates compared with consumers.
On the other hand, we have the consumers themselves and their aversion to borrowing because of high interest rates and poor credit culture. So, no, I would not say that credit bureaux have not measured up to expectations when it comes to consumer lending, rather the prevailing credit culture has impeded consumer lending in Nigeria.
Have you been able to explore opportunities in other financial institutions, small businesses and civil servants to bring borrowers into your coverage area?
We have to an extent. Take CRC Credit Bureau, for instance, our operations have been able to cover all states in Nigeria and our data providers include other financial institutions. Civil servants can use our services to check their credit status and government and other employers can run credit checks on prospective employees using our services.
What can you tell us about product development at CRC? Are there unique products that set you apart from what your competitors offer?
CRC is constantly innovating and we have been recognised for this. We won the 2017 Nigeria Brand award for the most innovative and impactful credit information service provider in West Africa. We are very big on product development at CRC. Last year we launched CRC FICO score in partnership with Fair Isaac and Company. CRC FICO score is the only international credit score in Nigeria. CRC FICO score is a three-digit number that summarises the information in a credit information report and enables lenders and/or credit grantors make swift decisions on the credit worthiness of loan applicants and buyers of post-paid products.
We have several other products that set us apart. They are mostly credit monitoring products such as CRC I-CON plus and CRC CONplus. These are credit overview notification products that enable individuals and firms to receive information about their credit status on a monthly basis through an annual subscription mechanism. CRC I-CON plus delivers an easy, convenient and cost effective solution that enables customers monitor their overall credit exposure through monthly e-mail notifications, which can be viewed on the go. CRC CON plus is the same as I-CON plus except that it is targeted at firms. We also have developed credit monitor alert products that once you subscribe, you receive notification once there is a transaction that affects you from any of our data providers. These products can be purchased on our website: www.crccreditbureau.com. Some other initiatives are on the line and we will unveil our credit mobile application very soon.
Also, our strength lies in our partnerships with international firms such as Dun and Bradstreet and FICO. What this means is that our products are of world-class standard.
What is the biggest challenge facing the credit bureau industry at present?
There are three major challenges facing the credit bureau industry at present. One is data submission by institutions. Apart from financial institutions that submit data on individuals and commercial entities on a regular basis, most other institutions in the non-financial sectors are yet to fully come on board. There is a need for telecommunication companies, utility companies, insurance companies and all other companies that transact on a pay-later basis to regularly submit data to the credit bureaux in order to enhance credit reporting in Nigeria. There is also a low level of awareness of our activities, especially by individuals and business entities.