Nigeria: ‘Poor Identification, Credit Rating , Major Challenges Of MfBs

By Geoff Iyatse, Nigerian Guardian

As Accion Launches Savings Promo

Absence of all-embracing national identification scheme coupled with the underdeveloped credit bureau service is one of the most critical challenges affecting operations of microfinance banks in the country. The challenge is worsened by the Central Bank of Nigeria’s (CBN) insistence that new account applicant must present a valid identity card.

These were some of the observations of Chief Commercial Officer, Accion Microfinance Bank Limited, Nwanna Joel Ezeugo, in Lagos last week at the launch of a savings promo by the bank.

In face of the challenge, Nzeugo said, microfinance banks are trapped between the need to comply with regulatory provision and that of extending financial services to petty traders and small business owners who find it difficult to provide recongnised identification means for documentation.

She said Accion was looking at the possibility of accepting market association identity card, a proposal the institution hopes CBN will approve.

As part of its ongoing campaign on promoting saving culture among operators of the informal sector, Accion has launched a 10-month save and win promo for existing and new account holders. The promo is also extended to holders of dormant accounts.

A customer is expected to make minimum deposit of N10,000 in their account in a month and leave it till end of the month to qualify for a draw to win motorcycle, home theatre, generator sets, refrigerators, plasma television and other  items.

There will also be a final draw at the end of the 10-month promo period when a customer could win Kia Picanto Car or tricycle (keke NAPEP). The final draw, which will hold next May, is for customers with N100,000 savings built over a period of 10 months.

Nzeugo explained that the bank was not going into save-and-win promo because it is in short of liquidity but out of its commitment to promote saving culture among its customers. To buttress her point, she revealed that Accion, as at last December, recorded a total loan portfolio of N13b while it plans to hit N19b by end of the year.

The institution, which partners Zenith Bank Plc, Ecobank Nigeria Plc and Citibank, is also said to be concluding plan to issue Automated Teller Machine (ATM) cards to its customers just as marketers will be given Point of Sale (PoS) machines to facilitate quick transaction.

India: MFIs now banking more on credit bureaus to take a call on loan sanctions

By G. Naga Sridhar, The Hindu Business Line

Microfinance institutions are now increasingly routing loan applications through credit bureaus. And, a number of these applications are being rejected on the grounds of defaults/higher outstanding and multiple loans.

A credit bureau collects information from various sources and provides information on an individual’s credit history for a variety of purposes. It needs a licence from the Reserve Bank of India to do so.

“As per the self-imposed mandate of Microfinance Institutions Network, all our member NBFC-MFIs are using credit bureau data from June 1, 2012,” Mr Alok Prasad, Chief Executive Officer of MFIN, told Business Line.

MFIN members, who account for over 90 per cent micro-lending in the country, are regularly uploading data to credit bureaus — High Mark and Equifax.

“Use of credit bureau benefits the poor as well as MFIs. The general rate of rejection of loan applications is 8-14 per cent,” Mr S. Dilli Raj, Chief Financial Officer, SKS Microfinance Ltd, said.

As of now, the credit bureau records are being consulted to take a call on loan applications of 30 million MFI clients from across the country.

“As we move on, more data on defaulters will be available with increasing number of transactions,” Mr P. N. Vasudevan, Managing Director of Chennai-based Equitas Microfinance said.

The loan proposals are being turned down if the outstanding loan from any applicant is over Rs 50,000. “New loans are also not being extended if the applicant has more than two existing loans,” Mr Dilli Raj said.

Public sector banks, however, are not routing loans to self-help groups through credit bureaus.

As per MFIN data, the gross loan portfolio on the balance of MFIs was Rs 15,400 crore during 2011-12

Nigeria: Credit Bureaux Adopt Anti-Fraud Technology

From This Day Live

As part of efforts to strengthen its operations, the credit bureaux in the country have installed anti-fraud biometric technology into their system.

Managing Director/Chief Executive Officer, CR Services (Credit Bureau), Mr. Taiwo Ayedun, in a speech presented at a conference organised by the Committee of Chief Compliance Officers of Banks in Nigeria (CCCOBIN).

Ayedun said the move would enable banks effectively identify their customers and combat identity fraud.

Ayedun who spoke on “The Importance of Credit Reporting in the Banking Industry,” outlined some of the benefits of credit reporting to include: increasing social accountability, economic expansion and wealth creation.

He explained that credit bureaux act as social accountability mechanisms that guide people’s behaviour.

According to him, while credit bureaux reward good behaviour, it punishes fraudulent acts.

Speaking further, he described credit bureaux as one of the most important institutions in any nation, saying that Nigerians were yet to appreciate its importance.

Ayedun urged the banks’ compliance officers to ensure that their banks fully comply with the Central Bank of Nigeria (CBN) directive that banks should obtain credit report from at least two credit bureaux before granting any facility to their customers.

He also encouraged them to obtain quarterly credit report from at least two credit bureaux for all previous loans/facilities granted to enable the determination of borrowers’ exposure to the financial system.

Commenting on the ability of CR Services Credit Bureau to meet the demands of the market, Ayedun assured that his firm would continue to deliver innovative products such as detailed credit report, which showed a borrower’s payment history and the portfolio monitoring report, which allowed banks to proactively monitor the exposure and performance of their borrowers relative to the entire financial system.

Philippines: Credit bureau for microfinance formed

By: Michelle V. Remo, Business Enquirer

MANILA, Philippines—A credit bureau dedicated for micro-borrowers has been formed, and the Bangko Sentral ng Pilipinas said this should help boost growth in lending to the country’s low-income sector to a double-digit pace in 2012.

The seven biggest micro-finance institutions in the country signed on Tuesday a memorandum of agreement on the creation of the credit bureau, which would make lenders more comfortable at extending loans to micro-entrepreneurs.

Under the “Microfinance Data Sharing System (MiDAS)” agreed upon by the seven institutions, credit information on micro-borrowers would be placed in a common database that the lenders would have common access to.

Proponents of the system said that with the credit bureau, micro-entrepreneurs of good credit standing or those that have not been heavily indebted would have better chances of securing loans from the participating creditors. They said the credit bureau would address the problem of difficulty in access to loans by perceivably credit-risky micro-borrowers.

The seven micro-finance institutions that are signatory to the MiDAS are the following: Taytay sa Kausagan Inc. (TSKI), OK Bank, CARD Bank, CARD NGO, Negros Women, Ahon sa Hirap and ASA Philippines. Together, they serve about 70 percent of the estimated 1 million micro-borrowers in the country.

Aristotle Alip, managing director of the CARD MRI Development Institute – the umbrella organization for some microfinance institutions including CARD Bank – said other entities engaged in micro-finance would be welcome to be part of the credit bureau.

Alip said that unlike any regular data-sharing agreements, the one signed by the seven micro-finance institutions would guide lenders in their credit decision-making. The agreement also provides for the assistance of financially troubled micro-enterprises.

Alip said the credit bureau would have a partner organization focusing on helping rehabilitate problematic micro-enterprises.

“Under our agreement, there will be no blacklisting of clients. Instead, a rehabilitation company will be created to help [financially troubled] clients,” Alip said during the launching of the MiDAS held on Tuesday, at the BSP headquarters in Manila.

In the meantime, the central bank is looking at a favorable outlook for microfinance lending for 2012, especially with the creation of the credit bureau.

At the sidelines of the program, BSP Deputy Governor Nestor Espenilla Jr. said micro-finance loans would likely be robust in 2012 in that it could potentially match the double-digit pace of growth projected for lending to large enterprises and conglomerates.

The banking industry expects growth in lending to big businesses to stay well above 10 percent this year.

“We expect microfinance loans to increase this year and to match the growth in regular lending,” Espenilla said.

“The credit bureau will help boost credit to micro-enterprises,” the central bank official added.

Outstanding microfinance loans in the country currently stand at about P7 billion and cover nearly 1 million clients.

There are about 200 banks and credit institutions in the country that engage in microfinance.

Nigeria: Credit bureaus to curtail bank’s lending risks

By Oluwaseyi Bangudu, 234Next.com

Lending would soon come at minimal risks to banks and lending organisations as they scramble to access the services of credit bureaus, before creating new assets.

Taiwo Ayedun, managing director, CR Credit Registry, a credit bureau, said here has been an 85 per cent success hit rate in bureau requests so far, by lending firms.

Reports show that there was an encouraging percentage growth in credit in the first half of 2011, compared to the first half of 2010, as banks make more use of credit bureaus, companies that collect information from various sources and then provide consumer credit information and bill paying habits especially on individuals borrowing.

Industry watchers say this was due to marketing efforts by the credit bureaus and the Central Bank’s circular for banks to start using the services of credit bureau before giving out credit to lenders.

“There is a tremendous opportunity for the banks. The country and the banking sector have tremendous opportunity for growth. In May,

CR achieved 100 per cent coverage of the commercial banking space. Every successful economy is to create credit. The highest contribution of credit to the Nigerian GDP is 12 per cent. There are lots of growth prospects” he said.

Industry usage

Chief accountability officer of XDS Credit Bureau Limited, Ubong Awah, said the coming on board of the Asset Management Corporation of Nigeria (AMCON) and the threat of compliance enforcement by the Central Bank of Nigeria (CBN) has resulted in an upswing in the patronage of the credit bureau by the banks in the past few months.

“The banks are beginning to see the benefits in real terms of credit reporting as incidences of multiple borrowing and bad loans have reduced since embracing credit bureaus,” he said.

According to Mr Ayedun, while commercial banks dominate in utilising credit risk data, other industries are embracing the use of credit information to make informed risk management decisions.

He said About 92 per cent of the usage of credit bureau is requested by commercial banks, while other industries, such as finance houses,

savings and loans firms, discount houses, microfinance banks and even the government, account for the remaining eight per cent.

“Anybody or firm doing lending would benefit from the scheme. If banks give more money as loans, it would boost businesses, employment rate would rise, and they would have more income in their bank accounts. That is how GDP grows an economy. This scheme however, helps banks lend much more profitably, and reduces their risk exposure.”

Credit bureau services also eliminates fraud using world class biometric technology and also help lending organisations access rich, robust and easy to read credit reports, while also helping them comply with the Central Bank’s directive.

Industry watchers say portfolio monitoring of existing and potential lenders is expedient as it enables compliance with the Central Bank directive risk base supervision, while giving an immediate awareness of customers’ global non performance behaviour.

“Portfolio monitoring has the ability to proactively implement risk mitigation strategies to reduce delinquencies and losses” Mr Ayedun said.

According to him, it also helps provide credit line marketing opportunities, with an overall ability to optimise revenues and revenues.

Also, because of the accessibility of information, customers now have the ability to receive competitive efforts from multiple lenders.

“Very soon, people won’t have to be applying to banks for loans. The banks themselves would begin to send messages to their customers, asking them if they are interested in acquiring loans” he said.

These services give users access to the most comprehensive credit bureau database to make more effective decisions. It also gives access to reliable information to grow customer base and increase profitability.

“It is not all about the users of the data offered by the credit bureau companies. Customers too do have a lot to derive from the programme as well. Customers have an opportunity to demonstrate responsible credit behaviour and then enjoy more credit to enable business expansion. It also affords customers the ability to dispute erroneous information on credit reports”.

Challenges abound

Despite the benefits the scheme has to offer, huge industry challenges still abound. According to Mr Awah, the sector is still plagued by the dearth of information on individuals and poor data gathering techniques which is affecting the quality of data available.

“Coverage is yet to be total though and unique identification and poor data quality remains a challenge. The industry can fare better with more regulatory support like enforcement of compliance with extinct regulations.”

Mr Ayedun said the absence of a unique identifier due lack of a national ID that the banks can trust remains a big challenge.

“Also there is the worry about the quality of data supplied to the bureau by the banks. Some of the data would not have the accurate date of birth, the date a loan was given or some other information” he added.

Financial analyst at Financial Derivatives Company a Lagos based finance research and analysis firm said with the benefit of hindsight, banks now have to pay more attention to risk management and debtor profiling.

“The previous practice of granting credit will have to be streamlined to ascertain the credit history of clients and potential borrowers. To this end the roles of the credit bureau in the new dispensation will also come to the fore,” he said.

Philippines: Microfinance players to get their own credit info bureau

By A. S. O. Alegado, Businessworld Online

MICROFINANCE institutions will begin using an online credit information bureau in a bid to prevent over-indebtedness due to multiple borrowings among their clients — a practice that gave rise to a repayment crisis in India.
The association of large banks, the Bankers Association of the Philippines (BAP), will develop the online facility. Microfinance institutions will run it.

“We are slated to launch an online credit bureau independently run by microfinance institutions in June to July [this year] to avoid the risk of multiple borrowings by bad creditors,” BAP credit bureau managing director Leonilo G. Coronel told BusinessWorld at the sidelines of the Microfinance Stakeholders Summit at the Bangko Sentral ng Pilipinas (BSP) yesterday.

“Microfinance institutions will voluntarily provide credit information about their clients. They will provide the inputs but they will also get the output,” he added.

Microfinance involves the extension of credit to poor borrowers who are normally turned away by the banks.

The loans are often used to jumpstart enterprises — mostly buying and selling on a micro scale — and is regarded as a poverty alleviation tool.

Interest rates are high, ranging from 24% to 36% per annum, but this is because microfinance is labor intensive on the part of lenders. Still, microfinance, at least in the Philippines, is enjoying high repayment rates.

The multiplity of lenders and the lack of a credit information bureau, however, has allowed borrowers to tap different microfinance institutions at the same time, giving rise to the risk they might take on too much debt and default on their borrowings.

This was what happened in India, particularly in the Andhra Pradesh state. Borrowers, mostly women, did not use the loans to start businesses that would have provided cash flows. They instead used them to settle household expenses. Burdened with debts, they went from one microfinance provider to another to borrow in order to settle their earlier debts.

Multiple borrowings have been noted in the Philippines.

“Multiple borrowings by clients, which have increased in the past years, pose a risk not only to local players but to the borrowers themselves,” said Elisabeth Rhyne, managing director of US-based ACCION International’s Center for Financial Inclusion, at the sidelines of the summit yesterday.

She also gave a talk on “How to Avoid an Indian Type Microfinance Crisis in the Philippines” yesterday.

“Credit bureaus are very much needed in a multiple lender environment to avoid over-indebtedness of their (microfinance institutions) clients,” she added.

A credit information bureau mandated by Republic Act (RA) 9510 or the Credit Information System Act, which was passed into law three years ago, has failed to take off the ground.

“The problem here is information asymmetry, as lenders do not know whether the borrowers have multiple loans. Information on these borrowers’ credit background is important,” Mr. Coronel said.

Ms. Rhyne, in her talk, said the absence of a credit bureau, which permitted multiple borrowings, was the major cause why India’s microfinance sector is now in a slump.

Right after reports of suicides among borrowers who could not pay their debts, the Andhra Pradesh state imposed interest rate caps last year. Lending and collections by micro-lenders have grounded to a near halt there.

Ms. Rhyne, however, singled out the Philippines’ sensible microfinance regulatory environment, active industry associations, product diversity and the cooperation among stakeholders as “assets.”

While Malacañang takes its time appointing the president of the Credit Information Corp. — the body that RA 9510 seeks to establish — industry players are running their own credit bureaus.

The BAP has its own, which the Rural Bankers Association of the Philippines, the association of rural banks, is also using.

Mr. Coronel said, “It doesn’t matter who runs the credit bureau as long as it serves its purpose”.

“The lack a credit bureau or some sort of information sharing, is like journeying in the sea without a lighthouse,” he added.

Plans to form credit reference bureau on course – BoT

From The Guardian

The establishment of credit reference bureau is on course, the Bank of Tanzania (BoT) has said.

Speaking at a two-day workshop in Bagamoyo yesterday, BoT’s Microfinance Supervision manager Harry Ndambala, said the process to establish the credit reference databank was at its initial stage.

With its establishment, he said, the rate of defaulting in loan payment in Tanzania, which is currently rated high, would come down.

Hitherto, banks and financial institutions have been experiencing difficulties in lending, particularly when they do not know the customer’s banking history.

The workshop which discussed regulations on microfinance environment and financial inclusions was organised by Tanzania Association of Microfinance Institutions (TAMFI) and funded by BoT.

Once in place, the facility would enable lenders, including bankers, financial institutions, hire purchase ventures operators and traders to determine creditworthiness of their customers, Ndambala said. It is estimated that loan defaulting rate in Tanzania currently stands at 15 per cent.

He said under the financial sector support programme, the BoT had set up a division to handle the data bank.

The programme has already set aside funds to ensure that the databank becomes operational, he stated.

Asked when the data bank would start its operations, he said the process might take time since it would involve a number of things.

The news to establish the bureau have been well received by many lenders since it has taken years after the government announced its intention to do so.

Helena Lutege from Better Life Tanzania Trust Fund (BELITA), a participant in the workshop said slow loan disbursement currently being experienced by many financial institutions was a result of lack of a credit information bureau.

She said one of the challenges facing many financial institutions in Tanzania was lack of reliable information on which bankers could act on.

“We in the microfinance sector, want to see that many more people get loans from us, but the major challenge has been lack of an information bureau to assist us to do so,” she said.

She said before issuing a loan, any bank or financial institution must establish the true banking history of the respective customer.

Lutege, who is also the fund’s founder and managing director said, for banks it was easy to know the person than microfinance institutions which do not take customer deposits.

According to her, lack of a credit reference bureau (CRB) could be one of the reasons why many financial institutions incur the debts.

Lenders in the country, particularly commercial banks, have been citing the absence of a mechanism to know customers’ background as a major factor behind the high lending charges they impose.

“With the competition we currently have in the banking industry, we expect rather low interest rates – if there is no collusion in fixing the same,” she said.

According to experts, the high interest charges on loans are a big hindrance to the country’s efforts to recover from setbacks and shocks arising from the global economic crisis.

Currently, there are more than 30 banks operating in Tanzania.

The establishment of credit reference bureau is on course, the Bank of Tanzania (BoT) has said.

Speaking at a two-day workshop in Bagamoyo yesterday, BoT’s Microfinance Supervision manager Harry Ndambala, said the process to establish the credit reference databank was at its initial stage.

With its establishment, he said, the rate of defaulting in loan payment in Tanzania, which is currently rated high, would come down.

Hitherto, banks and financial institutions have been experiencing difficulties in lending, particularly when they do not know the customer’s banking history.

The workshop which discussed regulations on microfinance environment and financial inclusions was organised by Tanzania Association of Microfinance Institutions (TAMFI) and funded by BoT.

Once in place, the facility would enable lenders, including bankers, financial institutions, hire purchase ventures operators and traders to determine creditworthiness of their customers, Ndambala said. It is estimated that loan defaulting rate in Tanzania currently stands at 15 per cent.

He said under the financial sector support programme, the BoT had set up a division to handle the data bank.

The programme has already set aside funds to ensure that the databank becomes operational, he stated.

Asked when the data bank would start its operations, he said the process might take time since it would involve a number of things.

The news to establish the bureau have been well received by many lenders since it has taken years after the government announced its intention to do so.

Helena Lutege from Better Life Tanzania Trust Fund (BELITA), a participant in the workshop said slow loan disbursement currently being experienced by many financial institutions was a result of lack of a credit information bureau.

She said one of the challenges facing many financial institutions in Tanzania was lack of reliable information on which bankers could act on.

“We in the microfinance sector, want to see that many more people get loans from us, but the major challenge has been lack of an information bureau to assist us to do so,” she said.

She said before issuing a loan, any bank or financial institution must establish the true banking history of the respective customer.

Lutege, who is also the fund’s founder and managing director said, for banks it was easy to know the person than microfinance institutions which do not take customer deposits.

According to her, lack of a credit reference bureau (CRB) could be one of the reasons why many financial institutions incur the debts.

Lenders in the country, particularly commercial banks, have been citing the absence of a mechanism to know customers’ background as a major factor behind the high lending charges they impose.

“With the competition we currently have in the banking industry, we expect rather low interest rates – if there is no collusion in fixing the same,” she said.

According to experts, the high interest charges on loans are a big hindrance to the country’s efforts to recover from setbacks and shocks arising from the global economic crisis.

Currently, there are more than 30 banks operating in Tanzania.

MFIN launches credit bureau for microfin client data

From Business Standard

Microfinance Institutions Network (MFIN), a self-regulatory organisation of the Indian microfinance sector, has launched a Credit Bureau initiative in collaboration with High Mark Credit Information Services Ltd, to provide client data to its members.

The network, which represents 46 per cent of the Reserve Bank of India (RBI)-approved NBFC-MFIs which claim to cumulatively account for over 80 per cent of all micro-credit activity in the country, has uploaded data on 28 million loan accounts so far, said Alok Prasad, CEO, MFIN.

The arduous task of collating data for about 30 million borrowers and uploading it onto a common data format could not have been possible without the support and co-operation of member MFIs. The industry is unanimous in its view that dedicated credit bureaux for the sector will bring enormous transparency at the client level and will help curb multiple lending, said Prasad.

The credit bureau would help the MFIs to determine repayment behaviour of the client by providing repayment history of the clients. For the clients, a clear repayment history would bring in credibility and thus enable them to borrow at lower rates based on strong repayment history, he added.

A fully functional credit bureau for the microfinance industry is expected to be operational by April, 2011, said the organisation.

MFIN was established in October 2009 and has developed a code of conduct for its members which emphasises transparency and fair practices, added Prasad.