By Babajide Komolafe
The Central Bank of Nigeria (CBN) has threatened to sanction banks that fail to comply with its directive on the use of credit information from credit bureaus before granting any loans.
In circular to banks and financial institutions signed by the Director, Banking Supervision, Mr. Samuel Oni, the CBN said â€œIn its effort to provide a platform for financial institutions to strengthen their credit appraisal procedures with a view to enhancing credit quality and responsive credit behaviour in the nationâ€™s financial system, the CBN recently licensed 3 private credit bureau to provide credit history on borrowers.
â€œFollowing the release of the Guidelines on Licensing, Operations and Regulations of Credit Bureau issued by CBN in October 2008, it has become imperative to issue this circular directing banks and other financial institutions to partner with the licensed credit bureau in order to enhance the performance of their operations.
â€œConsequently, it is mandatory for banks and other financial institutions under the purview of the CBN to comply with Sections 5.4.3 and 5.4.5 of the Guidelines on Licensing, Operations and Regulations of Credit Bureaus in Nigeria as follows:
Have data exchange agreement with at least 2 credit bureaus;Â obtain credit report from, at least, 2 credit bureaus before granting any facility to their customers; and obtain quarterly credit report from, at least, 2 credit bureaus for all previous loans/facilities granted to enable the determination of the borrowers current exposure to the financial system.
â€œBanks and other Financial Institutions are advised to comply with this circular with immediate effect as failure to do so will attract appropriate sanctions.â€
Presently there are 3 licensed credit bureaus in the country namely, CR Services PLC also known as Credit Registry, XDS Credit Bureau and Credit Reference Company.
Recently, the MD/CEO, CR Services PLC, Mr. Taiwo Ayedun, reiterated the importance of credit bureaus, saying â€œa well developed and efficient credit information system as represented by credit bureaus are critical to developing a good lending culture in Nigeria.â€
He said, for example, consumer and mortgage credit, on average, account for over 67 per cent ($8trn) of the GDP of the United States, a country with over three decades of strong consumer information sharing, adding that in Nigeria, but the share of these is insignificant in total loans in the banking industry or the countryâ€™s GDP.
Speaking at seminar for Business Editors and Finance Correspondents organised by the company in Lagos recently, Ayedun said information dissemination is one key role of credit bureau services in enhancing smooth operations of any financial institutions in the country, adding that this is the driving force behind the establishment of CR Services.
â€œCR Services understood early that widespread access to consumer credit can stimulate economic productivity and wealth creation. However, without information about consumers, banks and creditors cannot provide broad access to consumer creditâ€.
He said in addition to being the pioneer credit bureau in Nigeria, the companyâ€™s biometric identification technology is the first of its kind and the best in the world. He said apart from solving the problem of lack of unique identifier in the country, it is alsoÂ Â fraud-proof and a major boosts forÂ large-scale consumer credit in Nigeria.
According to him, with its integrated biometrics technology, Credit Registryâ€™s system identifies consumers based not only on their personal data but also on their physiological characteristics such as their fingerprint or face. CR ServicesÂ system enables creditors to know the true identity of their customers, prevents revenue loss and protects consumers from identity theft fraud.
He explained that Credit Registryâ€™s consumer identification technologies are more secure and reliable than the ID numbers used by traditional credit bureau systems, which are prone to identity theft fraud because compromised personal data in these systems can be used to obtain credit in another personâ€™s name, thus destroying the credit reputation of the victim and increasing liability for creditors.
â€œCR Services utilizes sophisticated credit scoring algorithms to account for the data collection habits of creditors and the lack of initial consumer credit histories in emerging markets. You can bank on CR Services track record, experience and innovation in credit information exchange systems.â€