Business Times

SL must double credit flow to achieve target growth

By Jagdish Hathiramani

Sri Lanka would have to double its present credit flow from US$ 1.5 trillion to US$ 3 trillion to achieve its target income per capita of US$ 4,000, according to Priyantha Fernando, a Deputy Governor of the Central Bank of Sri Lanka and Chairman of the cuntry's Credit Information Bureau (CRIB).

Announcing that the CRIB was now ready to move to a second stage of operations which would offer more value added products, after an upgrade begun in 2005; he also revealed that there were 3 million entities recorded in the organisation’s database. He also revealed that on average 5,000 credit reports were supplied daily, a figure which recently peaked at 7,000 a day. Consumers could request these from banks or even online for a minimum fee.

Also according to Mr. Fernando, moveable assets such as livestock, agricultural equipment, etc. accounted for 70% of the collateral for Sri Lanka's small and medium enterprises (SMEs). Meanwhile, according to Tony Lythgoe, Head of Financial Infrastructure for the Global Credit Bureau Programme of the International Finance Company of the World Bank, 99% of all business globally fell into the SMEs or microfinance categories while this was closer to 89% in USA.

Indicating that better access to credit for SMEs and Micro Finance Institutions (MFIs) were shown to create employment, he however also suggested that the growth of microfinance was causing an over indebtedness bubble. This was witnessed recently in Pakistan where the opening of a credit bureau documented that microfinance customers in the country had, on average, 2.6 credit facilities each.

Mr. Lythgoe also noted that the role of credit bureaus such as Sri Lanka's CRIB should be to facilitate broader and fairer access to credit as well as lower the cost of credit for good borrowers. It should also provide information to prevent over indebtedness by making lenders aware of borrowers' capacity to service debt and improve lenders' profitability by helping lower operation costs as well as provide proactive tools such as credit scoring, etc.

He also suggested that barriers to credit reporting for MFIs included customer identification (and address verification), IT constraints (connectivity, lack of data automation), process (data collection, application processing, credit risk management), value proposition (high costs of reports, unproven benefits, viability of bureau), experienced specialists such as credit officers, CRMs and regulators, and apathy stemming from over indebtedness, sustainability and the future credibility of the industry.

Mr. Lythgoe also showcased the ideal model of a credit bureau and the features it would provide including the ability to track individuals across multiple companies for a complete credit history as well as the incorporation of data from utility and telecom companies to be used as risk early warning signs, and value additions such as the enquiry log that would showcase customers' credit enquiry footprint including credit hunger and credit stress factors.

He also noted that a recent meeting, he had had with local telecom companies, suggested that they would all be willing to share information with the CRIB and also join the bureau, a public private partnership under the purview of the country’s Central Bank. This is to facilitate access to consumer credit information and improve collections while also target postpaid offerings, that are much higher value products, toward better consumers.

Both Mr. Fernando's and Mr. Lythgoe's comments were made at a presentation entitled "Credit Reporting and beyond", organised by the CRIB. Also speaking at the presentation, V. Narasimhan, Chief Operating Officer of Dun & Bradstreet South Asia Middle East, the organisation tasked with the CRIB's recent upgrade, revealed that the local bureau had currently figures of approximately 6.2 million credit facilities held by 3.4 million entities, encompassing both consumers and corporates. Further, the CRIB's estimate for the number of credit reports to be issued this year was 1.34 million, up from 866,000 in 2009 and 836,000 in 2008. The fees for credit reports, as per the CRIB's website, are Rs. 750/- for information about corporates and Rs. 500/- for information about consumers.

Mr. Narasimhan also outlined the rollout timeline of the products that would be available as part of the CRIB's second stage: bulk-oriented, offline and cost-effective batch processing and instantaneous, online live processing (already available); automated email alerts that track changes in consumer profile and credit facilities (available in three months); and bureau scoring of customers' credit worthiness as a numerical expression, business intelligence-centred portfolio monitoring reports, fraud reporting and a secure transaction and collateral registry (available in six to twelve months).

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