Credit information sharing plays a critical role in the functioning of the retail financial services sector at a number of different levels. It:
- Contributes to increased access to finance by providing critical information necessary for rapid and better informed assessment of credit applications from individuals and SMEs;
- Is an important tool in preventing over-indebtedness, by making information available on consumer debt levels, enabling early detection of potential over-indebtedness;
- Provides valuable information for banks and other credit providers to manage credit risk, both in the approval of applications and in the management of the SME and consumer credit portfolios;
- Supports prudential supervision through better risk management, by reducing the levels of default and risk of bank failure; and
- Promotes regional commercial activity as it improves commercial and financial institutions’ ability to manage their risk on a regional basis.
FinMark Trust identified credit information sharing as a strategic area for support after conducting a review of the credit bureau activity in SADC countries in July 2011. The review indicated wide divergence in the level and sophistication of credit information sharing across SADC member countries as well as in the structure of the credit bureau sector and in the regulatory environment.
Based on this report and discussions with other stakeholders, it was evident that countries in SADC would benefit from a regional project to promote the sharing of credit information, developing credit information availability and harmonising regulations.
The proposed project was presented to the following key stakeholders with positive responses and support:
- Committee of Central Bank Governors( CCBG) Working Group
- CCBG Committee on Financial Markets
- SADC Banking Association and the
- Credit Providers Association (CPA).
These four stakeholders form the Steering Committee for the project. Two credit reporting specialists have been hired to implement this project in selected countries, namely Zambia, Zimbabwe, Botswana, Namibia, Lesotho and Swaziland as a first phase before rolling out to the rest of SADC.
FinMark Trust is funding the project through donor funds from DFID and GIZ. This funding is primarily intended to create awareness and covers the initial costs required to establish credit reporting alliances and to ensure that they are firmly grounded. It specifically covers
- Two Credit Reporting Specialists costs;
Co-ordinator costs in each of the target countries for a period of not less than six months;
- Travel for the project staff and any delegates attending steering and management committee meetings;
- Research and consultancy costs for relevant short term assignments, and
- Other project related costs.
The project aims to:
- increase access to finance for households and SMEs,
- improve risk management for credit providers,
- curb increasing over-indebtedness
- contribute to improved bank supervision and compliance with international best practice
- ensure that information sharing takes place within a regulated environment which provides for appropriate protection of consumer rights.
- promote cross-border credit information sharing by facilitating greater harmonization of legislation and regulations governing credit reporting in the SADC region.
Progress So Far
Since inception, the project has succeeded in bringing stakeholders together in various workshops in the target countries. The workshops have led to the formation of Steering Committees to oversee the creation of Credit Reporting Alliances. The alliances will be assisted in each country by a FinMark Trust coordinator for a limited period of time to facilitate the development of legal documentation, registration with the authorities and membership recruitment. Thereafter, the alliances will manage their own affairs with assistance from FinMark Trust on a needs basis. Coordinators have already been recruited in Zimbabwe, Namibia, Lesotho and Botswana. Swaziland and Zambia coordinators are expected to come on board by the 1st August, 2014.
Now that the Coordinators are on board, the focus will shift to the registration and the actual operationalization of the Credit Reporting Alliances. A major component of this is continued awareness creation and recruitment of members and will involve making presentations to various groupings of credit providers, agreeing on data submission templates/processes and working on sustainability measures. The project also encourages the nascent alliances to continually engage with the relevant authorities in the development of appropriate legislation to govern credit reporting as this does not exist in a number of countries.