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Reform of Credit Information Bureau An Overview
Reform of Credit Information Bureau An Overview
Reform of Credit Information Bureau An Overview
The standard practice of other countries, the credit information reports neither express
any opinion about the borrower creditworthiness nor assign any rating to the borrowers.
A credit bureau not only collects but also processes and stores credit information both on
the existing borrowers and the potential borrowers with a view to furnishing the
information, on request, to the lending institutions which are its members. They maintain
a data bank on borrowers from lending institutions of trade, credit and financial
information on borrowers and prospective borrowers of lending institutions. It provides
factual position of the borrowers' credit exposure both negative as well as positive as of
certain date. The negative CIR report may be due to some outstanding liabilities of
financial institutions that were either not paid or paid after the due date.
The borrowers will be able to obtain a copy of their Credit Information Bureau reports.
CIB report is a confidential document, A CIB report just shows the past behaviours of the
borrowers and financial institutions use CIB reports as a helping tool for making credit
decisions.
There are around 153 million inhabitants in Bangladesh, and today only 10% are reached
by banking services, even if the rate of increase in the banking population is close to 20%
per year. The country's growth prospects - on an overall national economic level and
specifically in the credit market - are considerable. Regarding the number of transactions
managed by the central bank credit information system, it is expected that there will be
around 50,000 requests processed per day within five years.
There are some very strict laws and rules in Bangladesh to punish the defaulters. The
banks and financial institutions are not permitted to extend new credit facilities or renew
existing credit facilities to default borrowers. Also defaulters are not allowed to
participate in parliamentary election, float shares in the capital market, qualify for
directorship of banks/financial institutions, insurance companies and CIP (Commercially
Important Person) status. All these laws and rule seems not sufficient to efficient
management of FIs.
Bangladesh Bank has established a Credit Information Bureau in 1992 in order to
facilitate the banks and financial institutions to ascertain the full credit exposure of the
borrowers/owners. The CIB has been in operation for several years. The central bank
established a separate unit headed by a General Manager to develop the CIB. CIB
collects credit related information from banks on monthly (having outstanding balance of
TK.10 million and above) and quarterly (having outstanding balance of TK. 50 thousand
and above but below Tk 10 million) basis. Same information are also collected from
financial institutions (having outstanding balance of Tk. 50 thousand and above) on
quarterly basis. The classified credit card having outstanding balance of TK.10 thousand
and above are also collected on quarterly basis. On the basis of these collected data CIB
data base is created and updated. On the basis of the data base CIB supply full credit
exposure of the related borrowers/owners as per request of the banks/financial institutions
on regular basis.
CIB maintained two databases first the borrower database that lists all companies that
have credit facilities. This enables the CIB to review the total exposure of the company
with all banks. The second data base is called the owners database; it links the owners i.e.
listed owners or directors as reported by the lending bank, to the businesses which they
own. It can revealed the credit exposures associated with a particular individual and
company.
Banks in Bangladesh need to wait some days in order to obtain a credit report for a loan
application. The CIB reports are some time questionable. The data collected and input has
many anomalies. Moreover, FIs use to report much information of borrowers causing a
hassle for the borrowers. They usually do not maintain the limit of minimum credit and
also report against guarantors of loan. As per existing laws the guarantors are not
defaulters to cartels the rights of credits. The correction of information and the Credit
reports takes quite long time. The number of writ petition against CIB report and the out
come of the court decision made a conclusion that the CIB reports are some time not
based on true state of affairs. Even the recent statement of finance minister about NPL in
Parliament has been clarified or contradicted by subsequent statement of Bangladesh
Bank.
The CR is mandatory on the FIs and they have no other option to follow the report
although as per general practice in other countries CR is an information for FIs to decide
of their course of action. CIB is a department in Central Bank of Bangladesh but US
credit bureau or UK credit reference agency is a company that collects information from
various sources and provides consumer credit information on individual consumers for a
variety of uses. It is an organisation providing information on individuals borrowing and
bill paying habits. This helps lenders assess credit worthiness, the ability to pay back a
loan, and can affect the interest rate and other terms of a loan.
Usually credit bureaus collect and collate personal information, financial data, and
alternative data on individuals from a variety of sources called data furnishers with which
the bureaus have a relationship. Data furnishers are typically creditors, lenders, utilities,
debt collection agencies and the courts (i.e. public records) that a consumer has had a
relationship or experience with. Data furnishers report their payment experience with the
consumer to the credit bureaus. The data provided by the furnishers as well as collected
by the bureaus are then aggregated into the credit bureau's data repository or files. The
resulting information is made available on request to customers of the credit bureau for
the purposes of credit risk assessment, credit scoring or for other purposes such as
employment consideration or leasing an apartment.
In the United States, the legal term for a credit bureau under the federal Fair Credit
Reporting Act (FCRA) is consumer reporting agency - often abbreviated in the industry
as CRA. There are four national US credit reporting agencies: Experian, Equifax,
TransUnion, and Innovis. These organisations are not for-profit businesses and possess no
government affiliation. Though they are competitors, they have formed a trade
organisation called the Consumer Data Industry Association (CDIA). There are dozens of
other similar information collection and reporting firms that analyse and sell information
about consumers for other purposes, including those who aggregate multiple credit data
There is another restriction of loan control over the loan to all businesses of loan
defaulters even other business of may be in good performance. The purpose and objective
of CIB ignore the catastrophic impacts on economy. The most experience and most
skilled entrepreneurs are denied capital. It discourages reinvestment and expanding
output and employment. A person with two limited companies one successful, one not
successful should not be forced to hurt one company to help the other. The limited
liability concept are being violated that the enthusiasm of entrepreneurs are ignore
contrary to encourage entrepreneurship through different programs to develop
entrepreneurship.
The policy of linkages of companies through common directors in CIB's reports will
effectively destroy manufacturing growth. At present this is clearly having a serious
dampening impact on investment in private sector. The policy to use CIB by Bangladesh
Bank as device to control credit to borrowers is an issue to be decided by the highest
level of policy makers.
CIB should be a part of credit rating policy and shall be operated like a credit rating
agency for giving advisory services to FIs and any other business organisation but not as
credit control wing of Bangladesh Bank.
The writer is with Leading University and can be reached at e-mail:
shah@banglachemical.com