Ghana’s economy can’t see real growth and development with impact on citizens’ lives, without a functioning credit bureau backed by central banks strong enforcement.
Credit Reference bureau benefits both the lender and the borrower and it is a tool that can bring benefits to the Ghanaian economy. In developing countries the credit Referencing Bureau concept is very new and has not been widely accepted but with an increase in defaulters, it is gaining momentum but at a slow pace in Ghana.
Inadequate access to credit, limits poor people from a fair share of resources in society, depriving them of basic needs and opportunities in life. Universally, commercial banks are facing problem of non-repayment of loans. This problem can be overcome through monitoring the behavior of borrowers. Thus, the idea of establishing Credit Reference Bureau (CRB) was conceived in order to assist banks in determining credit worthiness of their borrowers. CRBs allows for credit information sharing among the financial institutions.
Credit reference bureau is a business nobody loses but the economy benefits enormously in terms of job creation and productivity.
Credit referencing is the collection, maintaining and sharing of both demographic and credit information on individuals and small businesses with lenders on request to enable them to make informed decisions when granting credit.
An effective credit bureau system holds the key to solving the biggest headache of access to credit, especially for small medium enterprises (SMEs) that formed about 80% of businesses in Ghana.
Dun and Bradstreet Credit Bureau Limited becomes the third credit reference bureau to enter Ghana after XDS Data and Hudson Price Data Solutions.
Dun and Bradstreet Credit Reference Bureau seek to enhance access to credit by keeping records on the credit history of borrowers which are used by financial institutions to take decisions associated with the granting of loans.
D&B Credit Information reports provides quality reliable data on loan applicants and therefore banks, rural banks, Non-Banks financial Institutions, Microfinances etc do not need to demand collateral before granting loans.
The commencement of credit bureau operations has enabled banks, non-bank financial institutions and other lenders to establish the credit worthiness of borrowers, which has greatly improved their businesses as they keep making huge savings due to drastic reduction in loan default rate.
Acknowledging, however, that the response from the banks to loan advancement at reasonable rates had been slow, this is where we need to have the gut to push the banks because the economy must grow and it is the responsibility of the Bank of Ghana (the regulator) to take those measures on the banks.
The Bank of Ghana, must also step up education on the importance of credit referencing and the need for all financial institutions and other credit grantors to abide by the provisions in the Act.
This would lead to rewarding good borrowers with more favorable terms, while exposing the bad borrowers, adding that the efficiency gains that would accrue to lenders could be passed on to clients or borrowers in the form of lower interest rates and charges.
In the absence of credit reporting system, many lenders would be reluctant to give credit to people they did not have adequate information about and that would reduce the level of investments in the country thereby increasing economic hardships.
The old habit of the Ghanaian who spends years to accumulate money to buy things like house, furniture, household appliances must change. It is not like that in the developed states. People survive and live on OPMs (Other Peoples Moneys) and that can also happen in Ghana.
The benefits of a Credit bureaus in Ghana should be a win-win situation that enables lenders to access good customers and also for customers with a good credit history to obtain credit at better terms. The benefits that accrue from a Credit referencing bureaus are;
• Reputational collateral
• Business growth
• Improved margins
• Increased customer loyalty
• Improved revenue collection
• Fewer defaulters.
Credit reference Bureau therefore plays a role in the growth of the entire economy. Let’s embrace the concept for a better debt culture that benefits all.
Other benefits of having a good Credit rating are listed below for both the investor and the company;
Benefits to the Investor
• Safety of Investments
• Recognition of risk and returns
• Freedom of investment decisions
• Wider choice of investments
• Dependable credibility of issuer
• Easy understanding of investment proposals
Benefits to the Company
• Easy to raise funding
• Reduced cost of borrowing
• Reduce cost of public issues
• Ratings can build up image
• Ratings facilities growth
• Recognition to unknown companies
Operational activities between the credit bureau, lenders/banks and the individual/applicants
Credit reporting systems should have accurate, timely and sufficient data – including positive – collected on a systematic basis from all relevant and available sources, eg banks, rural banks, Microfinances, Non-Bank Financial Institutions etc. and should produce this information into a substantial credit information reports.
What does sufficient data look like?
• Enough to get a good view of the credit behavior of the data subject
• Enough to get a good view of the commitments of the data subject
• Enough to cover as many data subjects as possible E.g. most consumers and businesses have a telephone – mobile or fixed
• It is a critical service for most businesses
• It is one of the first agreements for a young person
To recap the benefits of sharing positive and comprehensive data;
With the above shared information and awareness, I believe credit bureau is here to help fix our financial systems and improve Ghana economy.
Author: Gabriel Ofori Yeboah.
Associate-Data Management and Reporting
Dun & Bradstreet Credit Bureau Limited.