Ghana, like other emerging economies face a huge deficit in accessing credit or finance. According to the Credit Reporting Knowledge Guide (CRKG), “In developed economies, approximately 90% of adults have access to formal financial services compared with 41% in emerging markets.
The difficulty in accessing credit is largely due to the lack of sufficient information on the ability of a potential borrower to repay his or her debt and the poor infrastructure to make such information available.
Riding on the back of this development, the Bank of Ghana has expanded the list of institutions to participate in the Credit Reporting System. The central bank’s Credit Reporting System is a database established under Act 726 to promote the sharing of information on the credit history of debtors with lenders and other users on the platform.
BoG’s expanded list of institutions to participate in the formal credit reporting system includes the following:
- Telecommunication Companies;
- Utility Companies;
- Mobile Money Operators;
- Financial Technology Companies (FinTech’s);
- Government institutions that offer credit to MSMEs;
- Institutions that provide identification documents;
- Entities that supply goods and services on a post-paid or installment basis;
- Student Loan Schemes provided by private or government agencies and;
- Other entities that have relevant data and information that complies with permissible purposes of credit bureaus.
What credit reporting is and how it works.
A credit report is simply documentation of your monthly debts, how you pay your bills and repay loan facilities, among other types of information. It helps lenders decide whether to give you a loan or not. In simple terms, a credit report shows how responsibly you handle your finances.
In Ghana, three Credit bureaux are mandated to collect such information and compile them into a single document. With BoG’s new directive, they will collect information from, landlords, merchants, financial institutions, utility companies, etc, and make this information available to lenders to evaluate your application for credit or a loan.
Also, if you have ever taken a loan to buy a car or house, you probably have your credit report on file with either or all of Ghana’s 3 Credit Bureaux which are:
- XDS Data Ghana Limited;
- Dun & Bradstreet Credit Bureau Limited and;
- HudsonPrice Data Solutions Limited.
The credit history they collect has the potential to impact your life. For instance, when a lender, let’s say a Ghana Commercial Bank goes for your credit report and it indicates an untimely payment of your water and electricity bills, poor loan repayment, or having multiple loan facilities, you will be classified as a bad credit risk hence, would not qualify for the loan.
It is, therefore, important to repay all loans and bills on time to attain good credit history. This will enable you to access a loan facility to meet your personal and business needs at any time.
Please note that Credit Bureaus do not determine whether a consumer qualifies for a loan, it is rather determined by the lenders.
What this means to financial access.
Lack of access to finance and/or loan poses a key constraint to economic development particularly for small and medium scale enterprises, start-ups, and individuals in rural communities.
With BoG expanding the list of institutions to participate in the Credit Reporting System, the need for physical collateral facilities can be supplemented with reputational collateral. For instance, if you use an MTN loan and are always able to pay your loans on time, you will have a positive credit standing with MTN. This information will be shared with other institutions participating in the Credit Reporting System (CRS). Without having a collateral facility or an income statement, the positive credit may qualify you for a loan from a government institution that supports small businesses.
In the same vein, for instance, if you have an outstanding MTN loan, you will have a negative credit report with MTN. This information will be made available to other institutions in the Credit Reporting Systems. And will jeopardize your ability to get any loan from other sources. Without the loan, you are unable to meet your business target. It is therefore important to settle all outstanding debt to put you in positive standing.
Lenders are often faced with the lack of necessary information to assess the creditworthiness of potential customers. Without access to timely and inclusive information, lenders are unable to determine if a borrower has multiple loans from multiple lenders which may result in indebtedness and leave lenders with an unacceptable portfolio of high nonperforming loans.
With Credit Reporting Systems, lenders can access the credit-worthy nature of borrowers to determine if a borrower is likely to pay a loan or not.