A formal recognition of Credit Bureaus started in Nigeria in 2008 when the Central Bank of Nigeria (CBN) issued guidelines officially on their licensing and operations. Three Credit Bureaus were licensed in 2008:
- CRC Credit Bureau Limited,
- CR Services Credit Bureau Plc and
- XDS Credit Bureau Limited, also Known as First Central Credit Bureau Limited.
The CBN supported the credit bureaus by mandating all banks and financial institutions under their jurisdiction/supervision to use at least two of the three credit bureaus. All commercial banks, MFBs, and all specialized institutions – Federal Mortgage Bank, Bank of Industry, BOA, Nigerian Mortgage Financing companies, Development Banks, leasing companies, primary mortgage institutions, asset management companies etc. are on the credit bureau platforms.
There are three main things these institutions have been mandated to do:
- Submit data – positive and negative, unlike in some countries that require only negative data.
- Submit data – all amounts, unlike in some countries where minimum amount of loans is prescribed.
- For every credit transaction, all financial institutions are to check on the platforms of at least two credit bureaus although some non-commercial banks/institutions run checks with only one.
Data submission is regulated with the use of the Common Data Template which was designed by the CBN, IFC and CBAN and launched in 2016. Data collected are in four categories:
- Demographic Information – name, address, means of identification, registration numbers (for commercial enterprises) etc.
- Issues relating to the credit – principal amount, interest rate, when the facility was granted, how much had been collected etc. Here, there were classifications as well – performing, doubtful, default etc.
- Information on enquiries made on the customer
- Information on Collateral, Securities. Lawsuits, litigation, returned cheques.
Data submission is usually done at least once a month and updates are done anytime it is required. Some data are not available in the credit bureaus such as income or tax payment. The other sources of data i.e. alternative data from non-financial organizations such as Electricity distribution companies, cooperatives, multinationals, microfinance institutions, real estate and pharmaceuticals are also collected. There is a Dispute Resolution mechanism to resolve issues at a stipulated time to ensure accurate and updated information is readily available to stakeholders.
The main products of the Credit Bureaus are as follows:
- Credit Reports on every customer.
- Portfolio Monitoring Report done every quarter of the year.
- Credit Scores
The purposes of the Credit Reporting System are as follows:
- To encourage and improve access to loans which starts with a good credit history.
- To enhance the creation of new loans this would lead to better access to finance.
- To aid financial institutions to assess and better manage risks associated with lending.
- To promote responsible lending and borrowing: borrowers can avoid over indebtedness and lenders can avoid bad debts and defaults using the credit reporting system.
- To equip financial institutions with the required infrastructure and tools for processing and managing loans to MSMEs and individuals.
Credit Bureaus facilitate ease of doing business by significantly improving access to credit especially for the disadvantaged sectors of the economy – consumers and SMEs.
The World Bank findings reveal that, with the introduction of credit bureau:
- Small businesses reporting high financing constraints reduced from 49% to 27%.
- The probability of obtaining a bank loan for small firms increased from 28% t0 40%.
- In Ecuador, the number of micro entrepreneurs that accessed loans after 5 years increased from 60,000 to 719,000 (1,098%).
- In Ukraine, significant decline in interest rates from 38% to about 15% within 5 years.
Nigeria has also benefitted in many areas including:
- Banks readily share credit information which promotes transparency in the financial system.
- Banks currently offer new credit products to their customers such as credit cards, consumer loans, vehicle loans, and loans to SMEs etc.
- Retail loans are enjoying special attention by virtually all the banks which has inevitably turned the tide of high level of non-performing loans that was prevalent in the 1980s – 1990s.
- Nigeria is currently 6th in the world on the Getting Credit Indicator. Furthermore, Nigeria now ranks 145th out of 190 countries on the Ease of Doing Business, compared to 169 in last year’s report due to the efforts made by the Presidential Enabling Business Environment Council (PEBEC) initiatives of which the Credit Bureaus played an integral part last year.
- The value of loans granted in the country has risen from N7 trillion to N16 trillion by December 2017.
- There has been a significant decline in the rate of non-performing loans.
- The number of borrowers in the credit reporting system has grown.