Cib not for control of credit
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The Credit Information Bureau (CIB) in Bangladesh collects credit data from financial institutions to create credit reports on borrowers. These reports provide the borrowers' credit history to help financial institutions make prudent lending decisions. However, some argue CIB reports are now impeding credit market development due to unexpected side effects. As a standard global practice, credit bureaus collect payment history data from various sources to create reports that help assess credit risk, but do not rate borrowers or determine creditworthiness. The legal powers and data collection practices of credit bureaus vary by country due to differing laws and oversight.
Cib not for control of credit
- 1. CIB not for control of credit 24 Jul 2021 00:00:00 | Update: 23 Jul 2021 23:31:17 https://businesspostbd.com/post/21322 https://businesspostbd.com/post/21322 Non-performing Loan (NPL) in different countries and overlapping of loan by different financial institutions has increased problems of borrower’s over- indebtedness. The weakening performances of financial institutions (FI) is due to many reasons including the lack of proper information sharing in the markets as because growing numbers of FIs increase the level of asymmetric information between lenders and borrowers. A credit information system can play a crucial role towards improving credit market performance. The credit information is an essential component of the financial system. Its evolution in Bangladesh over the past decade has been very successful, but also with unexpected side effects. These side effects now seriously impede the further development of the industry. The Credit Information Bureau (CIB) in Bangladesh is an organization that has members from FIs. It collects credit data on borrowers from its member FIs. The CIB is legally empowered to collect credit information. The information in CIB is shared on reciprocal basis. Those financial data is then aggregated in system and the resulting information is made available on request to contributing member FIs for the purposes of credit assessment, credit scoring and credit risk management. The major purpose of this database is to enable the FIs to know the credit history of their prospective customers thus enabling them to make a more prudent decision. But FI cannot ignore the report of positive or negative for sanctioning of loan. The powers of the Credit Information Bureau (CIB) to collect and provide data to financial institutions are stipulated in Chapter IV “Collection and Furnishing of Credit Information” of the Bangladesh Bank Order 1972, as amended. This order provides the legal basis for requiring financial institutions to provide loan data, including information on collateral and guarantees to Bangladesh Bank but limits the information that the central bank can share. Thus, although the information that there is a classified loan can be made available, the lending FIs holding this classified loan cannot be identified. FIs are only following
- 2. the CIB report to either extend credit or not. The standard global 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 behaviors of the borrowers and FIs used CIB reports as a helping tool for making credit decisions. As an standard global practice, 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 (CRA). There are four national US credit reporting agencies: Experian, Equifax, TransUnion, and Innovis. These organizations are not for-profit businesses and possess no government affiliation. Though they are competitors, they have formed a trade organization called the Consumer Data Industry Association (CDIA). There are dozens of other similar information collection and reporting firms that analyze and sell information about consumers for other purposes, including those who aggregate multiple credit data sources and provide lenders with customized analytical tools. In other countries, the consequence of mis-information by Credit reporting agencies has serious consequences. The information may cause loss of market credibility of borrowers. The interest of the borrowers in USA are safeguarded through rule and also court decision. In the case of Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985) the U.S. Supreme Court held that a credit reporting agency may be liable if it was careless in reporting an
- 3. impending or past bankruptcy filing of a business that is not a public figure. The credit companies in one country may also work in cooperation with similar companies in other countries as well. In the United Kingdom, the three credit reference agencies are Experian, Equifax and Callcredit, which works closely with its US partner, TransUnion. Most FIs and some other companies also subscribe to one or more credit organizations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organizations are expected to provide relevant data to maintain the common data pool. The UK based Credit reference agencies are bound by the Data Protection Act 1998, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them. The activities of Credit Reference Agencies are governed by the Consumer Credit Act 1974. In Pakistan, all member financial institutions are required to submit entire borrowers’ records online to CIB on monthly basis. This information is submitted within a period of fortnight from the date of close of month. There are four privately owned and managed credit bureaus operating in Pakistan: Datacheck (Pvt.) Limited, Credit Chex (Pvt.) Limited (Powered by Experian UK), News-VIS Credit Information Services (Pvt.) Limited, ICIL-International Credit Information Ltd./ PakBizInfo India’s first credit information bureau is The Credit Information Bureau (India) Limited (CIBIL) established by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors’ portfolio quality. This legal power to collect and provide data is sharply defined in the law. The data that is collected is very detailed on the exposures and the amounts. This is probably more information than would be permissible for any organization except the central bank. At stake here is bank secrecy and the obligation of the financial institution to maintain confidentially of the transactions of its borrowers and depositors. Central bank has the right to collect whatever data it wants from banks along with the obligation to keep this secret. The writer is a legal economist