Tunde Popoola is the managing director of CRC Credit Bureau Ltd. He tells Kunle Aderinokun how credit bureaus have contributed to increasing access to credit by small and medium enterprises as he addresses issues affecting lending in the economy
How does a credit bureau operate?
Normally the credit bureau relies on very robust and powerful software application to be able to do and deliver services to the public and to the businesses that we serve. So we have been using what we call credit verdict since 2008 when we started and with the experience that we’ve had over time, we discovered that we need to improve on the software application to be able to meet the challenges of the time in terms of friendliness, providing capacity for a large variety of customers and in terms of even appeal and the ease to enhance efficiency of our operations.
So we eventually went round to look for the best in the world and we eventually came up with a new software application called silver blade 2.0. So that is replacing the credit verdict software application that we use currently and the major benefit of that to our customers first, to enhance the efficiency of our operations, the ease with which we are able to pull data to get information from the bureau is very important.
And of course we have what we call internal scoring solution. You can use the data that you have , to develop an internal scoring solution for yourself. That also is part of the feature of the new software application and the power it has to really empower customers to be able to do more on the platform. So these are just the basic features and the benefit they confer on all of our customers.
That is also going to come up with another very interesting product completely different that we call micro credit scores. This is going to be the first Central Bank approved credit scores in Nigeria. Nigeria doesn’t have credit scores. If you listened to the Central Bank governor when he came, he said Nigeria is going to have a national scoring platform; so we have taken up that challenge and we went to look for best credit Solution Company in the world called FICO.
We brought them in and that product will get to the market in April. So this is something that is very unique, something that we believe can revolutionise consumer lending because when you have scores, it makes life easy for everyone who is in the business of lending or in the business of granting credit to be able to use to score clients who they want to do business with. So, they can have a threshold of scores; the scores normally is between 300 and 850, so they can have a threshold and say for instance anybody below 600, we believe they pose as high risk to them and then deal with those above 600. They may also now use the threshold to determine some other additional criteria. If for instance you are between 500 and 600, that’s fine but we will need additional collateral for you; whereas for somebody who score 600, they may not need additional collateral because that one is less risky.
What are the criteria you are going to use for this scoring?
They are normally, your credit history, what you’ve been doing with your credit in the last three/four years; how you have been meeting your repayment obligations; the number of credits you have been enjoying or that you have enjoyed in the past and then the number of enquiries that has been made on you from time to time. These are four fundamental factors.
Are you doing this in collaboration with the CBN or it’s a service you offering that others buy into?
It’s a service we are offering to the Nigerian lending industry. You need the approval of the CBN to do this kind of thing and so we have our CBN approval to do the credit scores.
Will you be willing to lend this service to your competitors?
Well, they will have to develop their own. It is company specific. It is already a franchised product and it exclusively for CRC.
The monetary policy committee of CBN met recently and decided to change some rates and you know the most important of them is the MPR, which is the benchmark interest rate. What your reaction to the decisions? And how do they affect your business?
So MPR was increased after it’s been stable for a period of time. And don’t forget that is also in response to the trend in inflation. The inflation became double digit before the meeting and the primary purpose of the CBN is to maintain stability. So they needed to do something to control the quantum of money that is out there. And that’s why they have to really do that. So once you do that, what it means is that loan becomes a bit expensive and that discourages lending because the threshold will go up with that.
But I see that as just a very short measure I guess because what we have been seeing is the economy that is being driven only by monetary policy in the last 10 months or so but now the fiscal policy is coming into being and they are supposed to go hand in hand which we didn’t have before now. So I guess the reflation of the economy will also make sure that the effect that this would have had on borrowing will be tamed somehow. But I think the CBN took the right decision by that policy. But once the fiscal policy becomes very operational, when the budget is signed and money is released into the economy, you would see that it would not lead to unexpected effect.
You spoke eloquently of the benefits of credit bureaus. Given that level of efficiency, why do banks still insist on meeting so many stringent conditions, securities and all of that?
Let me say that Nigeria is going through a silent revolution in access to credit and a lot of people may not know but I think it’s important to do an analysis of what is been going in the lending industry in the last 5 years. There is a revolution going on especially on access to credit; two, on the way and manner the lending institutions now book transactions; and three, on who have access and who do not have access. All these have been highly impacted by the presence of credit bureau infrastructure. Before now, up to 2009/2010 when we commenced live operations, it is very difficult for you to even have loans as consumers.
Credit bureau infrastructure is targeted at enhancing access to credit for consumers and SMEs. So you can go back and look at what’s been happening before 2009/2010 especially the last three years when credit bureau had become full blown. We all realised that first; a lot of consumers do not have loans to borrow. Second is that the availability of different menu of loan products is very limited. But today, banks are literally begging you to come and take your credit card. They are literally begging you to come and take personal loans.
Virtually all banks now have mortgage loans that they give to their customers and all of these; the conditions stands very based on your credit history. Unlike before credit bureau where there is always a uniform rate of interest; today what you see is that they look at your credit history and that determine the terms and condition you are going to go through especially in two areas: the pricing and then the additional comfort they want you to give to them as your collateral security. So I will say from my own experience, in the last 7years, superintending on this company that I’ve seen a shift in the way and manner the lending institution now book transactions.
I have also seen that a lot of very reliable and responsible borrowers have even been getting invitations from the banks even without you asking for loans. I have seen that happen to so many people including myself. I have been approached several times by CBN and what is propelling this is their ability to study the credit history of their customers. And being able to stratify and see those who are responsible borrowers and those who they have to be a bit careful with.
You will also discover that virtually all banks now have SME desk. That was not the situation 4, 5 years ago. But today, even banks that are known to focus on just corporate customers; just high level big organisations are now coming down to lend to small and micro-businesses. So that’s the way to look at the effect of the presence of credit bureau.
For a new person who wants to start, how will you treat such a case?
That again is the very beauty of the growth where credit bureau is today. For the first time this month, CRC has taken data of electricity consumer’s bill. We are now coming to the bill; the first time in the history of this country. What that means is that if you are someone who has been paying your electricity bill regularly, that also counts for you. That becomes ready-made information. If you say well, I’ve never borrowed before but if you look at my electricity consumption, I’ve been paying regularly and timely and I do not owe. The telecos, two of them have signed on. They will begin to submit that data of payment history of users of telephone to the credit bureau. So you then begin to leverage on those things to get access to credit. So those are just two examples that I can give you immediately.
So credit bureau has moved from just collecting data from banks. We are now collecting data from non-banking institutions. As we speak today, we have some cooperative societies. We know the fact is that Nigerians borrow but they borrow majorly from non-formal sources including cooperative societies. So when you get the cooperative societies to submit data to credit bureau, then lenders can rely on such information to advance credit to those who are perceived to be first timer, who are not in the real sense of it a first timer, when it comes to having access to loan, it’s just that they become first timer, when it comes to formal access to credit. So this is why we said credit bureau promotes financial inclusion. So it’s an infrastructure that is going to drive financial inclusion.
All those telephone bills that people pay regularly; people don’t want to owe them because they want to talk. And those who are also serious want to pay electricity bill. They want to be able to have light to use. So these data are already coming to the bureau and this will open more opportunities to the consumer who thought because they have not been getting loans from banks, they will not be qualified.