Submitted to Namibian Parliament on 13 July 2006Providing affordable financing in Namibia
The need for Credit BureauxIntroduction
In many developing countries the providers of finance have access to information in databases that help them to asses the creditworthiness of an applicant for credit. With the appropriate credit risk management tools, a lender can reduce the default levels, and provide finance at a cheaper rate to creditworthy clients. The organisations that gather data and operate these services are known as Credit Bureaux, Credit Information Services, Credit Registries, Credit Reporting Agencies or Consumer Credit Reference Agencies.
In Namibia, there is only one company, Transunion ITC, which provides a credit bureaux service for consumer information and they collect primarily negative information (negative – that is information on credit defaults, judgements, etc.). A joint-venture between NamBizDotCom and Creditreform Germany, has been developing a commercial database of over 11,000 companies and has completed a basic consumer database of 250,000 people in January 2007. This credit information service (CRIB) is yet to be made commercially available.
Credit Information Service
The creation of a credit report depends on the availability of information gathered from public records, statutory information, credit applications and credit accounts on the individual consumers and businesses. The bank (or other lender) accesses the service in the form of written reports and uses it to judge the application risk before supplying the credit. The bank can also use the credit report, and its credit risk rating, to determine the amount of the loan as well as the interest and other bank charges.
The usage of a credit report with more than just negative information assists growth in the country by stimulating the consumer credit economy. Borrowers can be assessed for risk in an objective way based on credit payment history so credit can be allocated more efficiently. Many “new” borrowers in Namibia have no credit history, and assessment can be difficult with additional supportive reputational collateral. This reputational collateral can include:
• proof of physical address
• ownership information on property
• family associations
• informal business history
The existence of a Credit Bureau with sufficient information should assist growth by stimulating the consumer credit economy. Borrowers can be assessed for risk in an objective way based on their own histories so credit can be allocated more efficiently. Borrowing by high risk borrowers is also now controlled and the market is opened for new low risk borrowers.
Lenders, consumers, businesses, government and central banks all benefit from Credit Bureaux. This is why the World Bank, IFC and USAID organisations are all promoting and facilitating the development of efficient and capable Credit Bureau services around the world.
The effectiveness of a Credit Bureau varies depending upon a number of factors including data availability, data quality, operating ability and legislation. Supportive legislation and a sound technical infrastructure are crucial to effective operation.
The services provided by a Credit Bureau expands from the basic credit report to extended financial information, historical factors, and in many cases, can assist in tracing the debtor in the case of default (debt collection).
In Namibia, the banks are charging high fees and interest rates because of the “difficulties in assessing risk”, and the “unavailability of data”, especially regarding the physical address of clients.
Dilemma collection of data
It must be noted that the collection of data must be controlled to ensure there is no abuse of privacy rights.
The CRIB database has been created with over 11,000 companies and 250,000 consumers. This data includes:
• Full names
• ID Number
• Postal address
• Physical address
• Employer records
(Only +/- 25,000 records are complete)
The creation, cleaning and mining of the data does meet standards of copyright, but such information must be regulated. It must be kept in mind, if an individual has been able to create such a database, what databases are being created and maintained by corporations in and outside of Namibia?
The databases available in Namibia range from
- private sector models that include information relating to your account details and histories, Multichoice, MTC, Sanlam, etc.; and
- public sector, such as Home Affairs ID section, Electoral Roll, Municipal accounts, etc.
At present, there is no legislation to:
- control the information being held on a credit record;
- avenue for corrections to be made; and
- enforcing openness in regards the negative reply to credit application.
The legislature also has the opportunity to regulate a range of charges that banks may charge according to the rating of individual consumers and businesses. (e.g. Basel in EU).
There is need for the establishment of an economic database that includes both consumer and commercial information. It is proposed that it should be a Private-Public Sector Partnership to protect the privacy rights (data protection) of individuals.
The following will benefit from the establishment of the economic database:
- Small- and medium-sized enterprises
- Business (trading)
- Financial sector (credit providers)
- Regional and International trade