The governor of the National Bank of Rwanda Françoise Kanimba this week revealed that compuscan, a South African credit reference entity has agreed to operate on the Rwandan turf, to set up the country’s first credit reference bureau.

A credit reference bureau is a company that collects individual consumer credit information used by fund providers (lenders) to assess the credit worthiness and the ability of the borrower to pay back a loan.

With competition for customers in Rwanda’s banking industry intensifying more than ever, multiple borrowing and over-indebtedness to the general public is also increasing.

But this is likely to increase loan default unless the financial institutions have access to databases that capture relevant aspects of clients’ borrowing behaviour.

With the CRB, it will even be easier for lenders to quickly decide on which borrower qualifies for a loan, reducing the costs of screening loan applications by enabling the lender to sort out prospective borrowers who have defaulted with other lenders. In simple terms the CRB will improve the lenders’ ability to predict default.

The big percentage of the loan portfolio of commercial banks goes to big corporate institutions and salary loans. With the CRB the unbanked population could increasingly access financial services, increasing the lending volume, growth of consumer lending and also improved access to financing and a more stable banking sector.

This in turn reduces default rates as borrowers seek to protect their reputation through meeting their obligations in a time. This translates into motivated clients as the burden of physical collateral is reduced.

As a result of the big credit market and lower default rates interest rates tend go down, leading access of cheap cost of capital by investors. This improves competitiveness of both the bellowers and lending institutions. 

Interest rates are never uniform for everyone, but rather based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating.

In practice, always borrowers with poor credit repayment histories pay a higher annual interest rate than consumers who don’t have these factors.

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