Credit scores and non-performing loans are critical components of the financial infrastructure of any economy. They serve as barometers for the financial well-being of individuals and businesses, providing insights into the overall stability of lending institutions.

ALSO READ: Finances: Why Care About Your Credit Score?

To gather insights into Rwanda's situation, The New Times’ Patrick Nzabonimpa talked to Sam Tayengwa, the CEO of TransUnion Rwanda, a company mandated to gather credit information in the country. Tayengwa discussed TransUnion Rwanda’s role in credit management, negative listing criteria, credit behaviour monitoring, student loan challenges, and the significance of education and transparency in credit reporting.

Excerpts:

What’s the connection between TransUnion and the now-defunct Credit Reference Bureau (CRB) that most people continue to think still exists?

In the past, we operated as CRB, which stands for Credit Reference Bureau, but now we're known as TransUnion. TransUnion is a global business with operations across continents. In Africa, we're present in eight countries, including Rwanda. Our purpose is to serve the market's best interests by gathering both positive and negative credit information. We’re entrusted to manage data regulated by Central Banks, like in Rwanda.

Our mission is to track payment behaviour to ensure fair access to financial products. We monitor customers' repayment patterns, identifying defaults after a grace period. Once a customer exceeds the 90-day threshold, they're labelled as defaulters. This negative listing indicates to institutions that the customer hasn't met payment obligations.

ALSO READ: How does a Credit Reference Bureau work?

Institutions provide us with monthly updates on customer repayment statuses, allowing us to maintain accurate records. We collect data from various financial institutions, including banks, microfinance institutions (MFIs), SACCOs, and non-deposit-taking entities offering loan products. This data is then organised and made accessible to individuals and institutions, reflecting their credit history month by month.

Are there additional factors that could result in negative listings besides surpassing the 90-day threshold?

Missing an instalment in your first month doesn't immediately negatively impact you. Instead, you're simply considered behind for that month, and you fall into our watch category. We monitor your credit activity to see how it develops. Moving into the second month, you're still not negatively affected. However, your payment behaviour starts to influence your credit score, which reflects your ability to manage credit.

Your credit score serves as a predictor of your likelihood of defaulting on payments. It's based on factors such as how you handle your credit facilities. Institutions use this score, along with classifications like AA or CC [CC typically indicates a moderate to higher risk level and AA indicates a lower risk level], to assess your creditworthiness. If your score indicates an increasing probability of default, it's likely because you've missed a payment. This pattern can eventually lead to a negative listing on your credit report.

How many individuals in Rwanda are currently listed, either negatively or positively?

Here, we are talking about credit-active individuals or those we've identified in the bureau, who have approached TransUnion and have been referred by various institutions. Currently, we have just over three million customers or consumers, which we consider unique. They may have either inquired about their first facility or already have one or two facilities in use.

It's important to understand this number. We're not saying there are three million listed individuals. Rather, we have visibility into three million people to observe their behaviour in the market. Our non-performing loans (NPLs) rate is monitored monthly. This means we track how many facilities fall into the delinquency space, specifically 90 days or more overdue. While I can't provide an exact figure, I can say it's below 2 per cent. This is because regulatory standards prevent institutions from lending to negatively impaired individuals. By assisting in the rehabilitation process before approving new facilities, we reduce the number of impaired accounts.

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Before acquiring another facility, customers must settle their previous one. This also helps improve the non-performing indicator. For example, in December, many people exhaust their funds, leading to a higher NPL rate in January as they may miss payments. However, it's now decreasing to around 2 per cent or below.

There's a trend of increased borrowing, especially for small loans. Mobile money platforms like MoKash and banks like Equity are offering loans that can be accessed even through mobile devices.

And specifically regarding MoKash users, how are they listed? Are they performing well, or are there challenges?

There was a lot of education needed regarding the impact of taking a cash loan, as most people didn't understand it. Initially, many thought it was an MTN facility because it was issued through Mobile Money (MoMo). When people receive money in their MoMo account, they plan to pay it back, but sometimes they miss the payment period, which is a month. Maybe they would go into a second month, thinking they could cover that Momo cash. They thought Rwf50,000 was nothing [too little], but in reality, the MoMo or MoKash facility was backed by a financial institution, NCBA Rwanda, as most customers now know, and regulatory requirements mandated reporting this information.

The team at NCBA Rwanda has been critical in using information to mitigate potential falls on the MoKash base. They monitor good customers to provide facilities or even offer higher limits on good paying customers. More importantly, eligibility for the MoKash product is based on monitoring customers' credit behaviour across utilisation and risk behaviour. Other institutions offering mobile money loans have also adopted a pre-approval process, emphasizing the importance of credit payment behaviour in obtaining a facility.

How do banks monitor and reward responsible repayment of loans, potentially enabling borrowers to access more in the future?

How you service your loan impacts your ability to get better facilities in the future. So, no matter the loan size, as long as there's a contractual obligation to service it, ensure you do. If you can't pay, engage your credit facilitator or institution, and explain your situation.

During Covid-19, many facilities offered payment holidays or restructured loans. Banks can see this data. We have pre-delinquency monitoring solutions to spot financial distress early. Institutions should engage with customers and offer assistance.

Understanding your obligations and staying informed about your credit report is crucial. You can access your report for free once a year and monitor it through Menyesha [USSD *707#], a service that allows users to check their credit status. You should check your report before seeking loans. Register on Menyesha, pull your report, and review it.

How then do some university graduates who claim to have cleared their student loans end up being listed negatively?

Any long-term contractual loan facility must be reported to the bureau, both positively and negatively. We received information about the student loan when it was obtained.

I've spoken to institutions like Chancen International and plan to communicate with more that offer student loans about the communication gap I've observed. Often, graduates forget or fail to communicate with their lending institutions, which delays their employment or getting another loan as they scramble to resolve the problem.

My advice is always to stay in touch with these institutions after finishing studies, and before finding a job. Let them know if you haven't found a job yet, but assure them that you'll repay the loan once you do. The biggest challenge lies in educating both the institutions offering the facilities and the students receiving them. Many students end up not paying their obligations even though the institutions believe they are now employed. It's crucial to educate the masses about this issue.

Is there anything else you'd like to mention?

TransUnion's focus is on using information for good in society, ensuring individuals receive appropriate facilities, and reducing over-indebtedness. We aim to educate customers on how their information is used and protect it from misuse. We encourage consumers to engage with institutions if they are facing difficulties with their facilities, and institutions can also reach out to us for insights to help customers before they experience financial difficulties.