Defaulting on loan repayments damages a business’ or individuals creditworthiness, making it hard for them to access more funding from banks in future, or having to pay higher interest rates.

Creditworthiness is a lender’s willingness to trust their client to pay their debts.

But to be able to judge a client’s creditworthiness, lenders look for evidence that the client pays bills and that they have a track record of successfully managing and repaying past debts. This information is largely stored in a credit conference bureau.

But how does a credit reference bureau work?

A Credit Reference Bureau is a company licensed to collect and combine credit information on individuals and companies from different sources and provide that information upon the request of a bank or another credit provider.

In Rwanda the institution is licensed by the central banks. Banks can only request a report on a borrower who has applied for their loan.

For the most part, the CRB is mandated to reduce Non Performing Loan (NPL) portfolios and also increase access to credit by the private sector.

A non-performing loan is considered in default or close to default after a certain period depending on the nature of the loan.

Many people consider it futile obtaining a copy of their credit report from the bureau especially when they have never taken a loan facility from any bank.

They assume their records are clean or do not contain a thing and are creditworthy. This is a misconception.

The credit risk involved in lending to a customer who has never taken a loan is undetermined and so should be treated in the same way as undetermined risk.

Undetermined risk is equated to high risk and consequently any lending will call for risk measures such as high interest rate and an expensive asset as collateral.

Generally, a good credit history is equivalent to a good character and can save you from the stress of looking for collateral.

A bad credit history is a cost because a loan request will go through various departments to ascertain whether the bank can lend to you.

How it operates

In Rwanda’s context the CRB operates in such a way that a customer provides information when opening an account or applying for credit, the customer then signs "acknowledgements/consents” to allow information to be submitted to the credit bureau.

Credit information providers submit information to the credit bureau which updates it regularly.

 The credit bureau, also known as TransUnion Rwanda, collects, validates and merges information into its database for use in generating a credit report.

CRB services entails that banks and others will share data about how loans are paid with each other to a central register which can be accessed when new credit facilities are being considered, or when limit reviews are undertaken.

TransUnion Rwanda replaced the Centrale des Risques et des Impayés (CRI), a public credit bureau that was established in 1990.

The major role

Financial experts say that the bureau improves credit assessment by lenders who will now have access to information on bank customers.

In the past, it was possible for a borrower to take loans from different lenders using the same collateral.

Additionally, the period customers wait for approval of applications will also be shortened.

With the bureau in operation, assessing individual credit will be a lot easier and more reliable as opposed to the current situation where it is

Experts also argue that the existence of credit registries is associated with increased lending volume, growth of consumer lending, improved access to financing and a more stable banking sector.