The Credit Reference Bureau will boost the banking sector-Steve Casey

Mr Steve Casey, The Managing Director of Fina Bank Rwanda is also the current Chairman of Rwanda Bankers Association(RBA), an umbrella group that brings together banking service providers. RBA in conjunction with the Central Bank recently unveiled a new service provider within the banking sector namely the first ever Credit Services Bureau. In this interview Casey talks to The New Time’s Fred Oluoch-Ojiwah on how this new service is likely to impact on the local banking industry.Excerpts. We are informed that the new service provider has already opened its doors to the public. If so how does it operate? The new service provider does not actually open its doors to the public. However, it does so to the banks. This happened on the first of May this year. The current situation is that all banks have now signed up with the service provider as part of its entry mechanism. Prior to that there has been serious work going on in the last two or so months that was focused on building the data base needed to kick start its operations. In the same breath you must have seen notices we posted with the media about the same issue. I must say that clearly as it starts off definitely the operations of the bureau will take time before it attains full potential. However I must now say that the bureau is now operational servicing banks. Before these banks grant loans they are now able to take a reference from the bureau for the purposes of better ascertaining a client’s risk profile. How is the service provider’s business plan aligned to your member’s programmes RBA is just an umbrella for different banking brands. However I must say that its members are faced with various issues and challenges that need to be sorted out. Given that situation, I must point out that all banks want to reduce non performing loans given out in the past, now and in the future. For instance we now want to zero in on serial defaulters. I have been told that we have some defaulters who take loans from a string of banks right here in Rwanda. Exactly. That kind of trend affected even micro finance service providers. How about those with good history? For them they are expected to get a quicker decision on their loan applications. So could you try to paint a picture that is likely to emerge in say the next three years? Best case scenario is that for good borrowers, decision making will be to their advantage. If it used to take over two weeks, that will be shortened drastically . If it takes a week it will take couple of days. That is definitely good for doing business. There will also be a reduction on charges on the debt itself being given. In terms of those deemed more risky there will be more stringent requirements such as more collateral will be needed by the banks before loans are given out. In the opposite side for those deemed good borrowers there will be less cries by bankers for stringent and rigorous application processes. Definitely all business persons want faster processes to aid their business. This is one of those new tools needed by business persons. The scenario is that bankers will now reward good behaviour while bad behaviour will be punished. Much as a new service provider is being brought on board banking being a service, more needs to be done by your members in terms of training and retraining to improve performance and customer service. I agree with what you are saying. We need to improve. However I must also say that a lot has been done. We have come from a very low base. Central Bank is now focussing on tracking skills development which is a very welcome move. Added to that we are now developing, as bankers, a project to tackle skills deficit. We want to offer not only professional exams but also basic training. Members need to focus more on tailoring training based on the grassroots of banking. I tend to think that what you are talking about is the main reason why the School of Finance and Banking (SFB) was established. SFB’s previous focus was on higher end training. This, in one way or another led to a wide deficit within the very lower ends of training for the sector. Given such challenges our association is now moving in the right direction to face some of these challenges. We have now hired an Executive Secretary who is a key resource person capable of providing the focus needed to tackle such issues. Thus we will be able to operate at the level we need. So I hope that within the second half of the year we will witness improvements. How does the credit scoring system work? This is actually a more advanced system from what we are establishing right now. The Credit Bureau will have information both positive or negative from clients. This is what will be used to determine risk. However with credit scoring this is far much more advanced, much as it is within the same breath of establishing the basis of determining risk. Within a score card system a more advanced tool is developed relative to the market. That requires more sophistication in terms of developing variables that impact on the system. I tend to think that for this new system to work sharing of information is very important. That is true. But this sharing is a challenge within the sector What we are saying is that we need customer consent to pass on information. In the past banks must have been wary of sharing information due to concerns arising out of the competitive nature of our business. The new system offers certain checks and balances within sharing of information within the sector which is like a clearing house. For instance bankers will be limited to the kind of information they will retrieve as it is secure information. The bureau will not reveal all the information available but only the component needed to ascertain risk for bankers who will be willing to pay for such information. This kind of information is not accessible on-line. It is even password controlled. Let us talk about this item known as consent to give out information. Don’t you think this very item is likely to be misinterpreted by the general public? If you do not want your information to be availed to the bureau by the banks, the question would be why? If you are this good person whom you think you want to access credit which will now have new requirements before you access it then why not share certain forms of information? What I mean is that there are some tendencies which will take time to overcome within this society. Rwanda’s aspirations for the future entail undertaking economic transformation. This in turn entails making this strategic shift in being part of the real world whereby information is key. What we are talking about here is not just bad news but good news being shared too. If you borrow money and you make the repayment as you had promised then the question would be why don’t you want someone else to know that? What I want to say is that information sharing is not a blacklist. For those who do not want their information to be shared such feelings will be communicated to the bureau. However the implication will, then be that life for such an applicant will be made very difficult as no banker will give out money without such information. With time the credit reference bureau will be used by other sectors too not just bankers. What is the banking sector state of affairs as CRB checks in? You are aware that we have just emerged from a difficult stage. Liquidity was a problem but this has since changed. However the current challenge is that liquidity is short term. Our loan requests are long term. Sometimes meeting such requests is not easy. Hence we have a mismatch whereby we have short term deposits while borrowers want to long term credit. The implication is that we have maturity gaps as well as interest rate gaps. This is part of what is called our asset and liability management. Most banks are looking forward to grow their loan books. We are looking at quality lending. Lending money is the easy part. Getting its back is the most difficult part. We have to be sure that the money given out is only for investment not consumption. Meaning that lenders must have a business plan complete with a compelling scenario that shows all costs including margins will be made in order to make the borrowing a worthwhile undertaking. We are thus looking for good and new lending opportunities. Not only lending but we want to bank people as well. Those in authority talk about the need to boost a savings culture within the economy which is poor currently This is another challenge. We want to encourage savings which also impacts on the overall banking sector’s health. Savings is a key value driver of growth not only for the sector but the economy too. However a bank’s integrity is also important within this service industry. When a bank cannot meet its obligations this is an indicator that things are not good. Integrity takes a very short time to destroy while it takes ages to build. What would be your comments on the onset of the CRB in Rwanda bearing in mind your experience as a banker within other countries? I have worked within many emerging economies. So I welcome the opening of the bureau in Rwanda. It is an essential tool to reduce risks. It is long over due as it means that we are now moving to a higher level of sophistication within the industry. Ends

Q&A

The Credit Reference Bureau will boost the banking sector-Steve Casey