Can you tell us the purpose of the conference?
About 2006, the central bank and promoters [of credit bureaus] started thinking about bringing private credit reporting into the sphere. Before then, there had been Central Bank’s credit risk management system that was servicing the banking system. But this did not reduce the incidence of non-performing loans, delinquency, in the financial system. And it did not also address some structural and infrastructural problems regarding our financial system.
The [the CBN and promoters] felt that [credit bureaus] should come to be. Between that period and 2007, the CBN eventually got the legislation that enabled it to license and regulate private credit bureau operators. From then on, their bureaus were registered; XDS Credit Bureau was one of them and I was privileged to birth and manage it and two others.
Between 2008 and now, five years of that experimentation, things have been done and there have been challenges. We (BDi) and the CBN felt it was time for us to look and take stock of the entire development of the credit reporting system in the country.
This conference is the first of such. In global practice, you are meant to [have such a conference] maybe once a year or once every two years and that fits into what they call world credit reporting council, where they review operations [regarding] credit reporting. The conference, in conjunction with CBN, the regulator of the sector, and the Credit Bureau Association of Nigeria, that is the operators, will have in attendance users e.g. retailers. “Enhancing Financial Stability and Inclusion through Credit Reporting,” the theme of the conference, is very appropriate.
What’s the core message of the conference
The conference objective is quite clear. It is important that you do take stock, to review the performance of the credit bureaus, look at the challenges. We BDi think we are bringing something new by making it a conference instead of a workshop. There will be workshops and plenaries within the conference.
The method here is to confer on the system; it’s not only the credit bureaus that have solutions, there are other stakeholders: the retailers, shops, real estate companies, insurance companies – one of the largest trading companies in the country will be making a presentation. [Together we will see] why credit reporting isn’t been used, why are telecommunications companies not signing up to this infrastructure; why is that here in Nigeria you have more pay-as-go rather than contact subscribers?
Credit bureau is an infrastructure that should oil the entire financial and commercial system. Abroad, everything down to renting a place requires a background check with a credit bureau; they want to see whether you are financially responsible. I was amazed that at a big multilateral institution in Germany, one of the officials told me that for him to get the job a credit check was carried out on him.
[In Nigeria], we have not been able to turn [credit reporting] into a social accountability mechanism. A credit reporting system becomes a social accountability mechanism, replacing the traditional reference based on whose son you are. And maybe because the father is catechist he can be loaned money.
What incentives have driven the registration of over 10 million Nigerians with the three credit bureaus
The growth has happened in two ways. First, the CBN made it mandatory for all the entities it regulates. There is a push from regulation i.e. the threat of penalising non-compliance. Because the stick is there, people comply. But it is not more of the stick. Abroad, people register because it is in their interest. Hoteliers give credit.
The success has been due to the central bank’s support, by way of mandatory provision and the threat of sanctioning non-compliance. The other has been the credit bureaus. Everybody sets up a business to drive profitability which is why the argument has been strong for private bureaus. And it’s a numbers thing: the more you have in your database, the more you’re patronised. There is an incentive to go out encourage, cajole and get this data, scrub the data, and make the files available. Within five years credit bureaus have done commendable work. More can be done.
Part of theme of the conference is to get retail and real estate sector to become integrated, to use this infrastructure that has been established. Private bureaus have had a 5-year learning experience and can only improve. Commercial and micro finance banks that have used the service will also [talk about their experience]. Insurance companies and capital market operators that take part in the conference will see that they can use it as a means of managing risks.
Education is also key; as you mentioned there is a cultural part of it. Education; to enlighten the stakeholders, is part of the objective of this conference. At the moment there isn’t the challenge of being victimised [for lack of a credit history] unlike in some other climes. In some countries, credit bureaus became a potent tool for oppression and segregation. But we don’t have that here. In South Africa, the largest users of credit bureau products are the retailers not the banks. In Nigeria, it’s the other way round.
Talking about numbers and ubiquity, are you considering getting the players in the power sector involved
The ubiquity of utilities is related to financial inclusion. A discussant that presented at the World Credit Reporting Forum was a water company in the UK. Interestingly, they don’t have a situation, as our utility companies do here, where if you don’t pay you are cut off from the grid. Water companies in the UK can’t cut off its customers, because access to water is considered a right. When the company experimented with credit reporting it found the behaviour, particularly in the ‘developments’, areas known for destroying pipes and wasting water, started changing, because their records were latched onto the credit reporting infrastructure.
Imagine, with the preponderance of gated communities in Nigeria, where there is a problem with the enforcement of paying bills. If [residents] refuse to pay their bills, the association can decide, as part of its rule, to report such delinquency to a credit bureau. People will be more responsible [as] a little [default] in their neighbourhood has great effect.
We’ve invited companies in the power sector to be part of this inaugural conference; for them and other companies to express their challenges, cultural hang-ups, fears, expectations, worries, issues around unique identification, why they are not driving on this highway that has been created etc.
Do you have difficulties with bureaus sharing information
Right now, at the stage where credit bureaus are, there is no cross-sharing of information. That is the next phase. Regulation tells bureaus to share, which is why they have come together and formed a credit bureau association. The association will be that trusted party – because while we deal with cooperation and competition – you must have a trusted party. I was the first chairman of the association.
Right now the [focus] is to get more people [registered], and then sharing will start.