29 September 2012

Tanzania: BoT Set Up Lifeline for the Credit-Less

THOUSANDS of Tanzanians who have been deprived access to credit now have a lifeline, thanks to the launching of a state of the art Credit Reference System (CRS) database by the Bank of Tanzania (BoT).

The BoT Deputy Governance - Administration and Internal Controls, Mr Juma Reli said that lack of credit reference system in the country was one of the major factors limiting access to credit."Small firms and individuals borrow at high rates because of the high risks involved as lenders do not have information on their credit behaviours. As a result of this, banks fail to make informed decisions on their lending operations," he said.

Mr Reli said that the major objective of having a credit reference system was to encourage a culture of responsible credit behaviour in the financial system.He said that the CRS synchronizes information on clients allowing participating institutions to access prospective clients' credit history quickly and easily.

"Access to individual or company's credit history reduces incidences of institutions lending to habitual defaulters, while rewarding borrowers with good repayment history with continued access to credit facilities," he explained.The launching of the system means that the database is now live and that, banks and other financial institutions have a month grace period to start sending their data before legal action is taken on those that are regulated by BoT.

The system was set up by CreditInfo International starting in October 2011 and pilot testing began in June 2012 and so far 26 banks have already joined the testing environment, out of which 9 banks have successfully uploaded data into the system.The BOT Director of Banking Supervision, Mr Agapiti Kobelo, said that lack of credit history of borrowers has been a hindrance to financial institutions in making informed credit decisions for a long.

"As a result financial institutions have been generally slow in making lending decisions and sometimes have made decisions without thoroughly understanding credit risk they are undertaking," he said.Mr Kobelo said that this has partly had a negative impact as reflected by high lending rates, financial institutions were compelled to charge, on loans primarily because of absence of reliable borrowers' credit history and related information.

The BoT Act, 2006 mandates the bank to create a CRS designed to collect and provide information on the payment record of all clients of banks and financial institutions in the country as well as those of savings and credit schemes and other entities engaged regularly in the extension of credit.

According to the Act, the credit reference system shall consist of a databank administered by BoT and private credit bureau operating under the conditions prescribed by BoT."Besides the financial sector, the credit reference bureaus will also source data from other entities such as utility providers, phone companies, debt collection agencies, public institutions such as the business registration and licensing authority and the courts," he said.

Mr Kobelo said that the bureaus will prepare credit reports that will then be sold on request to users and a typical user would be a lender who has been approached by a potential borrower for a loan and before the loan is granted, the lender request for a credit report on the applicant from a private credit bureau to assist in analyzing and evaluating the loan request.

He said that it was worth noting that credit information might be of useful interest to other users, including bank supervisors, other units with the bank, government agencies, employers, insurers and real estate agents."The bank, in executing their responsibility effectively will supervise the operations of the databank and the private credit bureaus to ensure that the information collected is managed securely and responsibly at all times and in accordance with provisions of the law and regulations," he said.

The establishment of credit reference system is a continuation of the government's efforts to reform the financial sector which started in 1991. The reforms were initiated in order to create an effective and efficient financial system.

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