In Pakistan, credit firms fail to collect reliable data
Few gaps in law hamper smooth sharing of information
A Reuters file image.
LAHORE:
Financial inclusion remains a pipe dream for many former and current economic managers of Pakistan as the country lacks equal access to finance for all individuals and different sectors of the economy for a variety of reasons.
To overcome the issue, the Credit Information Bureau Act 2015 was passed by parliament to pave the way for establishing private credit bureaus in a bid to promote financial inclusion as part of the government’s National Financial Inclusion Strategy (NFIS).
NFIS is aimed at enhancing financial access to at least 50% of the adult population by the end of 2020, a target industry experts think Pakistan will likely miss because of a number of factors.
According to them, some gaps in the law governing the establishment and operation of private credit bureaus in Pakistan are hampering the bureaus’ efforts to collect information for building a reliable repository of credit information data of both individuals and corporate entities.
“Before the Act was passed, several unlicensed credit bureaus were operational in the country, however, their role was limited to the collection of data from financial institutions, which voluntarily shared data with them,” said Aequitas Information Services CEO Mumtaz Hussain Syed.
In an interview with The Express Tribune, Syed said the Act now made it mandatory for financial and credit institutions to become a member and share data with at least one licensed private credit bureau.
According to him, the rules and regulations of business applicable to non-banking financial institutions, telecommunication companies and utilities also need to be updated in a bid to bring them in line with the Credit Information Bureau Act 2015.
Since the private credit bureaus have now been mandated to gather data from non-conventional sources such as utilities, telecommunication firms and retailers, a few bottlenecks need to be removed.
“It is an important step towards enhancing financial inclusion,” he stressed. “However, greater cooperation and collaboration is required amongst different players to implement this.”
According to Syed, a key issue in collecting data from utility companies is related to the ownership of utility connections because many tenants or new owners do not transfer the ownership of utility connections.
“As a result, payment behaviour of users cannot be captured even if data is shared with the credit bureaus,” he argued. “Changing ownership is a lengthy and cumbersome process and reforms are needed to relax the procedure.”
He pointed out that in developed countries customers could apply for a new connection or transfer an existing one with just a click of a button.
He stressed that if similar mechanisms could be developed in Pakistan, it would not only improve customer experience but will also resolve data quality issues.
There is also a need to enhance cooperation amongst different regulators.
“For some companies, there are conflicting regulations, which do not permit companies to share data of their clients with any other institution, just like the case of telecom companies, which can be a great source of data sharing as they have nearly 130 million subscribers,” he said.
According to him, the collection of data from these sources would allow financial institutions to offer better lending rates to new industry customers and encourage a more inclusive financial ecosystem in the country.
“Some issues, however, are restricting private bureaus to work smoothly in this direction,” the official said.
Published in The Express Tribune, May 24th, 2020.
Financial inclusion remains a pipe dream for many former and current economic managers of Pakistan as the country lacks equal access to finance for all individuals and different sectors of the economy for a variety of reasons.
To overcome the issue, the Credit Information Bureau Act 2015 was passed by parliament to pave the way for establishing private credit bureaus in a bid to promote financial inclusion as part of the government’s National Financial Inclusion Strategy (NFIS).
NFIS is aimed at enhancing financial access to at least 50% of the adult population by the end of 2020, a target industry experts think Pakistan will likely miss because of a number of factors.
According to them, some gaps in the law governing the establishment and operation of private credit bureaus in Pakistan are hampering the bureaus’ efforts to collect information for building a reliable repository of credit information data of both individuals and corporate entities.
“Before the Act was passed, several unlicensed credit bureaus were operational in the country, however, their role was limited to the collection of data from financial institutions, which voluntarily shared data with them,” said Aequitas Information Services CEO Mumtaz Hussain Syed.
In an interview with The Express Tribune, Syed said the Act now made it mandatory for financial and credit institutions to become a member and share data with at least one licensed private credit bureau.
According to him, the rules and regulations of business applicable to non-banking financial institutions, telecommunication companies and utilities also need to be updated in a bid to bring them in line with the Credit Information Bureau Act 2015.
Since the private credit bureaus have now been mandated to gather data from non-conventional sources such as utilities, telecommunication firms and retailers, a few bottlenecks need to be removed.
“It is an important step towards enhancing financial inclusion,” he stressed. “However, greater cooperation and collaboration is required amongst different players to implement this.”
According to Syed, a key issue in collecting data from utility companies is related to the ownership of utility connections because many tenants or new owners do not transfer the ownership of utility connections.
“As a result, payment behaviour of users cannot be captured even if data is shared with the credit bureaus,” he argued. “Changing ownership is a lengthy and cumbersome process and reforms are needed to relax the procedure.”
He pointed out that in developed countries customers could apply for a new connection or transfer an existing one with just a click of a button.
He stressed that if similar mechanisms could be developed in Pakistan, it would not only improve customer experience but will also resolve data quality issues.
There is also a need to enhance cooperation amongst different regulators.
“For some companies, there are conflicting regulations, which do not permit companies to share data of their clients with any other institution, just like the case of telecom companies, which can be a great source of data sharing as they have nearly 130 million subscribers,” he said.
According to him, the collection of data from these sources would allow financial institutions to offer better lending rates to new industry customers and encourage a more inclusive financial ecosystem in the country.
“Some issues, however, are restricting private bureaus to work smoothly in this direction,” the official said.
Published in The Express Tribune, May 24th, 2020.