Jan 15, 2016 News
By Kiana Wilburg
The crucial Credit Reporting Amendment Bill of 2015 was passed yesterday in the National Assembly. The Bill was brought before the House by Finance Minister Winston Jordan.
Jordan said that the Guyanese market had been waiting for a credit bureau for several years. He recalled that this came to fruition with the passing of the Credit Reporting Act in 2010, which was then followed by the Creditinfo Group of Iceland being granted its licence in July 2013 to operate a bureau here.
The Finance Minister congratulated the former government for making the step in this regard. He noted, however, that two and a half years later, neither borrowers, lenders nor the economy have been able to experience the benefits of the bureau’s operation. By way of examples, Jordan said that it took only six months in Guatemala and 12 months in Shanghai, for these benefits to start to accrue.
Jordan said that an assessment of the reasons for this state of affairs clearly indicates that fundamental to the future viability of the credit bureau, and of it having a positive impact in the economy, is enabling legislation.
He said that this would involve tweaking the existing legislation to “give it more teeth”. At the same time, Jordan said that a concerted effort will have to be made to mount a public information campaign that is geared towards attaining the necessary buy-in by all the stakeholders.
The Finance Minister said that the amendments to the Bill will ensure that the Guyanese market will benefit from the bureau’s operation and reach the ultimate goals. These include; the majority of all loan applications processed within one to two days; a decrease in default rates by at least 25 percent; increased access to credit which can raise the ratio of private credit to the Gross Domestic Product (GDP) by between seven and eight percentage points; and a decrease in interest rates, due to decreased default rates.
He further explained that the proposed amendments to the Credit Reporting Act No. 9 of 2010 [CRA] are aimed at creating a legal framework which enables a credit bureau to operate effectively in the market; and ensures that lenders, borrowers and the economy as a whole benefit from an efficient credit reporting industry.
He said that specifically, “the strengthened legislation will mandate regulated credit information providers to upload credit information to a licenced credit bureau; mandate utility companies to upload credit information to a licenced credit bureau provided that the government is the majority owner; require credit information providers to obtain the consent of data subjects prior to submitting a request to a credit bureau, with a view of obtaining credit information; authorize credit information providers to upload credit information to a licenced credit bureau without consent having to be given by the data subject; and mandate regulated credit information providers to pull a credit report before granting credit”.
The Finance Minister said that the proposed amendments have had the benefit of the experience of Creditinfo Guyana and best practices of other jurisdictions as well as those developed by the International Finance Corporation (IFC).
“In developing economies credit reporting service providers perform the crucial functions of improving creditor protection and strengthening credit markets. In effect, the need for physical collateral can be at least supplemented with reputational collateral. Credit reporting service providers can reduce information asymmetry, thus reducing default rates, which in turn should result in lower average interest rates, enhanced competition in the credit market, and ultimately increased access to credit,” Jordan said.
He added that, “Credit Bureaus are therefore essential elements of a country’s financial infrastructure: they increase access to credit; they support responsible lending and reduce credit losses; and they strengthen banking supervision in monitoring systemic risk”.
“It should be kept in mind that default rates are directly linked with interest rates offered by lenders. If a lender had an average default rate of 12 percent in 2014 which goes down to eight percent in 2016, he would generate the same profit as before by offering an interest rate which would be 4 percentage points lower than offered in 2014. Additionally, the lender would be able to lower his interest rates due to decrease in application processing time.”
The Finance Minister stressed that an Innovative Public Awareness Programme will have to be developed to increase awareness of the credit bureau and its benefits. He said that this will include a collaborative approach with Credit Information Providers and other entities. Jordan stated that the most important initiative will revolve around educating the public on the contents of the Credit Reporting Act.
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