Graphic Business News

Poor data quality, others affecting credit referencing system

By: Ama Amankwah Baafi
Dr Ernest Addison, Governor, BoG
Dr Ernest Addison, Governor, BoG

THE Credit Referencing Activity Annual Report, 2018, has cited poor data quality, inconsistent data submission, and inefficient banking software and lack of expertise, as some of the challenges confronting the credit referencing system (CRS) in Ghana.

The report noted that the challenges had come about because a number of institutions, especially micro-finance institutions (MFIs) and other BOG licensed non-bank financial institutions, did not have the requisite tools for extracting data.

Consequently, it said the manually populated data submitted to credit bureaus are susceptible to errors and partly account for the poor quality and non-submission of data.

“In order to provide good quality data, financial institutions need to have robust banking software that will facilitate data extraction and management,” it said. 

It said a number of financial institutions (FIs) continue to submit data to credit bureaus that were below the standard requirements of the BoG, and lacked critical demographic information such as identity information, date of birth and residential addresses of borrowers.

It revealed that although the BoG and the credit bureaus continue to support the market in the form of training and sensitisation, with the aim of strengthening the CRS, critical financial information such as outstanding balances and transaction dates were sometimes omitted from records submitted to credit bureaus.

Results of enquiries
It emerged that 66 per cent of enquiries conducted by financial institutions (FIs) in the country produced information on persons in the database of credit bureaus.

The information obtained from the enquiries, according to the report, included credit information, identity information and guarantor information.

It said more FI’s used the services of credit bureaus with a total of 2,629,400 enquiries conducted. This represents an increase of 18 per cent from last year’s 2,222,311 enquiries.

The report said FIs now appreciate the importance of credit reports or searches as part of their credit risk management and know your customer (KYC) processes.

Per the requirement of the Credit Reporting Act, 2007 (ACT 726), credit bureaus may gather, maintain and process credit related data into credit reports or other products for the use of financial institutions in their credit administration processes and for respective data subjects.

The Act also mandates credit providers to conduct credit searches on all prospective borrowers prior to granting or refusing a loan application, to ensure that bad borrowers are identified at the appraisal stage.
It is also to prevent over indebtedness on the part of borrowers.

Consumer credit enquiries
The report states that enquiries made on individual borrowers/customers of FIs accounted for 95 per cent of total enquiries in 2018, while enquiries about corporate customers accounted for five per cent of total enquiries.

Again, enquiries conducted by savings and loans, finance houses, and other Bank of Ghana (BOG) licensed non-bank FIs accounted for 59.6 per cent of total enquiries maintaining a lead in the use of credit referencing services.

Also, the universal banks also accounted for 28 per cent of the total enquiries.

At the same time, rural and community banks recorded an increase in enquiries from 118,396 in 2017 to 212,553 in 2018. This represented eight per cent of total enquiries in 2018.