CREDIT BUREAUS in Nigeria: Fact Sheet

A formal recognition of Credit Bureaus started in Nigeria in 2008 when the Central Bank of Nigeria (CBN) issued guidelines officially on their licensing and operations.

Three Credit Bureaus were licensed in 2008:

1. CRC Credit Bureau Limited,
2. CR Services Credit Bureau Plc and
3. XDS Credit Bureau Limited.

The CBN supported the credit bureaus by mandating all banks and financial institutions under their jurisdiction/supervision to use at least two of the three credit bureaus.

All commercial banks, MFBs, and all specialized institutions – Federal Mortgage Bank, Bank of Industry, BOA, Nigerian Mortgage Financing companies, Development Banks, leasing companies, primary mortgage institutions, asset management companies etc. are on the credit bureau platforms.

There are three main things these institutions have been mandated to do:

1.            Submit data –  positive and negative, unlike in some countries that require only negative data
2. Submit data – all amounts, unlike in some countries where minimum amount of loans is prescribed.

iii.       For every credit transaction, all financial institutions are to check on the platforms of at least two credit bureaus although some non-commercial banks/institutions run checks with only one.

Data submission is regulated with the use of the Common Data Template which was designed by the CBN, IFC and CBAN and launched in 2016. Data collected are in four categories:

1. Demographic Information – name, address, means of identification, registration numbers (for commercial enterprises) etc.
2.          Issues relating to the credit – principal amount, interest rate, when the facility was granted, how much had been collected etc. Here, there were classifications as well – performing, doubtful, default etc.

iii.               Information on enquiries made on the customer

1. Information on Collateral, Securities. Lawsuits, litigation, returned cheques.

Data submission is usually done at least once a month and updates are done anytime it is required.

Some data are not available in the credit bureaus such as income or tax payment. The other sources of data i.e. alternative data from non-financial organizations such as Electricity distribution companies, cooperatives, multinationals, microfinance institutions, real estate and pharmaceuticals are also collected.

There is a Dispute Resolution mechanism to resolve issues at a stipulated time to ensure accurate and updated information is readily available to stakeholders

The main products of the Credit Bureaus are as follows:

1. Credit Reports on every customer
2. Portfolio Monitoring Report done every quarter of the year.

iii.               Credit Scores

The purposes of the Credit Reporting System are as follows:

• To encourage and improve access to loans which starts with a good credit history
• To enhance the creation of new loans which would lead to better access to finance
• To aid financial institutions to assess and better manage risks associated with lending.
• To promote responsible lending and borrowing: borrowers can avoid over indebtedness and lenders can avoid bad debts and defaults using the credit reporting system
• To equip financial institutions with the required infrastructure and tools for processing and managing loans to MSMEs and individuals.

Credit Bureaus facilitate ease of doing business by significantly improving access to credit especially for the disadvantaged sectors of the economy – consumers and SMEs

The World Bank findings reveal that, with the introduction of credit bureau:

• Small businesses reporting high financing constraints reduced from 49% to 27%
• The probability of obtaining a bank loan for small firms increased from 28% t0 40%
• In Ecuador, the number of micro entrepreneurs that accessed loans after 5 years increased from 60,000 to 719,000 (1,098%)
•  In Ukraine, significant decline in interest rates from 38% to about 15% within 5 years.

Nigeria has also benefitted in many areas including:

• Banks readily share credit information which promotes transparency in the financial system.
• Banks currently offer new credit products to their customers such as credit cards, consumer loans, vehicle loans, loans to SMEs etc.
• Retail loans are enjoying special attention by virtually all the banks which has inevitably turned the tide of high level of non-performing loans that was prevalent in the 1980s – 1990s.
• Nigeria is currently 6^th in the world on the Getting Credit Indicator. Furthermore, Nigeria now ranks 145^th out of 190 countries on the Ease of Doing Business, compared to 169 in last year’s report due to the efforts made by the Presidential Enabling Business Environment Council (PEBEC) initiatives of which the Credit Bureaus played an integral part last year.
• The value of loans granted in the country has risen from N7 trillion to N16 trillion by December 2017.
• There has been a significant decline in the rate of non-performing loans
• The number of borrowers in the credit reporting system has grown.

The CREDIT REPORTING Act 2017

Before this Act, the credit bureau industry started as a regulated industry with the release of the Guidelines for the Licensing, Operation and Regulation of credit bureaus, released and became effective in 2008, revised in 2013.

The bill for the Credit Reporting Act was:

• Sponsored by the Chairman of the Senate Committee on Banking, Insurance and Other Financial Institutions, Senator Rafiu Adebayo Ibrahim (PhD, FCIB)
• Reviewed in a Public Hearing at the National Assembly on 8th February 2017
•      Fully supported by the Executive arm of the FG, under the platform of Presidential Enabling Business Environment Council (PEBEC); this facilitated accelerated passage of the Bill into Law

The bill was signed into law by the Acting President, Prof. Yemi Osinbajo (SAN) on May 30, 2017.

The Act is a legal document to serve as a guide for better practices and operations in the Credit Bureau Industry.

The existing CBN guidelines regulating the operations of Credit Bureaus shall forthwith be read in such manner as to bring its provisions in conformity with the Act.

Objectives of the Act

1. To enable and encourage better access to credit and improve risk management in credit transactions
2. To encourage access to accurate, fair and reliable credit information and protect the privacy of such information
3. To set standards and conditions for the establishment, regulation and operations of credit bureaus
4. To promote responsibility in the credit market by encouraging responsible borrowing, avoidance of over-indebtedness and fulfillment of financial obligations by all affected parties
5. To improve credit information sharing

Some Salient Provisions of the Act

1. To use a credit bureau as either a user or a data provider, you must enter into an agreement with the Credit Bureau (CB).
2. Information on indebtedness can be submitted to a CB without obtaining the consent of the debtor. On the other hand, the credit information user must obtain the consent of the data subject to access the information from CB.
3. Information from a CB on a data subject can be accessed only for permissible purposes.
4. Every person is entitled to one free credit report in a year from the CB.
5. Various penalties including monetary and imprisonment are applicable for the contraventions of the provisions of the Act.
6. CBN empowered to issue guidelines from time to time to complement the provisions of the Act.

Permissible Purposes for accessing a data subject information include:

• Applicant or a guarantor for credit
• Review, renew, restructure or monitor credits
• Employment checks
• Prospective tenants
• Underwrite, review, or renew insurance policies or analyze insurance claims
• Application for credit contracts or other post-paid services
• Debt collection, enforcement of a monetary judgment or enforcement of any other debt
• Carry out KYC checks on any person for any permissible purposes
• Directive of a regulatory authority or a public body
• Compliance with a court order

Credit Information Providers recognized in the Act include the following entities:

• Banks, specialized banks and other financial institutions
• Leasing companies
• Insurance companies
• Cooperative societies and institutions that offer credit to SMEs
• Utility companies including electricity, telecommunications and water corporations
• Asset management companies
• Suppliers of goods and services on a post-paid, deferred or instalment payment basis
• Entities that in their ordinary course of business have relevant information that complies with Permissible Purposes
• CBN’s CRMS.

There is no limit to the amount of indebtedness that can be submitted to the CB – no minimum or maximum amount.

CBs will retain the information submitted to it for a period of not less than 6 years, and archived for additional 10 years, from the date it is submitted or last updated.

The Credit Bureau Association of Nigeria (CBAN)

The Credit Bureau Association of Nigeria (CBAN) was set up in 2012 by the three licensed Credit Bureaus in Nigeria (CRC Credit Bureau Ltd, CR Services Credit Bureau Plc, and XDS Credit Bureau Ltd) to promote the development and use of credit reporting in Nigeria.

CBAN was set up to create a platform to protect the interests of credit bureaus; articulate and promote policies and regulations favourable to the lending industry in particular, and the financial and banking industry in general; and proactively monitor developments relating to the promulgation of laws and issuance of regulations that have bearing on the Credit Bureau industry.

L-R: Mrs. Mobolanle Adesanya, MD/CEO XDS Credit Bureau Limited, Mr. ‘Tunde Popoola, Chairman, Credit Bureau Association of Nigeria (CBAN)and Mrs. Jameelah Sharrieff-Ayedun, MD/CEO CR Services Credit Bureau Plc at a press briefing by CBAN in Lagos on Friday

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