Workshop on making finance work for africa nairobi kenya 5 6 march 2007
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WORKSHOP ON MAKING FINANCE WORK FOR AFRICA – NAIROBI, KENYA 5-6 MARCH 2007 PowerPoint PPT Presentation


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REGIONAL COLLABORATION ON BUILDING CREDIT REPORTING SYSTEMS; PRIORITIES AND OPPORTUNITIES IN THE EAST AFRICAN COMMUNITY BY JUSTINE BAGYENDA, EXECUTIVE DIRECTOR SUPERVISION - BANK OF UGANDA. WORKSHOP ON MAKING FINANCE WORK FOR AFRICA – NAIROBI, KENYA 5-6 MARCH 2007. Agenda. Introduction

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WORKSHOP ON MAKING FINANCE WORK FOR AFRICA – NAIROBI, KENYA 5-6 MARCH 2007

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Workshop on making finance work for africa nairobi kenya 5 6 march 2007

REGIONAL COLLABORATION ON BUILDING CREDIT REPORTING SYSTEMS; PRIORITIES AND OPPORTUNITIES IN THE EAST AFRICAN COMMUNITY BY JUSTINE BAGYENDA, EXECUTIVE DIRECTOR SUPERVISION - BANK OF UGANDA

WORKSHOP ON MAKING FINANCE WORK FOR AFRICA – NAIROBI, KENYA 5-6 MARCH 2007


Agenda

Agenda

  • Introduction

  • Where are we now in the East African Community?

  • Priorities for Regional Co-operation

  • Possible Benefits of a Regional Approach to Credit Reporting Systems

  • Practical Consideration

  • Uganda’s Experience

Making Finance Work for Africa


Introduction

Introduction

  • Credit reporting refers to the exchange of borrower payment history information between lenders.

    -data in credit reports enables lenders to better evaluation risk.

    -provides for automation of credit decisions process.

    -Reduces time and cost of extending credit – often results in:

    (i) expansion of credit markets

    (ii)more competition

Making Finance Work for Africa


Where are we now in the east african community

Where are we now in the East African Community?

  • Monetary Affairs Committee of Central Bank Governors of the three Partner States i.e. Kenya, Tanzania and Uganda Resolved:

    “The three Central Banks are urged to hasten the operationalisation of the CRBs. (Arusha Tanzania May 2006)”

  • In all the three Partner States, Efforts have been intensified with regard to Establishment of CRB.

  • No significant provider of Credit information in the East African Region

Making Finance Work for Africa


Priorities for regional co operation

Priorities for Regional Co-operation

  • Legal and Regulatory Framework.

  • Identity verification system both for enterprises and customers

  • Construction of national database for credit information of enterprises and customers.

  • Promotion of public awareness: (mobilize customers to take part in the establishment of credit reporting system)

  • Standardisation of the credit reporting industry.

  • Development of appropriate telecommunication system and technology.

Making Finance Work for Africa


Possible benefits of a regional approach to credit reporting systems

Possible Benefits of a Regional Approach to Credit Reporting Systems

  • Credit Reference Bureaus (CRBs) and Access to credit markets.

  • CRBs are tools intended to broaden the access to credit markets.

    • Banks often do not lend to individual customers lacking physical collateral

    • ….and therefore restrict their credit to their wealthiest customers

Making Finance Work for Africa


Possible benefits of a regional approach to credit reporting systems contd

Possible Benefits of a Regional Approach to Credit Reporting Systems (contd)

  • Access to Credit Markets

  • A good credit record represents an alternative and “wealth free” collateral: “a reputational collateral”.

  • ……that allows banks to lend to all customers independently from their wealth.

  • World Bank research done in 2004 shows that lending may increase substantially without increasing the risk exposure when banks supplement their own information with that provided by Credit Reference Bureaus.

  • Evidence from Argentina and Brazil shows:

    that a small bank when adding CRB data in its credit worthiness assessment could increase its lending up to 30% without increasing its risk.

  • Gains are higher for smaller banks.

Making Finance Work for Africa


Possible benefits of a regional approach to credit reporting systems1

Possible Benefits of a Regional Approach to Credit Reporting Systems

  • Credit Risk Management

    2.Credit information sharing makes it possible for banks to:

  • Improve their risk assessment

  • Extend credit to new but previously rationed creditworthy customers.

    N.B. By affecting credit origination, CRBs improve the access to bank credit

  • Measure the aggregate risk of their loan portfolios improving risk management

  • Market Access and Risk Management are in fact two faces of the same coin.

Making Finance Work for Africa


Possible benefits of a regional approach to credit reporting systems2

Possible Benefits of a Regional Approach to Credit Reporting Systems

  • Risk Based Supervision

    3.Credit Reference Bureaus may be a tool for more advanced risk based supervision:

    -What proves useful for Banks’ risk assessment is also useful for Supervisors’ control of banks’ risk exposures. Supervisors have used CRB data for:

    (i) on-site supervision

    (ii) off-site supervision

    (iii)control credit risk concentration

  • CRBs favour competition.

Making Finance Work for Africa


Possible benefits of a regional approach to credit reporting systems3

Possible Benefits of a Regional Approach to Credit Reporting Systems

  • Government and Society

  • Information availability – timely, accurate, up-todate.

  • Stable business environment for future investments.

  • Recognize the value of information to all stakeholders.

  • Borrowers consolidated positions.

  • Exposures with foreign lenders.

  • Information on loans after default.

  • Reject clients who deliberately apply for credit in many institutions and end up in delinquency or bad debt.

Making Finance Work for Africa


Practical considerations to a regional approach to credit reporting systems

Practical Considerations to a Regional Approach to Credit Reporting Systems

  • Coordinated Regional approach is an excellent way to exploit synergies and gain economies of scale in providing credit information affordably to what is, regionally, a relatively small market. But there are a number of practical considerations:

    • Legal Framework

      - There may be disparities between countries (e.g. on data/consumer protection/privacy laws) which may be difficult or at least very time-consuming to harmonise.

Making Finance Work for Africa


Practical considerations to a regional approach to credit reporting systems contd

Practical Considerations to a Regional Approach to Credit Reporting Systems (contd)

  • Setting regional standards (e.g. concerning CRB operations, date, codes of conduct) of course a worthy goal, but how long does it take to achieve.

  • Sensitivity of information:

  • There is a political risk that the general public may object to confidential personal information being stored ex patria.

  • Agreeing on what to do between the various countries and the much large number of actors.

Making Finance Work for Africa


1 uganda experience

1. Uganda: Experience

  • Legal Framework provides for the Establishment of the Credit Bureau Provider

  • Credit Bureau Provider was selected by BOU

  • Participating Institutions (PIs) are yet to agree on the pricing structure

  • World Bank, KFW and GTZ/EU are willing to financially support the implementation of the CRB project.

  • Service level agreement between PIs &the Credit Bureau Provider will be signed by March 30th 2007.

Making Finance Work for Africa


Thank you

THANK YOU.


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