THE NEED TO ESTABLISH
                 A REGIONAL CREDIT BUREAU

   A Presentation of Caribbean Association of Indigenous ...
these very challenges that have somewhat quaked us today, shall be what
strengthen us for tomorrow.


I have been asked to...
to Trinidad, and almost every island in between. And yes we have
experienced the challenges inherent in regional initiativ...
Credit Bureau is indeed a key pillar in the building of a robust and healthy
Caribbean economy. For in emerging markets su...
   Provides   Positive    and      Negative   Data    (Contract
                   characteristics, Credit amount, Credit...
(Slide 7)


Benefit to Creditors
                 Makes the credit decision process a more efficient one
                ...
 Technological          and   informational       infrastructure
                    improvements
                 …. Al...
CARTAC Credit Registry workshop facilitated by Credit Registry Systems
Expert, Mr. Jim Aziz, the following were noted as k...
(Slide 13)


So where do we stand as a region? CARTAC reveals in its Survey on the
Status of Credit Bureaus/Credit Registr...
note and commend the Jamaica Bankers Association for their
    engagement of our legislators on this point.


For those of...
credit bureau, whether individually by country or collectively in the
      region.


(Slide 14)


Certainly there is stil...
(Slide 16 … click twice to reveal the bar charts)


Full information sharing also reduces the constraints experienced by S...
Caribbean Association of Indigenous Banks commits its support to the
efforts of our member countries in whatever way we ca...
Upcoming SlideShare
Loading in...5
×

THE NEED TO ESTABLISH

234

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
234
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Transcript of "THE NEED TO ESTABLISH "

  1. 1. THE NEED TO ESTABLISH A REGIONAL CREDIT BUREAU A Presentation of Caribbean Association of Indigenous Banks, Inc 4th Annual Private Sector Meeting With Ministers of Trade & Ministers of Finance Jamaica Pegasus, JAMAICA June 13th, 2009 (Slide 1) (Salutations) It is an honour to have been invited, as Chairman of Caribbean Association of Indigenous Banks Incorporated, to address this most important gathering of Ministers of Finance, Ministers of Trade and Private Sector representatives from across the region. As you know, this is the fourth convening of this annual meeting, and I am heartened not only by the broad range of topics which appear on the agenda and which will form the basis of our discussions today, but also by the timeliness of this meeting, and by the demonstration that all of us here have made that we understand the times which are upon us, and the current economic challenges which demand our attention. Ladies and gentlemen, these challenges are significant surely, but not insurmountable – and as we view them in proper perspective, with forward- thinking vision and with a spirit of confidence, creativity and collaboration,
  2. 2. these very challenges that have somewhat quaked us today, shall be what strengthen us for tomorrow. I have been asked to speak today on an issue that is by no means a new one, but rather is has been researched, studied, debated and weighed for several years – that being “The Need to Establish a Regional Credit Bureau.” Given the banking and financial services community that I serve, my interest and passion as relates to the need for the establishment of a regional credit bureau goes without saying. On this note, I believe it would serve us well to briefly reflect on the emergence and mandate of CAIB in order to give greater context to the presentation that I will share this morning. Our association was established in 1970 as the result of a decision by the Eighth Meeting of the Conference of Heads of Government – a decision spurred by a recommendation coming out of the inaugural meeting of the Standing Committee of Ministers responsible for Finance. Principally formed to promote cooperation in the training of personnel employed in the national commercial banks in the Commonwealth Caribbean, our mission has since evolved to more broadly encompass the very facilitation of the growth and development of our region’s financial institutions – as we seek to influence policy through education, engagement and advocacy. We are a regional association with over 50 member-banks and financial service institutions – from Haiti to Suriname, and from Curacao to Jamaica
  3. 3. to Trinidad, and almost every island in between. And yes we have experienced the challenges inherent in regional initiatives, such as those naturally imbedded in the establishment of a Regional Credit Bureau – but as I stated earlier, if we can collectively commit to a vision that is forward- thinking, and adopt a spirit of earnest collaboration … then I am confident that such an institution can become a reality. Indeed, having regionally embraced the globalization movement – welcoming foreign direct investment and posturing to promote our region as an international financial centre – we must now ensure that our banking and financial services industry continues to evolve at a speed that allows us to remain relevant within this context. (Slide 2) So, what is a Regional Credit Bureau, and why is it so important that we lay the groundwork for its establishment sooner rather than later? (Slide 3) A Regional Credit Bureau will act as a repository or clearing house of credit and demographic information (both historic and current) on individuals & SMEs throughout the region. This information pool will allow borrowers to establish their credit worthiness across different territories, and will allow banks and other lenders to accurately assess the risk of regional investments and in so doing encourage greater regional funding of sound projects. Operating within a legislative framework that ensures their effectiveness as relates all stakeholders – CAIB believes that the establishment of a Regional
  4. 4. Credit Bureau is indeed a key pillar in the building of a robust and healthy Caribbean economy. For in emerging markets such as ours, it is imperative to spur and support such economic growth through facilitating greater access to credit. (Slide 4) Indeed, the International Finance Corporation, which has spent many years studying the benefits and effects of credit bureaus – and in particular, privately-operated credit bureaus – note that the level of credit reporting within a country or a region goes hand in hand with access to finance and investment capital – the very fuel that powers and sustains economic development. And the 2006, 2007 and 2008 Doing Business Reports compiled by the World Bank clearly demonstrate the global move towards increased credit reporting through private credit bureaus. (Slide 5) The type of Credit Bureau which our Association supports is one that:  Provides a database for all kinds of credit grantors (individuals, sole proprietors and SMEs)  Is based on the widest “reciprocity sharing” possible
  5. 5.  Provides Positive and Negative Data (Contract characteristics, Credit amount, Credit Balance, Payment profile, Delinquency profile)  Databases all kinds of credit liabilities (not only instalment loans; also current accounts, service accounts, …), and  Incorporates an Audit Committee function to monitor and safeguard the accuracy of the data, and its use. To elaborate on our wholehearted support for the establishment of such a regional clearing house, allow me briefly to share the benefits therein encompassed - for borrowers, lenders and ultimately for the Caribbean economy. (Slide 6) Benefit to Borrowers  Increases & speeds up credit access for borrowers  Allows good borrowers to access lower interest rates and a wider range of products  Provides borrowers with a mechanism through which (and the incentive to) monitor their credit and avoid over-indebtedness  Protects lenders from risky investments
  6. 6. (Slide 7) Benefit to Creditors  Makes the credit decision process a more efficient one  Allows for greater risk-based pricing  Facilitates lower exposure to risky loans / reduces the number bad loans  Allows creditors to see any deterioration in the position of its borrowers  Strengthens fraud prevention efforts (Slide 8) As this slide demonstrates, as credit bureaus evolve their scope and core competencies naturally expand to include not just credit repository and reporting services, but also credit score ratings and assignments, comprehensive fraud detection, marketing services and debt collection. (Slide 9) Benefit to National Economy  Leads to higher international financial rating  Lowers the overall cost of credit on a national level  Increases access to credit (particularly the most vulnerable segments)  Encourages investments
  7. 7.  Technological and informational infrastructure improvements  …. All of which combine to stimulate economic growth (Slide 10) But in order for the successful establishment and operation of an effective Regional Credit Bureau, our governments and financial institutions must work concertedly to formulate the legislative parameters to guide and manage it. (Slide 11)  The integrity of the records must be of a high quality  The use of the information must be tightly monitored and protected  The rights of the consumer must be protected  Public Education must be a key element to build trust in the system among all stakeholders  The legislative framework must be clear and must accommodate the efficient and effective operation of any such credit bureau  There must be comprehensive information sharing (posting of both positive and negative data) And we as a region must address how to balance the need for complete credit information with that of consumer privacy. Earlier this year, during a
  8. 8. CARTAC Credit Registry workshop facilitated by Credit Registry Systems Expert, Mr. Jim Aziz, the following were noted as key considerations relating to legal and consumer protection rights. (Slide 12) The regulatory framework must be oriented around the individual, allowing the individual to consent or deny access to their file by users. Individuals must have the right to view and copy of their file information at no charge, at least once per year, and must have the right to challenge incorrect information in their file. Legislation should obligate the Bureau to investigate consumer challenges and should obligate data furnishers to confirm the accuracy of information. The responsibility for the accuracy and logic of the system must legally rest with the Bureau, with special amendments, if necessary, established to deal with secrecy provisions that may be in place. Ladies and gentlemen, the call for a regional credit bureau is nothing new – and, we believe, it is high time we as a region put meaningful action into this effort. Having said this, CAIB would like to publicly commend the substantial efforts of partners such as CARTAC and the International Finance Corporation, both of whom have not only voiced their support through presentations at both national and regional forums, but have also conducted studies and engaged leaders in both the public and private sector on the way forward.
  9. 9. (Slide 13) So where do we stand as a region? CARTAC reveals in its Survey on the Status of Credit Bureaus/Credit Registries in the Caribbean that: • Relatively fully functioning credit bureaus have been established in 3 territories: Trinidad and Tobago, Bermuda, and the Dominican Republic. • A limited-functioning bureau exists in Barbados with negative only data from credit unions, leasing companies, and finance companies. Commercial bank participation in the credit bureau is limited. However, there is the possibility that this credit bureau could become fully-functioning. • Jamaica, Guyana and the Cayman Islands are well underway in their development of a credit bureau. Indeed, Jamaica is currently in the process of drafting the legislation which will guide the operations of such a national bureau. One recognised concern, however, is that in drafting national legislation we too often down-play or overlook the need to think in terms of the eventual regional integration of our national bureaus. This, I respectfully caution as the Chairman of a regional association of banks and financial institutions, must be an area that we pay special attention to – especially given the direction we have charted for ourselves as a Regional economy. In fact, several key survey respondents were of the view that sovereign issues had the potential to slow efforts to establish a regional credit bureau, and I
  10. 10. note and commend the Jamaica Bankers Association for their engagement of our legislators on this point. For those of you who don’t know, Jamaica’s draft Credit Bureau Law now in process establishes the credit bureau framework, requires consumer consent, establishes consumer protection rights, and stipulates that the database be located in Jamaica. A draft Credit Bureau Legislation has also been tabled which seeks to establish the framework within which credit bureaus will be able operate however, this includes a clause which dictates that the database must be housed locally. This poses a significant limitation as this has the distinct potential to hinder Jamaica’s eventual participation in a Regional Credit Bureau. Furthermore, some of the larger international credit bureau service providers are hesitant to establish a database in a single country where there may be limited economies of scale. A regional approach is thus more desirable, and against this backdrop the Jamaica Bankers Association (JBA) has been in dialogue with the relevant authorities to have this clause revisited. In regards to Guyana, draft legislation has been crafted. The IFC is presently working with both the Bank of Guyana and Chief Parliamentary Counsel to finalize the draft before forwarding to Parliament. It is anticipated that the legislation will be passed before the end of the year. • The remaining 14 CARTAC member countries do not have credit bureaus, and no significant progress has been made to establish a
  11. 11. credit bureau, whether individually by country or collectively in the region. (Slide 14) Certainly there is still work to be done before a Regional Bureau comes into being – we have to address the legislative issues (especially as relate to the protection of consumer rights and the accuracy, maintenance and use of collected data), and credit sharing issues both between institutions and countries – but we cannot allow these obstacles to be the reason we don’t try … instead, we need to remain forward-thinking and pragmatic in our approach. Some many be tempted to take an “if-its-not-broke-don’t-fix-it”- approach – but certainly this is short-sighted … are we going to wait for it to break and then scramble? (Slide 15) The IFC highlights data coming out of the World Bank that shows countries and regions with credit bureaus are granted higher financial ratings, as the soundness of their financial systems benefit greatly from the more controlled credit-risk assessment capabilities afforded by credit bureaus. World Bank figures further indicate that full information sharing, such as facilitated through credit bureaus, improves bank performance through (as we mentioned before) decreasing the cost and processing time of loan applications, and decreasing the rate of loan defaults.
  12. 12. (Slide 16 … click twice to reveal the bar charts) Full information sharing also reduces the constraints experienced by SMEs in their pursuit for capital investment. A 2003 World Bank survey that encompassed 52 countries found that 49% of small businesses suffered from financial constraints in countries where credit bureaus were not established. This figure, however, dropped by 21% in those countries where credit bureaus existed. In closing, may I encourage our region’s national banking associations to follow the example set by JBA – engage your members on this issue of establishing a regional credit bureau; engage your ministers to assist with promoting and ensuring timely action and regionally accommodating legislation; engage your central Banks; engage your creditors and retailers; engage borrowers and potential borrowers in an effort to educate on the benefits of a Regional bureau. Acknowledging that it will take time, let’s chart a way forward – let’s map out what needs to be done, and place deadlines and accountability. (Slide 17) There is no doubt that a well-regulated, well-managed credit bureau fully supported by - and protecting the interests of - all stakeholders is of immense value to any economy. It promotes lending in the right way to the right people at the right time ….
  13. 13. Caribbean Association of Indigenous Banks commits its support to the efforts of our member countries in whatever way we can help. In assuring the private sector of the benefits of a comprehensive credit bureau serving the region, we further lend our full support to the public education thrusts that must certainly be a part of this initiative. Next year this time, may we not be where we are today. “Rome wasn’t built in a day” – we understand that … but in order for it to be built, there certainly came a point in time when work had to begin …. My sincere hope is that my presentation to you today will not be one that I can simply re- package and re-present 12 or 18 months down the line … we need to make serious progress, and we need to make it very soon. (Slide 18) Thank you

×