The Credit Information Bureau (CIB) in Bangladesh collects credit data from financial institutions to create credit reports on borrowers. These reports provide the borrowers' credit history to help financial institutions make prudent lending decisions. However, some argue CIB reports are now impeding credit market development due to unexpected side effects. As a standard global practice, credit bureaus collect payment history data from various sources to create reports that help assess credit risk, but do not rate borrowers or determine creditworthiness. The legal powers and data collection practices of credit bureaus vary by country due to differing laws and oversight.

1. CIB not for control of credit
24 Jul 2021 00:00:00 | Update: 23 Jul 2021 23:31:17
https://businesspostbd.com/post/21322
https://businesspostbd.com/post/21322
Non-performing Loan (NPL) in different countries and overlapping of loan by
different financial institutions has increased problems of borrower’s over-
indebtedness. The weakening performances of financial institutions (FI) is due to
many reasons including the lack of proper information sharing in the markets as
because growing numbers of FIs increase the level of asymmetric information
between lenders and borrowers. A credit information system can play a crucial role
towards improving credit market performance. The credit information is an
essential component of the financial system. Its evolution in Bangladesh over the
past decade has been very successful, but also with unexpected side effects. These
side effects now seriously impede the further development of the industry. The
Credit Information Bureau (CIB) in Bangladesh is an organization that has
members from FIs. It collects credit data on borrowers from its member FIs. The
CIB is legally empowered to collect credit information. The information in CIB is
shared on reciprocal basis. Those financial data is then aggregated in system and
the resulting information is made available on request to contributing member FIs
for the purposes of credit assessment, credit scoring and credit risk management.
The major purpose of this database is to enable the FIs to know the credit history
of their prospective customers thus enabling them to make a more prudent
decision. But FI cannot ignore the report of positive or negative for sanctioning of
loan. The powers of the Credit Information Bureau (CIB) to collect and provide
data to financial institutions are stipulated in Chapter IV “Collection and
Furnishing of Credit Information” of the Bangladesh Bank Order 1972, as
amended. This order provides the legal basis for requiring financial institutions to
provide loan data, including information on collateral and guarantees to
Bangladesh Bank but limits the information that the central bank can share. Thus,
although the information that there is a classified loan can be made available, the
lending FIs holding this classified loan cannot be identified. FIs are only following

2. the CIB report to either extend credit or not. The standard global practice of other
countries, the credit information reports neither express any opinion about the
borrower creditworthiness nor assign any rating to the borrowers. A credit bureau
not only collects but also processes and stores credit information both on the
existing borrowers and the potential borrowers with a view to furnishing the
information, on request, to the lending institutions which are its members. They
maintain a data bank on borrowers from lending institutions of trade, credit and
financial information on borrowers and prospective borrowers of lending
institutions. It provides factual position of the borrowers’ credit exposure both
negative as well as positive as of certain date. The negative CIR report may be due
to some outstanding liabilities of financial institutions that were either not paid or
paid after the due date. The borrowers will be able to obtain a copy of their Credit
Information Bureau reports. CIB report is a confidential document, A CIB report
just shows the past behaviors of the borrowers and FIs used CIB reports as a
helping tool for making credit decisions. As an standard global practice, credit
bureaus collect and collate personal information, financial data, and alternative
data on individuals from a variety of sources called data furnishers with which the
bureaus have a relationship. Data furnishers are typically creditors, lenders,
utilities, debt collection agencies and the courts (i.e. public records) that a
consumer has had a relationship or experience with. Data furnishers report their
payment experience with the consumer to the credit bureaus. The data provided by
the furnishers as well as collected by the bureaus are then aggregated into the
credit bureau’s data repository or files. The resulting information is made available
on request to customers of the credit bureau for the purposes of credit risk
assessment, credit scoring or for other purposes such as employment consideration
or leasing an apartment. In the United States, the legal term for a credit bureau
under the federal Fair Credit Reporting Act (FCRA) is consumer reporting agency
(CRA). There are four national US credit reporting agencies: Experian, Equifax,
TransUnion, and Innovis. These organizations are not for-profit businesses and
possess no government affiliation. Though they are competitors, they have formed
a trade organization called the Consumer Data Industry Association (CDIA). There
are dozens of other similar information collection and reporting firms that analyze
and sell information about consumers for other purposes, including those who
aggregate multiple credit data sources and provide lenders with customized
analytical tools. In other countries, the consequence of mis-information by Credit
reporting agencies has serious consequences. The information may cause loss of
market credibility of borrowers. The interest of the borrowers in USA are
safeguarded through rule and also court decision. In the case of Dun & Bradstreet,
Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985) the U.S. Supreme Court
held that a credit reporting agency may be liable if it was careless in reporting an

3. impending or past bankruptcy filing of a business that is not a public figure. The
credit companies in one country may also work in cooperation with similar
companies in other countries as well. In the United Kingdom, the three credit
reference agencies are Experian, Equifax and Callcredit, which works closely with
its US partner, TransUnion. Most FIs and some other companies also subscribe to
one or more credit organizations to ensure the quality of their lending. This
includes companies who sell goods or services on credit such as credit card issuers,
utility companies and store card issuers. Subscribing organizations are expected to
provide relevant data to maintain the common data pool. The UK based Credit
reference agencies are bound by the Data Protection Act 1998, which requires that
data relating to identifiable individuals must be accurate, relevant, held for a proper
purpose and not out-of-date. Individuals have a legal right to access data held on
them. The activities of Credit Reference Agencies are governed by the Consumer
Credit Act 1974. In Pakistan, all member financial institutions are required to
submit entire borrowers’ records online to CIB on monthly basis. This information
is submitted within a period of fortnight from the date of close of month. There are
four privately owned and managed credit bureaus operating in Pakistan: Datacheck
(Pvt.) Limited, Credit Chex (Pvt.) Limited (Powered by Experian UK), News-VIS
Credit Information Services (Pvt.) Limited, ICIL-International Credit Information
Ltd./ PakBizInfo India’s first credit information bureau is The Credit Information
Bureau (India) Limited (CIBIL) established by the Government of India and the
Reserve Bank of India to improve the functionality and stability of the Indian
financial system by containing NPAs while improving credit grantors’ portfolio
quality. This legal power to collect and provide data is sharply defined in the law.
The data that is collected is very detailed on the exposures and the amounts. This is
probably more information than would be permissible for any organization except
the central bank. At stake here is bank secrecy and the obligation of the financial
institution to maintain confidentially of the transactions of its borrowers and
depositors. Central bank has the right to collect whatever data it wants from banks
along with the obligation to keep this secret.
The writer is a legal economist