adminbureau gather pace.
A credit bureau is an agency that collects and provides information to lending organisations on creditworthiness of companies and individuals.
Most companies and individuals have been taking advantage of the absence of a national credit bureau to borrow money from various institutions, a situation that analysts say could trigger a spate of defaults.
For example, Rio Zim, one of the largest mining companies in Zimbabwe whose shares trade on the local stock market, is grappling with a US$53 million debt it borrowed from a number of financial institutions.
With the re-introduction of credit facilities for household goods and clothing, there has been a growing use of credit facilities by individuals to purchase goods and services, a situation that has led to over-indebtedness.
As a result, individuals have been failing to meet repayments and build up arrears.
There are also incidences were multiple borrowers were using the same collateral to access money from banks. Analysts said while financial institutions will dominate in utilising credit risk data, it would also be beneficial for other lending firms to have access to credit information to make informed risk management decisions. “It is a noble idea as it reduces cases of multiple borrowing,” said
African Economics Development Strategy director Mr Gift Mugano. He, however, pointed out that this could cut liquidity circulation.
Truworths managing director Mr Themba Ndebele said it was imperative to have in place a national credit bureau, as this would help financial organisations and lending companies to reduce their risk exposure.
Truworths, a manufacturer and retailer of clothing, provides credit facilities to its customers. An analyst with a local bank said a credit bureau would allow lenders to assess a candidate’s total indebtedness and calculate a borrower’s capacity to honour their debt.
He said the credit bureau would also allow for greater information sharing which allows lenders to review how much and at what rate they lend to borrowers. “Multi-borrowing will be reduced or managed in the sense that all borrowers will be required to declare debts they have elsewhere,” said the analyst. Companies can be rated in terms of creditworthiness
“It will be easy to see which companies or individuals are heavily borrowed and with the credit bureaus, it will be much easier to minimise exposure to such companies while risk management becomes easy due to availability of information,” he added. However, it may not work because most banks would be reluctant to share credit information with competitors, which they would regard as competitive.
In his address to the 41st Institute of Bankers of Zimbabwe Winter School in Nyanga a few months ago, Barclays Bank Zimbabwe managing director Mr George Guvamatanga warned of a banking sector crisis because the banks had gone on a “lending overdrive”.
He said without a credit rating bureau, the banks ran the risk of loaning to people and organisations buckling under credit from other lenders. Last year, the Reserve Bank of Zimbabwe gave the greenlight for the establishment of the national credit bureau to augment credit risk management.
“The Reserve Bank encourages banking institutions to consider funding the setting up of a Credit Reference Bureau,” central bank governor Dr Gideon Gono was quoted as saying in a local newspaper.
“The establishment of a Credit Reference Bureau will provide a central database for credit information sharing which will, among other things, augment credit risk management, and provide the requisite support infrastructure for the implementation of Basel II.” Basel II is the second accord of the Basel Committee on Bank Supervision laying out the standards and regulations requiring the setting of minimum amount of capital that financial institutions must maintain as a reserve against contingent lending and investing losses.
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