“First Year Anniversary of the Credit Bureau in Cambodia”
Welcoming Remarks by LYTHGOE ANTONY, Head of Financial Infrastructure,
International Finance Corporation
Phnom Penh, March 28, 2013
Good Morning Your Excellency Deputy Governor of the National Bank of Cambodia, Madam Neav Chanthata, Your Excellencies, distinguished guests, ladies and gentleman. I am very pleased to take part today in the first year anniversary of credit bureau in Cambodia.
Inadequate access to formal financial services represents one of the most critical constraints to economic development in particular for rural and self employed households, and micro, small and medium enterprise (MSMEs). Much of the population in emerging markets is employed in the informal sector and typically the MSME sector as a whole accounts for more than 90% of total employment.
Traditionally the MSME sector has been underserved by the financial community for a variety of quite logical reasons. Many individuals have no salary slip or means of demonstrating their ability to repay. Overcoming this information asymmetry makes the relative costs of personal screening and business due diligence disproportionately high, when one considers the loan amounts involved. Moreover, these customer groups tend to lack suitable collateral or proper legal documentation to secure credit.
Many of these barriers to accessing credit are considerably reduced by having access to reliable credit history data through a functional credit bureau. Credit histories demonstrate capacity and good character, two of the 5 ‘C’s of credit, and in developed economies have become a form of ‘personal collateral’, a third ‘C’, which in some instances can offset the lack of physical collateral. Access to quality data of this kind will never replace credit underwriting but when applied intelligently it can significantly reduce the cost of acquisition, help quantify the risk, and thereby price appropriately, and ultimately turn marginal applications into bookable business.
But in addition to providing greater access to credit the credit bureau also provides an invaluable social function which in recent years has become just, if not more, important. Helping customers understand the mechanics of a credit history has been proven to improve repayment behavior, allowing them in turn to access better terms whilst improving portfolio quality. And access to a complete history of credit commitments allows lenders to better calculate appropriate debt service ratios and thereby prevent customers from becoming over indebted.
The credit bureau, can also help the central bank to monitor growth, trends, appetite for risk, and portfolio stress which if used in a timely fashion can help reduce the risk of bank failure.
The benefits of comprehensive credit reporting should be reasonably clear to everyone, so why is a first anniversary of this kind such an important milestone?
Well the simple answer is that most people don’t realize what a complicated task it is to build a credit bureau in such a short period of time. First and foremost it is not merely a technology solution, the hardware and the software are typically relatively easy to deploy. The major task is to get everyone on board, overcome the usual and typically onerous data quality issues and then get users to actually embrace the new service and use it responsibly. I am sure others will quote statistics and volumetrics but these really hide the hard yards involved behind the scenes in IT departments, contract procurement departments and credit committees up and down the land. Making your first birthday in a credit reporting environment and having a functional bureau that is already adding value to all the stakeholders is indeed a creditable achievement.
But whilst the baby might have taken its first steps there still remains a considerable way to go to achieve the aspirations of greater access to credit and financial inclusion. New products, new markets, streamlined processes and the realization that data is the life blood of modern lending systems will all take time to develop. Likewise the bureau itself will take some time to introduce a range of value adding services that turn that data into information.
In summary I would like to congratulate all of the stakeholders for a job well done….so far. There is still a considerable way to go, and the IFC looks forward to sharing that journey with you.