Data quality in credit bureau system
Sir: As the nation continues in its quest to ensure sustainable economic growth and prosperity for the populace, we cannot shy away from migrating to an economy driven by information and data. It is the next phase of development and the credit bureaus are positioned to make this happen. The use of data including credit history/behaviour is the bedrock of determining consumer’s creditworthiness.
With this, the average Nigerian can then have access to credit cards, auto loans, mortgage loans, and personal loans. MSMEs will have access to working capital; students can have access to student loans; consumers can make retail purchases on credit on the spot and the use of postpaid services in telephone, electricity, and insurance will be the norm.
Credit bureau system serves as an enabler to creditors to obtain information on debtors to guide them in their lending decisions in an objective and systematic fashion. Though the credit bureaus in Nigeria have in many ways strengthened the lending dynamics of most financial institutions, the challenges of poor data quality remain prevalent in the credit bureau system. On the surface, this pervasive problem may seem to be the sole responsibility of the financial institutions to address. However, this needs to be seen with a more in-depth and holistic outlook.
The data collected by the financial institutions from customers is the starting point in tackling the challenges faced with data quality. The financial institutions would need to educate the customers on how important it is to provide accurate information on themselves, highlighting the benefits they could enjoy in the long run with this simple yet imperative act. Furthermore, financial institutions need to consider setting up or revamping due diligence mechanisms to vet the accuracy of the information given to them by customers.
Data submission to the credit bureaus is regulated with the use of the Common Data Template (CDT), which was designed by the Central Bank of Nigeria (CBN and International Finance Corporation (IFC). It is vital that all credit information providers adhere to the use of the CDT, which is a unification document in the custody of the providers to supply information to the credit bureaus. Internal and regular orientation on its use and importance by the financial institutions is key to the effective and sustainable use of the CDT.
The major responsibilities of credit bureaus are data collection, matching, and dissemination. The value of having a Common Data Template to effectively send accurate and current credit records cannot be overemphasized in performing them, as the CDT is a robust tool that consists of the Individual Borrower Template, Corporate Borrower Template, Principle Officers’ Template, Credit Information Template, Guarantors’ Information Template, and Catalogue Values.
There are two main things these institutions have been mandated to do in terms of Data Submission: Submit data – positive and negative, unlike in some countries that require only negative data; Submit data – all amounts, unlike in some countries where a minimum amount of loans is prescribed. These data when submitted properly in the format proscribed would inevitably affect the quality of the data obtained when a check is conducted for any credit transaction. It is a cycle that would be effective mainly on the premise of the quality of data submitted to the credit bureaus.
Furthermore, individuals and corporate entities have a role to play to ensure that data quality is improved. The degree of accuracy of credit information submitted could be improved by obtaining a free annual credit report, which is available today in Nigeria. This would give data subjects the opportunity to review their reports and react promptly in case(s) of errors. This process increases the degree of information accuracy in the repository of credit bureaus. Therefore, all are encouraged to request their credit reports at no cost, once in a year as provided by the Credit Reporting Act from any of the three (3) licensed credit bureaus– FirstCentral Credit Bureau, CRC Credit Bureau, and Credit Registry.
Data quality is as important as its volume to fully harness the benefits of credit reporting. The quality of data directly impacts product development and the usefulness of the aggregated information. Therefore, data providers are urged to assiduously collect and manage data on their credit customers and are also encouraged to orientate their customers to always provide accurate information as well.
For as many who still do not have BVNs, they are encouraged to obtain one. These solutions would go a long way in solving data asymmetry and in the long run support the financial inclusion campaign of the Nigerian government.
Oladimeji Olamide Peters is chairman, Credit Bureau Association of Nigeria (CBAN).
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