Supervision

Credit Reference Bureau (CRB) Services

Introduction

The need for establishment of CRB services in any financial system arises because of information asymmetry between lenders and borrowers.

How CRB Supports Robust Growth of the Financial Sector

1.Timely and accurate information

This is achieved trough providing timely and accurate information on borrowers’ debt profile and repayment history.

Experience has revealed that when financial institutions compete with each other for customers, multiple borrowing and over-indebtedness increases loan default unless the financial institutions have access to databases that capture relevant aspects of clients’ borrowing behaviour.

The CRB contributes significantly to reduction in the costs of screening loan applications by enabling the lender to sort out prospective borrowers who have defaulted with other lenders. A CRB therefore, improves lenders’ ability to predict default.

2. Availing an improved pool of borrowers

An improved pool of borrowers - more and more unbanked consumers will be eligible for financial services.

Recent research based on information from several countries across the globe (Singapore, Iraq, China, Romania, Vietnam, Cambodia, Brazil, Hong Kong etc.) show that the existence of credit registries is associated with increased lending volume, growth of consumer lending, improved access to financing and a more stable banking sector.

3. Reducing default rates

Reduced default rates as borrowers seek to protect their reputation collateral by meeting their obligations in a timely manner. With the presence of a CRB, there is strong motivation for clients to repay their loans.

Credit reports that include both positive and negative information help build reputation collateral in much the same way as a pledge of physical collateral, which may improve credit access for the poorest borrowers.

In the long run, a bigger credit market and lower default rates lead to lower interest rates, improved profitability and increased competitiveness.