Money for nothing

The arrival of credit bureaus have been met with a mixed response from the GCC financial community.

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By  Imthishan Giado Published  February 23, 2008

However, Muzaffar cautions that bureaux should not exert too much influence over the shape of the data his bank receives.

"What the credit bureau does is provide data. It's up to the financial institution to run their statistical models on that data. I'm not sure if the credit bureau should be in a position to dictate what the systems should be."

"To me, as a customer, that could possibly be a competitive advantage. If I can build a better scoring or financial statistical model when I do loan applications, that is my competitive advantage," he says.

Banks are now starting to feel comfortable bringing in new customers that they’ve never met before, because when they did a search on the bureau, they’re surprised to find: 'oh, this is a good guy and we really want to deal with him'.

Once the bureau is up and running, the next significant issue is deciding how the service will charge for access.

With his experience in providing credit reporting services to countries with a small indigenous population, Watson is an advocate of the fixed fee approach.

"In such markets where costs have to be recovered and still leave a provision for research and development, a business model needs to be thorough and correct. Once this is established, it's better to have a set fixed fee for all services rather than being search-based," he says.

Muzaffar disagrees with this strategy: "I am personally in favour of paying per use. If you do 100 checks on 100 customers, you should pay accordingly. Why have monthly fees? That's a barrier to entry."

Now that bureaux are becoming a familiar sight in the Middle East, it's time to gauge the response from consumers and banks - and as Watson notes, it has followed an expected pattern.

"Borrowers felt discriminated against if they had a bad history, even if they were currently up to date with their payments, while lenders felt that the bureau would inhibit their lending capability."

"You get some responses like, ‘I can't do business with this guy because he was in default a year ago.' That indicates to me, having been in banking for 20 years, that ‘this is the only customer I've got'."

"Instead of just getting rid of that customer and finding another one who's going to give you more positive information, bring him in and sell him more products as you go along."

"The bureau can help in that regard - we can provide information on a company that provides a consumer loan to one customer, who had his credit card with another bank. Why isn't that bank, who's dealt with this guy for years, selling him a credit card?" he questions.

Muzaffar has observed similar responses in Pakistan: "To be honest, there has been resistance from the consumers as well as financial institutions and I think the reasons are understandable."

"If the customers can get away with not being held accountable, many of them would prefer that. From a company or corporate perspective, many larger companies think they are giving away their competitive advantage."

Kamhawi concurs: "We must remember that as is the case with any new product or service, there are a number of early adopters who typically understand our product and are willing to see us as part of their competitive advantage right from the start."

"Others need a little more time to come around; the world didn't switch to e-mail overnight."

The mood is not completely negative. Muzaffar's experience in the US suggests that done properly, credit bureaux will eventually become essential to the region's banking infrastructure.

"I think having a credit bureau is a sign of a maturing market but I don't know if it's a sign of a mature market."

"Right now, Dubai only has one credit bureau. There needs to be at least a couple of strong credit bureaux so that the financial institutions have access to competitive information," he says.

Watson suggests that credit bureaux are starting to change the ways in which banks market themselves to the public - and forcing them to actually go out and talk to people.

Banks are now starting to feel comfortable bringing in new customers who they've never met before, because when they did a search on the bureau, they're surprised to find: ‘oh, this is a good guy and we really want to deal with him.'

"And it helps the customer who opens an account and performs well. A bank could approach him and say: ‘you're in good order; we'd like to sell you more products.'

The credit bureau endorses that attitude, because you can use it to say: ‘we've got a guy here at the consumer level that has been with us for ten years who's eligible for credit cards, car and housing loans.' It actually opens up the market for the bank," he concludes.


Robin Watson, general manager of Bahrain's Benefit company, says: "A customer in Bahrain - I believe it's the same in all GCC countries - has a certain amount of rights. Legally, his data cannot be shared with anyone. But by signing a consent form to say that it can be shared, that we can actually give the information, he gives up his legal rights on sharing."

"That's made quite clear to the customer at the outset. He signs a Benefit document - not a bank document - which explains what he's doing, so he fully understands that he's giving up his rights but purely for credit application purposes."

"We can't sell the data to say, a car dealer, and give him the names of all the people whose car loans are running out, we're just not allowed to do that."

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