MF-CIB Workshop: Key Takeaways

  1. Progress so far has been good. Nearly all institutions have signed on and most of the records have been reported. Currently 2.8 million records have been submitted to the MF-CIB, of which 388k were defaults. We have a good clean database verified with NADRA.
  2. Both SBP and PPAF are strongly supporting this initiative given the sector trends, projections for future and also the heavy investments made into this system. Both PPAF and SBP will be making it part of their monitoring processes to ensure that credit reports are not just generated but also read.
  3. Sector is transforming: individual loans are increasing (CIB can be an alternate risk mitigation tool to social and physical collateral); rules and regulations are becoming stronger and changing to allow larger loans (by SBP and also now SECP) and credit culture is being built. This requires strengthening of infrastructure, including credit bureaus.
  4. MF-CIB is not just a tool for risk mitigation but also enables better and more relevant product development, entering new markets and niches and also promote healthier growth. It is about providing better service through access to better information about the credit appetite and needs of the client.
  5. In the absence of regulatory frameworks for credit bureaus the industry can institutionalize good practice through agreed upon codes of conduct and find mechanisms to monitor its implementation.
  6. Different types of institutions are part of the bureau, at different levels of comfort with the MF-CIB. There is a gestation period for the bureau and a learning curve.
  7. Utility of CIBs is well established in developed economies but is perhaps even more important in developing countries, where credit culture is weaker and documentation is patchy.

Challenges:

  1. Horse to the water: having the technology is one thing; using it effectively is another.
  2. Costs of credit reporting: need to ensure that there is a fair price for the bureau. If MFPs push for too much reduction in costs, it can make the bureau unsustainable. Institutions should not just take the view of reducing costs but also benefits that it can generate in terms of reducing credit risk and also making processes more efficient. Costs of not using the system can be higher in the long run than those of using it.
  3. e-CIB is compulsory for MFBs + CNIC verification + MF-CIB = time and money for MFBs to conduct all these checks. Some sort of integration of all these channels is needed. This would expedite the credit process and also reduce costs.
  4. Concerns on customer side include:
  5. Ensuring correct data is uploaded as these clients are poor and illiterate. If wrong information is uploaded it would seriously damage their value proposition and it is quite expensive to fix this information.
  6. Awareness raising about the bureau (also for managers and loan officers)
  7. Robust complaint resolution mechanism for clients to resolve any disputes. This will also help us identify weaknesses in the bureau and its system/process.
  8. CNIC needs to be more religiously implemented.
  9. Also find ways to make the enquiry less cumbersome as currently lots of fields need to be filled in the MF-CIB to generate an enquiry. In comparison, extraction of one report from the e-CIB requires only entry of CNIC. Response from DATACHECK: the system can be amended to make this easier. However working with just CNIC would make the data less accurate. Also this information will also be used to build credit scoring models going forward. IFC: from international experience DATACHECK is currently taking the bare minimum and this data will be invaluable in providing value-added services going forward. It is better to collect this data from day 1 rather than take a phased approach.
  10. Confidence in quality and completeness of the data: all institutions need to report ALL data in a TIMELY manner. This will raise the level of assurance of the MFPs in the database and also increase usage.

Practitioners view

  1. Institutions with robust MIS have not had a tough time in adopting the MF-CIB in terms of data reporting. Others faced challenges in cleaning the data and making it compatible.
  2. Some institutions are checking 100% loans through CIB while others are not. Many are waiting for all data to be reported in the bureau (especially the large four institutions that are now in process of reporting) before they begin making enquiries at the national level
  3. Issues in field:
  4. When a good client’s report turns up a default, the loan officer resists dropping the client. But persistence from the head office has resolved that and staff is now trained to understand.
  5. Many clients have overlapping clients. Institutions are looking at their credit policies to take this into account.
  6. Institutions that have good clients, considered trust worthy by the MFP find it a difficult decision to make CNICs compulsory and not lend to these clients just because they do not have the CNIC. However, we need to keep in sight where we want to go. If we want to move to unique ID based enquiry model, we will need to start taking these important decisions.
  7. These challenges are not unique to Pakistan, but occurred anywhere such an initiative was taken.
  8. Issue of cost of credit enquiry:
  9. Cost is relative to loan size. Cost itself means nothing.
  10. Cost needs to be seen in relation to the benefits we get from the report in terms of lower credit risk, ability to customize products and make processes quicker and more efficient.
  11. Most MFPs are scared of another mass default. And many MFPs are part of this to avoid that situation. Institutions are willing to pay any cost to avoid that.
  12. IFC studies show tremendous gains for institutions that are using such services across the world. One study in Australia showed cost was 1/40th of the benefits that accrued to the institution. Institutions can get even a 50 times multiple in terms of benefits that can accrue to an MFP using the database.