City Bank, bKash, TransUnion get primary nod for private credit bureaus
In a first, the
Bangladesh Bank has granted preliminary approval to private entities to
establish credit bureaus, a move aimed at improving transparency in the
country's lending market.
City Bank, mobile financial service (MFS) provider bKash, and the US-based
credit reporting agency TransUnion are among five firms, including ventures
with foreign investment, recently cleared to set up private credit bureaus.
The Bangladesh Bank received a total of
22 applications for private credit bureaus and shortlisted 13 before issuing
letters of intent (LoIs) to the successful five.
The
approved applicants are Credit Info BD Credit Bureau, TransUnion Credit Bureau,
bKash Credit Bureau, City Credit Bureau, and First National Credit Bureau,
Arief Hossain Khan, executive director of Bangladesh Bank, told The Daily Star.
Some of these applicants involve European, American, and Saudi technology firms
entering through joint ventures.
Khan
said the approvals followed careful scrutiny.
The
bureaus will work to determine credit standards by analyzing borrower data
before sharing it with banks, which will help financial institutions make
informed decisions, according to the central bank's guidelines on the
licensing, operation, and regulation of credit bureaus.
Speaking about City Credit Bureau, Masrur Arefin, managing director and CEO of
City Bank PLC, told The Daily Star, "We have just received the preliminary
approval. It will take about a year to come to the market."
TransUnion,
a US-based company, is one of the three largest consumer credit reporting
agencies in the world, and has been primarily approved to establish credit
bureaus in the country.
Under
the 'Payment and Settlement System Act, 2024' and related credit bureau
guidelines, private credit bureaus will use CIB and other data to assess the
creditworthiness of individuals and businesses, said Major General Sheikh Md
Monirul Islam (retd), chief external & corporate affairs officer of
bKash.
He
said that by providing credit histories and payment information, they will help
lenders evaluate risk, improving access to finance and making credit safer and
easier for individuals and small businesses.
The
central bank in June of last year introduced guidelines for private credit
bureaus.
According
to the guidelines, the addition of credit bureaus would reduce information
asymmetry about borrowers in the financial market.
It
said making client information, which is often kept confidential, available to
other lenders would increase competition in the credit market and benefit
better credit applicants.
These
bureaus will collect information from various sources, including the
BB-maintained Credit Information Bureau (CIB), with the permission of
borrowers, and share lenders' credit ratings with financial institutions,
central bank officials said.
In
time, credit bureaus will also help reduce default rates and average interest
rates, facilitated by increased credit information, which will lead to
higher-quality lending.
Industry
insiders welcomed the initiative but urged caution.
Syed
Mahbubur Rahman, managing director of Mutual Trust Bank and a former chairman
of the Association of Bankers Bangladesh, said, "Credit bureaus exist
virtually all over the world. These bureaus will ease banks' assessment of loan
eligibility."
However,
he cautioned that the BB would have to be very careful in issuing licences for
credit bureaus.
The
proposed company must be a limited company. Investment from an individual or
business entity incorporated outside Bangladesh is also allowed, according to
the BB guidelines.
The
minimum paid-up capital of a credit bureau will be Tk 10 crore.
The
central bank guidelines also state that the number of directors will not exceed
11.
They
state that at least two directors must have 10 years of experience in the
banking industry.
The
BB guidelines add that at least two more directors must have experience and an
academic background in technology-related businesses.
A
shareholder that owns more than two percent of the total shares of a credit
bureau will be eligible to become a director, it said, adding that no
individual could be a director at more than one credit bureau at any point in
time.