Bank of Ghana Directs MFIs to Use Credit Referencing
Ghana, June, 04 2013 -
The Bank of Ghana (BOG) has instructed all Micro-Finance Institutions (MFIs) in the country to submit data and other information on their borrowing parties to the credit reference bureaus in the country to allow for easy tracking and assessment of credit-worthiness of borrowers.
The BOG also charged them to comply with the directive of making appropriate references on customers before offering credit to them.
The Assistant Director of the Banking Supervision Department of the BOG, Mr. Boyd Donkor, announced this directive in Accra at the launch of a branch of a local MFI.
The BOG has licensed three Credit Bureaus to gather information on borrowers with the hope of building an efficient credit history data for use by the financial industry.
Mr. Donkor said using the credit bureaus will help “ease credit referencing and also reduce information asymmetry, which has characterised the financial system”.
A credit bureau or credit reference agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. Credit referencing is the main method used before granting loans to borrowers in Europe and North America.
Credit information such as a person’s past loan performance is a useful tool to predict future behaviour.
Bad loans or Non-Performing Loans (NPLs) as they are called is one of the biggest challenges banks face in the country. With the absence of a proper addressing system and poor financial inclusion, the loan default rate in the country is high. This is one of the main reasons accounting for high interest rates on loans borrowers have to deal with.
“One familiar challenge of the financial system is that of the high non-performing loans ratio which is also normally driven by poor risk management practices”, he said.
Another practice observed by banks is the use of the same collateral or documents to apply for loans in different banks by bank borrowers.
Mr Donkor also said the loan book of any financial institution was a key investment portfolio, and its quality was the hallmark of its survival, adding “that the maintenance of a good loan book was very critical”.
He said it was important for applications for credit to be well screened to meet the required policies, and to ensure that credit was granted to the right individuals and at the right time, to enable them pursue their various intentions.