Legal Framework for Credit Reference Bureaus: Some Highlights for MFIs By Lanjes Sinoya Microfinance and Capital Markets Supervision, At NBM Training Centre 7 th March, 2013

Outline  Background information  Mandates of bureaus  Obligations of bureaus  Some actions for bureaus  Miscellaneous matters  Implementation challenges of the Legal Framework  Concluding thoughts

Background of credit bureaus  Definition: Institutions that collect, consolidate, and process information relating to credit history of persons to facilitate exchange of such information among user institutions on their clients’ repayment history and current debt profiles  Benefits of credit referencing: Fast loan processing - reduce searching costs, and reduce information asymmetries; Increased access to finance basing on reputation collateral at lower interest rates;

Background (Cont’d)  Improved credit culture through reduced incidences of multiple and excessive borrowings;  Enhanced risk management through effective credit evaluation and administration - contributes to stability of financial sector How many licensed bureaus do we have?

Mandates of credit bureaus  Collection of information (s13) Scope of reporting institutions – staggered!!! Banks, MFIs, insurance companies, hire purchase institutions, utilities companies – phone service providers, water boards, electricity companies, etc Courts Any institution prescribed by Minister upon recommendation of Registrar

Mandates of Credit Bureaus (Cont’d) Scope of information about account holder (s16) Negative and positive Accurate Legitimate Truthful Current  Rights and liberties of the account holder is paramount (s13 a and b)  Standard reporting to bureaus  Dissemination of credit information (s14): Limited to financial institutions operating under FSA Users other than FIs – need for account holder authorization

Mandates of credit bureaus (Cont’d)  Establish controls and procedures (s15):  To ensure quality of database  To preserve confidentiality of information  Retention of credit information – 7 years (s21)  May levy fees (s22): Upon approval of the Registrar Agreed upon by the user and bureau In Malawi kwacha

Obligations of credit bureaus  Provide access to account holder of his/her credit history (s23): Free of charge if the information viewed on screen Pay applicable fees if print out needed  Correct information on its database upon being requested to review by account holder once information is determined outdated, inaccurate, deficient, erroneous, or illegal (s24)  Liability to claims: Errors by information provider – provider is liable Errors by bureau – bureau takes blame

Some actions by bureaus  In case of unfounded claims by account holder – a bureau may charge penalty for causing inconveniences  Bureaus may file claim against information providers or users whenever held responsible to account holder or third party for providing false information received from the providers or users  Users of information provided by bureaus shall be liable: In the event of wrongful or fraudulent use of information If user causes damage to account holder in law  Bureaus shall have customer claims and inquiry service to handle complaints

Miscellaneous matters  Bureaus, officer or employee of a bureau shall not be at fault for anything done in good faith in administration or discharge of any powers, duties or functions under the Act

Implementation Challenges of Framework  No explicit obligation to institutions to report – reporting institutions may breach common law duty of confidentiality to their customers if they submitted the information to the bureaus;  The Act does not provide reporting institutions with immunity from legal suits arising from disclosure of information to bureau.  Operational and reporting structures – MFIs, SACCOs, some insurers, etc  Detailed reporting – identities, physical addresses, postal addresses, etc. WERE MFIs READY TO REPORT??

Concluding Thoughts  Basing on the challenges, the Act is under review  Consultations are underway – 28 th February workshop  Amendments to be sent to Parliament during May 2013 Budget sitting  Mandatory reporting commences – MFIs ready??

END of Presentation Q&As