Credit histories of small business owners are coming under heavier scrutiny in this new era of lending.
Banks say they are increasingly going global as they dig deeper into the financial past of small- and medium-sized business owners. Some are asking for detailed statements from customers who had accounts at financial firms in other countries, while others are reaching out to international credit reporting agencies to get a better snapshot of how business owners have managed--or mismanaged--money in recent years. The intelligence is then used to help determine whether or not a business owner might be granted a loan, and for how much.
"Increasingly what's happening is the world is becoming smaller because of the technology" banks use, says Vikas Thapar, head of the small and medium enterprise division for Emirates NBD bank. "More likely in today's world, [one] country will know what you did in the other. Cross-border information sharing is happening, and will happen more," adds Mr Thapar.
One of the industry's goals is to better target the right products and services at business owners based on their past experiences, banking executives say. Yet these tactics could also help banks avoid another industry-wide credit crunch in the region. After all, bank provisions for bad loans in the UAE are still climbing and hit a record high of Dh45.7 billion in January, which was up 37 per cent compared with January 2010, according to the latest data from the Central Bank.
More banks are also engaging in "pre-delinquency monitoring" to track how a business owner is doing with their cash flows and bill payments, according to one executive who asked not to be named but represents a global bank with a presence in the UAE. When warning signs like sudden missed payments pop up, financial firms are more likely to step in and see what the issues are, rather than waiting for a business owner to default on that debt.