Credit agencies break borders

Credit agencies in the region plan to devise a method of exchanging credit data on individuals and companies across borders.

DUBAI, UNITED ARAB EMIRATES – July 15: VISA is a multinational corporation based in San Francisco, California, USA.  (Pawan Singh / The National) *** Local Caption ***  PS02- CREDIT CARD.jpg

Credit agencies in the region have held their first official meeting as momentum builds towards greater sharing of information on consumer and corporate debt. Agencies from the UAE, Bahrain, Oman, Pakistan, Egypt and Morocco agreed in Dubai last week to study how to devise a method of exchanging credit data on individuals and companies across borders.

Saudi Arabia, Kuwait and the North African countries are among those the new Middle East Credit Reporting Agency (MECRA) is hoping to attract to bolster its powers and extend its reach. "The UAE has a transient population and would benefit from increased co-operation between credit agencies," said Ziad Kamhawi, the chief business officer of Emcredit, a founding member of MECRA, which is based in Dubai.

"One of our objectives is to explore how we can share credit agency information throughout the region by communicating directly with each other." The need for cross-border communication on debt has become more pressing. Banks want to avoid risks after having tried to rebalance their loan books because of increasing defaults that were linked to declines in the property market and job losses. Credit experts say greater communication between agencies is needed to avoid the development of credit bubbles and ensure a sustainable recovery from the financial crisis.

"The banking sector has been hurt by an increase in bad loans, skips and a lack of reliable information," said Mr Kamhawi. "We need to look at the regulatory aspect for credit agencies in each country to explore best practices in order to establish industry standards for this region." Apart from Qatar, all GCC countries have credit bureaus, although the UAE does not yet have one at the federal level.

The Cabinet in March last year approved the Credit Information Law, which allows the establishment of a federal credit information company. Once approved by the Supreme Council, the law will make a credit check mandatory for any borrower seeking to raise funds in the UAE. Emcredit is an independent credit information firm set up by the Dubai Government's Department of Economic Development in 2006. It is not mandatory for financial institutions to share information with the agency. Emcredit exchanges information only with the firms who choose to become its members.

Membership of MECRA, which was established last November, is open to all public and private entities in the region that are involved in the collection and distribution of credit information. MECRA will hold its next quarterly meeting in June. "As economies across the region move towards a period of sustained recovery and long-term stability, we are confident that a knowledge-based economy created by credit bureaus will ensure sound recovery," said Ali Ibrahim, the managing director of Emcredit.

The sharing of information on consumer debt is considered necessary as smaller transactions are rarely recorded by central banks. In the UAE, for example, any transaction of Dh250,000 (US$68,070) or more must be reported to the Central Bank. This means that while banks can check Central Bank data to track large loans, they have no way of keeping track of the full records of their competitors.