It’s been four years since Al Etihad Credit Bureau began issuing credit reports for UAE residents.
Now, people and businesses can also access their credit scores – with the service rolled out to web and mobile channels this week.
According to Marwan Lutfi, the chief executive of AECB, there are 6.5 million credit facilities such as loans, credit cards, mortgages and overdrafts in the UAE. While 4.5 million residents and 200,000 companies are listed in the bureau’s database, Mr Lutfi says there are roughly 3 million active borrowers.
With 71 financial and non-financial companies supplying data to AECB, including telecom and utility companies, Mr Lutfi says its reach will only grow further as more organisations report to the bureau. In the future, the AECB will include court data, rents and even salaries in its credit reports, to ensure a resident's payment obligations are fully transparent to lenders.
The bureau is also looking to tie up with bureaus around the world to exchange credit information.
In an exclusive interview with The National, Mr Lutfi reveals how the organisation is changing the credit industry in the UAE.
With 71 organisations now supplying credit data, how will that expand further?
The law mandates banks and financial institutions to supply data, but over time the value of the database we are creating and how we can link information and payment behaviours has opened doors for us to work with the likes of telecom companies. They are not mandated but I think they realise the value of it. Today both du and Etisalat supply data to us. We have not gone as far as Virgin Mobile yet, but in the very near term we will be talking with them.
How will telecom providers take advantage of your data?
Telcos want the process to be completely automated. So in the next few months we will see a full integration on the point of sale side, with customers getting a full credit check on the spot to know whether they are eligible for a new phone. You see people with phones for five, six family members under one name. If you buy six iPhones, that is a hefty amount of money. You can’t pay upfront, so you go for the instalment option, but then you are getting into credit lending and when you do this you need to better manage your lending practices.
Will salaries be included in credit reports?
We are working very closely with the Central Bank’s financial stability unit on what a common definition of income is. In several banks, income is the salary or sometimes it is other things like stock yields or property income. Then it's how they are clubbed together, how they report it – sometimes annually or monthly. So we are trying to find that common way of reporting income; once it is standardised, we can launch several more indicators on consumer indebtedness, for example, debt burden ratios.
Will all utility bills be included?
We have the data of Abu Dhabi Distribution Company - that is the first one. We have completed all the integrations and the data has started flowing. We are in discussions with several utility providers. We wish it was one or two, you have to talk to them in every single emirate and then you have the federal authorities. It’s a long discussion and requires several technicalities.
Will credit reports also include court data?
Yes, we are starting with the three main courts – Abu Dhabi, Dubai and Ras Al Khaimah. We are trying to define what kind of court data we require. According to our bylaws, court data is something we can request. It’s really defining what makes an impact because with court data one of the challenges is that it’s unstructured data, meaning that we don’t have obligation amounts from court cases defined in one place that can easily be integrated. We are focusing on starting with very clear payment obligations through court orders and injunctions.
Why is it important to have that kind of data on a credit report?
For us it’s extremely important because it’s a commitment, a payment obligation. Just like a commitment on a loan, a court injunction is still a commitment, for example alimony payments. You could easily have five or six payment obligations from rent to court payments to school fees – but have no loans or credit cards. Then when you go to a bank you look like a fantastic customer but in reality you might be reaching the max.
Will rental contracts and school fees be included?
The three most important payment obligations, other than the banking sector and courts, are utilities, rental obligations and schools. Including school fees is very far ahead - we have not reached there yet. But rent is extremely important because real estate is a very important industry for the UAE. The way the market operates here, it’s a hefty upfront payment with everything paid in advance.
We are looking at several data sets from the real estate sector to see how rental obligations, bounced cheques and credit behaviour affect the behaviour in the real estate sector. And when it comes to court data, one of the first sets of data we are looking at is rental dispute data. When you have all these components coming together, it's our job to start looking at the analytics behind it and how it functions try and predict a trend.
Have you done this before?
We launched a product called the skip indicator a few months ago. Bank skips are those who take a loan or credit card with the intention of never paying. We’ve done several analyses using live cases supplied by banks and then we’ve done a correlation to see what triggers a skip. Seventy-five per cent of the time, we were able to identify and detect the skip three months before it happened.
How do you do that?
You look at several different parameters, for example, you miss one payment and then you miss another so it’s pooling the data. The trend will show that if you miss this and this and this, you are most likely to be skipping. It's something that is still predictive but we have a couple of banks that are extremely happy with it.
With so much data, are banks lending more appropriately today?
It seems like it and when we see the products that we have integrated into bank systems, that is an immediate positive indication. The more we get integrated into bank systems, the better it is for the industry because [lending] is becoming an information-based decision as opposed to a personal, analytical decision.
We have seen a credit card company that did a full integration with us and they can give you a pre-approved credit card in a supermarket with a spending limit within 15 minutes.
How many banks have fully integrated your system?
Ten major banks. We also have several mid-tier banks too, and now the second- and third-tier banks are talking about integration. That’s where we see the industry changing.
How do those in chronic debt get out of their situation?
Part of it is education. Before the bureau, banks used to get an application where the customer said they had one other credit card. But we track everything so all of a sudden, they say it’s one but when we check it’s 10. In the past the banks did not know so is it really a banking issue or is it customer awareness? People get into this vicious cycle through their own means. Now of course banks will say no – that’s why you see rejections increasing but also bad debt levels reducing in banks and net profits increasing in banks. Generally, banks are doing much better.
Are those with better scores securing better rates on lending products?
Within a few weeks of us launching the credit score, several banks jumped in and started promoting it – if you have a better credit score then you will get preferential rates. Part of the benefit a credit bureau brings to an economy and the credit market or credit accessibility is actually better pricing. It’s one thing we have always preached and we are very happy to see this happening.
You cannot penalise people all the time – it’s about time we changed how people behave, make them understand a little more about how this affects them and at the same time reward the good payers.
Will UAE credit data be shared with bureaus in other countries?
The UAE is such a big expat community; we have borrowers from over 80 countries. We are trying to define the largest number of borrowing nationalities and then we’ve initiated discussions with these countries. There has been an absolute need – from a business, economic and a credit management point – to exchange credit information. We have seen several cases, for example, where people go back to the UK and say their insurance premiums are higher than their 25-year old son because they have no credit history there.