Emcredit takes lead in data sharing

DUBAI // Credit bureaus across the Gulf plan to share their information for the first time, as mounting bad debts hit profits and force companies to put potential trading partners under closer scrutiny. Emcredit, the country's first credit bureau, plans to form an organisation with other GCC countries and leading trade partners such as Pakistan and Iran, said Ali Ibrahim, its managing director.

An announcement on the new entity will come in about a month, he said. The UAE legal system has struggled with the fallout from the financial crisis which has already led to more than 500,000 bounced cheques being written in the first four months of this year, according to the Central Bank. Mr Ibrahim, who is also the deputy director general for executive affairs at the Department of Economic Development, said the new organisation would be a cross-border association between all the credit bureaus.

"For example, if a UAE businessman is wanting to do business in another country, he could check the credit report of another company before making a decision," he said. The Regional Credit Bureau Association would expand further the reach of Emcredit, which was formed in late 2006 to increase access to information about the credit records of companies and individuals so they could better judge the risk of lending or doing business with them. A federal law that would mandate all financial institutions and banks to use Emcredit is with the Cabinet for final approval.

Mr Ibrahim said there was a stronger need than ever for Emcredit to expand operations after the financial crisis spread to the country's economy. "The banks are realising that they need the credit information even more now than in the past," he said. Zaid Kamhawi, the chief business officer of Emcredit, said banks were now using the data to assess the risk of their current customers rather than issuing new loans.

"The demand for credit information has changed," he said. "Now they need to control and manage defaults. The best way to do this is to look closely at the current customers." Emcredit was originally formed to increase the amount of credit available to small and medium-sized companies, which banks were reluctant to lend to because of a lack of information about their credit history, Mr Kamhawi said. This, too, has become more important because banks have sharply cut lending to these companies in the wake of the financial crisis.

Bouncing cheques is a crime in the UAE and can mean up to three years in jail for people found guilty of the offence. The property downturn has swelled the number of bad cheques in circulation. Declining rents and property values caught people who paid for off-plan homes or rented accommodation with post-dated cheques. Emcredit is working with other government agencies on possible solutions to reduce the number of arrests for bounced cheques. One idea that is still under review is to create a special centre to arbitrate such cases without going to court.

"The Justice Ministry is looking at creating some law to address this," Mr Ibrahim said. "We are doing feasibility studies, but we feel it needs more review." Improving the availability of credit information in the region could dissuade companies or individuals with bad credit records from attempting to obtain excessive loans or use post-dated cheques for fraudulent purposes, Mr Ibrahim said. "Once this information is shared between banks or anybody, then these people will not be accepting cheques from any individual who has a past," Mr Ibrahim said. "In our analysis, the majority of cheque bouncers are repeat offenders."