Expand credit reporting system to reduce NPLs

Discussants at the official launch of the financial literacy and public awareness campaign on the Collateral Registry and Credit Reporting System have underscored the need to create more awareness about the two financial infrastructures, in order to reduce the high non-performing loans in the financial sector.

The Collateral Registry and Credit Reference Bureaus are two financial infrastructures which have been created to promote responsible borrowing.

While the Collateral Registry, which was established under the Borrowers and Lenders Act, registers assets used by borrowers as collateral for loans, the Credit Reference Bureaus – also created under the Credit Reporting Act – maintain credit reports on all borrowers of banks and other financial institutions in the country.

The credit reference system allows lenders to assess an applicant’s total indebtedness and thereby calculate a borrower’s capacity to service their debt.

This presents an opportunity for Small and Medium Scale Enterprises (SMEs) to show that they are creditworthy in order to be considered for various facilities by banks and other financial institutions to expand their businesses.

There are three licenced Credit Reference Bureaus: namely XDS Data Ghana, Hudson Price Data Solutions, and Dun and Bradstreet which collect information on borrowers from banks and financial institutions.

The discussants at the launch included: Ubong Awah, and Luz Maria Salamina, Senior Financial Sector Specialists Infrastructure at the International Finance Corporation (IFC) of the World Bank Group; Godfred Cudjoe and Stephen Kweku Amponsah, from the Bank of Ghana’s Financial Stability Department and Collateral Registry respectively; and Mr. Gabriel Ocquaye Nortey, Cal Bank.

The financial literacy and awareness campaign, a one-year public education programme funded by the Switzerland government under its State Secretariat for Economic Affairs (SECO), is being implemented by the Frankfurt School of Finance and Management in collaboration with the IFC/World Bank Group and Bank of Ghana.

The programme is aimed at effectively raising public awareness on the financial infrastructures available to access finance through use of the Collateral Registry and Credit Reference Bureaus, as well as promote responsible lending and borrowing for personal and business purposes.

Mr. Awah explained that Africa will have to create about 30 million jobs in the next 10 years to address the growing unemployment occasioned by increasing population growth.

“Credit reporting is not new to Africa, the law requires that everybody is entitled to a credit report at least once a year to avoid being chased by lenders for repayment of loan,” he said.

He said a law is being developed to make it obligatory for telecommunications and Utility Companies, as well as MASLOC and the Students Loan Scheme, to provide credit information from their customers to the Credit Reference Bureaus.

The Director of the Collateral Registry-BoG, Stephen Amegashie, said the Borrowers and Lenders and Credit Reporting Acts had been in existence for the past 10 years but public education on them had been low.

He said the two laws were enacted to create a healthy banking and financial industry and make access to finance to SMEs very easy – adding that the Borrowers and Lenders Act allows individuals and organisations to use their movable and immovable assets, as well as stocks, as collateral for loans.

“Banks are obligated to register their interest in assets used by their borrowers as security for loans,” he said.

He cautioned that an individual or organisation with a bad credit report from a particular bank cannot access a loan at a different bank, explaining that the two financial infrastructures will promote financial inclusion and reduce poverty in the country.

The Deputy Head of Cooperation at the Switzerland Embassy, Daniel Lauchenauer, said Switzerland and Ghana have enjoyed a cordial trade and bilateral relationship since 1968 and that Ghana was Switzerland’s biggest trading partner in Africa for 2016.

Mr. Lauchenauer said Switzerland is committed to supporting development of the country, and it is against this backdrop that the SECO is supporting the programme to educate and sensitise the entire citizenry on the Collateral Registry and Credit Reporting System.