In 2006, the Government of Guyana and the Private Sector jointly conceived and developed what was to become one of the more important policy papers to come out of any other collaborative effort between these two entities. This was the National Competitiveness Strategy, and it was meant to take a hard look at, among other things; various means of improving the environment for private investment and export development.
The imperative of improving access to finance at competitive interest rates for working capital and capital investments, as a requirement of creating and sustaining competitiveness as a critical element in investment decisions was the driving force behind the initiative to establish the services of a fully functional credit bureau in this market. This led to the passing of the Credit Reporting Act of 2010, which set forth the guiding principles that govern the manner and means of the operation of such a bureau, as regulated and monitored by the Bank of Guyana.
The Act in its entirety tasks this credit bureau to “engage in the practice of collecting and processing credit Information or other related information for the purpose of furnishing credit reports and offering value added services” to financial institutions and other interested stakeholders as allowed by the Act in Guyana.
CreditInfo(Guyana) Inc is the outcome of this process that started way back in 2006. The Bureau, referred to as CIG in the industry, forms part of the Creditinfo Group, an internationally recognised and well respected organisation that is headquartered in Iceland, and which operates a total of 16 subsidiaries/ affiliates out of 14 countries throughout the world.
The objective is to compile and share accurate and relevant information between lenders and other providers of credit services, thereby allowing access to a comprehensive database provided by credit information providers and any other data lawfully obtained by “a credit bureau which the credit bureau may, in addition to credit reporting, provide to increase the value of the service it offers including, but not limited to, alert, anti-fraud, credit scoring and identification theft prevention”. This is intended to significantly reduce risks associated with lending and credit in an information deficient business environment and improve overall efficiency in credit evaluation, fraud detection and decision making.
Credit Bureaus have been proven to play a vital role in the financial substructure of developing economies, particularly as it relates to the growth of small and medium-scale enterprises and easier access to finance in general. According to a study of 5,000 firms in 51 countries done by the International Finance Corporation, which is an agency of the World Bank, the percentage of firms reporting constraints in obtaining financing declined from 49% to 27% after credit bureaus began operating in their respective regions.
These organisations collect credit information from lenders and other sources on a consumer, process that information in a very specific way and use it to create comprehensive credit reports and other value-added services in the area of risk management and credit provision decisions.
A credit report is an amalgamation of all the data collected from various sources on a consumer, presented in an organised form. It contains biographic information on a borrower, as well as details of his financial obligations including payment history in relation to such obligations, and of any guarantees that may exist. It is a very powerful tool that presents many opportunities both to borrowers and lenders alike.
Many credit reports can also contain a credit score. The credit score is a number which reflects the level of quality of a consumer’s credit. Credit bureaus use complicated mathematical formulae to calculate a consumer’s credit score based on all the historical credit information contained in the consumer’s credit reporting file.
The credit score is therefore a mathematical summary of a consumer’s credit history, much like a statistical index. Lenders and other creditors often rely on credit scores to quickly assess the creditworthiness of consumers who apply for financing. A good credit score and favourable report have significant benefits for a consumer.
Because of the range and reach of data that is collected as the basis of a typical credit report, which includes information not only from banks and microfinance institutions but also from utility companies, hire purchase companies, insurance companies and credit unions, the likelihood of a favourable credit report and score is high. Consumers in Guyana, for the most part have little to fear, and much to gain.
These exciting developments bode well for the development of the credit environment, revitalisation of the investment climate and positive growth of the economy. Our next article will focus specifically on details of the many benefits that consumers can expect for themselves, and the impact of these benefits on the quality of their lives.