Cambodia’s own credit bureau provides financial institutions and their clients with vital information to facilitate the process of lending.
The Credit Bureau Cambodia (CBC) began operations in 2012, cataloguing information on potential borrowers and creating credit reports and scores for the benefit of lenders. CEO Pascal Ly sat down with Management Insider to explain how the Bureau works and what to expect from it now and in the future.
What is the role of the CBC and why is credit reporting necessary?
The CBC gathers information on borrowers so they can be better prepared when requesting loans, and so financial institutions can have a clear picture of the credit worthiness of a potential client. These institutions also use our credit reports to cross reference information supplied to them by customers, which creates transparency and raises red flags when a client is seen to have multiple loans with multiple lenders.
There is a certain synergy between the Credit Bureau and the lenders. Financial institutions give out loans in order to grow, but they need to be confident that their loans will be honoured. On our side, as long as financial institutions are growing and checking their risks, we are fulfilling our duties. Our growth is very much dependent on the health of the industry. Without us, there would be blind spots (multiple lending, over indebtedness) that lenders would not necessarily see. To this day, the CBC has generated 11 million reports with four million unique customers in our database.
How and when was the CBC created?
In 2008, the NBC, along with bodies such as the Association of Banks in Cambodia and the Cambodia Microfinance Association, established the CBC to manage both negative and positive information. In 2012, the CBC began operating and now, under a governmental directive, all financial institutions are required to join the CBC, which now operates as a joint venture between Credit Bureau Holding (Cambodia) Ltd (51%) and Veda Advantage (Cambodia Holdings) Ltd (49%).
What if an individual has bad/no credit reporting?
The credit reports we provide are just one piece of the puzzle that lenders put together when deciding whether to disburse loans. We provide an honest and complete account of the client’s credit worthiness but ultimately the bank makes the decision.
If a customer has no credit history and has never taken a loan but can show they have a monthly income and assets, lenders may still consider lending money as the credit reporting system is still relatively new in Cambodia. Further, lenders here do not charge a higher interest rate on loans to entities without a credit score.
Who can access credit reports?
The CBC generates different reports based on the loan amount requested, ensuring that credit reporting is accessible to everyone. The reporting is split into tiers and covers loans of all amounts. All CBC members can access the credit reports of those applying for loans with their institution, once there is consent from the borrower. Also, members of the general public can access their credit reports at CBC’s office.
How is the CBC, and the industry, raising awareness on the importance of credit reporting?
The main users of credit reporting are the financial institutions. When new members join, we must ensure that we help them set up the system of collecting information and reading and understanding our credit reports. We teach them to use the system, then it is up to the financial institutions to pass that information on to their credit officers across the country.
For the general public, we want them to be aware that we exist so they are prepared when they approach financial institutions for a loan. While our main role is in serving financial institutions, we also play a role in protecting borrowers, allowing them to fully understand how stringent the process is—and that is not only up to us. The financial institutions must also inform clients of the importance of creditworthiness for easy access to financing. This year, the NBC launched a campaign to educate people on the matter.
What benefits does CBC bring to Cambodia and its people?
Maintaining a healthy financial sector helps the economy grow. Firstly, credit reporting helps avoid multiple lending and gives indicators on the level of over indebtedness. Secondly, these reports help speed up the decision-making process and help financial institutions manage their risk better. Once they can manage all of this, we can expect to see a healthier industry.
For Cambodians, the fact that financial institutions are able to access reliable information allows them to be more trusting of individual borrowers.
Additionally, this allows for low-income people to have the chance to take out a loan. A small initial loan, if repaid on time, can open the door for a second, larger loan to continue improving their business.
Business loans represent a majority of loans here in Cambodia, while personal loans remain consistent. This shows that consumption is stable in a country that is growing, and as long as personal loans do not overtake business loans, we will maintain a healthy economy.Are there plans to expand credit reporting to other industries?
Right now we are dealing with banks, microfinance institutions and leasing firms, but there are plans to work with companies from outside the banking industry, such as car dealerships, telecommunications companies and insurance firms. By 2017, we expect to be working in these fields. Our services to the insurance companies, for example, would be to provide insurance credit reports that will measure the insurance risk worthiness of a person based on a credit score.
Our model is replicable across many sectors according to the risk that an industry needs to monitor. In the banking sector it is over indebtedness and multiple lending. In the insurance sector it would be multiple claims and multiple insurance policies. For telecommunication companies, we could look at multiple lines and tardiness in payment. For utilities, it could be people closing accounts and running away, reopening somewhere else. There are many ways we can help these various industries, all of which have different risks to consider.
Words qnd photograph by Vivaddhana Khaou
© Credit Graph Bureau Cambodia, Recent Trends of Credit in Cambodia Financial Sector, 2016