The Creditinfo Chronicle
Kateryna has been appointed as GM of IBCH, a Credit Bureau and Analytics company in Ukraine in which Creditinfo has been a strategic investor since 2006
KYIV, UKRAINE, – 23rd September 2020: Creditinfo Group, the leading global credit information and decision analytics solutions provider, today welcomed Kateryna Danylchenko as the General Manager of International Bureau of Credit Histories (IBCH). In this role, Kateryna will continue the significant work conducted by IBCH and Creditinfo in the country, with the vision of helping credit providers to efficiently make decisions in order to unlock access to credit in such a pivotal economical time for consumers and businesses.
Kateryna Danylchenko, who has over 12 years in the finance industry, joined the IBCH team in July 2020. Prior to joining Creditinfo/IBCH, Kateryna held various senior risk management positions at several banks in Ukraine and most recently was a Consultant for the International Finance Corporation – World Bank Group, where she was responsible for managing project-related processes with banking clients and credit information sharing market stakeholders. Her international experience in financial services will play a crucial role in her new remit as GM of IBCH.
Seth Marks, Regional Manager, Central and East Europe, of Creditinfo Group, commented on the appointment: “ Creditinfo played a prominent role in the selection process of Kateryna. We believe she brings strong drive for change in the market, great knowledge and enthusiasm and in-demand skills as the GM of IBCH. This strategic hire will see Kateryna Danylchenko be responsible for leading and broadening the market awareness of the importance of intelligent business solutions in such unprecedented times; broadening the usage of financial and non-financial data as instruments for credit providers; and providing best-in-class risk management consultancy and automation solutions that help the industry make better financial decisions”.
Kateryna Danylchenko, the new GM of IBCH added: “The Fintech space is very active in this region and I am glad to have joined the company at such a time where the market is ripe for risk management products provided by Creditinfo, which has over the years made automation, provision of intelligent information and digitization at the core of their business”.
IBCH assists banks and financial institutions in managing credit risk and applying best practices in risk management and credit operations. Established in 2006, IBCH is one of three credit bureaus in the Ukraine and accounts for approximately 15% of market share. It offers an expansive portfolio of products and solutions for retail and SME risk management in the country, covering the whole credit circle from application to collection.
Established in 1997 and headquartered in Reykjavík, Iceland, Creditinfo is a provider of credit information and risk management solutions worldwide. As one of the fastest growing companies in its field, Creditinfo facilitates access to finance, through intelligent information, software and analytics solutions.
With more than 33 credit bureaus running today, Creditinfo has the largest global presence in the field of credit bureau and risk management, with a significantly greater footprint than competitors. For decades it has provided business information, risk management and credit bureau solutions to some of the largest, lenders, governments and central banks globally – all with the aim of increasing financial inclusion and generating economic growth by allowing credit access for SMEs and individuals.
IBCH has a fast-growing database of over 39 million records, the most diversified in retail in Ukraine, containing both positive and negative data. IBCH offers the largest product line for retail risk-management in Ukraine – 20+ products that cover the whole credit circle from application to collection – including bureau score, application score, monitoring and anti-fraud solutions. The company also offers risk-management consulting services and unique analytical products such as benchmarking. IBCH’s clients are all major retail banks in Ukraine. The company is part of Creditinfo Group.
Kateryna Danylchenko, General Manager – International Bureau of Credit Histories (IBCH)
Marketing Director, Creditinfo Group
Players in Baltic Markets (Latvia, Estonia) and Iceland Measure Risk better, benefitting from Covid-19 Impact Score Developed by Creditinfo.
Credit providers need to understand how COVID crisis affected their counter-parties and customers in order to better manage risk exposure and reduce losses. Current scoring models are unable to fully answer these needs as they were developed on pre-crisis data and need time to adjust to new conditions.
Creditinfo has developed synthetic COVID Impact score that combines short- and long-term industry impact outlook and company’s bureau credit score. This score helps identifying companies that were most hit by COVID crisis and will likely have solvency problems in the nearest future. Credit Providers can then use this information to design and execute a focused set of actions.
“Important components included in scorecard are industry assessments, (reflecting impact of COVID-19 on the industry, its counter-measures and government support) in combination with company’s general information, credit history, financials and other data”– says Maxim Fetisov, Global Consultant at Creditinfo Group.
He further says,” The crucial part ensuring proper forecasting of risk is industry assessment components where we work with following measures;
- Assessment is expert based with some statistical adjustments
- Each industry is assessed by seven different dimensions that capture different sides of business (operations, financials etc.)
- Impact assessment in each dimension vary from 1 (weakest) to 5 (strongest)
- Overall industry impact score is calculated as average of scores across all seven dimensions. Higher values correspond to higher risk.”
COVID-19 models were already successfully launched in Baltic markets (Latvia, Estonia) and in Iceland and are replicable.
In case you are interested to know more about having this ready for your market or your company please contact Maxim Fetisov – firstname.lastname@example.org
On Tuesday 28th July, Safaricom (the largest mobile provider in Eastern and Central Africa), launched a new service offering consumers the opportunity to buy a 4G-enabled smartphone for as little as 600 KSH (6 USD) per month for nine months, with an initial deposit of 1,000 KSH (10 USD). This is a high-impact initiative for the country, where the average monthly disposable income is just 8,500 KSH (85 USD) according to a 2019 report from the Kenyan National Bureau of Statistics. Though 91% of the population now have access to mobile phones (their own or through others), most of the devices are simple 2G handsets that do not provide helpful utilities that many smartphone owners are used to, such as: social networks, music streaming platforms, and other services including mobile banking apps, which are used by only 25% of adults (FinAccess report 2019). It is a pity, as this could otherwise become a primary channel for accessing banking services. In Kenya, there are only five bank branches per 100,000 people (World bank’s data), and many individuals are excluded from formal banking simply because of remoteness. The proliferation of smartphones can stimulate the usage of digital financial services, which is a critical step in improving financial inclusion and quality of life – it has been shown that mobile money has been linked to a reduction in poverty (Jack and Suri 2017).
Device financing can help to overcome the smartphone affordability barrier; customers can buy a new handset or upgrade their existing one, without paying a lump sum which is often higher than their monthly income. This makes smartphones, even advanced ones, affordable for a wider array of people. Besides having a positive social impact, smartphone upgrades provide an attractive business opportunity, which has already been recognized by market leaders such as Safaricom. In 2019, Kenya’s smartphone sales grew by 10%, according to Counterpoint Research’s Market Pulse. This growth was mostly driven by upgrades from feature phones to smartphones. Upgrading customers to 4G models is good for telco businesses, since it results in the growth of data consumption and an increased usage of other products and services. So, companies are often willing to waive interest on their loans in favor of future gains.
Device financing is a great offer, but lenders must be conscious of its challenges. Although this product differs from traditional loans in that customers don’t get cash and funds are transferred directly at point-of-sale, lenders must still ensure that loans are repaid on time. To achieve this, they must employ state-of-the-art credit risk management methods which are used in the financial industry, such as decision strategies, credit scoring and limit management. One of the advantages that telcos have over traditional lenders (such as banks and MFIs) is the possession of rich phone usage data, such as calls, SMS, GPS and other key info. Some telco companies also have access to mobile wallet transactions (e.g. M-PESA). This unique proprietary data is a great source of information on their customers’ financial behaviour and can significantly improve credit assessments, especially of thin-file customers.
To fully utilize this advantage, telcos must learn advanced analytics and modeling techniques. They should also gain “risk manager’s acumen” – an understanding of borrowers’ behaviors; typical fraud schemes; collection methods, and more. This is not an easy task; this expertise requires time to build up, which involves significant trial-and-error. Sometimes, when time is short and expectations are high, it is easier to go to external consultants who have already crossed this path many times. It can help to avoid some costly mistakes. Also, to allow for the automation of decision processes, lenders need tools which are flexible enough to accommodate frequent changes of policies and credit product terms. Such decision support software must be capable of dealing with high volumes of applications and ensuring fast response times, even in peak hours. Fortunately, such tried-and-tested solutions are already available on the market, and telcos do not need to spend huge amounts of time on in-house development. Some solutions are even available as SaaS, which is another benefit for proponents of Lean IT.
Creditinfo Group provides a full range of consulting and analytical services, including the development of scoring models, the design of credit decision strategies, and limit management. The company also offers decision support solutions and portfolio-monitoring tools that are used by lenders all over the world in their daily operations. Creditinfo’s experts work closely with our client’s teams to transfer knowledge and provide long-term support in digital transformation.
Global Consultant, Creditinfo Group
Together with partner IT company “Onoy” Ishenim has developed innovative mobile app that enables Lenders to collect customer’s digital consent to access his social fund data and credit report. Mobile app uses biometric verification technology (face recognition) to remotely verify person’s identity and create digital signature that is needed to submit consent. In case of successful verification solution calls Social fund to collect information about person’s income and then makes inquiry to Credit Bureau for credit report. All income data collected by mobile app is stored in Ishenim’s database together with other data. This data will be used by Lenders to verify customer’s self-reported income and also in credit scoring models.
“Income verification is a critical part of credit underwriting process. Often Lenders have to go through time and resource consuming manual verification process. Having readily available verified income data will enable Lenders to automate this process helping them to speed up decision process and reduce operational costs. It also creates solid ground for digital lending eliminating need of customer visits that could be simply impossible in times of quarantine and self-isolation” – Maxim Fetisov, Global Consultant.
The pilot started in June 2020 and already 300 people were digitally served.
Ishenim has partnered with Beeline – Top-3 telco company in Kyrgyzstan – to provide telco score for Lenders to be used in credit decision process. The score that is built on telco’s data allow Lenders to make credit assessment of individuals with thin credit file which constitute >60% of country’s population
“This new product is a response to the wishes of our partners to provide them with new products, tools for assessing their customers. We will continue to constantly seek, introduce new products and services to meet the needs of our partners.” – Marlis Duishegulov, CEO of CB “Ishenim”.
While Skype and Zoom become the new office, we had the great pleasure to interview two titans of the credit industry; Paul Randall – Global Markets Director at Creditinfo Group, and Oscar Madeddu, Senior Advisor at IFC, World Bank. With a new reality unfolding through disruption of to our daily life, we felt the necessity to ask the veterans of our industry what the future could look like in a post-COVID society. We asked our interviewees to share ideas on how the crisis will impact economies, credit, credit reporting and what authorities around the world are and should be doing to safeguard borrowers, lenders without endangering the integrity of credit reporting databases.
Paul: Covid19 wasn’t just a humanitarian crisis but also disrupted financial markets like no other crises before. If we look at its economic impact, we see that compared to the 2 previous historical major crises of 1930 and 2008, there has been a double and unprecedented economic shock: both of supply and demand. This in addition to the uncertainty and lack of visibility due to the open-ended nature of the pandemic, massive dips in GDP, a tumbling of oil prices, a repositioning of global supply chains affecting emerging markets, and an inevitable decrease in remittances, just to name a few negative factors. This perverse combination will disproportionately affect all markets but above all, developing countries. What are the responses that have been put in place worldwide? Has the World Bank Group been engaged? How? And what is the forecast?
Oscar: You are totally correct Paul, the COVID-19 pandemic has thrown developed and developing countries alike into a crisis of unknown severity. The paradox is that the more is done to solve the health emergency the deeper becomes the economic problem, and measures to contain the pandemic contribute to sharp declines in the economy (see slide).
The IFC has been collecting data in the past months which show how severely the economic crisis hit the already fragile economies. Only during the first 2 months of general confinement, we observed:
- a large selling of government bonds,
- a 20% average currencies depreciation vs. the USD,
- a generalized downgrading of sovereign and corporate debt by the major rating agencies,
- an increasing and general delay in repaying sovereign debts,
- and a future significant drop in Foreign Direct Investment can be predicted
In the regions where I mostly work, MENA/SSA, we, unfortunately, register more than a double shock, I would rather say that it is an “accumulation of shocks”, as the pandemic is just the last straw after oil depreciation, conflicts and civil wars underway, millions of refugees stranded in inhospitable sites, health systems unable to cater for all those in need, tourism decline, etc.. Regrettably, not an exhaustive list.
The macro-economic projections are unfortunately not rosier: COVID will spare no country and no economy, based on recent IMF’s forecasts on 2020 GDP, markets will show the worst overall performance decreasing globally by 3 %. Some countries will drop by 7% – 9% regardless of the market being developed or developing. In Italy for instance, my country, GDP will plummet by more than -9%.
That said there should be an immediate positive response in 2021, with the global GDP growing by 5.8%, with those countries mostly hit in 2020 showing the best performance.
But that is the future. Today, over 180 countries are suffering this double shock you mentioned. Governments and regulators are called to give responses on several fronts: health emergency of course, but also safeguard the economy, protect social harmony and answer the increasing poverty call. The WBG has immediately put in place a crisis response program with structural interventions, supporting institutions in more than 140 countries. Roughly US$ 160 billion will be disbursed. In addition, supplementary funds have been immediately apportioned for a rapid response to the emergency on programs aimed to protect the poor, MSME, informal and vulnerable people, support families, health and sanitation projects, unemployment benefits, social insurance, cash transfers, subsidies, etc. etc.
Paul: One of the obvious consequences of this deep and probably long-lasting economic crisis is the tremendous impact on the ability of debtors to respect their loan payments, and possibly a credit crunch with a more severe impact for the more vulnerable sectors. We have seen that many governments have put in place loan payment holidays or similar measures. What will the likely impact be on credit markets? What can we expect?
Oscar: The scenario you are mentioning, I am afraid, is going to be the unfortunate reality. Since we all went through a financial crisis before, we know that one of the quite disturbing consequences is the unintentional incapacity of countless borrowers, households and companies alike, to repay their debts, mortgages, credit cards, overdraft accounts. Let’s take for example MSME. In MENA, 96% of companies are MSME, and they account for over 50% of jobs. In Africa figures are similar, as well as in Asia and LAC. Most of them are fully informal (no-file or thin-file borrowers) and access to credit is the main, huge problem they face, because of their opacity, because of lack of collateral and especially because of lack of credit histories. Based on IFC’s analysis, even before the COVID, the gap between loan demand and offer to MSME in the MENA region ranged between US$ 165 – US$ 200 billion or 84% of total demand. We can only ask ourselves how this situation will deteriorate because of the COVID? What can be done so that these borrowers are not unnecessarily penalized, and their lives jeopardized?
The litmus test, to appreciate the magnitude of the problem we face, is to analyze data and statistics about the activity of some credit bureaus, around the world. Scores of webinars, analysis, notes, statistics, have been produced in the past months by credit bureaus like yours. I personally made a survey to understand whether information providers around the globe did experience any decrease in the volumes of inquiries and how statistics look alike, after 4 months of confinement. The findings are self-explanatory, and reflect the path that marked other crises:
- There is a global, general, systematic decrease of inquiries to credit bureaus in all countries and all regions. This is troubling because, as we all know, an inquiry to the credit bureau normally triggers a new loan origination.
- More worryingly, the drop oscillates between 20% and 80% depending on countries, weeks of confinement, and dates of confinement.
- We can infer that this decline mainly corresponds to the same number and/or volumes of loans not granted, not renewed, not refinanced, etc. (though a small physiological percent of them would have been rejected even in normal times).
- Statistics clearly show both number of new loans granted, and outstanding volumes plunging.
- The problem becomes more acute as the weeks go by, the confinement becomes stricter, and the number of inquiries plummets.
- All financial sectors struggle in the same manner: banks, MFIs, NBFIS.
- The loan typologies more impacted and showing the highest decline in approvals are those generally made available to the most vulnerable segments of the population (pay-day loan, very short-term loans, cash loans, etc.) which often represent survival.
- The average debt age increases, as well as the indexes showing the worsening health of businesses and companies.
- Expected ratios of NPL, LGD, PD etc. are on the rise because of the impossibility to repay debts which many borrowers find themselves trapped in, even though against their will.
Personally, I do not think all this is going to vanish in a matter of 3-6 months.
Paul: Will there be consequences for Credit Reporting? What is the impact of generalized non-payment for the global information sharing industry? And what can be the consequences?
Oscar: Unless a concerted effort is made by regulators, governments and international bodies, to protect the quality and the exhaustivity of credit reporting, the reliability of the data and therefore the beneficial impact that credit histories can have on financial inclusion, systemic risk control, the decrease of collateral and operating cost, can be seriously deteriorated to the disadvantage of existing and future potential borrowers.
To this end, in the past months, we have witnessed different reactions from different authorities in different countries and I must say that in most cases the actions taken have safeguarded the integrity of credit bureaus data. In a few cases though, solutions looked potentially detrimental to the integrity and completeness of credit reporting (e.g. like erasing bad payers from databases or totally forbidding the periodical update of loan accounts from lenders to credit bureaus or public credit registries).
Interestingly the ICCR, chaired by the World Bank, and participated by regulators of many regions, issued a very clear policy recommendations document in April (“Treatment of Credit Data in Credit Information Systems in the context of the COVID-19 pandemic”), which lays down the correct guidelines to preserve the integrity of credit reporting, and the opportunities for the future potential borrowers.
In its note, the ICCR states that:
- The non-correct processing of credit data during a crisis has a potential impact on the integrity of the credit reporting system and ultimately the financial markets.
- Non-exhaustive and unreliable data reduces lenders’ reliance on credit reporting and can lead to:
- credit rationing,
- increase in the cost of credit,
- higher rejections of borrowers
- COVID -19 will affect good borrowers’ ability to meet their credit payments relegating them to the same level with existing non-performing borrowers.
- Therefore, there are raising concerns from regulators and governments on how data should be reported in the credit reporting systems.
- The discussion is therefore focused on how missed or delayed payments should be treated by credit reporting systems (both PCB and PCR), particularly on whether payment delays caused as a result of COVID 19 should be reported, how, and when.
Paul: Interesting, yes, I have seen the ICCR guidelines, we in Creditinfo were quick to work with banks to provide data that reflects payment holidays in our markets. Then, what are then the guidelines that should be implemented to strike a proper balance between credit reporting best practice and the problems created by the COVID? Are there any defined international standard? Does the WB chaired ICCR suggest a solution?
Oscar: Again, I would suggest reverting to the ICCR’s policy document. In fact, besides analyzing the impact that the artificial alteration of data quality/exhaustiveness may have on lenders/borrowers, on credit risk management practices, and on the predictive power of scoring systems, the document also suggests an honorable compromise on how to maintain credit reporting best practices also in the time of an emergency, mainly summarized as follows:
- Negotiation of loans forbearance periods and payment holidays between lenders and borrowers,
- Regular sharing of full file data (including negative credit data, unpaid installments, and positive data) with the necessary measures that safeguard the borrowers’ credit histories (e.g. flags, codes, indicators),
- Consistent interpretation and application of data reporting requirements across jurisdiction/sectors,
- Adequate business continuity procedures to guarantee full borrowers’ services (including complaints/ disputes),
- Enhanced borrowers’ digital access to free credit reports and scores during the crisis, where possible,
- Enhanced regulators’ capacity to handle complaints and disputes, due to their likely increase,
- Improved regulatory programs from authorities about consumer awareness and financial literacy,
- Measures to ensure minimal / no effect on borrowers’ credit scores (due to negative reporting / no reporting).
A World Bank recent survey recently made in 26 countries where credit bureaus are present show that the vast majority of regulators have adhered to the ICCR recommendations and in 85% of countries credit information is business as usual with the addition of some kind of indicator (code or flag) in roughly half of the country surveyed, as indicated in the figure.
All of the above, in my opinion, represent sensible, proper measures, which can preserve the integrity and reliability of bureaus databases, and to which I would think another few recommendations might be added, like:
- Banks scoring system will have to be constantly and unfalteringly monitored and eventually fine-tuned, to make sure that their predictive power holds despite the changes in the economic juncture.
- Credit policies and rules should be reviewed and tailored to the inevitable crisis consequences, and new commercial strategies prepared for when, in a future phase, demand for credit will become again the driver of the economy.
- The micro-finance industry should be supported and shielded. MFIs are the weakest link in the chain, and most vulnerable sector. They lend to the most vulnerable clients and generally funding their activity through bank loans. Regulators shall make sure that MFIs continue to receive their lifeblood even in a situation where many of the MFIs’ clients will be inevitably unable to temporarily repay their loans.
- In many developing markets in Africa, MENA and other regions credit bureaus have not yet been established. It goes without saying that also the public credit registries operated by the central banks should follow the same logic and guidelines indicated by the ICCR.
- Analyze, analyze, analyze. Information is the base for comprehension. Credit bureaus, where they do operate, can supply regulators with all the data necessary to study, research and control this unpredicted phenomenon. Data can help regulators to prepare reliable analyses for the Central Bank management, for the government but also can be used to strengthen forecasts, define regulatory measures, estimate projections for the government, banking association etc..
- We need to understand that the time for retrospective checks is over. The new international regulations (e.g. BASEL II -III, IFRS9) request central banks to shift from damage control to risk-based supervision, monitoring and forecast. This cannot be done without the constant analysis of granular data, and advanced analytical tools.
- Avoid erasing bad payers from the database. It is not a useful solution as it spoils the quality of databases, biases the power of predictive scores, and it is not fair to good payers. Also, suspending the transmission of data to credit reporting agencies will carry the same consequences. As mentioned, there are ways to safeguard borrowers in temporary difficulty without penalizing their credit history.
- Regulators shall maintain constant reciprocal contact with the credit bureau, which is their main support and ally, request statistics to understand where the market is going, anticipate problems, and find common solutions.
- Frauds are surging. Widespread remote work increases the opportunity for criminals to gain control of data that, before, was almost unassailable. The emergency increases the prospect and the likelihood that data is hacked. We hear every day new cases of data theft, forgery, misuse like COVID-19 tax rebate scams, crowdfunding scams, fake medicines sales, on line-sales scams, Accounts Take-Over, e-commerce and e-mail scams, fake charity requests, Phishing or malicious e-mails aimed at capturing user’s data (e.g. passwords, credit card numbers), or pharming (fake websites), vishing (voice calls), smishing (text messages attack), etc. We need to double up our attention and care while working from home.
- And this brings me to close with a consideration on new data and new financial technology to facilitate servicing borrowers and clients. One of the lessons we all learnt from COVID regardless of our industry or sector is that those countries and lenders with an advanced Digital Financial Agenda, have coped better and quicker with the emergency, by implementing rapid response measures: digitally paying cash subsidies and social contributions, allowing on-line loans applications, allowing withdrawals without cards, or just granting small loans via mobile telephone.
Paul: Any final insight? Any recommendation that might be helpful to the credit industry operators, the regulators, and all the stakeholders that operate in the vital credit industry sector?
Oscar: Well, I would not dare to be so pretentious to give seasoned risk managers and regulators in the frontline of this crisis any recommendations. They know better. Perhaps sharing some reflections on the importance of data quality is however imperative.
As for data quality, I think it is important to have one clear concept in mind: the quality, veracity reliability, but above all the correctness exhaustiveness and completeness of information, is undoubtedly the responsibility of the lenders/information providers (banks, MFIs, NBFIs, utility providers, etc.). The credit bureau is only a collector, a notary. Of course, the latter will have to ensure through sophisticated technology that the data is cleaned, purged, validated, and merged. Nevertheless, it is important that lenders understand that they have a huge responsibility in providing the correct and complete data, more than ever during the emergency. Accuracy, quality, timeliness, sufficiency, completeness and controlled obsolescence of data are among the World Bank’s fundamental Credit Reporting Principles.
For example, in many countries, ad-hoc credit reporting laws establish that lenders are mandated to provide complete data to the credit bureaus; however, it is often happens that not all data providers oblige, or do not provide data completely and thoroughly. It is important to understand that a credit bureau is established for the common good and that even one single financial entity which does not comply with the law jeopardizes the whole industry, its peers, and the good borrowers. Regulators should verify that data providers (and officers) do comply with laws, regulations and best practices, and should sanction those who are no compliant.
Maintaining a country’s systemic risk under control is both, a quite a difficult task and a huge responsibility. The credit bureau is the main tool that regulators have at their disposal to make it happen. Lenders/data providers have an important responsibility always but particularly during this emergency period: maintaining the overall quality and quantity of data unaltered and unmatched. Regulators, on the other hand, have the responsibility to make sure data providers comply with the engagement rules.
I hope that the COVID, as it came, will be gone, hopefully soon. It will not be forgotten easily, and it will definitely leave some scars on the industry, introduce enduring changes, teach us lessons about new technologies utilization, power and importance information, alternative data and tools, new risk management ideas, and certainly new frauds. Nevertheless , I am convinced that, as it happened after other major crises, we will heal the scars, raise again, and continue. As my Latin ancestors would say: nulla tenaci invia est via (for the tenacious, no road is impassable). Not even COVID. Thank you for the chat.
 International Committee for Credit Reporting: http://pubdocs.worldbank.org/en/972911586271609158/COVID-19-ICCR-Credit-Reporting-Policy-Recommendations-for-distribution-6346.pdf– April 6, 2020
Lithuania‘s transformation to the startup-friendly country has been successful: last year the first “unicorn” appeared in the market, and the startup ecosystem at present includes over 900 enterprises which have the great potential for business development based on innovations. And yet, the general conception of the startups’ contribution to the country’s economy has remained stereotypical, as it is alleged that these are risky enterprises which rapidly emerge and dissolve, and that they create few workplaces. The latest analyses done by “Creditinfo” and “Startup Lithuania” reject these stereotypes.
There are more than 900 startups and about 7800 employees. 115 venture capital investors have been drawn. In 2018, 171 million euros of venture capital means were invested in startups, and in 2019 – 168 million euros as compared to barely 27 million euros in 2017.
“Co-operating with Creditinfo, we started a thorough analysis of the startup market two years ago. Now we can perceive certain tendencies, for instance, the idea of quick appearance and disappearance of startups has not been confirmed. Such cases do happen, however, the true distinct features of startups are the fast expansion of these enterprises, their payment of high taxes to the state budget, and the fact that the startup employees’ salary is quite often bigger than the average market price, since innovative products require highly qualified specialists”, asserts head of Startup Lithuania, Roberta Rudokienė.
According to her, the generalized data make it reasonable to assume that the Lithuanian startup ecosystem is at the stage of its growth and continues to accelerate, thus one can soon expect new “unicorns.” The name of unicorn is given to those successful startups whose market value exceeds 1 billion euros.
We have been co-operating with Startup Lithuania for several years, and the image of the startup market which was formed due to our joint efforts, is beneficial in several respects. Firstly, the new startups have a clearer view of what sector they are coming to, they find it easier to foresee the business environment and plan their actions. Secondly, we provide a clearer understanding to decision makers, on whom Lithuanian business environment depends, about the startups’ contribution to the state economy and provide arguments why more attention should be given to this sector. A signal is sent to the investors, – the figures indicate that the prospects of startups in Lithuania raise well-founded, positive expectations,” stresses head of Creditinfo Lietuva (Lithuania) Aurimas Kačinskas.
The peaks and troughs of startups
Creditinfo has recently carried out the analysis of the Lithuanian startup market basing itself on the existing data. And these insights can serve as practical guidelines to those who consider establishing a startup.
The data analysis indicates that 20-30% of startups annually reach a breaking point when an enterprise starts to yield a profit. The remaining part of the newly founded startups does not transcend this barrier. The “golden age” of a successful startup is the fourth year when profit margins are the highest. And the seventh year, like in human relationships, is the most intense, when the profit margins of the majority of them drastically decrease.
Many startups plan to reach a peak in business in the third year of their existence, thus Creditinfo suggests they should have a more realistic view of prospects, and, having reached the fourth year, should not rest on their laurels as the seventh year crisis lurks around.
34% of startups have only one shareholder. Is it good or bad? Creditinfo remarks that the profit margins are higher in startups which have several shareholders, however, the number of profitable companies which have one shareholder is higher than that of run by a few shareholders. Thus, it is the startup founder’s choice whether to share a risk or go a safer way on their own.
14% of startups in Lithuania are run by women in comparison with the 23% of women who manage all enterprises. Creditinfo draws attention to the fact that according to the data of enterprise, if there are at least 50% of women in its governing body, the level of risk – the probability of bankruptcies and overdue payments, significantly decreases.
31-36 is the average age of the majority of heads of startups. The number of startups managed by heads who are over forty, is drastically decreasing. Creditinfo arrives at the conclusion that the unfavorable age related prospects suggest that founders and heads of startups should consider when to resign and hand the business over to others.
A startup about startups
Head of Startup Lithuania R. Rudokienė remarks that the data provided by Creditinfo do not only enable one to present the general picture of the market, but also helps control the dynamic startup database. “We ourselves attempt to count startups – we send queries to technology parks, centers of science and technologies as well as make it possible for startups to register themselves. The process is rather complicated since at the stage of its being created, it is difficult to tell whether the new enterprise is a startup or a traditional business. Nevertheless, our amassed database seems to correspond to reality, and the data provided by Creditinfo allows us to update the most important information about the enterprises in this base,” says R. Rudokienė.
Startup Lithuania and Creditinfo in their attempts to weigh the startup contribution to Lithuanian economy, were joined by the startup founder’s initiated project – last year “Unicorns.lt” was founded. Its goal is to show the created value of startups by concrete figures. “I came across one similar foreign fund project, – it was a list of startups with their financial data. I myself had worked in a startup, therefore I understood it was a good idea since in our country this kind of information was lacking though it was not complicated to provide it. It is assumed that the startups are successful, the employees receive high salaries, however, concrete figures have never been clear. That was how we, Creditinfo and Startup Lithuania found each other,” explains the founder of “Unicorns.lt”, Eimantas Norkūnas.
According to him, Creditinfo provided much information necessary for the project, and a coherent presentation of systematized data was a big advance in the further development of the project. “I have worked with projects of open data before and established a successful partnership with Creditinfo, thus everything happened with lightning speed and the decision regarding “Unicorns.lt” was made during two weeks ,” remarks E. Norkūnas.
What are the main insights provided by “Unicorns.lt”? The startup sector paid 24.6 million euro taxes to the state budget, it employs 7800 people whose average salary amounts to 2700 euros. “We and the partners of the project had the feeling that the startups are a big economic power which pays high taxes and employs many people who are paid high salaries. And this project showed real figures as well as proved how far advanced the whole sector was,” adds the founder of “Unicorns.lt.”
“At first glance, it seems a simple project, however, it includes many successful components. These data prove useful to future founders of startups, potential employees, and investors. A fine example of what can be achieved when a synergy of data and a good idea is exploited,” observes head of Creditinfo Lietuva, Aurimas Kačinskas. “Our and our partners’ analyses indicate that the Lithuanian startup market is of great vitality, the action there develops rapidly though not chaotically. The main conclusion is that although it is a truly attractive space arousing one’s enthusiasm, it is not recommended to “rush headlong” into it. The first step is data analysis which will help perceive certain regularities and probably discover a code of success,” he concluded.
We interviewed Catherine Muraga the Chief Information Officer (CIO) at Stanbic Bank Kenya – one of the largest banks in Africa. Catherine is well versed with the Information Technology (IT) landscape having worked in different industry sectors including Manufacturing, Airline and Banking industry. She provides strategic vision and operational IT leadership for the Information Technology Department and controlling all IT functions. We asked her a few questions around COVID-19 and how Stanbic Bank is working around this pandemic.
1. What would you say was the first shift that you personally saw, felt and experienced from a banking point of view as soon as the pandemic hit and how have you overcome some these challenges so far?
At the onset and from a branch perspective, there was a dip in foot flow and an uptake of banking services offered on digital channels. Banks continued offering services while ensuring health and safety of both staff and customers. The directive to zero rate M-pesa and Pesalink transaction fees also aided in the payments reach widening and consequently an increase in transactions.
To paint a bit of color on the payments reach widening- a visit to some of the local markets and I saw all traders had an option to settle the bill through Mpesa; this was previously an area dominated by cash transactions. According to the Central Bank of Kenya – Status and Outlook report dated 21st May 2020, there was noted increase in values of bank to e-wallet transfers which could imply some success in the measure of reducing use of physical cash. (Read report here)
From a bank and industry perspective, for instance Stanbic bank Kenya reacted by issuing three-month loan repayment holiday and together with the industry, extended loan re-structures. This being part of the implementation of the emergency measures to mitigate the adverse impact of the pandemic and as guided by the Central Bank of Kenya. I also saw the adoption of online meetings by Relationship Managers and as part of Customer engagement. Overall, the pandemic has been a great accelerator of digital and agile ways of working.Staff were enabled to work from home on short notice and this came with heightened focus on cyber-security.
Digital product offering was enriched in such a short time – this ranged from Customer onboarding, enhanced features to process payments, conversion of more customers to take up internet banking and enhanced capability to access credit facilities.
2. Would you say that the shift to digitalization will be hastened due to the pandemic?
Indeed, it is quite interesting that a global pandemic forced many to digitize. Our daily lives have changed drastically, from our work to school to entertainment, many have had to rethink their response towards the pandemic. In order to limit the spread of the virus. Financial institutions like ourselves have had to turn to digital tools to keep our client services going. It’s been imperative to digitally transform our places of work to operate effectively. Those companies able to use technology well to keep going and rethink their business model for the future by fast-tracking digital transformation will be ones ahead of their competition.
3. What are some of the steps your bank has taken in this regard?
In responding to our clients’ needs and the changing operating environment, Stanbic Bank Kenya has undertaken a review of its business and operating model to ensure that we serve our clients more effectively and efficiently. With the digital economy putting new demands on the banking industry, their business is now immersed in a digital transformation journey. The digital transformation agenda plays a critical role in redesigning the entire operations of the Bank, through innovation of products, services and channels. As a result, the employee skills base as well as organization structure of the Bank are expected to transform to mirror that strategy. The banks technological journey is client led and driven, meaning that we are constantly improving on systems, processes and solutions to ensure that the experience is better and simpler.
The bank is looking at how to enhance that experience using data analytics and thus the need to also enhance skills on areas like AI etc. This means we must innovate faster and better, putting the customer at the center of how we build, engage and deliver by connecting the physical world to the digital world. Naturally, this requires a shift in mindset and culture. In order to become a truly digitally transformed financial services Group, we need to harness data to complement our digital transformation strategy, which is crucially significant for our business decision-making and customer-centric re-orientation in the marketplace.
During this COVID-19 period our efforts are primarily focused on ensuring the safety and well-being of our staff and customers as well as putting systems and capabilities in place to minimize business disruption to our clients and services. Our digital products offer ease and convenience, no matter where you are located, and this replaces the need to visit our physical branches. During times like these, digital, contact free banking help our clients carry on with their personal and business lives without disruption.
- Digital banking: All our mobile money and Pesalink remain free of charge. In order to reinforce the security of your funds and transactions, we recently added the self PIN reset feature that allows you to select your password online at your own convenience and gives you more control. With our digital banking solutions, we automated the process of opening accounts for individuals and will soon launch a digital lending mobile application aimed at supporting our SME clients. To facilitate the operations of our international business clients, we have entered a partnership with SimbaPay that enables customers to remit money to India, China, and Uganda. Through our Africa China Agent Proposition (ACAP), we will continue exposing Kenyan entrepreneurs to suppliers in China, building their networks, and deriving better quality goods at great terms and prices.
- Loan restructuring: After careful deliberation, in April our bank pioneered debt relief, providing loan moratoriums to underline our commitment to walking with customers through this period. We realized that the pandemic has disrupted livelihoods and as a trusted financial partner, we continue to do our best to support customers.
To this end, our individual, Small and Medium-Sized Enterprises (SMEs) and corporate partners had a total of Ksh 31 billion in restructured loans. This has provided great relief for all who have been impacted by the pandemic.
- Community support: As a sustainable business, we realize that we must place our communities before profit and that we cannot thrive when the communities around us are not; this remains deeply entrenched in our culture. In response to the call from to the Ministry of Health and the wider Government of Kenya to mobilize resources to combat the Coronavirus pandemic, Stanbic Bank Kenya through the Stanbic Foundation, in partnership with Base Titanium, Centum, Gulf Energy, Valar Frontier, and Africa Practice, handed over a total of 192 high flow nasal cannula oxygen therapy devices worth KSh147 million to the Ministry of Health.
- DADA services: This is a flagship offering, designed specifically to empower enterprises run by and involving women. It was designed with input from customers and includes both non-financial and financial offerings to see businesses achieve their desired potential. The DADA team has been keen to build customer capacity and has set up digital engagement platforms such as webinars and virtual boot camps designed to equip businesses with management skills that will guide you on how to navigate through the challenges caused by the COVID-19 pandemic.
4. From a credit perspective, we have seen loan holidays being offered, CRB negative listings scrapped to some extent especially in Kenya to cushion borrowers among other incentives. How has this affected the banking industry?
Apart from reduced liquidity in the short term, the full impact of these actions is yet to be felt. The industry concern is the economic impact the prolonged ‘COVID period’ will have on the Bank’s customers and their ability to service their maturing obligations. In spite of the measures taken of scrapping listings and offering moratorium we are beginning to see the rate of default rising and customers who are on moratorium advising of their inability to continue servicing the loans either because of reduction/closure of business or loss of employment or even reduced income/salary. If the situation persist beyond year end, we are likely to see increased default resulting in higher provisions and reduced profitability in the industry.
5. As a CIO, what are the other new areas of focus you working on that are unique to the region apart from Digitization of services? What are the trends you see unfolding in the industry?
With regards to trends, I see the following unfolding in the industry;
- Hybrid workforce of remote and in-office users – This will be a cross-functional strategy that teams in Risk Management, IT, Human Capital and Facilities will focus on.
- IT teams will have to focus on how to reduce contact at the workplace and in with the objective to prevent virus spreading. For instance, adoption of workflow tools, contactless solutions in meeting rooms etc.
- Savings on real estate costs moving to support work from home IT costs. How do organizations enable their staff to work from home?
- IT Budget – There will be a renewed emphasis on operational efficiency type of initiatives, and cost controls. Under operational efficiency, there will be a redefinition of business processes that may come with the increased adoption of robotics process automation.
6. Social distancing and working from home seem to be the new norm. Banking has traditionally relied on face to face interactions with customers, especially SMEs. How does Banking 3.0 look like?
- Curated to you and not to the masses.
- What you like, your aspirations and goals unlike before where a product was geared towards the mass market.
- Experiential where user experience is the main driver of the product and service.
b) Technology led particularly for payments;
- Cheques to digital payments
- Cash to mobile payments and QR codes
- Banks will increasingly leverage use of data, both structured and unstructured to inform their strategy, crafting of products and the Go to Market approach.
There will be enhanced integrations to third party agencies such as government entities, Telcos, Fintechs and social media in order to collect customer insights and offer personalized products.
Catherine Muraga – CIO, Stanbic Bank Kenya
Creditinfo’s “CIP Score” Between evolution and improvement: a powerful tool for risk management in a more digital financial environment
The core business of commercial banks and other lenders, at the most basic level, is to sell money. To loan an amount with a negotiated re-payment schedule with interest, is a process that allows the economy to finance itself. But for this cycle to be sustainable in the long term, it must be carried out with both vigilance and responsibility. The “credit risk” of a client, their probability of reimbursement, and differentiating between “good” and “bad” clients are basic yet essential elements to loan in a profitable and durable manner. Creditinfo – in line with international best practice – has proposed, for a number of years, an innovative tool that comes in addition of the data prowess of its credit bureaus: the Creditinfo Predictor Score (CIP Score). Credit scores – statistical indicators showing the potential risk level of a client and the likelihood that a loan will be repaid – have proved their value in giving reliable and objective risk evaluations, reducing bad debt and non-performing loans, decreasing lending operational costs, improving client service quality, and modernizing the credit industry.
For example, in Morocco, another of Creditinfo’s strategic markets, “bad debt increased significantly up to the end of May 2020, +6.5% compared to May 2019… and now equals 73,7 billion MAD, a proportion of 8% of total credit”. The “defensive” reflex would be to reduce exposure to a segment that is increasingly risk. Credit scores allow to “filter” between good and bad players, to take profitable and reliable decisions, that are aligned with business objectives. The increase of NPLs is a trend, as has been explored and explain by Creditinfo – that will not spare UEMOA (or Europe), where the bad debt rate will also rise. It is a potentially dangerous phenomenon, and if left unanswered will have consequences on a macro scale. This inevitable increase should not prevent banks from exercising their core function. Banks will have the responsibility to continue to finance the economy, by providing liquidity to businesses and consumers.To face these risks and to provide more “visibility” to lenders, there are several solutions, especially ones that are compatible with the ever-changing digital environment. One of these is the credit score.
In the UEMOA region, the CIP Score was launched in 2018, And is the first and only credit bureau score in the region. The big news is that, since this date, the credit bureau database has been considerably adjusted and improved. Data quality has always been our priority, and following a comprehensive technical exercise, it is today more coherent and efficient. These improvements have been decisive. The database is now richer, and therefore more useful to lenders. The most recent risk analysis done and valeted on data from the region (see below), confirms the applicability and the predictive power of our score. On a scale from A (low risk client) to E (high risk client) the CIP score accurately predicts the probability of delinquency of a client. The score is available as an integral part of the Creditinfo West Africa Credit Report, and be used in an automated environment or as a support for a decision made by an expert.
“On the left, the delinquency rate for clients. On the bottom (A-E), the risk categories for each client. The less risky the score judges a client, the lower their delinquency rate. A-clients are much better clients than E grade clients. This shows the predictive power of the score, as it can identify good clients and predict repayment probability” (Source: Creditinfo)
How to maintain lending profitability (responsibly) in a more digital world?
The pandemic revealed and exacerbated pre-existing inequalities and socio-economic vulnerabilities. Households, youth, and informal SMEs will undoubtedly be among the most-affected segments. It has also accelerated the digitalization of all sectors, including lending. A fluid and continuous – but responsible – financing of the economy will be a pillar of the economic recovery. Covid imposes a sense of urgency we must respond to: the avoidance of a credit crunch. The dilemma is to maintain – or increase – the level of credit to the economy, without allowing NPL rates to spiral out of control. The CIP Score is an ideal tool to take loan decisions in a structure and balance manner. It allows banks to evaluate credit risk in an objective and reliable manner, while eliminating bias and imprecision. Using the score, subjectivity of human evaluation as well as the costs of manual analysis are replaced by a validated and automated process.
Credit scores have become “normalized innovation”, a widespread and trusted tool that has shown results regardless of the market of application. Coming out of lockdowns faced with increasing uncertainty, the guiding principles for lenders will be vigilance and pro-activeness, twin goals that can be achieved by using credit scores. Lenders will face pressure as policymakers encourage the financing of the economy, granting individuals and business necessary liquidity to make the economy turn. This tool is available on all Creditinfo West Africa credit reports, and is a safe, proven, ready-to-use way of achieving all these objectives.
Adamou Sambare, CEO Creditinfo West Africa
After intense work that lasted the past several months, Kredītinformācijas Birojs finally introduced a new statistical model that forecasts the borrower’s credit risk, last month. The new credit rating predicts the probability that a borrower will default on their credit obligations for more than 60 days in the next 12 months, with the amount of obligation being at least EUR 150.
Analyzing the fulfillment of liabilities of almost 3 million credit liabilities held in the data base of Kredītinformācijas Birojs, has made it possible to identify the factors that have the most significant impact on the ability of Latvian borrowers to successfully settle their liabilities. The variables and their impact on credit risk can be grouped into three large groups as seen on the graph below:
Borrower’s age – the older the borrower, the better the payment discipline. The analysis of credit liabilities in the period from 2017 to 2020 shows that borrowers aged 60 and more delay loan payments five times less than 20 years olds.
Structure of credit liabilities – the structure of existing credit liabilities at the moment when the borrower takes new liabilities. For example, the amortization rate of existing credit liabilities (completely new liabilities taken or paid the most part of existing liabilities). If the person has overdrafts / credit cards / credit lines, and what is the ratio of their limit to the amount actually spent, etc. For example, people who use almost 100% of their credit line for a long-time delay payment twice as often as people with an average monthly balance of 50% of their credit line.
Indicators of excessive borrowing – indicators such as several consumer loans to different lenders, the frequency of late payments, requests from remote lenders in a short period of time, overdue liabilities guaranteed by the borrower, past liabilities paid with delays or assignments, taxes and utilities debts, relationships with companies (as a board member or owner) which have significant payment delays, etc. are some of the indicators.
Individuals can get acquainted with their credit rating, which is used by increasing amount of Latvian lenders, by becoming a subscriber to manakreditvesture.lv. The new credit rating will replace the currently used model and is also available to current subscribers free of charge.
About Kredītinformācijas Birojs – KIB (Credit Information Bureau)
Kredītinformācijas Birojs – KIB (Credit Information Bureau) is a part of the world’s largest credit information and risk management solutions providing group “Creditinfo Group” and it aims to reduce the financial risks of companies and individuals. KIB was founded in May 2013 and is the first licensed credit information office in Latvia, licensed in the data processing field and supervised by the Data State Inspectorate.
Covid – 19 has hit the world with a “double shock”: an unprecedented contraction in supply and demand coupled with a health-economic conundrum. For Africa, and the UEMOA region, the immediate picture is bleak. However, there is hope if the financial sector uses the situation as a trigger for accelerated transformation of lending processes and products, taking the lead from other sub-Saharan markets and levering advantage of the robust financial infrastructure in place.
The IMF forecasts a GDP contraction of 1.6% for Sub-Saharan Africa. For the UEMOA regional powerhouses, Senegal and Côte D’Ivoire, it forecasts growth of several points lower than before the pandemic. The drying up of remittances by 19.7% in Sub-Saharan Africa, the inevitable decline in tourism and shrinking world demand for exported goods will leave profound economic scars. The physical lock downs have enormously impacted workers, MSMEs, and especially the informal sector, which in emerging economies constitutes the backbone of economic output and the largest reservoir of employment. A recent study conducted by the Direction générale de l’emploi in Côte D’Ivoire puts the number of jobs in the informal sector at 93% of total.
Prior to the pandemic, the lending industry was already faced with several challenges. In the region, there is low formal credit coverage (12% in OAMU, compared with 41% in Kenya*), especially for MSMEs, who consistently report difficulty in accessing credit. Low automation, outdated risk management tools leading to inaccurate risk assessment and high collateral demand generate burdensome costs for borrowers, and in many cases, high rates of non-performing loans. Such an environment creates unnecessary risks and uncertainty for banks and other lenders.
A significant drop in lending
Faced with these challenges, how has the banking sector in UEMOA responded? So far, the pandemic and the lockdowns implemented to counter it have seen three negative and self-reinforcing trends: First, the increased reluctance of banks to provide credit to individuals whose risk level is no longer considered acceptable. Second, many clients are unable to repay existing loans due to a halt in economic activity and loss of income. Third, customers have been unable to go to branches, meaning adjustments cannot be made as credit granting at a distance is unfeasible. The UEOMA saw a year-on-year declines in applications for new loans to Creditinfo West Africa of 18.5% in May, and no growth in April. Regarding non-performing loans, an increase seems imminent and inevitable due to economic impact of COVID-19. Information providers, banks and regulators must work together to identify best practices and implement them to counter this phenomenon, since financial data processing during the pandemic may negatively influence the integrity of credit reporting and credit markets. Observing global trends, the most pragmatic solution seems negotiation between borrowers and lenders of a forbearance period. Data submitted concerning these loans should be “flagged” so as not to unduly impact the risk profile of the borrowers and thus prevent future access to finance. Access was already a challenge pro-Covid. It has now become a battle is unlosable.
Looking forward, the lending sector needs to demonstrate it feels the urgency and that they are prepared to act. The new guiding principles for the credit industry in the UEMOA will be evolution and innovation. Because responsible lending comes down to accurate risk appraisal, the key will be new data and new technologies. Crises have historically accelerated and stimulated already existing trends, but never like this time has technology been the main force that prevented human lives and economies to be completely wrecked. In Rwanda, for example, decisive action by the regulator combined with flexibility from mobile phone operators led to a five time increase in mobile transactions, and a six times increase in their value during lockdown. In Indonesia, transactions doubled in the first fourth months of 2020. Similar steps were taken in the UEMOA and more can be done by the banking sector to fully harness the power of information and new financial technology and intercept the post-crises opportunities.
While the last 10 years have seen a constant diffusion of credit bureaus in Africa, it takes a collective mindset to fully exploit the benefits. Creditinfo West Africa has the responsibility to gather the payment history on every credit granted in the 8 countries in the region, and it now holds information on more than 8 million people and 17 million contracts, rich data for better lending processes. The credit bureau and its wealth of information is an essential tool to accurately assess credit risk. Credit scores – statistical indicators showing the potential risk level of a client and the likelihood that a loan will be repaid – have proved their value in giving reliable, objective, and timely risk evaluations, reducing bad debt and non-performing loans, decreasing lending operational costs, improving client service quality, and modernizing the credit industry. Recent analysis by Creditinfo West Africa demonstrated that customers with good credit scores were 10 times more likely to be good payers than those with a poor credit score. While this hinges on regular uploads and data quality, their predictive power is undeniable. All actors in the financial sector should truly participate. There is no reason to believe that tools and technologies that have so well performed worldwide, will not be successful in the UEMOA.
A renewed focus should be in efficiently increasing lending volume to avoid a drying up of credit. In such a crisis, the response from the banking sector cannot be anything other than counter-cyclical. While keeping risk control as the main driver, the next step should be a low-cost client acquisition process to make small size loans profitable, and therefore to encourage banks in granting them. This will be achieved first and foremost through automation, as the future will also be made of faster, smaller and automated loan decisions. Covid – 19 has exposed weaknesses: a transversal and global one has been the lack of a digital financial agenda and systems in many developing countries. A fully automated loan processing system equipped with new alternative scoring models based on mobile alternative, and Big Data (as explored below) would certainly help for example to prevent indiscriminate and unjustified portfolio reductions.
The future of the lending industry sector looks uncertain. Online, fintech, shadow banking and other unregulated lenders benefit from more flexibility and are eating into commercial banks’ market share. It is high time for embracing new technologies such as mobile lending as well as the incorporation of big data such as telco, utilities and psychometrics in assessing risk. During lockdown, with empty bank branches and movement constrained digital onboarding and mobile money proved critical. In developing markets where mobile lending is nascent or inexistent, and the credit market is relegated to physical interaction between underwriter and customer, physical confinement and countrywide lockdowns are the equivalent of death sentences. In Kenya the benefit of data driven decisions is clearly visible, Kamau Kunyiha CEO of Creditinfo Kenya says that “we are working with lenders who with a combination of mobile wallet data and credit bureau data can deliver loans instantly of as much as 750 USD although the typical loan size is nearer 50 USD.”
Credit markets are frozen because critical communication is impossible. On the other hand, where digital credit, e- wallets and e-money exist, and modern risk management are common, there are no such barriers. This, combined with new data sources will include a much wider portion of the previously uncovered population, especially the informal economy, MSMEs, and underserved individuals. Data from mobile operators, utilities providers, and psychometric quizzes can be used to complement profiles of thin-file customers or to build credit histories from scratch for the completely unbanked. This is already done on massive scale in other countries (ex. Kenya and Tanzania). Access to finance is crucial in normal times, and critical in recovering from a crisis, especially in one where the informal sector is deeply impacted.
Instead of being the great equalizer, Covid-19 has highlighted and amplified differences, whether social, economic or health related. The economic rebound will be contingent on the fluid and continuous financing of enterprises and households. In rare moments like these, lenders, borrowers and intermediaries can take the responsibility to transform the market. The credit market is competitive and volatile: innovators will be rewarded.
Adamou Sambaré, Managing Director, Creditinfo West – Africa.
The privilege of living where I don’t feel threatened by systematic discrimination doesn’t mean I can turn a blind eye and pretend this is not impacting me. It is affecting my friends, my colleagues, millions of people I don’t know, and the world, we, as parents, leave to our children.
In such a historical moment where we are so technologically advanced to be able to send people to the moon, millions of human beings on earth still need to fight discrimination based on the color of their skin. Needless to say, it is anachronistic to not stand up against any sort of discrimination and implicit bias.
In order to be an ally to anti-racism, there is an urgent need to acknowledge the flaws in the system that are now more visible thanks to social media, technology and freedom of press.
I encourage the people of Creditinfo to speak up and support their colleagues in distress at this moment, as well as keep educating themselves and raise the standards for a more inclusive society, workforce and human race.
Creditinfo stand together with the black community and commit to educate and work towards a more inclusive ‘human kingdom’.
Stefano Stoppani, CEO – Creditinfo Group
The world is currently facing unprecedented economic challenges resulting from the COVID-19 pandemic. This was initially reflected in drops in oil prices, followed by the falling stock market and more recently employment levels. Research by the UN suggests global GDP is likely to shrink by around one per cent this year and could contract further if restrictions on economic activity extend beyond the second quarter.
Impact on lending portfolio
The result of this public health emergency is that many consumers and businesses are struggling to keep up with their loan repayments. Credit providers face the twin challenges of worsening repayment performance on existing credits and higher risk in issuing new credit. With many businesses facing severe financial difficulties, it is to be expected that there will be an imminent and critical impact on the NPLs of lenders. Credit providers should, therefore, take immediate action to mitigate these risks within their existing portfolios through reviewing a range of areas from collections management, payment holidays to anti-fraud policies.
While formulating crisis response plans, it’s essential to consider the power of data and analytics. During this volatile time, analytics will help financial institutions:
- Predict future consumer behavior
- Protect their most vulnerable customers
- Mitigate losses
- Deliver targeted interventions for individual customers specific their circumstances
Creditinfo has launched its COVID-19 response initiative; protecting borrowers and lenders through increasing financial stability. One fundamental principle of the initiative is to provide lenders with the analytical insight required to manage their portfolios through risk ranking proactively. Such effort enables the prioritization of high-risk segments for account reviews, implementing strategies such as a reduction in limit allocations or fast-tracking collections actions and payment plans preparation. Both actions result in reducing exposure and default rates.
A second area of focus is data recency and accuracy. It is important to remember that analytical insights are only as good as the data that powers them. Creditinfo recommends both internal and external data reviews should be made frequently to provide effective insights. This could be updated credit bureau information providing the latest changes in credit profile. Equally important though are internal updates of basic contact information. After all, there will be a significant impact on your collections strategy if you do not have the correct customer contact information to effectively and efficiently contact a customer to cure their account.
Utilizing up to date and accurate data to drive analytical insights is fundamental to proactive portfolio management and can be the difference between account recovery and default.
For more information on how to effectively manage your credit portfolio please contact Joe Bowerbank email@example.com.
The Head of the company says a positive credit register is needed for boosting the Estonian credit market.
Stefano Stoppani, Dubai-based Chairman of the Board of Creditinfo providing business information, solvency assessment and market analysis, intended to visit its offices in Estonia and the other Baltic countries in the beginning of March, but COVID-19 hampered with these plans. Europe is cautious in regulating both data protection and open banking. The aim of the PSD2 directive is to give third parties – licensed companies – access to a person’s bank account information. This is not done just because, but for providing better service, and obviously the account holder must authorize this. The third-party, for example, the creditor, can then see the income of the person and what the money is spent on. Information is needed to determine if the person is able to pay back the loan (s)he wants.
No positive register
Operating in 30+ countries, Creditinfo decided to establish the competence center for this service in Estonia. The know-how will be produced here and then exported to other countries. “We chose Estonia because it is easy to do business and start new companies here, and the PSD2 ecosystem for companies is already in place,” Stoppani explains.
He believes that among the countries Creditinfo operates in, Estonia is one of the most developed countries in innovation. Also, the Estonian market is displaying trends that might appear elsewhere in the coming years. There is an active ecosystem of financial technology businesses here and the economy is growing. There are lessons to be learned and new ideas to be drawn from the local market. Stoppani is surprised that despite this background Estonia is one of the few countries that does not have a positive credit register. We have a payment defaults register which means that creditors share only negative data: information about problems with loan payments. A positive register would enable a person to allow his/her data to be included and the creditor would get a clear overview of his/her loan obligations. “This affects responsible lending,” Stoppani assures. In Estonia, the obstructions come from the legislation. “This is the question that Estonia should focus on in order to improve the credit market,” he says.
Data leakage should not be feared
Is it only about the legislation or are people afraid their data might be misused? Having worked at World Bank, Stoppani admits that even there it took some time before countries started to amend their laws. Then, 15–20 years ago, caution was understandable, because the whole field of registers was new. “This should no longer be the case in 2020. All the information is available online, in social media. We share important data every day,” Stoppani acknowledges.
While 20 years ago 80% were negative registers and 20% positive, the tables have now turned, Stoppani assures. The regulation expands the scope of the available data. But the crucial condition is that this can only happen upon agreement; a person must be free to decide about his/her data. On the other hand, there must be a circle of licensed users, meaning the users of the data must meet certain conditions to ensure data security.
Stoppani assures there is no need to fear data leaks with international companies such as Creditinfo. “If I will have any problems with using data anywhere, for example in Estonia, it is certain that my reputation is ruined all over the world and nobody will trust me,” Stoppani says. That is why Creditinfo pays great attention to the security of data storage and processing, investing much money into this.
Stoppani keeps a positive mind and believes Estonia is also moving towards a national positive register. He has even visited the Ministry of Finance to share his World Bank experience.
New register is being developed
The Ministry of Finance confirms that the issue is being tackled. In 2018 the ministry ordered a survey about the data exchange models of the financial obligations of residents. Its aim was to determine whether making the information about individual loan and other financial obligations available to all banks and other creditors helps to avoid excessive lending and the problems it causes. The survey also identified various models for ensuring adequate control when viewing such information and analyzed ways for exchanging information concerning individuals’ financial obligations.
As a result, the ministry starts preparing a plan for developing the draft of the credit information law that was supposed to be disclosed in spring. Now other pressing matters have intervened due to the corona crisis and according to the ministry’s spokesman Siiri Suutre this topic will take some more time. “Based on the feedback received through consultation, we can then decide which specific legislation amendments are taken forward,” Suutre explains.
Tarmo Ulla, Head of Private Customer Division at Swedbank, affirms that representatives of the Banking Association, including Swedbank, are involved in preparing the draft bill of the state-regulated register. Ulla says we need such kind of a register. “Without governmental regulations concerning the operation of the register, the protection of data it includes and supervision of the activity of the parties – creditors and the registrar – is not adequately insured,” Ulla notes.
Limit on loan payments
Priit Rum, Communication Manager at LHV, says that ideally, the positive credit register would enable to move towards offering interest rates that depend more on their solvency and fulfilling their existing loan obligations. Swedbank predicts that sharing positive credit information among market participants alone might not be enough for a more efficient meeting of the requirements of responsible lending. Ulla thinks it would be reasonable to set a limit on consumer credit loan payments, just as the Bank of Estonia has set on housing loans. “Introduction of the loan payment limit would make it easier for the creditor to follow the principle of responsible lending and also for the supervisory authority to check that the requirements are met.”
There has been a prior attempt in Estonia to establish a positive credit register that would better protect a person from excess borrowing and taking unsustainable financial obligations, and the creditor from loan loss. This was not regulated on the state level, it was a private scheme.
The first positive credit register in Central and Eastern Europe was established in Estonia in 1993. But in 2000 it was decided to close it and establish the payment defaults register. On the initiative of Krediidiinfo, the register was reestablished in August of 2016. Data exchange was managed by Krediidiinfo, the register was founded by several small creditors and some banks: LHV, Bigbank, TF Bank and Inbank. Yet the register failed to start functioning.
Original of the article had been published in Estonian business news portal Delfi/Ärileht on May 12th, 2020 based on the interview made in March 2020.
You can read the original article here.
Author: Kaja Koovit
Data is the new oil, but quality is paramount
In 2017, The Economist ran a cover story portraying data as the new oil, (certainly not last week’s oil), calling it “the world’s most valuable resource”. Data is pervasive and is collected regarding virtually everything that happens. Essentially it comes down to one simple cycle, as described in that 2017 issue: “By collecting more data, a firm has more scope to improve its products, which attracts more users, generating even more data, and so on…” Information is power (for credit bureaus, the power to enhance market lending effectiveness). But there is a catch; because not any kind of data will suffice. In the world of credit, for it to be valuable, data must be complete, high quality, regularly transmitted and verifiable. High-quality data has a deeper, more transformative power. In this industry, data quality and completeness are critical for the successful impact of credit bureaus, and Creditinfo has, since its founding, had a clear focus on this area to support banks, MFIs and other institutions for constant improvement.
Quantity is not a quality on its own
Simply possessing data is not enough for credit bureau success. Costs and indirect costs of incomplete and low-quality data have a substantial financial impact on credit grantors, these range from the granting of credit to high-risk persons, the turning away of low-risk persons, ineffective and wrongly targeted collection efforts (when directed using incorrect demographic data), loss of credibility with customers and regulators, and extra costs and delays related to its validation and cleaning. Data quality is much more than just having data. Data quality is a challenge for all credit bureaus globally and should be focused on from the start. Even in the United States, where “credit culture” is widespread and where credit bureaus are positive, large and mature, it is still an open-ended issue. Credit bureaus can deliver clear socio-economic benefits even when data has some weaknesses, but as data improves impact becomes greater. And weak data is harmful across the board: lenders receive less complete risk profiles, consumers are not assessed properly, and the full potential of the credit bureau’s predictive power is wasted. So, how to positively participate in the improvement of data?
In its General Principles for Credit Reporting, the World Bank underlines that “information quality is the basic building block of an effective credit reporting environment”. In 2018, Experian found that 57 per cent of organizations consider being data-driven a competitive advantage because it enables better decision-making practices.
Creditinfo invests considerably in data quality and is specifically committed to three areas: multiple phases of checks of loaded data, periodic reviews with institutions providing updates of changes and reporting to senior management, and finally ongoing feedback to the regulatory body.
Regular checks each time data is uploaded are a fundamental first step. It is a crucial stage which happens in multiple phases and aims in preventing significant disruption down the line. Data quality rules refer to logical restrictions on the data which are sent to the credit bureau system. They validate dependencies between two or more data fields, as well as the data’s consistency with available history. The goal of data quality rules (and preventative checks) is to avoid: Errors in data (e.g. negative amounts), mistypes (e.g. wrong formats of the IDs), logical errors caused by inconsistency of data in the subscriber’s database (e.g. start date of the contract is in the future), lack of essential information (e.g. missing contact information, identification numbers), extreme cases, (e.g. huge number of collaterals, which could cause problems with report generation), inconsistent data compared to other historical data, etc.
Reviews are the second essential pre-requisite to a robust, high-quality data ecosystem. Their aim is to support subscribers to maximize their data quality for their own and the collective benefit of the banks. Indicators like the quality of snapshots and their regularity are verified and checked, as well as the way in which they are captured and updated. They directly engage lending institutions and are critical stages for persuasion and trust-building; to win buy-in for data quality. Creditinfo is a partner of lending institutions in four continents, regularly engages in data reviews and consistently aims higher in terms of data quality.
Finally, a healthy and robust work relationship with regulators, as well as its implication, are key. Only the regulator possesses the hard tools and moral suasion necessary to nudge financial and non-financial institutions in the right direction. Creditinfo, as a licensed credit bureau, has been closely working with regulators around the world to “push” data quality, especially in markets where the concept of credit bureaus is new, and where data quality is usually at the bottom of the list of priorities of lending institutions. Regulator plays crucial roles in persuading institutions, like through a data quality ranking, and by enforcement of relevant legislation, like pertaining to data submission. Furthermore, data quality is also in the regulator’s interest: systemic risk control and other supervisory activities are inextricably linked to a vigorous data quality ecosystem.
If converting data into intelligence is Creditinfo’s core business, data quality is an essential element at the heart of it. It has been Creditinfo’s commitment for the past 20 years., and it will be so going forward.
Nelson Madeddu, Global Consultant, Creditinfo Group.
April 28, 2020. Creditinfo Lithuania today introduced the new debtor reporting system “Creditinfo CO”. The system will give businesses the ability to learn, free of charge and in one place, how many companies are late with payments to their debtors and for what total amount starting from lock down period caused by COVID-19. The aim is to provide businesses with useful information that can help them make decisions on a more informed basis – whether to negotiate with debtors on payment terms, prepare documents for an assignment of debt, or initiate a judicial recovery process. It is also worthwhile checking what length deferments and what size trade credits are being granted to business partners.
Creation of the Creditinfo CO platform was hastened by the economic situation that COVID-19 has provoked, with one company after another facing delayed settlements. As tension over late payments grows, companies are checking their customers’ reliability more actively. The figures show that between 16 March and 15 April this year, queries in the credit bureau system increased the most, compared to the analogous period before the quarantine was declared (16 February to 15 March), among companies from the following sectors: construction and real estate (+56 percent), utilities (+44 percent), transportation (+44 percent), industry (+41 percent), and insurance (+32 percent). Given the chance to share information about debtors, in the very first week 120 companies expressed a desire to do so.
“Now businesspeople can judge more accurately whether there are objective reasons for a specific partner’s failure to settle. We hope that in all cases this will encourage closer collaboration and dialog on how companies can deal with payment problems together,” says Linas Čereška, General Manager of Creditinfo Lithuania. “On the other hand, if you see a business partner is late paying but there aren’t any partners indebted to them, we’d recommend immediately sitting down at the negotiating table and clarifying the objective reasons for the delay in settlement.”
Critical debt recovery period – up to 60 days
Mr Čereška notes that business leaders learned lessons from earlier economic crises and know well how important it is to obtain the information that is vital to a company’s survival in a timely way and to take action without delay.
“The faster information about companies with overdue debts is made public, the more informed actions other companies will be able to take,” General Manager of the credit bureau says. “Our advice is to constantly monitor the situation of one’s debtors and take legal measures on time to help recover outstanding payments.”
According to Mr Čereška, established practices in Lithuania and the world show that, in a time of crisis, when debts are not recovered within 30 days, the likelihood of obtaining settlement decreases by half, and when delays exceed 60 days, a serious risk arises of never recovering the money. Analysis of the data that Creditinfo has shows that recovery of overdue debts is currently slowest in the transportation and construction sectors, taking 52 days and 57 days respectively. Meanwhile, companies in the extractive industries, agriculture, and wholesale and retail trade, along with hotels and restaurants, are taking 40 days or more on average to cover arrears.
Publishing transparent information will strengthen the country’s financial stability
The initiative to transparently report on debtors’ situation is also supported by the Bank of Lithuania, the supervisor of the financial system. Bank of Lithuania Board Member Marius Jurgilas notes that the business community is mature enough for responsible and transparent relationships, and technologies are helping to exchange information and use it in a timely way for appropriate decisions.
“The country’s financial stability depends on each company’s behaviour in the market, so we welcome all measures that encourage businesspeople to plan operations responsibly and settle with other companies on time. The more transparent the relationships between companies are, the healthier Lithuania’s economic situation will remain and the faster we’ll deal with the difficulties that have arisen,” Mr Jurgilas says.
According to Linas Čereška, from now on, on the Creditinfo CO system, information will be shown not just about a specific company’s debts – how many companies it is indebted to and in what amount – but also about how many debtors it has and the total amount others are indebted to that company. It will be possible to see such information about any company free of charge.
Protection from dishonest businesspeople and companies maliciously failing to pay
In building the platform for exchanging information about debtors, the credit bureau, according to its General Manager, seeks to prevent non-transparent decisions by companies, where dishonest businesspeople try to take advantage of the existing situation and simply withhold payments unilaterally even though they have the ability to settle. It is also hoped that the debtor reporting system will be especially useful for small and medium businesses which, unlike big companies, usually lack qualified resources and do not have a lot of experience using financing and credit limits or recovering debts. The ability to check the financial situation of existing and future partners on an open platform will let them more accurately decide on what terms and with what companies to work. Upon request, companies can get automated notifications about new information that is added on the system.
Established in Iceland in 1997, Creditinfo Group provides credit information and risk management services around the world. As one of the fastest growing companies in its field, Creditinfo ensures access to financial information with advanced solutions for data management and analysis. In Lithuania, Creditinfo has been collecting and continually updating data since 2000 and now manages information on a portfolio of nearly 1 billion euros of debts. As of 1 April 2020, the portfolio of debts to legal entities registered in Creditinfo’s systems totalled 881 million euros, of which 399 million euros was owed by legal entities and 482 million euros by natural persons. Creditinfo actively collaborates with the World Bank and the International Finance Corporation (IFC) and is a member of the Association of Consumer Credit Information Suppliers (ACCIS) and the Business Information Industry Association (BIIA). Currently 33 Creditinfo bureaus operate on four continents.
For more information contact:
Linas Čereška, General Manager, Creditinfo Lithuania (firstname.lastname@example.org, +370 698 71177)