May 2019

Credit Bureau: Towards a new generation of services

Translated version of the interview with Sidimohamed Abouchikhi, CEO of Creditinfo Morocco.

Source: https://financenews.press.ma/article/bourse-finances/credit-bureau-vers-une-nouvelle-generation-de-services

Image credit: Finance News.

Interview by Momar Diao

At the global level, Credit offices are open to any kind of information to assess the risk of a customer. Which is not the case yet for the Morocco. Elsewhere, data telecom operators, water and electricity suppliers give financial institutions the opportunity to better understand their customers.

Finance News weekly: How did Creditinfo Morocco perform during the first quarter of 2019? And what are your projections for the year 2019?

Sidi Abouchikhi: As we already announced previously, the number of consultations by the Credit Bureau has surpassed 2.5 million in 2018 and this upward trend continued for the first quarter of the year 2019 in alignment with our forecast.

Regarding value-added services, we recorded a high demand on our services of Monitoring, Alerting and Scoring. This trend is a reflection of the actions carried out by the financial sector to “air out” its portfolio of credits for more of risk management and to comply with regulatory, increasingly strict prerogatives with the IFRS 9 standard which came into application recently.

In terms of strategy, we note that institutions implement transformation programs in the areas of Risk management, which is likely to increase their appetites for the use of the ‘Big data’. Rightly, Creditinfo continues to support the financial system through innovative services and solutions of digitalization able to support these transformations.

F.N.H.: In Morocco, credit bureau activities are open to the water, electricity sector and the Telecom and insurance sectors. What does this mean concretely?

S.A.: The integration of this kind of so-called alternative data fits into the process of natural evolution to a Credit Bureau. At the global level, Credits offices are open to any kind of information to assess the risk of a customer. This is the case for Creditinfo that manages this data in its Credit offices in Europe, the Middle East and Africa.

For example, in West Africa, data telecom operators and suppliers of water and electricity give financial institutions the opportunity to better locate their clients in a more relevant manner, regardless of the timing .i.e: at the beginning of the granting credit or during its collection.

In Morocco, the integration of such data is a real opportunity to develop a new generation of financial products and services and, consequently, to increase financial inclusion to a large section of the population that accesses, or in a very limited way, to financing, without forgetting the TPE which are today at the heart of all policies public development and require, too, a fundraising effort on the part of the financial system by more suitable products.

F.N.H.: Is Creditinfo, today, equipped and endowed with the necessary expertise to accompany the above sectors?

S.A: As a global leader in the sector, we manage the data in 20 of our Credit offices worldwide. This kind of data is considered to be classic, despite its novelty in some countries. Creditinfo has tech solutions and proven expertise to manage data of Telecom operators and water and electricity suppliers as well as data from financial systems.

In other markets, Creditinfo uses a new generation mobile data as the metadata for mobile phones. The idea is to capture the maximum possible information to enable the creation of models with more power and predictive algorithms, paving the way for a more automated process of granting credit, cost reduction for promotion of financial inclusion.

F.N.H.: Finally, how do you manage customer risk at the level of banks and micro-credit associations?

S.A.: The culture of risk management is well established in the Moroccan banking system. Thanks to devices that control risk, the banking system is backed by rating agencies, demonstrating its resilience and ability to adapt to changes imposed by the transformation in digitization and regulation. The risk trend remains stable without significant deterioration throughout the first quarter of the year 2019. For micro-credit associations, the overall trend of risk has improved following the adoption of the report of solvency and scores provided by Creditinfo.

However, the increase in the threshold of 150.000 DH funding is to push microcredit associations to transform and equip themselves with solutions that enable a better knowledge and assessment of the customer and better management of the cycle life of the credit.

Assessing credit risk of SME’s and how credit scoring can transform SME’s

Paul Randall was recently at the Kafalah SME Financing Conference in Riyadh, Saudi Arabia, and he tackled these 2 questions during the panel discussion.

What are the specific challenges of assessing credit risk of SMEs as compared to larger firms and how can fintech can help lenders address those?

“There are 3 main areas of a difference and I could summarise this by talking about the “3 P’s”: Pertinent data, Profitability and Pride. The availability of formal data in regard to the pertinent data, the profitability the cost of gathering data and pride relates to the different skill set.

For Pertinent data we can consider for large corporates that balance sheets, profit and loss financial ratios cash-flow provide a huge amount of data. When it comes to small businesses this formal information is often not available. However in the future we will see the use of open banking data, mobile wallet data, credit bureau and invoice information data like for example, Amazon who through their invoice information, are likely to be one of the biggest global lenders to SME in the future.

When we look at the Profitability for small business lending historically, we see that it has been low because of the cost of data and the relatively low volumes compared to retail. When the information is a gathered automatically and decisions are made digitally then the cost reduces and a profitability increases.

The final point perhaps I was a little bit harsh using the word “Pride” with my “3 P’s”. What I mean here is that the skill set for underwriting corporate loans is very different to that of underwriting small businesses especially when an automated process is used, so it has been important to separate the departments of corporate lending and small business lending to really be effective in this area”.

What are some of the key innovations that are seen in credit reporting and credit scoring today that have the potential to transform the SME finance space and reduce the credit gap?

“The core concept that fintech credit bureaus are supporting is data fusion. This is the process of gathering data from multiple sources and bring it together.

So where does this new data come from for SME decisions? We have data from mobile wallets so the transaction data that is made in mobile wallets in different markets can be data from open banking sources – so transactional data in the banking environment. From there we can then identify data on the internet or from mobile scraping so to bring together the information on activity that the companies are undertaking such as making news articles and traffic on their websites. At Creditinfo for example, we are working with a number of lenders and use the mobile wallet data to support SME lending in Africa.

We have information from credit bureaus that describe many aspects of SMEs. Many credit bureaus will hold information on the payment histories also the credit activity of businesses furthermore they will hold information on any collateral or guarantors or information on the directors or owners”.

Paul Randall at the Kafalah SME Financing Conference 2019

Kafalah SME Financing Conference was held in Riyadh, Saudi Arabia where they discussed current financing for SME’s in Saudi Arabia,how to build relationships between private and public FIs, government agencies and legislative bodies that support financing, current and future finance opportunities for specific business sectors and how to increase awareness of the most current international practices for financing SMEs.

Below is an excerpt of Paul speaking during the conference.

Video courtesy of Kafalah and The World Bank.

Picture courtesy of Mazen Skaf.