July 2020

Experts give their take on the future of the credit industry post COVID-19

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[1], 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:

  1. 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.
  2. 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
  1. COVID -19 will affect good borrowers’ ability to meet their credit payments relegating them to the same level with existing non-performing borrowers.
  2. Therefore, there are raising concerns from regulators and governments on how data should be reported in the credit reporting systems.
  3. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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..
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.


[1] 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

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The way leading to the ‘haven’ of Startups is grounded by Data Analysis

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.

Interview with Catherine Muraga, CIO – Stanbic Bank Kenya

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?

a) Personalized;

  • 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

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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

Kredītinformācijas Birojs – KIB (Credit Information Bureau) unveils new scorecard for consumers

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.