Credit bureau act execution critical

Banks: They have refused to deal with Credit Data
Banks: They have refused to deal with Credit Data

Competition and Fair Trading Commission (CFTC) has asked the Reserve Bank of Malawi (RBM) to develop proper regulations to ensure effective implementation of the Credit Reference Bureau Act of 2010.

RBM has been asked to act following the CFTC’s findings on anti-competitive environment in credit referencing created by the Bankers Association of Malawi (BAM) preference of a Kenya-based CRB Africa to Malawian-owned firm, Credit Data Limited.

The Commission says the absence of regulations to safeguard credit data holders from breach of confidentiality rights of a customer is a major stumbling block.

Credit Data Limited, licensed by RBM as a credit reference bureau in 2011, complained to CFTC last year that BAM entered into an agreement with CRB Africa to ensure that the company has the required information for profiling credit customers.

Reads part of the CFTC’s determination: “In the absence of a similar arrangement with the complainant [Credit Data], BAM members refused to provide information to the complainant.”

“The complainant was, therefore, refused access to an essential arrangement for competition against sub-section 33(3) (g) of the Competition and Fair Trading Act,” reads part of the determination by the Commission,” it further reads.

In their analysis, the Commission found out that the identification of CRB Africa and the signing of an agreement with BAM obliged the banks to only deal with the Kenya-based firm.

“By obliging the members of BAM who are the main consumers of credit referencing services, the agreement acted as a barrier to entry particularly that the agreement was valid for three years from 2009.

“This means that Credit Data Limited or any other potential player had no opportunity to contest in this market possibility until after the expiry of the agreement in August 2012,” says the Commission.

By refusing to avail information to Credit Data while giving similar information to CRB Africa, the Commission contends that BAM created undue advantage in favour of CRB Africa and provided a competitive edge for the company because after the expiry of three years, it would have built a broader database using information provided.

And with no ‘elaborate’ database, chances were high that Credit Data would be outcompeted in the subsequent bidding and would not even have an opportunity to cater for some niche markets outside BAM members.

“It is, therefore, evident that the system that BAM has adopted has the potential of creating a monopoly in the provision of credit referencing business,” said the Commission.

During the hearing, CRB Africa submitted that it was impossible to operate a credit reference bureau without credit data while the RBM said the profiling of data was the first and critical stage of operationalising a bureau.

It was heard that financial institutions are the most important source of credit data particularly in Malawi where public sources of personal credit data are few.

BAM executive director Lyness Nkungula had not responded to a questionnaire sent on Tuesdayto comment on the CFTC determination.

But during the hearing, BAM cited confidentiality concerns as the reason they were reluctant to share information with another credit reference bureau other than CRB Africa.

The association argued that the banks were obliged under common law not to share information about their customers.

“However, right to privacy is not an absolute right and can be limited, particularly, if a specific legislation limits it. Under certain conditions including public interest and under legislative decree, disclosure of private information is legally permitted,” argued the Commission, stressing that in this case there are documented public concerns regarding high interest rates charged by banks, which are partly attributed to high risk of default.

Credit referencing business involves a symbiotic relationship between credit reference bureaus and financial institutions in which the latter provides information to the former on their customers to gauge their credit worthiness whenever they want to access loans from banks.

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