Without good information on potential borrowers, banks are reluctant to lend money. And few African countries have the institutions needed to support more widespread collection and dissemination of credit history.
To address this situation in Ghana, IFC is working alongside the finance ministry, central bank and other stakeholders, lending its expertise and global knowledge as the West African country implements a legal framework to support the use and exchange of reliable credit information.
"IFC was a great facilitator, helping us through the grey areas as we wrote our Credit Reporting Act, and there were definitely a lot of grey areas," said VJ Dela Selormey, a director at the Bank of Ghana. "IFC helped with education and gave us in the banking community and beyond an appreciation of what credit bureaus can do and how important they are."
By collecting and compiling information from creditors and other public sources on a borrower's credit history, credit bureaus are invaluable for helping banks safely expand their lending to individuals and small businesses, typically perceived as a 'risky' target market.
The introduction of credit scoring is also critical in helping lenders make faster and more accurate credit decisions. Better access to finance for smaller companies is one of IFC’s core objectives in Africa and in other developing regions.
LEGAL FRAMEWORK
In 2004, Ghanaian stakeholders invited IFC to advise on the drafting and implementation of a legal and regulatory framework that would allow credit bureaus to operate.
Working closely with a local lawyer and Ghana’s finance ministry and central bank, IFC helped steer the long process of consultation with public and private stakeholders that led to the 2007 publication of landmark legislation, Ghana's Credit Reporting Act.
The legislation faced strong challenges from the beginning. Skeptical public figures and business leaders feared credit bureaus might abuse their powers when accessing personal financial information.
Through a number of seminars and meetings, IFC offered its expertise to explain the benefits of credit bureaus while answering concerns about their perceived dangers.
Ghana's legislation is clear about who can – and who cannot – access information and for what purpose. The legislation proscribes penalties if any information is improperly disclosed and also includes provisions for consumer protection and ways of settling conflicts that might arise from credit reporting.
"Almost ubiquitous in developed markets, credit bureaus can have a dramatic impact on the fortune of smaller businesses in Africa," said IFC PEP Africa General Manager Bernard Chidzero. "Credit bureaus give lenders the confidence to reach out to more borrowers, especially to those with little formal banking history."
IFC has supported the development of credit bureaus in over 40 countries. Their growth in Africa can facilitate access to finance for small businesses and help bring them into the formal banking sector.
IFC SUPPORTING SEVERAL COUNTRIES
Outside of South Africa, no economy in sub-Saharan Africa features a comprehensive network of credit reporting. IFC is supporting the efforts of several governments to introduce credit bureau legislation.
In Kenya, IFC offered advice when the government amended the banking law in 2007 to allow for sharing of credit information. IFC remains engaged in Kenya, helping draft the regulations for the bureaus. In Nigeria, IFC is advising the first bank-sponsored credit bureau on compiling and providing reliable credit information. IFC's support work is at an early stage in Angola, Liberia and Mozambique.
"Credit bureaus are a hugely important part of a modern economy and I expect they will make a big difference to businesses when they look to obtain credit,” said Dela Selormey. “They will facilitate the granting of credit, increase productivity, help us to add jobs and improve the overall economy."
For More Information Contact:
Jason Hopps
Jhopps@ifc.org
