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Bank of Sierra Leone Introduces Credit Reference Bureau

Two weeks ago, a prominent business man of Malama Thomas Street in the shopping district of Freetown, discovered that he might not be able to raise the 300 million Leones needed to complete a business transaction in Dubai.
A few months back, this would not have been a problem, but today, with a huge overdraft facility not yet completely cleared in one bank, and three other bank loans (in three separate banks) to his name and businesses, the bank manager cannot simply approve the loan the business man of Malama Thomas Street so desperately needs to conduct his business in Dubai because, according to the bank, his credit history is very poor.
The revelation that a Credit Reference Bureau (CRB) is now fully operational in Sierra Leone, and that all commercial banks are, by law, required to submit loan applications to the CRB, situated at the Bank of Sierra Leone, sent a shiver of frustration and concern through much of the business community.
In April this year, President Ernest Koroma signed the Credit Reference Act 2011. And shortly afterwards, the Bank of Sierra Leone created Sierra Leone’s first Credit Reference Bureau.
The Credit Reference Bureau will check the credit history of the applicant and verify the accuracy of the information provided. However, as required by law, the CRB must “not prejudice the assessment of a person’s creditworthiness merely on the basis that the Credit Reference Bureau does not have credit information concerning that person”.
According to a senior Bank of Sierra Leone official, at present commercial banks and all other financial institutions are required by law to pass all information regarding loan applications to the CRB for a credit history check.
The BSL official stressed that the Bureau is there “to guide the commercial banks in their decision-making process, and not to control their loan books”. He pointed out however, that banks will not process loan applications until the CRB “completes its investigation about the individual or the entity, as the case may be”.
“The investigation will also take into consideration all outstanding loans, when and where it was taken and the repayment history. The report will then be sent to the inquiring bank”, the Bank of Sierra Leone official added.
Asked whether a bank can still give loans even if the applicant’s history is considered “poor”? The Bank of Sierra Leone official told Awoko Business that “the bank can still decide to go ahead with the loan application after receiving the CRB report, if their in-house assessment considers the applicant to be a “low risk”. “However, if the applicant then defaults on their repayments later, the Central Bank will not look on that bank kindly”, the official said.
The Executive Secretary and Chief Operating Officer of the Sierra Leone Association of Commercial Banks, Mr. Philip Swaray, in an interview with Awoko Business explained that, “even though what the Central Bank has is the first step towards a more sophisticated implementation of a Credit Reference Bureau, his members that have used the service have been very complementary and all have claimed to have found it extremely useful, as an aid to their decision-making”.
Mr. Swaray went on to explain that plans are being put in place by the Association, under the guidance of the Governor and the Director of Banking Supervision of the Bank of Sierra Leone, to implement a “bells and whistles” CRB that will not only record negative history but positive history too. This CRB implementation, he went on will, more than likely, be a Public Private Partnership (PPP) with the type of safeguards that will allow customers to question data being held on them and, if incorrect or inaccurate, have them amended. “A fully functioning CRB will be good for our customers because it will allow banks to reward their best customers by lowering the cost of borrowing over time, while reducing the risk of bad debts which, invariably affect all customers.
Economists and credit experts say that they hope “the setting up of a credit sharing network in the future will usher in an era of competitive interest rates amongst banks and other financial institutions as competition of “quality customers” picks up.
A Zenith Bank manager agrees but observed that “a lot will depend on the ability of the bank’s customers to negotiate with the banks based on their credit histories. The Sierra Leone Association of Commercial Banks (SLACB) is expected to roll-out a nationwide awareness campaign on the operations of the CRB and other major reforms currently taking place in the industry. According to Mr. Philip Swaray, “Financial Literacy is the cornerstone of a healthy and vibrant economy and is strongly supported by the Sierra Leone commercial banking sector. The Sierra Leone Association of Commercial Banks’ (SLACB) goal is to improve awareness of financial information that is available to the public and promote the use of the information to broaden the understanding of matters relating to money.” For more information on SLACB visit www.slacb.org

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