Will The Credit Bureau Ease UAE’s Personal Debt Troubles?

It is live and running. The UAE’s long-awaited credit reporting and rating system, the Al Etihad Credit Bureau, has completed the first phase of its operational rollout after multiple delays leading up to its launch.

This phase included uploading 24 months of credit data from banks and financial institutions operating in the UAE to its database. According to the bureau, it has uploaded 90 per cent of the consumer credit data that was provided to it in the last 24 months.

The credit bureau, which became operational in september and formally launched in november, has begun issuing credit reports for residents and citizens. Individuals can now obtain their credit report instantaneously by completing the necessary documentation through the bureau’s website or at customer service centres in dubai or Abu dhabi, according to the agency.

Applicants will be required to present their Emirates ID and pay a nominal fee, ranging from Dhs70 to Dhs220, to obtain their credit report, the bureau said in a statement.

“As of now, both financial institutions and UAE residents are able to obtain credit reports with a data accuracy rating of 99.5 per cent,” said Marwan Ahmad Lutfi, CEO of Al Etihad Credit Bureau.

“These credit reports will help individuals to understand their debt levels and have a clearer picture of their financial obligations. This will in turn enhance their ability to plan for future borrowing, and manage their finances responsibly.”

Credit reports will also help banks and financial institutions assess risk accurately and enable them to make informed decisions, he added.

Al Etihad Credit Bureau is now preparing to launch its second stage of operations, which will see the agency issue credit reports for businesses.

“This includes issuing credit reports on all companies operating in the UAE, bounced cheque details and telecommunications companies’ payment information for the past 24 months,” said Lutfi.

“We will announce the launch of other services in the future, which will be implemented over various phases. Specific dates will be announced early next year.”

According to the bureau, it’s database will include information for 2.8 million individuals, representing 97 per cent of the total credit active population of the UAE, while featuring six million credit facilities of UAE residents.

CHALLENGES

However, the credit bureau’s launch has not been without challenges, Lutfi noted.

Earlier this year, the agency said that just two out of about 70 banks had sent the data required to compile reports, delaying the launch. Subsequently lenders have largely been cooperative, he added.

By November, around 43 banks and financial institutions had submitted their customers’ credit data and 29 had subscribed to the bureau’s credit reporting services.

But despite Lutfi’s reassurance that most banks are content with the launch of Al Etihad credit bureau, lenders have yet to fully warm up to the services offered by the organisation.

Earlier this month, the head of the UAE Banks Federation (UBF), a banking lobby group, said that many major lenders in the country are shying away from using the credit bureau due to the latter’s refusal to accept liability for the accuracy of data provided.

“We are saying banks are responsible for the action taken on the information they give and the credit bureau should also be responsible and liable for information they give,” Abdul Aziz Al Ghurair, the chairman of UBF and the chief executive of Dubai-based bank Mashreq, told reporters at a press conference recently.

“If they give wrong information and I do bad lending, I’m not responsible and the consequence should be with the credit bureau.”

The bureau’s tug of war with banks was just one of the many challenges it has faced while becoming operational.

Lutfi said that the large number of financial institutions in the country made data collection a mammoth task for the bureau.

“By scale, this is the most developed financial industry in the entire region. To make sure that
we get the data in the right format was probably the biggest challenge. And we had to launch when we felt that we had a comprehensive database,” he said.

HOPE FOR SMES?

The credit bureau was also one of the long suggested solutions by UAE banks to improve the dismal lending rate to small and medium businesses in the country.

With the bureau planning to provide credit reports on companies from next year, SMEs are hoping for easier access to finance.

But the CEO noted that the bureau is just a starting point, and a lot more will have to be done to open the doors to easier SME lending.

“It is still too early to say how the credit bureau will affect SMEs but it is a core component of our development in 2015,” said Lutfi.

“We look at owners and what banks will be looking at will be the credit history of the owners of the SMEs. They also require an objective analysis and in that sense they might need slightly more developed structures and not just a data report.”

He added that the bureau has a few ideas for issuing credit reports for companies but did not divulge any further details, saying that they were still at an early stage.

“(Presently) There will be a credit report, which goes for any company that includes their financial obligations. But what if an SME does not have a financial history? We are in discussion with our industry partners to see if we can develop a model that will be able to give a lot of objectivity with little subjectivity in the case of SMEs while at the same time link it with a lot of credit data that we have,” said Lutfi.

Even as its impact on SME lending remains hard to predict, Al Etihad has grand plans for the future, including linking up with other credit bureaus to exchange information, Lutfi confirmed.

“Mostly, the linkages between the credit bureau will take place on the GCC level and…will focus specifically on commercial companies and individuals. We have already started discussions and are planning on how we can implement this.”

But despite ambitions in exchanging cross border data, the chief executive reiterated the primary aim of the bureau.

“Part of what we are here to provide is to instil financial responsibility. Many consumers might go above their knees in debt because of their unawareness of what is happening. By understanding what good credit means, they will be able to manage it better.”