The Bangladesh Bank has decided to allow companies to form ‘credit bureaus’ for credit reporting and scoring on individuals and businesses by analysing borrowers’ credit histories and repayment capacities.
The central bank has recently issued guidelines in this regard with the aim of enhancing credit risk assessment and stabilising the financial system.
Credit bureaus are very important because they provide lenders with valuable information to assess the creditworthiness of potential borrowers.
This helps lenders make informed decisions about extending credit, managing risk and setting appropriate interest rates.
For borrowers, credit bureaus play a crucial role in enabling access to credit.
A positive credit history can lead to better loan terms and higher credit limits, while a negative credit history can make it difficult to secure loans or credit cards.
The Credit Information Bureau collects and maintains credit-related information on individuals and businesses.
This information includes credit histories, outstanding loan amounts, repayment records and other financial behaviours relevant to creditworthiness.
A company seeking to operate a credit bureau in Bangladesh must apply to the BB complying with necessary procedures.
The guidelines call for a more rigorous credit risk assessment process beyond the existing credit registry, aligning with global trends.
A healthy financial system benefits from efficient risk and return assessments, aiding in long-term growth.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, told ¶¶Òõ¾«Æ· that the initiative of establishing a credit bureau was positive, provided the Bangladesh Bank could manage and control it effectively.
He emphasised that every borrower should have a credit score.
He also stressed the importance of the central bank ensuring that credit scoring companies do not become corrupt or provide scores in exchange for bribes.
Mansur suggested that the Bangladesh Bank should approve a few credible and reputable companies for credit scoring to ensure quality assessment and accurate scoring of borrowers.
Without proper oversight, the effectiveness of the credit bureau could be compromised, he said.
The credit bureau will adopt a mixed model, collecting and analysing information from the existing registry, other regulated financial institutions and additional available sources for comprehensive credit reporting and scoring, according to the guidelines.
It can collect information from credit information bureau of the Bangladesh Bank, personal and credit history directly from individuals with proper consent.
‘This approach aligns with international best practices and ensures thorough credit risk assessment,’ the guidelines said.
Transparent credit reporting helps banks and financial companies manage risks and provides regulators with up-to-date information.