Kapital.kz: Will credit history continue?


Since the beginning of this year, all entities of the previously unregulated lending market (credit partnerships, pawnshops, online lenders providing loans via the Internet), in accordance with the Law “On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on Regulation and Development of the Financial Market and Microfinance activities and taxation ”, are required to provide information to the credit bureau.

Why is this norm necessary first of all to non-banking organizations themselves in an interview with Kapital.kz correspondent, Asem Nurgaliyeva, Executive Director of First Credit Bureau LLP, told.

- Asem, tell us how did the participants of the previously unregulated market accept the news that it is necessary to provide information about borrowers to a credit bureau from January 1?

 - In fact, every credit institution that has knowledge of risk management understands that it needs to work with a credit bureau, not because it is written in the law, but because it is important and necessary to be part of this ecosystem.

If we talk about PKB, then we have never been forbidden to work with subjects of an unregulated market. For example, we started working with online lenders on a voluntary basis five years ago (today 47 such companies already provide us with their information), with pawnshops about three years ago (now we have several dozen entities in our database). Since the year before last, we have been actively cooperating with the Association of Credit Partnerships.

And all these organizations turned to us with one common problem: their borrowers, realizing that overdue debt does not affect credit history in any way, were in no hurry to repay it. Indeed, often Kazakhstanis simply do not want to spoil their credit history because of a small loan, in the same pawnshop or MFI. But if it comes to loans in financial institutions that transmit information to a credit bureau, then borrowers become more responsible.

Historically, the one who cannot get a loan from a bank goes to an MFI, and the one who cannot get a loan from an MFI goes to a pawnshop, and therefore, the pawnshop starts working with the so-called segment of “sensitive” borrowers. We even had cases when fraudsters called the PKB call center and asked which pawnshops and online companies give us information in order not to take loans there.

And when we say that from January 1, new requirements were introduced, according to which all microcredit agreements should be transferred to the credit bureau, this should not be taken as an imperative form. First of all, such a norm is necessary for credit organizations themselves.

- And how technically are the subjects of the non-banking sector prepared for this?

- In fact, the entire regulatory framework in this sector came out only last fall. Therefore, no one had the time to prepare methodologically and technically. Now, all entities have unified under a single accounting format, and this causes difficulties in terms of automation in small MFIs, CTs and pawnshops. After all, all processes are done manually.

Now the new association of automobile pawnshops of the Republic of Kazakhstan also states that the current standards applicable to pawnshop activity are not entirely acceptable to them. In this regard, it is necessary to study new innovative models that have never existed in the classical economy, and already bring regulation under them. Therefore, I say that it is important to be with the client on the same wavelength, as well as the regulator to be closer to the objects of regulation.

At the same time, the transitional period during which the unregulated market entities are required to undergo registration registration and conclude an agreement with a credit bureau will only be valid until July 1.

- If until July 1, one of these entities does not register?

- This will be regarded as a violation of the law. At a minimum, an agreement with such a creditor may be invalidated with all the ensuing consequences. In general, organizations providing financial services without legal grounds may be held liable under the administrative and criminal laws of the Republic of Kazakhstan.

- But are all of the above market participants fully aware of the innovations?

“That's the thing, no.” A lot of calls come from those entities that seem to want to continue lending, but still don’t know how to act under the new legislation and do not understand why all these procedures are needed.

For example, some pawnshops with whom we spoke on the phone heard for the first time about this law, although it was signed last summer. And there are those who perceive the contract with the credit bureau as simply “ticking off”, and here we try to convey to them the significance of all the information.

Thus, we take responsibility for the consulting part. Moreover, on the basis of the design bureau, a school was specially opened for this purpose, where our experts give explanations to organizations engaged in microfinance activities absolutely free of charge regarding approved innovations and estimated indicators.

- You said that you advise for free, but PKB is a private organization. What is your interest then?

- We always say that we need a continuation of the credit history in order to generally understand the credit health of the economy and how the market feels. If we do not objectively evaluate it, we will not be able to advance in the part of analysis and forecasting.

Indeed, today we see that half of the approved regulatory acts do not take into account many aspects and subtleties of this system, and all because the regulator does not work in a market environment, that is, it sees it only from its side.

- Nevertheless, it should be noted that information on the borrowers is transferred to the State Security Committee without their consent, while interaction with the General Commercial Bureau is, as you yourself said, on a voluntary basis.

- Yes, there is a legislative norm that states that all entities are required to obtain consent from their customers for the transfer of information to the PKB. But at the same time, there is a mandatory requirement according to which, when assessing creditworthiness, each credit institution is required to obtain consent to provide information to the bureau. Therefore, here we see a slight bias in terms of not quite correct rules governing the work with personal data.

- But while you participate in all this process only at the level of understanding of the market?

- Yes, although in the near future we still expect a reform of the credit bureau system with a transition to a possible two-level model. In this regard, it is planned that the National Bank and the credit bureau with state participation will carry out only the functions of maintaining a database, accumulating and using statistics, on the basis of which the regulator will be able to revise and implement new legislation. While we will directly interact with the market. This function will remain only with the PCB and other credit bureaus, which may be formed in the future. Today, due to the fact that we are also under the regulation of the National Bank, there is still a conflict of interest. Moreover, I don’t understand why the state credit bureau is engaged in entrepreneurial activity, although they are prohibited by Presidential Decree No. 362 of August 13, 2012, “On the Concept for the Further Development of Institutions for Independent Assessment of Risk Contracting”. In addition, we know from experience that it is easier and more convenient for many entrepreneurs to work with private owners than with the state.

- In that case, what will change in the PCB in cooperation with the new Agency for Regulation and Development of the Financial Market?

- For eight years we worked in conditions when the regulator lobbied for the interests of the state credit bureau. With the advent of the new leadership of the National Bank, we finally managed to establish a dialogue and evidence of this - the mood for the aforementioned reforms. We hope that the new department will hear and continue this policy. Because in the methodology of one of the main ratings of the World Bank (WB) Doing Business, which we monitor, there is an index of loans, taking into account the data of only a private credit bureau. It is worth mentioning here that the WB does not look at the figures of the central bank, but requests statistics from us. And in our opinion, the regulator should take this point into account, because if some entities ignore the transfer of information to the PCB, then this will reduce the coverage that we show, which means it will affect the rating itself.

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