1. Credit Bureau Perspectives
for Developing Markets
Presented at:
Peking University International Academic Conference
On Personal Credit System 2008
Presented by:
Frank Lenisa, MBA (Director)
Email: frank@compuscan.co.za

2. Agenda:
 Background To Compuscan
 Experiences And Considerations For A Developing Market
 CB Systems/Technologies
 Telecommunications
 Data
 Reporting
 Analytics
 Value Added Products
 CB Staffing Needs
 Awareness of CB
 Legal and Regulatory

3. Introductory Statement:
 The establishment of a Credit Bureau (CB) entails much more than
technical considerations
 Business acumen, strategic vision and strong management are required

4. Background to Compuscan:
 Due to South Africa’s history of racial oppression, it has what may be
called a dual economy
 One extremity is comparable to industrialized nations and the other to
developing markets
 The developed economy operates in information rich environments,
with formal procedures, higher-value added products and linkages
 The developed economy was served by a international CB

5. Background to CompuScan (Cont’d):
 Prior to 1992, South African consumers in the developing market wanting
to borrow small amounts of money, had to rely on the unregulated
informal credit sector
 informal township based moneylenders (also knows as Mashonisas)
 loan sharks
 Pawnbrokers
 During 1992, new rules governing the provision of credit evolved, which
saw the rapid evolution of a new credit industry, known as the micro
credit industry
 Legislative changes saw the growth of this sector during 1992 to 1999
 From 1999 to date, an era of commercialization continues in a regulated
environment

6. Background to CompuScan (Cont’d):
 By 1994, there was still a distinct lack of a credit reporting system for the
micro credit industry in South Africa
 Absence of information sharing, caused weakening performance of the
institutions and a high default rate prevailed
 Lenders perceived the micro credit sector risky, because lenders could not
properly price the risk involved due the state of asymmetric information
 The founders of Compuscan saw the opportunity in the market to create a
credit reporting system
 Full-file (positive and negative information) was collected from the start

7. Background to CompuScan (Cont’d):
 Today, CompuScan is a full service CB, servicing formal banks, credit
institutions, and retailers whilst remaining the leader in the micro credit
industry
 CompuScan currently employs more than 100 staff members
 Delivering more than 1 million credit reports per month
 Managing more than 58.2 million accounts
 With more than 20 million borrowers registered on the databases
 CompuScan has 3500 subscribing lenders; including banks, public and
private companies, NGO’s and Cooperatives/Credit unions
 CompuScan currently operates in South Africa, Namibia, Botswana and
Uganda

8. Background to CompuScan (Cont’d):
 The CB data available consists of:
 Demographic information on borrowers to ensure proper identification
and analytics
 Information that is pertinent to the borrower’s creditworthiness,
(accounts history, repayment profiles, judgment information, fraud
information, collections information)
 Contains indications of the overall risk relating to an applicant with regard
the repayment of newly established credit, inquiries by other lenders with
a permissible purpose and credit scores
 An avenue for the verification or validation of any information that may
be questioned or disputed by the borrower is available

9. Experiences And Considerations for a Developing
Market:
 Lenders in developing markets often lack formal procedures, appropriate
technology, internal structures, and methodical approaches when
compared to a developed institutions in industrialized countries
 The modus operandi of a CB therefore needs to adapt to this
environment, as attempts to import CB methodologies from other
contexts may have mixed results

10. CB Systems/Technologies:
 The CB system need to be robust, world-class and highly customizable /
adaptive
 The CB system needs constant refinement to ensure ongoing
improvement in the collection, verification, hosting and distribution of
credit data/information
 Consider managing the IT requirements of the CB system in-house; this
provides control over the entire process and enables the rapid evolution
of functionalities and features

11. CB Systems/Technologies (Cont’d):
 Functionalities and features include:
 Configurable business rules
 Data loading engine that validates data against business rules, loads
data into staging servers, then production servers, and provides
administrators/lenders with full data loading reports
 Member/Subscriber/Contract management module
 User administration module to allow permissible access to features
based on their roles and authorization levels
 Audit trails facilities
 Custom MIS reports
 Data packets (XML, CSV, others) can be delivered and received by
online (CPU-to-CPU) and dialup (internet) services.
 Can be integrated into institutions lending system

12. Telecommunications:
 Cost of telecommunications is high in developing countries is high and
 Of limited bandwidth
 ISP’s infrastructure limited
 Power supply issues
 CB system and technologies need to cater for these limitations:
 Employ data compression technologies
 Limited unnecessary real-time reporting of data
 Use batch processing
 Back-up power systems

13. Data:
 Obtaining data presents major challenges to the CB
 Lenders often do not have the required data easily available
 Data in different formats, database structures, and not necessarily
available in electronic format
 Identifying information, such as ID numbers, names, addresses and dates
of birth is often not available or reliable (e.g. same names, mis-spelt)
 CB’s make use of sophisticated matching algorithms to correctly match
and merge separate records belonging to the same individual

14. Data (Cont’d):
 These algorithms traditionally use a combination of name, address and
date of birth and other such indentifying information
 The ability to use such algorithms is however significantly restricted in
emerging markets where other crucial information, such as names,
addresses and date of birth are unreliable
 CB needs to make use of a unique identifier – consider Biometrics
 In Uganda, Compuscan implemented a biometric Identification system as
well a financial card for all borrowers, as Uganda does not have a
national ID system

15. Reporting:
 Need agreement with all institutions on data layout. Develop data
manuals and data submission guidelines
 Receiving the required data timely, regularly and complete are not
without its challenges, despite putting the appropriate systems in place
 Loans terms shorter in developing countries, therefore data reporting
needs a higher frequency – consider daily/weekly
 Institutions and their branches in almost every region/state, therefore
data collection may be need to be online (CPU-to-CPU) or dial-up
(internet); If done manually it would be become exceedingly cumbersome

16. Reporting (Cont’d):
 Reporting methods include:
 Dial-up (Internet)
 System needs to be effective and fast. Careful consideration in what
data is reported – consider reporting only needed data. Consider
reporting only new data e.g. reporting only payment data and update
accounts details on database with payment data received
 Online (CPU-to-CPU)
 Preferred method; seamless/automated, and less prone to data
capture errors, but implimentation needs a lot of support from CB
 Many lending institutions lack the required development capacity to
integrate the CB reporting system. CB need to support institution
technically. CB also needs knowledge institutions lending system

17. Reporting (Cont’d):
 Providers of commercially available lending systems can be target to
integrate the CB reporting system. However, its not without problems
 Providers do not always perform the required integration properly
 Release software upgrades sometimes results in the system not reporting
the data correctly
 Providers often do not inform the institution of system changes, nor train
institutions staff on CB functionalities
 Compuscan has to provide the technical support capacity in many
cases
 Audits of integration prior to the release of the software, or an
upgrade
 CB needs knowledge of lending system to support institution

18. Reporting (Cont’d):
 A way Compuscan managed to reduce these isssues was to purchase a
lending system. System is commercially available to institutions and fully
supported by CompuScan. Available as a value add product
 Manual data extracts – data extracted by institutions and submitted to
CB. Best for large volume
 CB supplies a Data Quality Summary Report for lenders to sign-off before
data is loaded into production database – encourages lenders to get
involved in data quality

19. Analytics:
 CB data elements of developing market versus developed markets are
very similar. However, in developing markets, the emphasis is far more
towards data being recent
 A judgment 2 years ago holds little weight, were in a more developed
market it might hold weight
 Since the loan terms are generally shorter, the trends on variables will
differ – a worst arrears of 3 on a short term loan has a different weight
of evidence to a worst arrears of 3 on a longer term loan
 Data quality and analytic value from developing markets is not great
 Status codes are often not updated
 Payment information is often not supplied past the loan being granted

20. Analytics (Cont’d):
 I do not think lenders have a full appreciation of the value of the data,
which is why they tend not to bother reporting correctly. The lenders
need to be educated to appreciate the potential value of the data for
them to report correctly
 An ongoing challenge we face is in educating lenders to report correctly
and for them to understand the analytical value of the data they report
 Consider making credit score easy to interpret

21. Analytics (Cont’d):

22. Technical Support and System Training:
 Institutions lack hardware, software, and networking capabilities
 Lack of strong, competent human capacity
 Therefore, support and training of institutions is key to the business
model of the CB
 Common problem is that institutions often neglected to report timely
and/or regularly through
 Neglect
 Not knowing how
 Concern about predatory lending practices of other institutions

23. Technical Support and System Training (Cont’d):
 Compuscan provides ongoing on-site support and training. Each branch
visited by CB staff every 6 weeks
 Support and training on CB system
 Support and training of insitiutions computer and network system
 Ongoing training seminars are regularly scheduled in the different regions

24. Technical Support and System Training (Cont’d):
 Call centre is operational 6 days week.
 Inbound calls support:
 Lenders needs on the CB system
 Lenders needs computer and network system
 Outbound calls are directed at lenders who do not use the CB
system correctly or report correctly

25. Technical Support and System Training (Cont’d):
 Insitiutions who do not report correctly are often placed in an incubation
programme, where
 Lenders are placed under “high-care” and undergoes intensive training
 Lenders are monitored until such time as all requirements are met and
is able to function optimally
 Support and training often more than just technical; CB staff are
mentors/coaches on just about anything about credit management,
compliance, computer and networks

26. Credit Skills Training Institute:
 Compuscan establiched a credit management skills training instituite
and consultancy to improve the skills, knowlegde and ablities of the
industry
 South African Qualifications Authority Accredited
 Focus area:
 Credit management
 Business and personal development
 End-users computer training
 Consultancy services on credit management issues
e.g. credit policy, best practices, compliance

27. Value Added Credit Information Solutions
 Compuscan’s value add products /services where developed to improve
the lenders abilities, but also to strengthen the CB.
 E.g. improve the ease of reporting and thus the data quality improved.
 Getting lenders to understand the analytical value of data through
credit scores and analytic work
 Improving the skills, knowledge and abilities of the institutions staff
through skills training and development
 Identity solutions to improve data matching
 Value added offerings include:
 Credit Decision Engine
 Allows credit institutions to easily implement automated decisioning
into their credit granting process

28. Value Added Credit Information Solutions (Cont’d):
 Credit Application Processing Software
 Automates the origination process into a customer focused, multi-
channel, and cost-efficient operations
 Loan Management System
 The loan administration software program manages the entire loan
cycle and ranges from capturing new accounts to performing
collections on outstanding loans
 Fraud & Identity Management Solutions
 Solutions for a wide range of business needs from securing work
stations and sensitive credit information, to the identification of
people

29. Value Added Credit Information Solutions
(Cont’d):
 Credit Scoring and Analytics
 A range of techniques and processes for the interpretation of credit
data leading to valuable insights to make decisions with confidence.
 Creation of customised scorecards
 Credit Skills training
 Outcomes based skills training that provides learners with the
knowledge, skills and abilities to effectively function within the
lending operations

30. CB Staffing Needs:
 The staffing requirements of a CB are vast and required skills typically
include
 Information technology; database administrator, systems & network
architect, web & applications developers, network engineers
 Data management; statisticians and analysts
 Legal and compliance officers
 Sales and telesales personnel
 Technical support staff; computer and networks
 Marketing and research assistants

31. CB Staffing Needs (Cont’d):
 Credit Scoring Analysts and statisticians
 Finance and administration personnel
 Strong management and leadership
 Its is important that all staff have knowledge, skills and abilities not only
of the CB environment, but also of credit management, computer and
networks, all application legislation and regulations of the industry
sector

32. Awareness of CB:
 Public in emerging markets likely to resist the concept of sharing financial
information
 Authorities that are unfamiliar with financial information sharing may also
be resistant for political reasons
 Fragmentation, competitive fears and secrecy often characterize such
economies
 Lenders fear that other lenders may poach their good clients by learning
of positive financial information
 Credit if often a scarcity

33. Awareness of CB (Cont’d):
 CB needs to change these perceptions through education of the
benefits of credit and financial information sharing
 Lenders need to overcame their distrust of competition
 Borrowers must be assured of the security of their financial information
 Therefore essential that the CB focus on building awareness among
lenders, their clients, the general public, government officials, policy
makers, regulators and other potential stakeholders in the CB

34. Awareness of CB (Cont’d):
 Round tables and workshops were held with all the institutions CEO’s
and the central bank in Uganda to ensure buy-in and to work though
the entire concept of the CB
 Suspicions were eased, the benefits were understood and potential
concerns and problematic issues were identified and addressed
 An extensive public awareness campaign was launched in conjunction
with the central bank, and is currently under way in order to address
the awareness of the CB
 Awareness initiatives are ongoing in South Africa. There are some
would like to close the CB down.

35. Legal and Regulatory:
 The primary objective of legislation to enable credit information sharing
and reporting is to balance the ability of lenders to exchange credit
information, whilst at the same time protecting the individual’s rights to
privacy
 Positive and Negative Information Sharing - consider mandatory sharing
of data
 South Africa – lenders mandated to report, but optional on enquires –
mandated to conduct a affordability assessment; only proper way to
do this is via CB report
 Uganda - lenders mandated report, but optional on enquires – lenders
have options, but non adherence means that the debt must be
provisioned as a sub-standard loan immediately

36. Legal and Regulatory (cont’d):
 Explicit borrower consent is generally sufficient to allow a lender to share
the information
 If borrower does not consent – no loan
 Only issue is retro data
 Consumer Protection - Grievance and dispute resolution mechanisms
 Borrowers are CB clients too
 Additional mechanism to improve data quality
 Legal and regulatory bodies, two broad approaches - Strong Supervisory
Body - Industry Self Regulation
 South Africa has both. Started with self-regulation. More compliance
through supervisory Body (as long as body conducts audits and forces
compliance)

37. Thank you!
Questions?