 |
A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, which will be repaid with added interest. There are a number of different types of business loan, suited to the requirements of different types of business such as bank loans, mezzanine financing, asset-based financing and invoice financing.
Bank loan
See also: loan
A bank loan is obtained from a bank and may be either secured or unsecured. For secured loans, banks will require collateral, which may be lost if repayments are not made. The bank will probably wish to see the business’s accounts, balance sheet and business plan, as well as studying the principals' credit histories. Many smaller businesses are now however turning towards Alternative Finance Providers who are offering a number of advantages and reasons to seek business finance elsewhere.
Mezzanine finance
Main article: mezzanine capital
Mezzanine finance effectively secures a company’s debt on its equity, allowing the lender to claim part-ownership of the business if the loan is not paid back on time and in full.[1] This allows the business to borrow without putting up other collateral, but risks diluting the principals’ equity share in case of default.
Asset-based finance
Main article: Asset-based lending
Once considered the finance option of last resort, asset-based lending has become a popular choice for small businesses lacking the credit rating or track record to quality for other forms of finance.[2] In simple terms, it involves borrowing against one of the company’s assets, with the lender focusing on the quality of the collateral rather than the credit rating and prospects of the company. A business may borrow against several different types of asset, including premises, plant, stock or receivables.
Invoice financ
Main articles: invoice discounting and factoring (finance)
In recent years, it has become increasingly difficult for SMEs to obtain traditional finance from banks. An alternative option is invoice discounting or factoring, whereby the company borrows against its outstanding invoices, with the ability to obtain funds as soon as new invoices are created, but it is often questioned which option is best for your business – factoring or discounting?.[citation needed] The finance company charges interest on the loan until the invoice is paid, as well as fees if the factoring option is chosen, in which case the factoring company takes ownership of the debtor ledger and uses its own credit control team to secure payment. With invoice discounting, the business maintains control of its own ledger and chases debts itself.
Secured and unsecured business loans
Main articles: secured loan and unsecured debt
Business loans may be either secured or unsecured. With a secured loan, the borrower pledges an asset (such as plant, equipment, stock or vehicles) against the debt. If the debt is not repaid, the lender may claim the secured asset. Unsecured loans do not have collateral, though the lender will have a general claim on the borrower’s assets if repayment is not made. Should the borrower become bankrupt, unsecured creditors will usually realise a smaller proportion of their claims than secured creditors. As a consequence, secured loans will generally attract a lower rate of interest.
Credit (from Latin credere, "to believe") is the trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date.[1] The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.[2] Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.
Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services However, in modern societies, credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account.
Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. Credit is also traded in financial markets. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two parties exchange this risk – the protection seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (that is, is made whole).
Consumer credit
Consumer debt can be defined as ‘money, goods or services provided to an individual in lieu of payment.’ Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail loans (retail installment loans) and mortgages. This is a broad definition of consumer credit and corresponds with the Bank of England's definition of "Lending to individuals". Given the size and nature of the mortgage market, many observers classify mortgage lending as a separate category of personal borrowing, and consequently residential mortgages are excluded from some definitions of consumer credit - such as the one adopted by the Federal Reserve in the US.
The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required by the lender as an integral part of the credit agreement. Other costs, such as those for credit insurance, may be optional. The borrower chooses whether or not they are included as part of the agreement.
Interest and other charges are presented in a variety of different ways, but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR). The goal of the APR calculation is to promote ‘truth in lending’, to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products. The APR is derived from the pattern of advances and repayments made during the agreement. Optional charges are not included in the APR calculation. So if there is a tick box on an application form asking if the consumer would like to take out payment insurance, then insurance costs will not be included in the APR calculation.
Commercial credit reporting is the maintenance and reporting of credit histories and risks for commercial companies.
While most people are familiar with consumer credit reports many are unaware that a similar reporting system exists to assess risk in extending loans to businesses, insuring businesses, underwriting insurance risk, purchasing businesses, investing in businesses and most of all in shipping goods to business on credit terms. Government departments are also large users of commercial credit for regulating businesses and in collecting taxes.
Every country in the world has commercial (or mercantile) credit reporting agencies, if for no other reason than to allow foreign exporters to assess the risk in shipping goods to a wholesaler in that country. They can be large public corporations like U.S.A. headquartered, Dun & Bradstreet Inc. (traded on the New York Stock Exchange, established in 1842) with thousands of employees and offices and correspondents around the world.[1] They can also be smaller private operations that market unbiased scores, such as Global Credit Services and Rapid Ratings International, or one man operations serving a limited number of local and foreign clients in a small country. In China (main land only) commercial credit reports can be obtained with Creditreform China (www.creditreform.cn).
Before telephones and the internet, the only way to gather risk information on a business was to visit the business owner at their place of business. Credit reporters would ask the owner for the names of the companies that supplied them on credit terms, what banks they dealt with and detailed questions about number of employees, what was sold, etc. They would then contact these suppliers and banks for reference information. It took days, even weeks, to fulfill a request for a commercial credit report.
Electronic communication and computers changed the gathering of commercial risk information. Credit reports can now be compiled in seconds without human intervention and without a business owners knowledge. Suppliers are now requested to supply frequent aged trial balance down loads on all their accounts receivable to commercial credit reporting agencies. These trade payment experiences are linked together to give a profile of how a business is paying numerous suppliers. Collection agencies supply the credit reporting agencies with information on commercial collection claims they receive which are matched to the trade payment experiences.
Public record information such as, bankruptcy filings, legal suits, lease registrations and judgments are also gathered and added to the files on a particular business. As this flood of information accumulates over many years trends are identified and it becomes like a pulse tracking cash flow within a business. Companies unable to come up with sufficient cash to pay suppliers are quickly identified. Computerized monitoring systems tell suppliers when to restrict credit to unhealthy businesses. These very comprehensive, detailed reports, can with mathematical equations be reduced down to two digit scores that now allow for automated credit approvals and rejections.
Commercial credit is more volatile than consumer credit. Few businesses survive five years in the same form that they were first founded. All businesses are in constant competition with other businesses for clients and markets. The granting of credit by businesses is very much a market driven. Retailers hope that they will have sold the goods they bought at a profit before they are required to pay for these goods that they bought on credit.[2] Retailers who can not get credit from suppliers are at a serious competitive disadvantage if they are required to pay for their inventories in cash on delivery.
Strict laws governing consumer credit reporting agencies rarely include commercial credit reporting agencies. Any complaints about the accuracy or incompleteness of information in a commercial credit report can potentially do harm to the agencies reputation, so they do take complaints seriously. However, unlike consumers most businesses are oblivious to the risk reports being compiled on them. They may never be aware of why they were unable to obtain credit from a supplier. Suppliers are not required to provide credit to customers. Since only about 20% of businesses subscribe to commercial credit reports it most likely a business that was turned down by one supplier will be able to find an alternative source of supply.
A credit bureau — also known as consumer reporting agency in the United States, credit reference agency in the United Kingdom, and credit reporting body in Australia — is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill-paying habits.[1] Credit information such as a person’s previous loan performance is a powerful tool to predict his future behavior. Such credit information institutions reduce the effect of asymmetric information between borrowers and lenders, and alleviate problems of adverse selection and moral hazard. For example, adequate credit information could facilitate lenders in screening and monitoring borrowers as well as avoiding giving loans to high risk individuals.[2] This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate and other terms of a loan. Interest rates are not the same for everyone, but instead can be based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating. Consumers with poor credit repayment histories or court adjudicated debt obligations like tax liens or bankruptcies will pay a higher annual interest rate than consumers who don't have these factors. Additionally, decision-makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value.[3] At the same time, consumers also benefit from a good credit information system because it reduces the effect of credit monopoly from banks[4] and provides incentives for borrowers to repay their loans on time.
In the U.S., credit bureaus collect and aggregate personal information, financial data, and alternative data on individuals from a variety of sources called data furnishers with which the bureaus have a relationship. Data furnishers are typically creditors, lenders, utilities, debt collection agencies and the courts (i.e. public records) that a consumer has had a relationship or experience with. Data furnishers report their payment experience with the consumer to the credit bureaus. The data provided by the furnishers as well as collected by the bureaus are then aggregated into the credit bureau's data repository or files. The resulting information is made available on request to customers of the credit bureau for the purposes of credit risk assessment, credit scoring or for other purposes such as employment consideration or leasing an apartment. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. To simplify the analytical process for their customers, the different credit bureaus can apply a mathematical algorithm to provide a score the customer can use to more rapidly assess the likelihood that an individual will repay a particular debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once a year to ensure they are accurate.
In addition to providing credit information, these services have become authoritative sources of identity information against which people can be verified using an identity verification service and knowledge-based authentication.
India
The establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing non-performing assets (NPAs) while improving credit grantors' portfolio quality.
CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members.
With two other major credit bureau coming to India in 2010 (Equifax and Experian) the Credit Environment is changing really fast and the importance of credit rating is being felt across length and breadth of the country
Around the same time, RBI also granted operating license to High Mark Credit Information Services - the only start-up in this oligopoly. High Mark launched India's first micro finance bureau in early 2011 & today operates the world's largest micro finance bureau besides offering traditional bureau services for the Retail lending industry.
Pakistan
eCIB ECIB is a software for monitoring credit reports all across Pakistan. State Bank of Pakistan monitors the Software and all the Financial Institutions in Pakistan are required to have this software installed. A monthly process updates the reports at the State Bank end.
The membership with CIB, as per instructions of SBP, is mandatory for all Banks, Developmental Financial Institutions (DFIs) and Micro Finance Banks (MFBs) respectively. No financial institution can access the CIB database without obtaining membership of CIB of State Bank of Pakistan.
All member financial institutions are required to submit entire borrowers' records online to CIB on monthly basis. This information is submitted within a period of fortnight from the date of close of month.
History
The Electronic Credit Information Bureau (CIB) was established by State Bank of Pakistan (SBP) in December, 1992. The scope and activities of CIB are governed under the provisions of Banking Companies Ordinance (BCO), 1962. The Section 25(A) vests powers with SBP to call for credit information in such manner as it may deem necessary and make such information available to any banking company.
Credit Reference Agencies
In the United Kingdom, the three credit reference agencies are Experian, Equifax and Callcredit, which works closely with its US partner, TransUnion.
Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.
Credit reference agencies are bound by the Data Protection Act 1998, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them. The Act specifically gives consumers the right to request to a copy of their credit file by post for a fee of £2[5][6][7] The UK credit reference agencies will also allow consumers to access their credit report on-line free for a trial period, after which a monthly or quarterly fee may be charged for continued access
Bank loan
See also: loan
A bank loan is obtained from a bank and may be either secured or unsecured. For secured loans, banks will require collateral, which may be lost if repayments are not made. The bank will probably wish to see the business’s accounts, balance sheet and business plan, as well as studying the principals' credit histories. Many smaller businesses are now however turning towards Alternative Finance Providers who are offering a number of advantages and reasons to seek business finance elsewhere.
Mezzanine finance
Main article: mezzanine capital
Mezzanine finance effectively secures a company’s debt on its equity, allowing the lender to claim part-ownership of the business if the loan is not paid back on time and in full.[1] This allows the business to borrow without putting up other collateral, but risks diluting the principals’ equity share in case of default.
Asset-based finance
Main article: Asset-based lending
Once considered the finance option of last resort, asset-based lending has become a popular choice for small businesses lacking the credit rating or track record to quality for other forms of finance.[2] In simple terms, it involves borrowing against one of the company’s assets, with the lender focusing on the quality of the collateral rather than the credit rating and prospects of the company. A business may borrow against several different types of asset, including premises, plant, stock or receivables.
Invoice financ
Main articles: invoice discounting and factoring (finance)
In recent years, it has become increasingly difficult for SMEs to obtain traditional finance from banks. An alternative option is invoice discounting or factoring, whereby the company borrows against its outstanding invoices, with the ability to obtain funds as soon as new invoices are created, but it is often questioned which option is best for your business – factoring or discounting?.[citation needed] The finance company charges interest on the loan until the invoice is paid, as well as fees if the factoring option is chosen, in which case the factoring company takes ownership of the debtor ledger and uses its own credit control team to secure payment. With invoice discounting, the business maintains control of its own ledger and chases debts itself.
Secured and unsecured business loans
Main articles: secured loan and unsecured debt
Business loans may be either secured or unsecured. With a secured loan, the borrower pledges an asset (such as plant, equipment, stock or vehicles) against the debt. If the debt is not repaid, the lender may claim the secured asset. Unsecured loans do not have collateral, though the lender will have a general claim on the borrower’s assets if repayment is not made. Should the borrower become bankrupt, unsecured creditors will usually realise a smaller proportion of their claims than secured creditors. As a consequence, secured loans will generally attract a lower rate of interest.
Credit (from Latin credere, "to believe") is the trust which allows one party to provide money or resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date.[1] The resources provided may be financial (e.g. granting a loan), or they may consist of goods or services (e.g. consumer credit). Credit encompasses any form of deferred payment.[2] Credit is extended by a creditor, also known as a lender, to a debtor, also known as a borrower.
Credit does not necessarily require money. The credit concept can be applied in barter economies as well, based on the direct exchange of goods and services However, in modern societies, credit is usually denominated by a unit of account. Unlike money, credit itself cannot act as a unit of account.
Movements of financial capital are normally dependent on either credit or equity transfers. Credit is in turn dependent on the reputation or creditworthiness of the entity which takes responsibility for the funds. Credit is also traded in financial markets. The purest form is the credit default swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two parties exchange this risk – the protection seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points (one basis point is 1/100 of a percent) of the notional amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying (a loan, bond or other receivable), delivers this receivable to the protection seller and receives from the seller the par amount (that is, is made whole).
Consumer credit
Consumer debt can be defined as ‘money, goods or services provided to an individual in lieu of payment.’ Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail loans (retail installment loans) and mortgages. This is a broad definition of consumer credit and corresponds with the Bank of England's definition of "Lending to individuals". Given the size and nature of the mortgage market, many observers classify mortgage lending as a separate category of personal borrowing, and consequently residential mortgages are excluded from some definitions of consumer credit - such as the one adopted by the Federal Reserve in the US.
The cost of credit is the additional amount, over and above the amount borrowed, that the borrower has to pay. It includes interest, arrangement fees and any other charges. Some costs are mandatory, required by the lender as an integral part of the credit agreement. Other costs, such as those for credit insurance, may be optional. The borrower chooses whether or not they are included as part of the agreement.
Interest and other charges are presented in a variety of different ways, but under many legislative regimes lenders are required to quote all mandatory charges in the form of an annual percentage rate (APR). The goal of the APR calculation is to promote ‘truth in lending’, to give potential borrowers a clear measure of the true cost of borrowing and to allow a comparison to be made between competing products. The APR is derived from the pattern of advances and repayments made during the agreement. Optional charges are not included in the APR calculation. So if there is a tick box on an application form asking if the consumer would like to take out payment insurance, then insurance costs will not be included in the APR calculation.
Commercial credit reporting is the maintenance and reporting of credit histories and risks for commercial companies.
While most people are familiar with consumer credit reports many are unaware that a similar reporting system exists to assess risk in extending loans to businesses, insuring businesses, underwriting insurance risk, purchasing businesses, investing in businesses and most of all in shipping goods to business on credit terms. Government departments are also large users of commercial credit for regulating businesses and in collecting taxes.
Every country in the world has commercial (or mercantile) credit reporting agencies, if for no other reason than to allow foreign exporters to assess the risk in shipping goods to a wholesaler in that country. They can be large public corporations like U.S.A. headquartered, Dun & Bradstreet Inc. (traded on the New York Stock Exchange, established in 1842) with thousands of employees and offices and correspondents around the world.[1] They can also be smaller private operations that market unbiased scores, such as Global Credit Services and Rapid Ratings International, or one man operations serving a limited number of local and foreign clients in a small country. In China (main land only) commercial credit reports can be obtained with Creditreform China (www.creditreform.cn).
Before telephones and the internet, the only way to gather risk information on a business was to visit the business owner at their place of business. Credit reporters would ask the owner for the names of the companies that supplied them on credit terms, what banks they dealt with and detailed questions about number of employees, what was sold, etc. They would then contact these suppliers and banks for reference information. It took days, even weeks, to fulfill a request for a commercial credit report.
Electronic communication and computers changed the gathering of commercial risk information. Credit reports can now be compiled in seconds without human intervention and without a business owners knowledge. Suppliers are now requested to supply frequent aged trial balance down loads on all their accounts receivable to commercial credit reporting agencies. These trade payment experiences are linked together to give a profile of how a business is paying numerous suppliers. Collection agencies supply the credit reporting agencies with information on commercial collection claims they receive which are matched to the trade payment experiences.
Public record information such as, bankruptcy filings, legal suits, lease registrations and judgments are also gathered and added to the files on a particular business. As this flood of information accumulates over many years trends are identified and it becomes like a pulse tracking cash flow within a business. Companies unable to come up with sufficient cash to pay suppliers are quickly identified. Computerized monitoring systems tell suppliers when to restrict credit to unhealthy businesses. These very comprehensive, detailed reports, can with mathematical equations be reduced down to two digit scores that now allow for automated credit approvals and rejections.
Commercial credit is more volatile than consumer credit. Few businesses survive five years in the same form that they were first founded. All businesses are in constant competition with other businesses for clients and markets. The granting of credit by businesses is very much a market driven. Retailers hope that they will have sold the goods they bought at a profit before they are required to pay for these goods that they bought on credit.[2] Retailers who can not get credit from suppliers are at a serious competitive disadvantage if they are required to pay for their inventories in cash on delivery.
Strict laws governing consumer credit reporting agencies rarely include commercial credit reporting agencies. Any complaints about the accuracy or incompleteness of information in a commercial credit report can potentially do harm to the agencies reputation, so they do take complaints seriously. However, unlike consumers most businesses are oblivious to the risk reports being compiled on them. They may never be aware of why they were unable to obtain credit from a supplier. Suppliers are not required to provide credit to customers. Since only about 20% of businesses subscribe to commercial credit reports it most likely a business that was turned down by one supplier will be able to find an alternative source of supply.
A credit bureau — also known as consumer reporting agency in the United States, credit reference agency in the United Kingdom, and credit reporting body in Australia — is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill-paying habits.[1] Credit information such as a person’s previous loan performance is a powerful tool to predict his future behavior. Such credit information institutions reduce the effect of asymmetric information between borrowers and lenders, and alleviate problems of adverse selection and moral hazard. For example, adequate credit information could facilitate lenders in screening and monitoring borrowers as well as avoiding giving loans to high risk individuals.[2] This helps lenders assess credit worthiness, the ability to pay back a loan, and can affect the interest rate and other terms of a loan. Interest rates are not the same for everyone, but instead can be based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating. Consumers with poor credit repayment histories or court adjudicated debt obligations like tax liens or bankruptcies will pay a higher annual interest rate than consumers who don't have these factors. Additionally, decision-makers in areas unrelated to consumer credit, including employment screening and underwriting of property and casualty insurance, increasingly depend on credit records, as studies have shown that such records have predictive value.[3] At the same time, consumers also benefit from a good credit information system because it reduces the effect of credit monopoly from banks[4] and provides incentives for borrowers to repay their loans on time.
In the U.S., credit bureaus collect and aggregate personal information, financial data, and alternative data on individuals from a variety of sources called data furnishers with which the bureaus have a relationship. Data furnishers are typically creditors, lenders, utilities, debt collection agencies and the courts (i.e. public records) that a consumer has had a relationship or experience with. Data furnishers report their payment experience with the consumer to the credit bureaus. The data provided by the furnishers as well as collected by the bureaus are then aggregated into the credit bureau's data repository or files. The resulting information is made available on request to customers of the credit bureau for the purposes of credit risk assessment, credit scoring or for other purposes such as employment consideration or leasing an apartment. Given the large number of consumer borrowers, these credit scores tend to be mechanistic. To simplify the analytical process for their customers, the different credit bureaus can apply a mathematical algorithm to provide a score the customer can use to more rapidly assess the likelihood that an individual will repay a particular debt given the frequency that other individuals in similar situations have defaulted. Most consumer welfare advocates advise individuals to review their credit reports at least once a year to ensure they are accurate.
In addition to providing credit information, these services have become authoritative sources of identity information against which people can be verified using an identity verification service and knowledge-based authentication.
India
The establishment of Credit Information Bureau (India) Limited (CIBIL), India's first Credit Information Bureau, is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing non-performing assets (NPAs) while improving credit grantors' portfolio quality.
CIBIL was promoted by State Bank of India (SBI), Housing Development Finance Corporation (HDFC), Dun & Bradstreet Information Services India Private Limited (D&B) and TransUnion International Inc. (TransUnion) to provide comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members.
With two other major credit bureau coming to India in 2010 (Equifax and Experian) the Credit Environment is changing really fast and the importance of credit rating is being felt across length and breadth of the country
Around the same time, RBI also granted operating license to High Mark Credit Information Services - the only start-up in this oligopoly. High Mark launched India's first micro finance bureau in early 2011 & today operates the world's largest micro finance bureau besides offering traditional bureau services for the Retail lending industry.
Pakistan
eCIB ECIB is a software for monitoring credit reports all across Pakistan. State Bank of Pakistan monitors the Software and all the Financial Institutions in Pakistan are required to have this software installed. A monthly process updates the reports at the State Bank end.
The membership with CIB, as per instructions of SBP, is mandatory for all Banks, Developmental Financial Institutions (DFIs) and Micro Finance Banks (MFBs) respectively. No financial institution can access the CIB database without obtaining membership of CIB of State Bank of Pakistan.
All member financial institutions are required to submit entire borrowers' records online to CIB on monthly basis. This information is submitted within a period of fortnight from the date of close of month.
History
The Electronic Credit Information Bureau (CIB) was established by State Bank of Pakistan (SBP) in December, 1992. The scope and activities of CIB are governed under the provisions of Banking Companies Ordinance (BCO), 1962. The Section 25(A) vests powers with SBP to call for credit information in such manner as it may deem necessary and make such information available to any banking company.
Credit Reference Agencies
In the United Kingdom, the three credit reference agencies are Experian, Equifax and Callcredit, which works closely with its US partner, TransUnion.
Most banks and other credit-granting organisations subscribe to one or more of these organisations to ensure the quality of their lending. This includes companies who sell goods or services on credit such as credit card issuers, utility companies and store card issuers. Subscribing organisations are expected to provide relevant data to maintain the common data pool.
Credit reference agencies are bound by the Data Protection Act 1998, which requires that data relating to identifiable individuals must be accurate, relevant, held for a proper purpose and not out-of-date. Individuals have a legal right to access data held on them. The Act specifically gives consumers the right to request to a copy of their credit file by post for a fee of £2[5][6][7] The UK credit reference agencies will also allow consumers to access their credit report on-line free for a trial period, after which a monthly or quarterly fee may be charged for continued access
|
Post a Comment