- Nicolas Parasie for The Wall Street Journal
In the past six months, the United Arab Emirates’ official credit bureau has ramped up its efforts to procure information: it collected two years of financial records for every single retail customer of each financial institution in the country. That process involved digesting some 100 million transactions, half of which are now fully uploaded into the bureau’s data vault.
Marwan Lutfi, chief executive at the Al Etihad Credit Bureau, is now preparing for his next big task – carrying out the same process for the domestic corporate sector.
“Next step is the launch of the commercial bureau. We have the consumer data in place and the commercial bureau will be online in about January,” Mr. Lutfi said in an interview from the bureau’s Dubai office.
“The bigger task is actually individuals and that has been completed. It should be much smoother and quicker in that sense,” he said.
The credit bureau was established almost four years ago under federal law. It is almost fully operational now and soon bank customers will be able to request their credit history.
The merits of the credit bureau are straightforward: the availability of clear data will help banks do a better job at assessing risks when deciding to lend money to a prospective borrower who could potentially end up enjoying better rates. Banks, meanwhile, will have more clarity on how much funds to set aside for potential bad loans.
It’s one of the many tools the federal government introduced to try to avoid the excessive lending that took place in Dubai – and to a lesser extend the other emirates – during the pre-crisis years. The credit bureau should play a role in bringing more order and stability to a financial market that has experienced sharp up- and downturns and is dependent on a diverse, often wealthy but transient and mostly expatriate population.
Future borrowers who may have defaulted during the crisis years don’t need to panic: the bureau is only gathering data going back 24 months into a person’s credit history.
“You only go back two years because things do happen sometimes and you do face unfortunate situations…you can’t really be penalized for something that happened seven or eight years go,” Mr. Lutfi said.
Some bankers, including the chairman of the domestic banks’ federation, have warned that the bureau, while overall a much-needed development, could disrupt lending as financial providers will discover that some of their customers have over-borrowed.
Partly echoing that view, Mr. Lutfi said there is likely to be “a compression in the lending pipeline in certain categories, most prominently credit cards.”
Still, Mr. Lutfi said the ultimate goal of the credit bureau is to facilitate and speed up the lending process in the U.A.E. by providing more transparency.
“We’re not here to punish or reward, we’re here actually to provide data that you as individual or consumer will be able to read and analyze and the lenders will hopefully understand before jumping into it.”
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(via WSJ Blogs)
