National Bank of Ethiopia (NBE) launched Credit Bureau and Credit Information System in a half day ceremony organized at Hilton Addis, Ethiopia, in August 2011. The new system is an upgrading of what NBE had introduced in 2004 in which 12 banks operating then were involved. This Credit Information System marks an important milestone in financial infrastructure development in Ethiopia, as it introduces a state-of-the-art platform to facilitate sophisticated credit information sharing in the country.
The launch heralds the beginning of a new approach in credit processing, extension and management. It is the beginning of the end of collateral based lending, which dominated our entire banking history, H.E. Getahun Nana, Vice Governor of Financial Institutions Supervision at NBE, said in his opening remark at the ceremony.
The government has launched an ambitious but achievable five year Growth and Transformation Plan. The plans financing need is huge and domestic sources are expected to finance a significant part of it. And this launch would increase access to finance, he added.
Existence of credit bureau and credit reporting system enables financial institutions to make informed decisions. This in turn has benefits both to the customer and the provider of the services. Making informed decision is a fundamental issue creditors have to address as part of their routine loan provision. In the absence of information the risk is high.
However, provision of loans is still traditional in that many financial institutions are more comfortable lending to large corporate bodies. At the moment access to finance in developing countries is less than 25 percent as opposed to more than 90 percent in the developed countries, Mr. Uli Zeisluft, Principal Financial Specialist with International Finance Corporation said in his presentation. The new system facilitates inclusion of the informal sector of the economy in the formal economy, he added.
Creating an enabling environment for sustained private sector growth requires a strong and well developed financial sector that can meet their financing needs. Up to now a major obstacle in responding to this challenge has been the very great reliance on collateral as the primary determinant in deciding whether to approve a loan request, Mr. Greg Tolumin, World Bank Acting Country Director underlined at the launching ceremony.
The World Bank financed the project; International Finance Corporation provided technical support; and Compus can Direct (CSD) did installation of the infrastructure and implementation of the system.
However, the new system would only be a technology platform improvement and more need to be done to further improve credit market in Ethiopia, Mr. Adamou Labara, Resident Representative of IFC Ethiopia said on the occasion. I urge all banks and micro-finance institutions to actively participate in the credit information system, Ato Getahun underlined.