Microlenders need to offer an all in one solution

MicroFinance South Africa (MFSA) recently conducted research into the behaviours displayed by credit providers and consumers in the lending industry and highlighted a wealth of opportunities that microlenders can explore to cement their position in the market. Perhaps one of the greatest opportunities that the research underlined was the need for microlenders to offer an all-in-one lending solution. When asked what respondents were most likely to use their loans for, the most popular responses were: Education financing, business opportunities, consolidation of loans, home/personal improvements, luxuries and emergencies. In light of this it seems evident that microlenders who offer products or services which address several client needs would have an advantage over others. These products could include lending solutions targeted at small business funding, risk management, education funding, insurance or even emergency and funeral funding.

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Attention all CPA and NLR members: An update on Project Evolution

Project Evolution, an apt name for the project which seeks to revolutionise the credit industry and create a unified credit market, officially kicked off in October 2011 and is well on its way towards its envisioned integration at the end of 2014.

The foundations for such a project, which seeks to integrate the NLR and CPA datasets, were originally laid in 2007 when the implementation of the National Credit Act removed the differentiation of the NLR and CPA type data. Despite this the artificial divide between the two datasets has created for an ineffective and cumbersome management style for consumer data. This, coupled with the fact that there has been a steady migration of consumer data out of NLR into CPA data sets during the migration of the CPA members from Layout 500 to Layout 700, and the issues of data integrity which have plagued the NLR environment have necessitated the integration of consumer data into a unified dataset.

In essence the integration of the datasets is supported by the fact that both NLR and CPA datasets comprise similar submission types and data and that 80% of the NLR Data is submitted to the NLR by CPA members. Likewise, the NLR dataset has valuable qualities that can be replicated on the CPA dataset ultimately benefitting the industry.

The benefits of the project are numerous and in essence will see an improvement of data quality through a single submission and data submission format. The improvement in data quality will further be supported by the single government structure and oversight of all payment profile submissions. Data quality management will also be more efficient as a result of the one submission layout which will streamline data requirements. In addition, development of daily updates for the registration of new accounts and closures will allow for more comprehensive and accurate affordability assessments. In order for these objectives to be achieved certain changes need to be made to the current Layout 700. (Please see the addendum below for a list of these changes)

At present, integration of the CPA and NLR datasets is envisioned to take place in three phases. The first phase will mostly affect NLR subscribers and will include integrating NLR submissions, both daily and monthly loads, in the new L700 Layout. The second phase will entail rolling out the frequency of data updates to all CPA members and implement layout changes affecting CPA members. During phase three it will become a requirement of the entire industry that all new loan registrations and loan closures be updated on the bureau within 48 hours. Following the above, and as a result of the integration of the data sets and the implementation of new account types, credit providers will, in time, also need to recalibrate credit scorecards.

One of the most notable aspects of the project, and one which will put credit providers’ minds at ease, is the seamless manner in which the transition process is expected to flow. During the transition process when NLR data is integrated into the CPA dataset process changes will result in the way in which the data is stored and returned by credit bureaus. However, to minimise the impact on existing credit decisioning models and scorecards, credit bureaus will ensure that the data string returned during the transition period is mapped according to the current layouts. As a result existing scorecards, and thus credit providers, will be largely unaffected by the process.

While a pilot project with 4 or 5 NLR Data Subscribers will be initiated this year to validate new layouts and test new processes, the envisaged goal for the finalisation of integration is set for the end of 2014. Compuscan will endeavour to keep you up-to-date regarding specific timelines and phases as soon as we receive the relevant information.

Should you have any concerns or suggestions regarding the proposed changes please contact the CBA. You are also welcome to contact Compuscan to gain a better understanding of the implications for your organisation.

Should you have any questions please contact us on 021 888 6000 or email us at info@compuscan.co.za.

ADDENDUM: Changes to data layouts (L700) 

The data layout changes recommended for implementation are indicated in the table below:

Present CPA L700 Account type	Present NLR Cat B Account type	NCA categories Form 39	Future Account Type	Definition of account type
Personal Loans P & K	2 & 3 & 4	Unsecured Credit Transaction	Personal Loans P	Personal loan granted to consumer for use in his personal capacity where the loan is to be repaid over a term greater than 1 month
Revolving R		Credit Facility (Store card)	Revolving credit Facility (store card) R	Revolving credit account for store purchases and payments made within a given credit facility – no fixed term
Revolving R	4	Credit Facility (cash facility)	Revolving credit facility (cash borrowing)	Revolving Credit facility for cash – no fixed term
NONE	1	Short term Credit transaction	1 month loan	Loan granted to consumer for use in his personal capacity where the loan is to be repaid over a term of 1 month or less

In addition to the abovementioned changes required to accommodate the NLR integration, the following account types will also be addressed to further improve data quality:

Account type	Description
D	Debt Recovery	Review of the rules and requirements of this account type to enable the submission of previously written off data and inclusion of the collections environment
V	Overdraft	Review and implementation of submission of permanent Overdraft Facilities which have not been submitted previously
W	Asset Rentals	New: Rental data which is being submitted on white goods and vehicles is not being supplied accurately and a movement of data will be required here.
X	Property Rentals	New: We have had requests to access our data in order to enhance data in use by this industry and these parties are willing to reciprocate by supplying payment data to us
Y	Vehicle Asset Finance	New code and ,movement of data which is presently residing in account type I into an individual account type to allow for better scoring and validation
M	1 Month loans	New Per the previous table
Z	Revolving Credit facility (Cash)	New Per the previous table
J	Revolving (unsecured credit transaction under R8000)	Review of the need for this account type in the future due to concerns being raised by members relating to the inaccurate use and supply of data within this code.

The evolution of credit scoring – how far we have come!

Over the past two decades credit scoring has transformed how lenders analyse credit applicants and make lending decisions. With the use of credit scoring suites and automated decisioning tools lenders have not only completely eradicated the manual task associated with application analysis but have also reached a pinnacle in decision accuracy and consistency. In the past year alone technological advancements have resulted in a generation of credit scoring tools that have changed the course of lending history and with it the future of microfinance.

Perhaps the most significant reason for credit scoring’s dramatic progression lies with the significant advances to the quantity and quality of credit bureau data. Forming the foundation of credit scoring, comprehensive updated databases have allowed for the accuracy of scoring to reach unparalleled heights. By combining CPA and NLR payment data with enquiries, collections, administration orders, debt restructuring, public adverse data and most recently business credit data credit providers can be confident of the predictive nature of scoring tools.

With the firm foundation of comprehensive credit bureau data, credit scoring has been taken to a new level which has allowed for its application to be expanded across the entire credit life cycle. While originally scoring tools were used to assess credit risk at the inception of a credit agreement – advances in the application of credit risk models have made them a key tool in the management of risk across the entire credit life-cycle. By making use of behavioural scoring, such as Compuscan’s CompuScore B, credit providers can monitor when changes to a borrower’s circumstances affect their risk profile thus allowing them to predict ongoing default risk.

Furthermore, collections management has also been drastically affected by advances in the field of credit scoring. By implementing collections scoring, such as CompuScore C credit providers can predict the probability of receiving payment on overdue accounts. This assists credit providers to expedite the collections process and be alerted to high risk borrowers so that they can act accordingly.

In addition to the above technological advancements, automated decisioning tools such as Codix which integrate with scoring modules to provide an automated credit decision have also dramatically changed the face of the lending landscape. By taking the specific rules for each loan product into account, including an individual’s credit bureau score, Codix can instantly and consistently offer a recommendation as to whether to accept or decline an applicant. Perhaps most intriguing is the most recent development in this field which has had a dramatic impact on microfinance lending and which is sure to change the landscape for smaller or emerging unsecured loan providers.

While implementing automated decision making tools has become an integrated and essential aspect of credit granting for larger more established credit providers over the past few years, due to cost issues the smaller unsecured loan provider has not been able to enjoy the same benefits. This has all changed with the launch of Compuscan’s latest product offering, Codix Lite. Codix Lite, the pinnacle of advancement in the field of credit scoring, offers an affordable credit scoring solution for smaller unsecured loan providers. As it is specifically designed to cater to the smaller organisation it is not only cost effective but also quick to set up and put into production. Guaranteed to revolutionise credit granting in the micro-lending sphere, emerging organisations can now experience the same consistent and accurate decisions once only experienced by the larger more established organisation.

In the past 20 years credit scoring has come a long way and as such has revolutionised the lending landscape. However, the largest strides have most certainly taken place within the past 5 years with automated decision making tools for micro-lending, such as Codix Lite, perhaps being the most significant of all. With credit risk now being higher up on the agenda of senior management in micro-finance than ever before these advancements have altered the entire face of credit granting. Only time will tell what direction technological advancements will take and how it will affect the future of microlending.

Should you require more information on any of your solutions, please do not hesitate to contact us on 021 888 6000 or e-mail info@compuscan.co.za . You can also visit our website at www.compuscan.co.za

Big banks agree to cut rates for indebted

South Africa’s biggest lenders had agreed with the government on a trial programme that would cut interest on R14 billion of loans to some of their most indebted customers, the head of the banks’ lobby group said on Thursday.

Loans to people in debt-counselling programmes would be rescheduled over five years, Cas Coovadia, the managing director of the Banking Association of SA, said at the World Economic Forum on Africa in Addis Ababa.

South Africa’s credit and competition regulators were both “on board” with the pilot project, he added.

“We may be able to restructure the debts of 70 percent” of those consumer-bank customers who were in arrears and in credit counselling, Coovadia said.

Bad debt levels at South Africa’s four largest banks, including Barclays subsidiary Absa and Old Mutual’s Nedbank unit, have remained elevated even as the Reserve Bank has held interest rates steady since the end of 2010, limiting the burden on borrowers.

With policymakers expected to raise rates this year to restrain inflation, loan books may sour further.

“The first step to restructure will be to reduce interest rates charged to (equal) the repurchase rate over five years,” Coovadia said. “If people still can’t do that, then the interest rate drops to zero.”

All South African banks and some retailers would be ready to test the programme by the end of June, Coovadia said.

The total number of consumers with impaired credit records increased by 100 000 to 8.93 million in the fourth quarter of last year, the National Credit Regulator said.

The lenders have been targeting low-income households to boost sales. In 2009, Standard Bank said it would loosen loan criteria for mortgages and credit cards.

Central bank statistics show savings as a percentage of household income was zero in the third quarter of last year.

“I am aware of the National Credit Act changes being considered and to be piloted,” said Louis von Zeuner, the deputy chief executive of Absa.

Absa reported a credit loss ratio of 1.01 percent last year, which was almost double the figure reported in 2007, before the financial crisis began.

Nedbank, which posted a 26 percent increase in quarterly profit in February, failed to reduce impaired debt as much as some analysts had anticipated.

The “industry would be looking to pilot a voluntary debt mediation” that “should result in faster resolution with less legal costs”, Nedbank’s chief executive, Mike Brown, said.

Four out of six economists surveyed by Bloomberg estimate that interest rates will rise by 50 basis points in the fourth quarter.

On Monday central bank governor Gill Marcus said economic growth appeared to be sustainable and moderate, and there was little or no room to lower rates given that inflation was at the top end of the target range. – Bloomberg

Legal Updates: Removal of adverse information that was listed at a credit bureau

The question often arises as to whether information can be removed from a bureau after the debt to which that information relates, has been paid in full.

Credit Bureaus are regulated by various laws, codes, policies and constitutions. The Credit Provider Association’s (“CPA”) constitution and the National Credit Act (NCA) specifically deals with the question raised above.

Section 14.6.8 of the CPA Constitution prohibits the removal of data even though the data refers to a debt that has been paid in full. In the event of a consumer having defaulted on payment and subsequently having settled the outstanding debt, the default information can only be updated to “Paid in full”.  However, the fact that payment has been missed in the past will remain on the consumer’s profile.

Furthermore, section 70(d)(d) of the National Credit Act (NCA) requires that credit bureaus “retain consumer credit information reported to it for the prescribed period, irrespective of whether that information reflects positively or negatively on the consumer”.

Regulation 17(1) of the General Regulations to the NCA further states that “consumer credit information may be displayed and used for credit scoring or credit assessment for a maximum period as indicated”.

The maximum retention periods are as follows:

	Categories of Consumer Credit Information	Description	Period for which Information must be retained from date of commencement of the event
1.	Details and results of disputes lodged by consumers.	Number and nature of complaints lodged and whether complaint was rejected.No information may be displayed on complaints that were upheld.	18 months
2.	Enquiries	Number of enquiries made on a consumer’s record, including the name of the entity / person who made the enquiry and a contact person if available.	2 years
3.	Payment Profile	Factual information pertaining to the payment profile of the consumer.	5 years
4.	Adverse classifications of consumer behaviour	Subjective qualifications of consumer behaviour.	1 year
5.	Adverse classifications of enforcement actions	Classifications related to enforcement action taken by a credit provider	2 years
6.	Debt Restructuring	As per section 86 of the Act, an order given by the Court or Tribunal.	Until a clearance certificate is issued
7.	Civil court judgments	Civil court judgments including default judgment.	The earlier of 5 years or until the judgment is rescinded by a court or abandoned by the credit provider in terms of section 86 of the Magistrate’s Court Act, 32 of 1944
8.	Administration Orders	As per the court order.	The earlier of 10 years or until order is rescinded by a court
9.	Sequestrations	As per the court order.	The earlier of 10 years or until rehabilitation order is granted
10.	Liquidations	As per the court order.	Unlimited period
11.	Rehabilitation Orders	As per the court order.	5 years
12.	Other information	Any information not included in a category above	2 years

One of the core functions of a credit bureau is to provide information to credit grantors that assist with the credit granting decision making process. Specifically, the information supplied has predictive value for credit risk and affordability assessments and therefor plays a valuable role in the decision making process.

It is imperative that the information that is being considered during the credit application is as complete as possible and it should be factually correct due to the predicative nature of adverse information. Should the information be removed prior to the retention period coming to an end, it will negatively influence the information available to the credit grantor when making credit risk assessments and could lead to an increase in the granting of undesirable credit.

Information that is factually correct must therefore remain on a consumer’s record for the full data retention period.

About the Writer: Annelene Dippenaar is an admitted attorney, practicing since 2006. She has advised various clients, including registered banks, credit providers and other listed companies on the National Credit Act 34 of 2005. Since 2010 she has been employed by Compuscan, a registered credit bureau, as legal advisor and compliance officer. Annelene obtained a BA. (Law), LLB and LLM at the University of Stellenbosch and is currently writing her doctors thesis.

If you have any questions please contact us at Tel: 021 888 6000 or e-mail:   info@compuscan.co.za

Considered a Career at a Credit Bureau?

If it is not the stability of the company, the growth of the industry, the impressive performance bonus, the opportunity of becoming an employee shareholder or the opportunities for growth and training that interest you, then you will be happy to know that Compuscan’s corporate culture and social activities are also well worth mentioning. A modern cafeteria with big screen television and DSTV, foosball table, pool table and an in-house chef  all lead to an environment that encourages interaction and socialisation amongst staff. Every Friday staff leave the comfort of their desks a little earlier to socialise in the cafeteria and interact in a more relaxed environment. With a current staff component of just over 150 Compuscan views these social interactions as essential to create a cohesive team with a united vision.

Millions of SA households in financial difficulty

South African households: 4.8% in inescapable debt, 48.5% can still recover.

CAPE TOWN: The abuse of credit is one of the key reasons why millions of South African households are in financial difficulty. A recent financial wellness study shows that nearly 60% of 3 000 South African households sampled were shown to be in bad debt.

The survey, which was a collaboration between the University of South Africa and Momentum and based on interviews with 2 937 respondents, found that 4.8% of South African households are in dire debt from which they cannot escape and 48.5% are in debt but still have a chance to recover.

The ease with which South African households can access credit in the form of personal loans and credit cards is resulting in many people spending way beyond their means. This access to credit is being fuelled by both retailers and banks, which, despite high debt levels amongst consumers, are increasingly eager to grant credit facilities through credit cards and personal loans.

Standard & Poors recently warned that the rapid growth in unsecured lending is starting to create a credit bubble following a 35% year-on-year increase in unsecured lending to households for February 2012.

Consumers who rely on credit often do not take into account the interest they are charged should they be unable to make their payments within the required time period. These interest rates can be as much as 20% per month and only further deepen the financial strain on already overly-indebted consumers.

Paying for purchases on credit can sometimes result in consumers spending more money than they intended. With credit cards in particular it is extremely easy to get carried away, especially as people don’t check their credit balances every day. It is only at the end of the month that they realise they have overspent and cannot afford to service this debt.

In contrast, using cash or a debit cards and spending only the money that consumers actually have in the bank – even though it can be extremely difficult and requires proper budgeting and planning skills – will ensure that they stay out of the dreaded financial debt trap.

Marc Sternberg is the Managing Director of Spark ATM Systems

Source: http://www.moneyweb.co.za/mw/view/mw/en/page292681?oid=568521&sn=2009+Detail