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Credit referencing curbs defaults

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CREDIT DATA says there has been a reduction on loan defaults following the approval into law of the Credit Reference Act.

Credit Data was in the forefront championing for the enactment and review of the law and now says there is hope for further improvements in the short to medium terms.

Amendments to the act, which were initially enacted in 2010, were aimed at freeing institutions such as banks to provide information of clients to Credit Reference Bureaus (CRBs) without running the risk of breaching bank/client confidentiality.

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Since the law was first enacted in 2010, commercial banks have been arguing that it is not mandatory for them to provide clients’ information or seek such information from the bureaus. In an interview, Credit Data Managing Director, Patricia Mwase, said the law has since proven effective in minimising default rates.

She said now that Credit Reference Bureaus are functional; institutions provide credit information to the firms which make it easier to assess individuals’ and businesses’ credit worthiness.

The amended Credit Reference Bureau Act was endorsed by Parliament last year following complaints by the CRBs that most commercial banks were reluctant to submit information.

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The changes meant that commercial banks will now have to verify the history of any potential borrower through CRBs before approving a loan.

“At the moment, we have seen that there is an impact on the market. A number of institutions have avoided possible credit risks and some borrowers have also been able to access credit having been cleared,” Mwase said.

She, however, expressed worry that there is still low awareness of existence of CRBs in the country, rating it as a setback. Reserve Bank of Malawi said recently the new law paves way for effectiveness of the financial market while cutting possibility of loan defaults.

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