New law to facilitate opening of more credit information agenciesCentral bank to continue to regulate the credit information business even under the new arrangement.
If a new bill registered in Parliament last week is passed by lawmakers, more companies specialising in credit information-related services will be allowed to start operations in the country.
Agencies established under the new law will receive information about the credit provided by lending agencies, maintain records and share such information with banks and financial institutions.
“The main reason for introducing the new bill on credit information is to create mechanisms to govern the credit information business through a seperate law,” said Uttar Kumar Khatri, spokesperson for the Ministry of Finance, which registered the bill.
Officials say the new bill will facilitate the flow of information to lending agencies, which need to know about the credit history of potential borrowers to assess their creditworthiness. The credit information agencies, envisaged in the bill, will also maintain a blacklist of defaulters.
“Any person or institution can establish a credit information centre as a public limited company to receive information on credit, store, preserve and disseminate such information as per the law,” the bill states. “But, the existing company shall not establish a new company for the same purpose.”
Currently, Nepal only has one agency, the Credit Information Bureau of Nepal, that does the job outlined in the bill. The bureau, established under a collaboration between the central bank and banks and financial institutions in 2004, serves 27 commercial banks, 10 national development banks, 20 regional development banks, 26 finance companies and 94 microfinance institutions and cooperatives.
The bill says that the existing company (Credit Information Bureau of Nepal) shall comply with the new arrangement within six months after this bill becomes law.
The information bureau currently in operation was established under a separate law, the Nepal Rastra Bank Act. That is why the bureau functions under the central bank.
“It is not that we immediately need more agencies that work on credit information but we have proposed the bill to open avenues for such possibilities in the future,” said Khatri.
Bankers also say that the existing bureau is doing its job well, but the quality of services will improve if more players enter the market. “We are satisfied with the work of the current credit information agency,” said Bhuvan Dahal, chair of Bankers’ Association of Nepal, a grouping of commercial banks. “I think existing businesses related to credit information are adequate, but opening doors for more is good because competition helps improve quality.”
The bill says that in addition to banks and financial institutions, other lending agencies such as cooperative banks and saving and credit cooperatives, the Employees’ Provident Fund, Citizen Investment Trust, Social Security Fund, Pension Fund, Youth and Small Entrepreneurs Self-Employment Fund, companies that provide services related to financial lease, companies that provide hire-purchase services and any other agency approved by the central bank can avail services from credit information agencies.
“Another credit information agency can be opened targeting lending agencies other than banks and financial institutions,” said Dahal. There are over 34,000 cooperatives across the country, according to the Department of Cooperatives. But they are not being served by the existing credit information bureau.
Last year, the government formed a task force comprising members of the National Cooperative Federation of Nepal to recommend steps to set up a separate body to maintain information on debtors, a move aimed at identifying defaulters.
The lack of effective regulation in the cooperative sector has resulted in many saving and credit cooperatives going bust, risking the safety of the public’s hard-earned money.
The bill says that the central bank will continue to regulate the business of credit information.