A new law comes into effect on Monday making it mandatory for commercial banks to provide information, including material changes on borrowers’ credit history to Credit Reference Bureaus (CRBs) in the country.
The amended Credit Reference Bureau Act was endorsed by Parliament last year following complaints by CRBs that most commercial banks were reluctant to submit information.
The changes mean that commercial banks will now have to verify the history of any potential borrower through CRBs before approving a loan.
Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said the new law paves way for effectiveness of the financial market while cutting possibility of loan defaults.
“This will be a bit holistic in as far as financial transactions are concerned. The banks cannot give out a loan to someone who already has huge loans out of ignorance, otherwise it will be risky” said Ngwira.
Recent past president for the Bankers Association of Malawi (BAM) Misheck Esau said the CBRs have been given a critical task.
He said with the new law effected, CBRs are tasked to ensure efficiency in credit facilities.
“Our hope is that they (the CRBs) will have put up capacity. Because what we have seen is that the amount of data is too much so there will be a need for capacity,” said Esau.
Currently, the country has only two CRBs; Credit Data and CRB Africa with close to 10 commercial banks.
Credit Data Managing Director, Patricia Mwase, remained upbeat that effecting of the new law paves way for radical scrutiny of financial transactions in credit.
She conceded, however, that the bureaus have a huge task in ensuring that the move has an impact to the economy.
“In a country where there are no credit reference bureaus, even foreign investors feel they would not be safe. With the move, the nation is equally assured of inflow of Foreign Direct Investors,” she said.
Credit reference business involves a symbiotic relationship between CRBs and financial institutions
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