Technology helps grant credit faster, cheaper to greater numbers

The provision of relatively risk-free credit is perhaps one of today`s most awesome business challenges.

"True, it is an age-old problem," says Michelle Beetar, a director of reference agency Experian South Africa. "Yet it has grown exponentially in the past couple of decades, owing to freer access to credit as a means of bolstering turnover."

Fortunately, she points out, there is a bright light evident in the form of improved technologies such as credit scoring and decision support automation, coupled with access to credit history information.

"This has enhanced credit providers` ability to extend credit faster, at a lower cost to more people."

She cites the International Finance Corporation statistics demonstrating that:

* Less than a quarter of developing countries` populations have access to formal financial products, in comparison with as much as 90% in developed countries; and
* Where there is an absence of formal credit information sharing, as there is in many emerging markets, significantly fewer loans are made.

Beetar elaborates by pointing out that improved credit technologies allow credit providers to reduce subjective lending decisions and instead make use of objective and automated processes.

"Such processes enable them to deliver credit products at significantly lower risk, reduced costs, and consequently, to expand credit offerings to larger segments of the population."

Credit bureaus, Beetar maintains, serve as an essential part of an economy`s credit infrastructure by assisting credit providers to make faster and more accurate decisions that are cognisant of the borrower`s ability to repay, and of his/her current debt exposure.

She characterises a private credit bureau as an independent company that compiles public record data, identity information, credit transactions and repayment histories of individuals and businesses on behalf of credit providers.

"Because credit information is held independently, borrowers are also able to take their credit reports with them and shop around from one credit provider to another, thus increasing competition in the industry and making credit more affordable."

She contends that effective credit information sharing, particularly the sharing of positive credit history information, is key to increasing access to credit.

"Hence, a consumer with a positive credit history may have the opportunity to access more credit, as a positive record better reflects the consumer`s ability to pay a debt than the absence of negative information alone.

"The consumer may even be able to negotiate better interest rates and have access to a greater range of credit products."

From the credit providers` standpoint, Beetar points out that they are thereby able to make improved credit decisions, apply risk-based pricing models and reduce bad debt.

Experian, she says, stores a combination of positive and negative information. "In fact, about 75% of account information held by Experian is positive information that assists consumers to gain access to credit."

Beetar highlights the importance of finding the appropriate balance between the credit provider`s need for information - to enable profitable and responsible lending - with the consumer`s right to privacy, coupled with their demand for fast and sophisticated credit products.

Experian encourages consumers to take control of their credit information and manage their credit standing. Beetar urges consumers to obtain a free copy of their credit report once a year, and to ensure the information is accurate.