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Bangladesh Bank has published the “Guidelines on Licensing, Operation, and Regulation of Credit Bureau”. This policy is being created to comply with Article 82 of the Bangladesh Bank Order, 1972. It aims to incorporate modern technologies such as Artificial Intelligence and Machine Learning in credit risk assessment. This will be done through the use of credit scoring and grading by third parties authorized by Bangladesh Bank.
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Credit reporting systems are increasingly important in the financial sector. They help with supervision, stability, and managing credit portfolios. They also benefit the public interest and contribute to a healthy financial ecosystem.
A well-established financial ecosystem helps improve the efficiency of the lending market. It reduces information asymmetry and legal uncertainty, which benefits banks, Finance Companies, and regulators. It also reduces default risk by identifying market failures and improving credit information systems. This can lead to better access to credit for borrowers who previously had limited or no access. Additionally, it promotes responsible borrowing and healthy repayment habits, preventing unnecessary debt burdens.
Borrowers can monitor their credit ratings to avoid accumulating unmanageable debt and prevent identity theft. They can also use their good reputation to access credit from sources outside their current bank, which is especially helpful for disadvantaged borrowers like small businesses, farmers, and first-time borrowers with little or no physical collateral.
These guidelines will be applicable to the operation of all credit bureaus licensed by BB. The goal of these guidelines is to specify the operational, regulatory, and licensing criteria for a credit bureau.
PURPOSE AND OBJECTIVE OF THE GUIDELINES:
These guidelines are issued considering the following objectives:
* To reduce the information asymmetry about the borrowers in the financial market
* To provide detailed guidelines for the operation of credit reporting/scoring companies in the country
* To provide guidelines for data sharing among credit and other financial service
providers
* To make positive client information, which is often kept confidential, available to other lenders, increasing competition in the credit market and benefitting better credit applicants.
* To reduce default rates and average interest rates, facilitated by increased credit information, leading towards increased lending
* To encourage borrowers to keep up a strong credit history which ultimately lowers nonperforming loans (NPLs) and improves the quality of the credit portfolio
* To expand the private loan markets through exchange of credit data
* To examine and process credit proposals more quickly and cheaply
* To promote digital lending both at individual and enterprise, especially CMSME, level
These guidelines will be applicable to all Credit Bureaus like, Banks, Finance Companies, Mobile Financial Services Providers, Payment Systems Operators, Payment Service Providers, Institutions that provide any form of credit or seek credit information of a Data Subject, Anyone who wants to use credit information,Any other organization as may be declared by BB from time to time. Click here to read the full report.
