City Bank, bKash, TransUnion get primary nod for private credit bureaus

In a first, the Bangladesh Bank has granted preliminary approval to private entities to establish credit bureaus, a move aimed at improving transparency in the country's lending market.

City Bank, mobile financial service (MFS) provider bKash, and the US-based credit reporting agency TransUnion are among five firms, including ventures with foreign investment, recently cleared to set up private credit bureaus.

The Bangladesh Bank received a total of 22 applications for private credit bureaus and shortlisted 13 before issuing letters of intent (LoIs) to the successful five.

The approved applicants are Credit Info BD Credit Bureau, TransUnion Credit Bureau, bKash Credit Bureau, City Credit Bureau, and First National Credit Bureau, Arief Hossain Khan, executive director of Bangladesh Bank, told The Daily Star.

Some of these applicants involve European, American, and Saudi technology firms entering through joint ventures.

Khan said the approvals followed careful scrutiny.

The bureaus will work to determine credit standards by analyzing borrower data before sharing it with banks, which will help financial institutions make informed decisions, according to the central bank's guidelines on the licensing, operation, and regulation of credit bureaus.

Speaking about City Credit Bureau, Masrur Arefin, managing director and CEO of City Bank PLC, told The Daily Star, "We have just received the preliminary approval. It will take about a year to come to the market."

TransUnion, a US-based company, is one of the three largest consumer credit reporting agencies in the world, and has been primarily approved to establish credit bureaus in the country.

Under the 'Payment and Settlement System Act, 2024' and related credit bureau guidelines, private credit bureaus will use CIB and other data to assess the creditworthiness of individuals and businesses, said Major General Sheikh Md Monirul Islam (retd), chief external & corporate affairs officer of bKash. 

He said that by providing credit histories and payment information, they will help lenders evaluate risk, improving access to finance and making credit safer and easier for individuals and small businesses.

The central bank in June of last year introduced guidelines for private credit bureaus.

According to the guidelines, the addition of credit bureaus would reduce information asymmetry about borrowers in the financial market.

It said making client information, which is often kept confidential, available to other lenders would increase competition in the credit market and benefit better credit applicants.

These bureaus will collect information from various sources, including the BB-maintained Credit Information Bureau (CIB), with the permission of borrowers, and share lenders' credit ratings with financial institutions, central bank officials said.

In time, credit bureaus will also help reduce default rates and average interest rates, facilitated by increased credit information, which will lead to higher-quality lending.

Industry insiders welcomed the initiative but urged caution.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank and a former chairman of the Association of Bankers Bangladesh, said, "Credit bureaus exist virtually all over the world. These bureaus will ease banks' assessment of loan eligibility."

However, he cautioned that the BB would have to be very careful in issuing licences for credit bureaus.

The proposed company must be a limited company. Investment from an individual or business entity incorporated outside Bangladesh is also allowed, according to the BB guidelines.

The minimum paid-up capital of a credit bureau will be Tk 10 crore.

The central bank guidelines also state that the number of directors will not exceed 11.

They state that at least two directors must have 10 years of experience in the banking industry.

The BB guidelines add that at least two more directors must have experience and an academic background in technology-related businesses.

A shareholder that owns more than two percent of the total shares of a credit bureau will be eligible to become a director, it said, adding that no individual could be a director at more than one credit bureau at any point in time.