Credit Information Sharing
Bank of Botswana regulates and supervises credit information sharing in Botswana. The Bank is statutorily empowered to do so by the Credit Information Act, 2021 (CI Act) and the ancillary Credit Information Regulations, 2022. The CI Act, which was operationalised in February 2022, requires all credit providers to submit consumer information to credit bureaus. The information submitted to credit bureaus is meant to enable credit bureaus to generate credit scores that show the credit worthiness of borrowers. The credit scores generated by credit bureaus are assessable to all credit providers such as banks, hire purchase shops, micro lenders, education institutions, and entities involved in fraud investigations.
The regulation of credit information sharing is borne out of the recognition that an unregulated credit information could, overtime, result in some unscrupulous market participants taking advantage of information asymmetry between and amongst credit providers, and borrowers. Information asymmetry often presents various risks in the market that can undermine the financial stability of the domestic economy.
For one, information asymmetry can increase moral hazard. Moral hazard occurs when borrowers default on their repayment obligations without facing any adverse consequences. This generally occurs when delinquent borrowers can move from one lender to another or others that are not aware of the failure of borrowers to repayment their debts. Where there is effective information sharing amongst credit providers, the potential for bad borrowers to hop from one creditor to another is minimised.
Secondly, information asymmetry often increases adverse selection by lenders. This occurs when some potentially good borrowers are priced out of the credit market owing to perceived high credit risk by risk averse creditors. Therefore, reduction in information asymmetry minimises adverse selection and as a result increase access to credit by a wider section of society at affordable interest rates.
Thirdly, effective credit information sharing reduces monopolistic abuse of privileged credit information by lenders that might have access to data on what is perceived to be good borrowers. Often, credit providers with good borrowers as their clients are reluctant to share their credit information.
Instead, the creditors ring-fence such creditworthy clients, and thus denying other lenders to access the borrowers. That is, information monopoly denies borrowers to access lenders other than the ones they already have a business relationship with, and that can deny borrowers access to favourably priced credit as well as damage trust between lenders and customers.
Fourthly, credit information sharing enables borrowers with good credit repayment history to collateralise their credit scores and use their favourable creditworthiness to access credit at relatively affordable interest rates.
Overall, if all credit providers have adequate information about borrowers, that reinforces responsible lending which minimises bad loan repayment habits which might undermine the financial stability of the economy.
The following are the requirements for the Credit Bureau Application