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Are you in the red?

Banks in the UAE can finally get tough on bad borrowers, thanks to the setting up of Emcredit. Created in collaboration with the Dubai Department of Economic Development last November, the organisation collects information from different institutions to build up a picture of individual customer's borrowing habits. This means banks can assess the risk of lending to customers - ending the practice whereby individuals could apply for unlimited credit cards and loans regardless of their borrowing history. Emcredit is now working alongside the UAE Federal Government to create a regulatory framework to govern credit information sharing in the country. Money magazine asked Emcredit CEO Bashar Saleh Qallab to explain how his organisation functions and how consumers can benefit from credit checking in the UAE.

If a federal law is passed to govern the sharing of information in the UAE what benefits will it bring for consumers?
Ultimately any data privacy law is good for the consumer because it protects their privacy.

At the moment the credit information component is coming into particular focus and it's an area that's very close to our business.

I think it will clarify the process and it will clarify rights and obligations for all the parties, enabling banks to understand their obligation under the law when it comes to the privacy of consumers.

At the moment, because there is no federal law there are different banks that have different views on what privacy is.

When the law is introduced it will standardise that and we're working very hard to ensure that consumers' right to privacy is protected.

So in theory can companies give customer data away without asking their consent?

There is no specific data privacy law in the UAE, which means there is a lot of confusion on the issue. The collection of data is something that happens in lots of sectors, not just banks.

At present there is no law that regulates the usage and sharing of that data.

How will the presence of a credit checking bureau in the UAE benefit consumers?

The benefit predominantly for the consumer is they will be able to see their total credit liabilities in one place and that will mean they will understand their exposure much more clearly.

It will also give the creditor or the bank access to a more comprehensive view of a customer's history and that means they are in a better position to live up to their social responsibility towards that consumer because they can understand whether this consumer can pay a loan back or not.

For the consumer who pays all of their credit liabilities on time it means they will be able to use that information much more efficiently in going to a bank and saying ‘I'm a good credit risk, I would like a credit card with lower fees or a lower interest rate'.

Would you say the lack of a credit bureau in the UAE means consumers are able to take out far larger loans than they can afford to repay?

The risk management process here is limited by the lack of credit information available.

It could be greatly improved with more information, which is what Emcredit aims to do.

I think as a result of the lack of information the consumer ends up being exposed to a lot of loans.

Some people get themselves into trouble because they don't know how to do personal financial planning.

A lot of banks are very concerned about this and are very concerned about living up to their corporate social responsibility with regards to this issue.

Will consumers themselves have a say in whether their credit information can be given out?

When customers apply for a credit card or another financial product they will have the option to sign a declaration saying ‘I hereby give you consent to retrieve information from the credit bureau about me'. So the customer chooses whether to give consent.

In places like the US or the UK when you refuse to give that consent the bank considers you a high credit risk because they assume you are trying to hide something.

Are consumers able to get access to their own credit information?

We will have a variety of mechanisms by which we can allow consumers to access their credit information online.

There will be real time methods - for example you will get an SMS once a month if there is a report on you if you register for that service.

And that SMS will tell you that this bank - or this entity pulled a report on you.

If you didn't give them consent you would notify us and we would deal with it on a case by case basis.

What behaviour on the part of consumers would cause a bad credit report to be written on them - would missing a payment on a loan be enough?

The fact is that 98% of the population live on a budget which means those people are going to miss a payment here and there.

Just because a credit bureau is coming doesn't mean that because you've missed a payment here and there you're automatically a bad creditor.

How it works is that the credit bureau will create an average of how many payments consumers in the market actually miss. Then you start to build that as an average and if you're worse than it you're worse than it and you would know that you're worse than it and work towards improving your average.

When you have a database and you have several hundred thousand records in there you start to see what the average is.

So if a lot of people miss one or two payments here or there that is the average and anyone who misses less than that is above average and anyone that misses more is below average.

The system also takes into account certain payment methodologies.

For instance there are certain payment providers that make it incredibly difficult for people to actually pay their bills on time.

In some cases the process is tedious - there's no direct debit and there's a lot of issues.

And if all consumers are consistently late with this particular data provider then you start to look more closely at what is wrong with their data collection system.

How does the process of obtaining information on a person's credit history actually work?

It is totally electronic. The bank for instance would retrieve your application particulars and put them into the system and see if there's a credit information report about you in the system on our database.

If there's credit information they will be able to see it. It's all automated. When someone demands a report it goes onto the production server and it becomes visible to that area.

It's all completely automated. In fact no one at Emcredit will be able to see this information, only authorised users who have the consent of the user will be able to see it.

From our end even when we do a database test, the name of the individual is masked.

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