Credit bureau and electronic payment critical in supporting sound credit decisions
CAIRO: The establishment of a credit bureau and the increasing use of electronic payments are two important factors that support sound credit decisions to help spur consumer spending, which in turn leads to higher levels of economic growth for Egypt.
In the Al Mal conference Credit Bureau: Toward a Sound Credit History in Egypt , Tarek Elhousseiny, Vice President and General Manager of Visa Egypt and Libya, highlighted the significance of consumer spending. As a major component of GDP, consumption is the stimulant behind almost every aspect of the economy.
According to the Ministry of Planning, household consumption in Egypt accounts for the largest portion of GDP, having reached 71.6% in FY 2004/5 and expected to reach 83.1% in FY 2005/6.
Egypt s personal consumer expenditure, a key measure of consumer spending, has increased in nominal terms from $60.5 billion in FY 2005 to $68.4 billion in FY 2006, said Elhousseiny, and is projected to rise steadily through to 2011.
As a mechanism that facilitates the safe and low-risk flow of money throughout the financial system, a credit bureau stimulates consumer spending via providing broader access to credit. For this reason, numerous developing economies have chosen to harness the power of credit bureau to increase the volume of secure lending and therefore fuel sustainable economic growth.
In Egypt, access to credit is limited. According to the Minister of Investment HE Dr. Mahmoud Mohieldin in a previous quote, 0.19% of clients received over 52% of bank credit in December 2005. Credit in Egypt has also been hampered by a relatively high rate of non-performing loans which conservative government figures estimate at a total of 15%, including both corporate and consumer loans.
Underlining the importance of a credit bureau in overcoming this challenge, Elhousseiny stated, Globally, institutions participating in credit bureau reported decreases of 25% or more in defaults and in processing time for lending decisions.
Elhousseiny went on to highlight the impact of electronic payments on increasing levels of financial transparency, thereby assisting the integration of Egypt s vast informal sector into the formal economy.
To help ensure the success of a credit bureau, its establishment needs to go hand-in-hand with promoting electronic payments, he said. Global Insight, an independent global econometric forecasting agency, has shown that a 10% increase in card payments could bring a 0.6% increase to Egypt s GDP.
Visa International supports credit bureau worldwide through its partnership with the International Finance Corporation (IFC), the private sector arm of the World Bank Group, to support the development of credit bureau in developing countries.
Visa believes that the establishment of credit bureau is a primary tool to increase access to financing, improve portfolio monitoring and accelerate economic development.
