Oman’s authorities are making positive headway in the establishment of a Credit Bureau — a first of its kind institution that will have the mandate to, among other things, determine the credit worthiness of businesses and individuals approaching local lenders for commercial credit.
The facility, when operational, is expected to significantly reduce delays in the processing of applications for business loans and other forms of credit — a shortcoming that has taken a toll on Oman’s ranking on the World Bank’s Ease of Doing Business index. The Sultanate is currently placed 133rd among 190 countries around the world based on the ease of ‘Getting Credit’ indicator. By establishing an international-class Credit Bureau, Oman seeks to dramatically improve its global standing as a destination for investment.
According to the Implementation Support & Follow-up Unit (ISFU) — a key task force set up by the government to oversee the speedy delivery of a number of economic initiatives — the proposed Credit Bureau will serve as a benchmark for financial institutions in evaluating the credit worthiness of businesses, organisations and individuals.
“It will also serve as a tool to permit commercial lending, increase access to credit and reduce credit losses,” the task force said. “The Credit Bureau will also augment government supervision in connection to risk management. The purpose of this initiative is to rank Oman first among GCC countries in the Getting Credit indicator of the Ease of Doing Business Index by 2020. Currently, Oman is ranked number four among the GCC countries.”
Significantly, the Credit Bureau will be authorised to collect credit information about individuals and entities, which can be used by “financial institutions, local and international companies, small and medium sized enterprises (SMEs) and credit rating agencies” among others. “The Bureau will also seek to increase the number of loan recipient institutions and facilitate access to bank loans. The initiative seeks to measure progress in the establishment of a Credit Bureau,” it stated. An important beneficiary is expected to the SME sector credit to which has been patchy for want of adequate background information on loan applicants.
This is evident from the Central Bank of Oman’s (CBO) 2014 findings that loans received by SMEs represented only 13 per cent of their total funding. Lack of documentation and supporting documentation was cited as a key factor.
Lending to SMEs is also associated with high loan charges, fees and bank interest rates, it noted.
According to ISFU, a number of challenges as well as differences of opinion were encountered during deliberations on the scope and operation of the proposed Credit Bureau. For example, banks and finance companies said they could not share data between them; utilities, retail, automobile companies and landlords asserted that they do not have access to the credit history of consumers; the Bank Credit & Statistical Bureau (BCSB) warned that it only has two years of back data; and consumer loans were subject to a regulatory interest rates cap.
“Despite the difficulties this initiative has faced in starting up, ISFU’s continuous pursuit and relentless efforts for this project proved to be successful. ISFU worked upon emphasising the importance of access to credit to Oman’s economy and business environment as well as its overall impact on the Ease of Doing Business Index,” the Unit said in its Annual Report.