The information provided by the SME Credit Bureau can further support efforts by banks to strengthen risk management for their SME portfolios, regardless of the level of sophistication and size of the institutions. Banks with an SME credit model already in place can benefit from the Bureau information in various ways. For example, as the Bureau rating is determined based on diverse information obtained from various sources including CCRIS, trade credit data and the Companies Commission of Malaysia, banks can use such information to bridge any information gaps and address the limited pool of internal data available for their internal models. Such gaps currently exist, as banks in general are highly dependent on borrower information alone. In addition, given the diversity of information available within the SME Credit Bureau, banks would now have access to information on various economic sectors that may not be available within existing credit portfolios. At the same time, Bureau ratings could be used by the banks to validate the robustness of their own internal models by comparing the ratings produced between their internal ratings and that by the SME Credit Bureau. For smaller and less sophisticated banks, the Bureau information will supplement the current SME credit assessment methodology that is traditionally qualitative in nature. Such banks will be able to obtain quantitative information from the Bureau database to enhance the overall credit evaluation process, thereby supporting more informed and objective credit decisions.
Our own experience in Malaysia with the Centralised Credit Reference Information System or CCRIS that is managed by Bank Negara, and the experience in other developed and developing countries where SMEs form the backbone of the economy have shown that greater access to credit information has in fact contributed to greater access to financing and reduced loan processing times. By enriching the information available to financiers to support credit risk assessments, the asset quality of financial institutions are also improved, thereby reducing the cost of financing to borrowers and enhancing the capacity of financial institutions to continue extending credit to deserving SMEs. Allow me to elaborate the benefits to SMEs, with particular reference to the SME Credit Bureau: Firstly, the Bureau assists the SMEs to build track records. One of the key factors in credit evaluation is the historical conduct of accounts. SMEs that have no previous banking history would not have the “reputational collateral” that would otherwise give them easier access to financing. The SME Credit Bureau will be able to address this information gap by collecting and disseminating information from a wider base, including trade credit data that captures the dealings between SMEs and their suppliers. In this manner, SMEs which have no financial relationships with banks, but which have strong credit standing among their trade creditors and suppliers, will be rewarded through favourable ratings that can be used to support financing applications when the need arises.