Central Bank of Belize Moves Closer to Establishing Credit Score System for Financial Transparency

The Central Bank of Belize (CBB) is moving closer to establishing a credit score system in Belize, which will keep detailed information on people’s financial history. In many countries, credit scores help money lenders to determine whether or not a customer will be able to pay off a loan. Today, the CBB announced that it has contracted the Centre for Research in International Finance (CRIF) to serve as Belize’s Credit Bureau Operator. Central Bank Governor Kareem Michael, explained that commercial banks have kept interest rates on loans higher to guard against potential losses over loan risks. Michael says that increased access to credit information will help lower interest rates and make loans more accessible to Belizeans. 

Kareem Michael, Governor, Central Bank of Belize: “Interest rate spreads which is an indication of intermediation costs. How the banks, credit unions have taken your money, your deposits, your savings and have used those to lend, that’s intermediation, have remained stubbornly high. One of the contributing factors of this is the information gap between those lenders and borrowers that lead to higher lending rates because they don’t have information about the risks tied to you as a borrower. Now a credit reporting system in Belize promises to expand access to finance, to promote financial inclusion and to support a stable financial system. With access to a reliable credit reporting system, individuals who have been excluded from the formal financial sector can now build their credit profiles. This will allow more people to access loans, mortgages and financial services. Now, let me go back to this slide before I continue. One of the big things we have to notice here is in the middle. 30% of Belizeans remain unbanked. The low income households, rural population, are primarily underserved by financial channels. This is the group that we’re really aiming to grab in the formal financial sector. And again, access to more financial services is an integral component of financial development or economic development and job creation.”

Governor Michael says that the credit score system will create a situation where consumers with better credit scores will benefit from better offers coming from commercial banks.

Kareem Michael, Governor, Central Bank of Belize: “How will this work? Consumers will be able to build what is now known as reputational collateral through credit history. So shift your minds out of the traditional forms of collateral. We’re talking about reputational collateral now. The CRS will expand the credit to credit and lower costs of credit for healthy borrowers. Consumers will be able to prove credit worthiness with non-traditional data. And I’ll show that in the next slide. But it will also help to prevent over indebtedness with lenders better able to calculate a borrower’s capacity to service his or her own debt. For lenders, of course, it will reduce asymmetries of information, meaning that the lenders will have a better understanding of a borrower’s full credit history. It also promotes transparency and fairness, very key in the lending process, as all lenders will have access to the same level of information. It is harmonized. Access to this standardized credit information allows lenders to compete on interest rates and terms benefiting consumers through better offers. It allows the lenders to accurately evaluate risks, improving loan portfolio quality, and creating efficiency during the credit adjudication process.”

Michael says that legislation is being developed to guide the process, including safeguards to protect Belizeans’ personal information.