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Credit Bureau: the Case of Jordan Dr. Adli Kandah Director General Association of Banks in Jordan Workshop on Support for Euro-Mediterranean industrial cooperation regarding Dimension 4 of the Euro-Mediterranean Charter for Enterprise: Access to Finance, Milan 13 - 15 December 2011 Steps undertaken to establish a private credit bureau company in Jordan First Legislative framework Second Practical measures undertaken to establish credit bureau company 2 First Legislative framework regarding the establishment of credit bureau company 3 A) The Issuance of Credit Bureau Law, June 2010 The issuance of credit Bureau Law No (15) for 2010 in the Official Gazette (No. 5034 dated 1/6/2010). According to article (3), the CBJ has appointed the company's license in accordance with terms and conditions determined by a special regulations issued by the CBJ for this purpose. Article (6), stated that the CBJ shall supervise the company and its regulation and control. Item B of article (5) stated that the company should be a limited liability or a private company, the participation or contribution as appropriate is exclusive to banks or any other legal persons with the consent of the Central Bank. Item (C) of the same article confirmed of making any changes in the ownership of shares or stock of the company without the approval of the Central Bank. 4 A) The Issuance of Credit Bureau Law, June 2010 Article (6) stated that The CBJ will supervise and control the company and organize its operations through : 1. Adoption of the company's standards to ensure that it is dealing with credit information and credit reports as specified in this law (accurately, fairly, and objectively). 2. Organizing the use of credit information among relevant parties. 3. The adoption of credit-point program prepared by the company for the purposes of providing numerical indicators determine the customer's credit status. 5 A) The Issuance of Credit Bureau Law, June 2010 Article (7): stated that the credit report should be requested only in accordance with the provisions of this law and for the purposes of assessing the credit status of the client and his financial capacity in any of the following cases: A. the customer’s credit request from credit provider, or request to increase the amount of credit or reschedule or change the terms and conditions of the credit contract. B. the query about the reasons for non-payment the amounts of credit granted to him or delay in payment. 6 A) The Issuance of Credit Bureau Law, June 2010 Article (8) prohibited the following actins under penalty of legal liability: A. Credit provider shouldn’t Request any credit information or credit report from the company without obtaining the access authorization from the client. B .Data provider shouldn’t provide any credit information relating to any client without the access authorization. C. the company shouldn’t provide any credit information, or issue any credit report without the access authorization. 7 A) The Issuance of Credit Bureau Law, June 2010 Article (9) stated that the Company may obtain credit information mainly from: any other credit bureau company, Banks and financial leasing companies, any company that sells on credit, financial institutions. Article (11) stated that the company's activities include the following: A. collection, storing, and handling the credit information in accordance with the provisions of this law. B. Preparing a database regarding customers. C. Preparing credit reports according to forms approved by CBJ. D. Identify customer's credit status according to the approved credit point program. 8 A) The Issuance of Credit Bureau Law, June 2010 Article (12) stated that the company is obligated to: A. Marinating credit information and any modification on it. Complying with the service fees approved by the CBJ. B. Providing the CBJ with the names of data providers that the company deal with. C. Establishing customer service unit . Item A of Article (13) stated that it is not allowed for any credit or data provider to own more than 5%, directly or indirectly, of the capital of the company, item (b) of the same article stated that it is not allowed to a credit and data providers together to possess more than 49% of the company's capital. 9 A) The Issuance of Credit Bureau Law, June 2010 Article (14) stated that data provider should comply with the following : A. Providing the Company with credit information related to the any customer or any changes that may occur throughout the duration of the agreement between them. B. Keeping the written access authorization. C. providing evidence of obtaining the credit information in legal manners. Item A of Article (15) stated that the company should sign an agreement with each credit provider to organize their access to credit reports and other related service. While Item B stated that the company is prohibited from signing any agreement with any credit provider that is not data provider. 10 A) The Issuance of Credit Bureau Law, June 2010 Article (19): A. credit provider who wishes to obtain service from the company should inform the customer with the following : 1. the purpose of obtaining credit information. 2. the right to access his own credit information, to correct any error, and to object on that information. B. Credit provider should keep the access authorization throughout credit period. C. When Credit provider rejects the client’s credit request because of the negative points in his credit report, the provider should provide the client with a copy of his credit report. Article (20): the client has the right to obtain his own credit report from the company free of charge for one time annually. 11 B) The Issuance of Credit Bureau Regulations, July 2011 In 8/7/2011, the Credit Bureau Regulations No. (36) for the year 2011 were issued in accordance to paragraph (a) of Article (32) of the Law of the Credit Bureau No. (15) for the year 2010. Article (3) stated that the minimum paid in capital for the company shouldn’t be less than JD 2 million (about USD 2.8 million). Article (4) stated that the founders of the company apply the license application to the CBJ, including the following : A. The name of the company, its set of Bylaws and articles of incorporation, and the location of its headquarter. B. The names of its founders and the nationality of each of them and the nature of their activity, the amount and percentage of ownership in the companies capital, directly or indirectly, and a proof of financial solvency for each of them. 12 B) The Issuance of Credit Bureau Regulations, July 2011 C. The authorized capital of the company. D. Action plan for the first three years from the date of establishment, including the actions and procedures for collecting, entering, retrieving the information and the security and protection of credit information and credit reports and its confidentiality. E. The company’s database management plan, systems, devices, equipment and software to be Used, update mechanism, security measures, and the protection of its database. F. The organizational structure of the company. G. Budget estimates for the first three years from the anticipated date of issuing the first credit report. H. The audited financial statements for each founder for the last two years. 13 B) The Issuance of Credit Bureau Regulations, July 2011 Article (8): No shareholder or partner in the company can make any agreement to control, directly indirectly, more than (50%) of the capital of the company without a prior written consent of the CBJ. 14 Second Practical measures undertaken to establish credit bureau company 15 A Study About Credit Bureau companies in Jordan, Oct. 2010 ABJ has prepared a study on credit bureau in Egypt and Bahrain in comparison with the Jordanian credit bureau Law No. (15) of 2010, and was presented to the Association's Board of Directors who decided to circulate the study to all member banks. In December 2010, ABJ addressed banks to solicit their initial interest in establishing a Jordanian credit Bureau company according to the credit Bureau law No. (15). ABJ has received positive responses from banks indicating their willingness to participate in establishing a the credit bureau company. 16 The Formation of a Steering Committee, March 2011 A meeting was held with the Governor of the CBJ, to discuss the establishing of a credit bureau company. Based on this meeting and in order to follow-up the establishing of a credit bureau company in Jordan, the ABJ Chairman decided to formulate a temporary steering committee that comprises ABJ, CBJ, and some banks in Jordan. The first meeting of the steering committee was held in May, 5 2011. The committee recommended to invite all parties that are interested in establishing a credit bureau company in Jordan. Accordingly, ABJ send an invitation to all interested parties including banks, financial institutions, insurance companies, etc. 17 The First Consultative Meeting, June 2011 In June 2011, ABJ held the first consultative meeting regarding the establishing a credit bureau company in Jordan. Many Parties recorded their names in a list comprises the names of all interested parties that have the willingness to participate in establishing the credit bureau. The IFC expressed its interest in the credit bureau in two ways: Contributing in the capital of the credit bureau company. Providing technical support in establishing the company particularly regarding attracting a strategic partner. The IFC indicated several scenarios to attract a strategic partner: o Launching International tender. o Selecting the strategic partner through direct hiring with the assistance of the IFC. ABJ suggested to perform a study to investigate the nature and the share of the strategic partner, and recommended to link the share of the strategic partner with his role in terms of the administrative and technical aspects. 18 The Steering committee meeting with the Governor of CBJ, July 2011 In July, The steering committee met the Governor of the CBJ in order to follow-up the establishing of credit bureau company in Jordan, and to discuss the shares of interested parties and the strategic partner in the company. ABJ presented a study about the possible scenarios and the allocation of shares among interested parties in establishing the credit bureau company in Jordan. The Governor of the CBJ and the steering committee suggested the following scenario for the capital of the credit bureau company. ABJ contacted all related parties including Electric and Telecommunication companies, as well as IFC. Also, ABJ contacted the legal committee of ABJ to study all legal procedures required to establish the credit bureau Company. 19 The suggested distribution of the capital of the credit bureau No. Party 1 Performing banks in the kingdom the amounted to 26 banks. 2 Loan Guarantee Co. 3 telecommunication companies in Jordan (3 companies) 4 electric companies in Jordan (3 companies). 5 Social Security Corporation 6 IFC 7 Strategic partner Total Value (in JD)* Share (%) (26%) 520.000 ( 1% for each bank) 1% 20.000 ( 3%) 60.000 ( 1% for each company) ( 3%) 60.000 (1% for each company) 10% 200.000 10% 200.000 A portion not to exceed 660.000 33% 86% 1.720.000 * Assuming that the minimum capital is JD2 million. 20 The Steering committee meeting, August 2011 In August 2011, the steering committee and IFC held a number of meetings to discuss the "roadmap" for completing the establishment of a private credit bureau in Jordan. An expert from IFC briefed the committee on the experience of other countries in establising credit burueas. The steering committee agreed the following scenario for the company's capital: Banks: 26%, 1% for each bank. The strategic partner 51% (initially, to be agreed upon after attracting the strategic partner). The remaining portion (23%) to be distributed to other parties. 21 The formulation of a technical committee In September 2011, The steering committee held a meeting and decided to formulate a technical committee comprises representatives from ABJ, Banks, IFC, communication and IT sector, microfinance sector. In October 2011, the technical committee held a number of meetings and submitted its recommendations to the steering committee. 22 The steering committee fifth meeting Accordingly, the steering committee suggested the following: 1. Sending an official letter to the interested parties and data providers to confirm their participation in the company, and their willingness to provide the credit information regarding their customers to the company. 2. Appointing a legal consultant a legal consultant. 3. signing an MOU between ABJ and IFC. 4. Sending a “ request for expression of interest” to a number of international companies. 5. Consulting a legal company regarding the legitimacy of Data Offshoring (Hub & Spoke Approach) in establishing the credit Bureau company. 23 Thank You For Your Attendance 24