Although household debt has been on the rise, the demand for credit reports to ascertain the creditworthiness of retail borrowers has been falling, and the Jamaica’s largest bank has a theory as to why.
National Commercial Bank Jamaica, which is the country’s largest issuer of loans, says it’s due to the rise of non-traditional lenders, including peer-to-peer lending since 2020, noting that such entities don’t take the same approach to risk assessment as banks do.
Data provided by the central bank shows that demand for the reports hit a low in 2020 and has not recovered since.
“The rise of alternative lending platforms, such as peer-to-peer lending and crowdfunding, might have contributed to the decline in demand for credit reports,” said NCB Senior Vice President, Retail Banking and Group Client Experience Sheree Martin.
“These platforms often use their own proprietary credit assessment methods, which might not necessarily involve traditional credit reports,” Martin noted.
This, alongside changing consumer behaviour, the impact of the pandemic and government relief to offset lost wages amid the shutdown of the economy, were contributing factors to the downturn.
There are three licensed credit bureaus that operate under licence from the Bank of Jamaica, namely, EveryData Jamaica Limited, formerly known as Creditinfo Jamaica, since March 2012; CRIF Information Bureau Jamaica Limited since April 2012; and Credit Information Services Limited, since August 2014.
Last year, there was a near-19-per-cent decline in usage of credit reports by lenders in the financial system. The number of reports pulled fell to 315,881 that year. The category of “consumer free reports” declined even more by 19.2 per cent 7,344 in the period.
Overall, however, the decline began in the pandemic year, after hitting a high of 582,822 reports pulled in 2019. The number of reports dropped 38 per cent in 2020 to 363,020.
“There was a noted decline in credit reports issued by the three licensed credit bureaus, for 2022, even as loan growth trended towards pre-pandemic levels due to the recovery in the economy,” said Bank of Jamaica.
Martin said the rise in alternative funding emerged from the economic uncertainty cause by the pandemic.
“The pandemic led to economic uncertainty, which may have resulted in businesses and individuals being more cautious about taking on new debt. With less borrowing activity, there would be a corresponding decrease in demand for credit reports, as lenders typically request such reports when assessing the creditworthiness of potential borrowers.”
Peer-to-peer lenders, meanwhile, say they have seen utilising alternative means of assessing borrowers.
Carilend, for example, an online lending platform co-owned by VM Financial Group Limited, said it has its own proprietary credit scorecard that it uses “to ensure only high-quality borrowers are approved”.
“Our initial success came from the introduction of a peer-to-peer lending service in Barbados in 2017. Peer-to-peer lending connects people with money to lend and people who want to borrow in a secure online marketplace,” said Carilend via the VM Group’s communications office.
In 2020, Barbados-based Carilend launched operations in Jamaica, where it now provides “VM eLoans” to local borrowers. Last year, it expanded again to Trinidad & Tobago in partnership with Massy Finance GFC and now provides “Instaloans” to Trinibagonian consumers.
To date, Carilend said it has provided over 8,000 loans amounting to US$80 million to consumers across the Caribbean.
“Using our proprietary credit scorecard to ensure only high-quality borrowers are approved, the business has experienced very low levels of loan defaults across all operations,” the company said.
Another Jamaican peer-to-peer lender, Biztechp2p.com, says it 60-point psychometric test to screen loan applicants. The company says it connects verified borrowers seeking unsecured loans with lenders looking to earn higher returns on their investments.
NCB, which manages a loan book that is north of half-trillion dollars, says the rise of alternative lending notwithstanding, it expects the business of traditional lenders to pick up with time, and when that happens, the demand for credit reports will improve.
Within the banking sector, the central bank last estimated in April that household debt had risen to about $584 billion, within an overall market that includes personal borrowers, government and businesses, total loans were $1.18 trillion.
In its report for 2022, the BOJ noted that despite the decline in demand for reports, the sector had seen growth in other areas.
The number of credit information providers, that is, the sources from which the bureaus can pull information to generate credit histories, grew to 118. The number of those that actually submit information to the bureaus also increased to 59.