Interview of the Director of “ACRA Credit Reporting” Artak Arzoyan to Mediamax Agency and Banks.am portal

- Please present a standard scheme of the work of a credit bureau with a creditor-organization and the potential borrower. Assume that the borrower turned to a bank to gain a mortgage credit: what will the scenario of the further events look like?

- Receiving the application of the customer, the creditor-organization is starting the assessment process of his solvency, the level of which may be various - both from the point of view of the spent time, and the information studied. Since in various organizations the given process may be of different nature, I am presenting the classic variant.

The first step on the way of assessment of the solvency is the preliminary conclusion, based on the primary information, received from the borrower, during which the documents, requested by the creditor, are used, in particular, the documents identifying the person, stating the financial status, etc. Having analyzed the received documents, the creditor makes a preliminary decision on whether to continue the process of solvency assessment or to refuse the customer, if he/she does not meet the preliminary standards, established by the creditor. If there is a positive conclusion, the creditor turns to a credit bureau for receiving the credit history of the customer, including the conscientiousness of fulfillment of financial commitments by the given person, as well as the level and the types of the commitments, taken by the customer upon himself/herself. In this case, negative credit history may become a ground to refuse the borrower, and the positive credit history, on the contrary, may improve the conditions of the provided credit as to its term and the interest rate.

- Credit Bureau is separately accumulating credit histories and information on the borrower. Isn’t one credit history enough for gaining full information for the assessment of the risks and making the decision? What is the aim of collection of information on the borrowers?

- The information, collected on the borrowers, is of quite limited character and it aims at securing the correct identification of the borrower.

“ACRA” Credit Bureau collects data, identifying the person – passport and social card numbers, addresses, dates of birth, residency. Without this data, the probability of wrong formation of the credit history increases, which is not allowable. As opposed to personal data of the borrower, the information on his/her financial commitments is much wider and includes any necessary information data for the assessment of the borrower’s solvency.

- What will be the outcome for the borrower, if he/she makes a decision not to build a credit history? Doesn’t the creditor have a stereotype, according to which the ones, who are “against” us, are “not with us”?

- In Armenia, a credit bureau works using the following pattern: creditor-organizations provide the credit bureau information on all the credits, basing on which there is a credit history formed. The credit history may be provided to the creditor-organization only in case the customer has given his/her consent. Thus, formation of credit history does not depend on the will of the customer; however, he/she may forbid the provision of the given information to other people, not having his/her consent to that. Formation of credit history in the first place meets the interests of the customer, since it decreases the dissymmetric information, present in the system, providing opportunity to conscientious and solvent borrowers to be granted credits on more favorable conditions. Thus, if the customer does not want to allow his/her credit history being used in the process of crediting, this means that he/she has concerns that the negative credit history may have negative influence on the crediting process. There are many countries today, where the number of people, having credit history, verges towards the number of adult population, and the absence of credit history, or its blocking by the customer, unanimously causes his/her dropping out from the crediting process.

- Is there a single school of credit history assessment for all the creditor-organizations, in accordance with which the decision is made on whether to provide or not to provide a credit? Since, often there may be disputable situations, when the parameters of the credit history will be on the borderline between “good” and “bad”.

- The assessment of the credit risk of the customer, expressed in numbers, is realized by many credit bureaus. In “ACRA” credit bureau, there is work initiated on implementation of credit scoring, which will give single assessment of the credit risk of the customers, basing on his/her credit history and the conscientiousness of fulfillment of financial commitments. As a result, we will have an assessment, expressed in a single number. However, the passing level, in accordance with which the decision on crediting or on refusal is made, is in the vision of the creditor-organization. Usually, in the international practice, the creditor-organization clearly determines the passing point, below which crediting is by no means realized. As concerning the borrowers with a higher level of risks, certain creditors may use crediting on high interest rates, in the view of which the passing point, established by them, may be at a lower level. The given fact once again points out the decrease of dissymmetric information, since, not having met the requirements of one creditor, the customer may receive a credit in another organization, the market segment of which includes borrowers with considerably higher level of risk. The beginner borrowers are usually offered credit cards with small limits, by means of which the necessary information for realization of credit scoring starts to form. Besides the assessment of the credit risk by the credit bureau, creditor-organizations also realize assessment of solvency of the customer, basing on the personal data of the customer, which for the most part takes place before receiving the information from the credit bureau. At this stage, it already becomes clear whether the customer meets the standards of the creditor or does not.

- Does the credit bureau carry out special statistics on what credits are more problematic, and can we assume that the larger the volume of the credit, the more problems there will be as to its repayment?

- At present, “ACRA” does not carry out such activity; however, it is realizing a new project with the CB and the commercial banks of Armenia, which provides for carrying out such analyses by credit bureaus. In connection with the second part of the question, I can say that it is not correct to consider only the volume of the credit as a precondition of its riskyness. The credit, which is considered large for one borrower, may be small for the other. Thus, the likelihood of repayment of a volume credit depends exclusively on the factors, characterizing the solvency of the borrower, which are taken into account by the creditor before the provision of the credit.

- How many credit histories have you collected and how is this index correlated with the present speeds of development of the credit market?

- At present, there are about 500 thousand credit histories collected in “ACRA” credit bureau. In accordance with the “Doing Business-2008” research, realized by the World Bank, Armenia does not yield to the Baltic countries as to the ratio of the population, having credit history, and among the CIS states, it occupies one of the leading positions. Since the credit bureau is provided information on all the credits, the development of crediting market is reflected in the increase of the number of credit histories as well. According to our preliminary forecasts, by the end of 2008, the number of credit histories will double at the expense of concluding the process of input of the existing information into the system and the growth of crediting volumes.

- How many creditor-organizations are your partners and according to what financial scheme is your cooperation built? Does the borrower have any financial commitments?

- 19 banks and 6 credit organizations have concluded agreements with “ACRA”. In the nearest future, agreement with two more banks and five credit organizations will be concluded as well. We plan to establish cooperation with all the creditor-organizations by the end of the first half of 2008.

ACRA services are not free of charge, and the creditors pay for credit histories. Depending on the policy of the creditor, the borrower pays the sum, or the creditor-organization includes the sum in its operational expenditures. In fact, there may arise no other financial responsibilities for the borrower.

- The specific nature of a credit bureau’s activity provides for the presence of serious technological basis, how are the things going with you in the given direction?

- Today, “ACRA” credit bureau has all the necessary technological solutions for the work with credit information. High level of security of the information is provided, the services are provided in on-line mode, and the transfer of information is regulated in detail. The famous Dun&Bradstreet Company rendered assistance to us in the implementation of the given technologies. The Company has many years’ work experience in the sphere of crediting information and is one of the shareholders of “ACRA” credit bureau.

In 2008, a number of measures will be taken up, directed to the renovation of information technologies and the existing computer resource. Within the framework of the FSDP program, realized by USAID, we are cooperating with EMG organization, hoping to have their assistance in implementation of modern technologies.

- What main principles are set in the basis of the law “On credit bureaus”, which is in the process of elaboration, do they provide for the so-called “punitive measures” for the participants of the credit market?

- The draft law is based on principles, directed to strengthening the protection of the customers’ interests, providing information security and trustworthiness of the data. The draft law is still at the stage of elaboration and it is difficult to say what concrete provisions it will consist of. The law provides for licensing of credit bureaus, which implies certain sanctions concerning them. It is possible that certain obligatory provisions for the participants of the credit market will also be included in the draft law. There will appear new relations and, naturally, new situations will arise, which will have to be regulated.

- “ACRA Credit Reporting” is the only credit bureau in Armenia. Isn’t it “boring” to work without competitors?

- Taking into consideration the size of the financial-credit system and the number of potential borrowers, I don not think that there will be a new credit bureau established in Armenia in the nearest future. In many countries of the world, one credit bureau is functioning, which can be accredited to the specific nature of the given business. In the draft law “On credit bureaus”, there are provisions included, which limit the opportunity for enjoying dominating position and which secure equal conditions for all. Considering this, I do not think that the fact of “solitude” of “ACRA” in the market will cause any problems in the crediting market. On the other hand, “ACRA” has a composition of shareholders, which gives opportunity for healthy distribution of interests and allows having corporate management even before the approval of the law.

- Dun&Bradstreet Company (D&B) is the strategic partner of “ACRA Credit Reporting”. What does your strategic partnership include?

- D&B is one of the most experienced companies in the world in the sphere of business-information. In the process of elaboration of “ACRA” credit bureau’s software support, D&B rendered us large-scale consultation assistance, as a result, a reliable system of information circulation was formed. One of the stages of strategic development program of “ACRA” provides for circulation of business-information, and the assistance of D&B will be very useful for us. Today, the discussion on further cooperation directions is in process.