GDS Link: Customer data could benefit long-term lending in developing countries

A recent white paper released by GDS Link, a credit and risk management technology company, explained the importance of establishing a credit bureau in Zimbabwe. In developing countries like Zimbabwe, there is often little information regarding bank customers and their needs. To make up for the risk, only high-interest and short-term loans are available, and with so few affordable options, many consumers are unable to receive the financial help needed. By increasing the availability of long-term loans, the banking sector could offer stability not just to consumers, but the economy as a whole.

When Zimbabwe’s economy became dollarized in 2009, in an effort to avoid hyperinflation, the Bankers Association of Zimbabwe began encouraging the establishment of a credit bureau for more credit information. Though the banking industry has grown without a credit bureau in the past few years, including an increase in the number of loans made, the rate of default rates has also increased.

As the report explained, “If lenders have better quality information about borrowers, this would give them (borrowers) improved access to credit, which translates to greater availability of credit
at lower cost. The bottom-line is that the availability of information will stimulate economic activity and growth of the economy and will reward responsible lending and borrowing.”

The country’s poor legal framework adds more challenges, as bank customers are more hesitant to borrow and less trustworthy of financial institutions give that there are fewer laws to protect their funds. If overall security in the country were to increase, the banking sector would likely benefit.

Lastly, having stronger credit tracking would also help consumers starting a business, purchasing a home or otherwise applying for a loan. In a company that has little capital inflow compared to others, increasing economic flow could greatly help growth and benefit neighboring countries and investors as well.

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From loan originations and decisioning, to customer management and beyond, GDS Link helps thousands of clients manage risk while driving growth.