Stock - Marwan Lutfi of Al Etihad Credit Bureau
Through recent months, Al Etihad Credit Bureau has scaled up the ways credit scores are calculated for UAE consumers. Marwan Ahmad Lutfi, CEO, says there is sound rationale behind this. Image Credit: Anas Thacharpadikkal/Gulf News

Dubai: UAE consumers may not realise it, but one UAE entity – the Al Etihad Credit Bureau – has a central role to play in each and every transaction they make. Whether at the store, online, telephone and utility bills. In addition to the credit card payments and even those on the rent.

And it matters, because miss any one of these payments, it then shows up in the AECB’s credit scores and ratings for the individual. Which in turn impacts the next time the consumer makes an approach with a bank for a loan or a top up to an existing one. (Credit ratings could even influence rental negotiations, because the landlord will not likely be showing keenness to deal with a tenant prospect with a few bounced cheques in the past.)

The Al Etihad Credit Bureau certainly has expanded the scope of what an individual’s credit history could mean. Much of the expanded scope has come about just in the last 12 months, including the addition of telephone and utility bill payments. (Not just that, court judgements issued in the UAE and which come with financial obligations for the individual will also show up in the scoring.)

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In an interview, Marwan Ahmed Lutfi, CEO of Al Etihad Credit Bureau, says why tightening up the credit rating system in the UAE is of such vital importance. And that consumers will also start winning points for good payment habits – and that would be a first anywhere in the world.

UAE consumers and businesses feel their credit ratings have been tightened up excessively by AECB in recent times. How would you counter that?

Our credit reports now offer a 360-degree view on where an individual or SME stands on their credit rating. If someone comes with a 300-point credit score, he gets immediately rejected, whereas in the past banks needed to dig for this sort of information. In many ways, the lender would be lucky if they even got that information.

What you are seeing in the market now is automatic approvals or automatic rejections. Because banks, credit card companies and others dealing with a new client has all the info upfront based on our data. Instant decisions with informed data are getting made, and that’s good.

Over the past five years we've pushed out 7 million credit reports and scores (from 1 million) and, in theory, that all makes for better decision-making.

In other words, you are all for more data points to be part of the final credit score and rating of UAE consumers?

Keep in mind, we only factor credit score adjustments when we have the proof. We always believe more data is better - but the decision making is up to the service provider, whether banks or credit card issuers, car dealers, etc..

What out scores do is basically weed out potential risks for lenders. If someone is already looking as a probable defaulter, then what are the chances he will not do so again?

But why add utility bill, phone and rental payments as part of the score?

If you are a customer with a Dh10,000 salary and apply for a credit card by showing you have no loans or missed payments. What the lender did not know in the past is how much the individual was paying as rent, whether he was doing so on time, and how much the utility bills cost each month.

By placing all these data into the credit rating methodology, we are giving a rounded picture of the individual’s spending habits. Lenders require that.

Credit scores have typically been built around missed payments – any plans to introduce a points system where you reward consistent and good behavior by consumers?

That’s what we want to consider going forward. With some good payment behaviors, we can actually factor those into the credit score. It's something that not been introduced anywhere else in the world – if the UAE were to do it first, that would make us unique. And it’s important because we have over 200 nationalities resident here.

At the end of the day, if a consumer falls short on something, there must be something that can offset it. Maybe, it’s being laid off and then having to wait for three months to get another job and he gets back on track with payments.

Marwan Ahmad Lutfi
"Instead of penalizing by minus 10 or minus 20 based on the 2000 or so attributes we have for the scores, we will offset that by points awarded for good consumer habits," said Lutfi.

Instead of penalizing by minus 10 or minus 20 based on the 2000 or so attributes we have for the scores, we will offset that by points awarded for good consumer habits.

When do you plan to introduce the rewards?

Definitely by next year, because this requires a lot of analytics and a lot of test modeling with our partners as well. Next year, we're planning to significantly revamp - and improve - the credit scoring model.

Our aim is to make it good for everyone – and not to penalize.

We want to have a model that actually becomes even much more predictive about consumer behavior.

While a lot of your credit scores revolve around individuals, AECB also tracks businesses. How's that working?

When we built our predictability models, we looked at someone missing a payment or having a possible default in the future. In companies, there are different set of parameters that are at work. For instance, whether companies are paying employees on time or whether that company has any court obligations that require a financial outgo. Another way is tracking their rental and other payment obligations.

In fact, we are working with some ministries on how we could possibly integrate the customs exposures these companies might have. Because that offers transparency on their trade billing, etc.

There is also continuing talks with government departments, local and federal, to look at how we can build a much stronger predictive model on businesses.

Would it make sense to create a standalone entity to handle ratings for businesses?

I don't think we will be going in that direction.