Saudi Credit Bureau (SIMAH) CEO Nabil Al-Mubarak has underscored the importance of providing credit facilities to the small and medium enterprises (SMEs) for their role in the economy.
The SIMAH chief, in this exclusive interview with Ali Bluwi & Sharif Taha of Arab News, said a taqweem project had been initiated with the intent of providing accurate credit information on the SME projects to help banking and financing institutions extend the required funds to these projects. SIMAH recently launched an awareness campaign on the dangers and risks associated with bouncing checks due to their negative effects on individuals or corporates, he said.
Q. Amid speculations on the reluctance of financial institutions to extend loans, banks are prepared to provide small and medium enterprises (SMEs) with SR 300 billion, what reasons were behind this change? Were the obstacles removed?
A. As we know, small and medium enterprises (SMEs) are the most efficient tool to drive economic and social development even in remote and less developed regions. They offer training opportunities to develop skills of manpower, and help enhance fund circulation of small-scale projects. In addition, they are considered the core of big enterprises. Governments used to give great attention to these projects and pass regulations to provide them with infrastructure particularly since these enterprises proved their ability to minimize pressure on the public sector by providing employment opportunities. Moreover, the SME projects play a big role in developing managerial and technical skills by assisting big enterprises in marketing as well as providing raw materials and primary commodities during production stages. Furthermore, most of the international and regional institutions and organizations that donate aids are now more interested in supplying financial and technical support in order to enable these enterprises become self-reliant and perform their desired role in economy. We, at SIMAH, have observed the following significant points: Banks are hesitant toward lending due to lack of credit information to measure the level of financial solvency, high cost of loan assessment and evaluation, inability of SMEs to manage credit risks, increased lending costs due to increased credit risks, and the inability of all sides to calculate probability of default. All these factors were taken into consideration by our taqweem (evaluation) project so as to encourage banks to extend more loans to such enterprises. The "taqweem" project carries out studies and analyzes all financial, economical, administrative and strategic aspects related to SMEs in order to assess all such companies in terms of capital, scope of activities, and number of employees. This will facilitate the acquirement of appropriate funding from financial institutions as well as help develop these companies' business by taking a serious step in evaluation based on scientific and methodological principles. The idea of (taqweem) project was initiated by SIMAH for a long while but we preferred to start doing all the required studies regarding the reality of this vital sector, in addition to examining the most important problems facing it, whether financial or otherwise, through drawing comparison with similar sectors in some developed countries, particularly in the aftermath of the global financial crisis. The main obstacle was the absence of an accurate model that helps funders assess the financial solvency of the SMEs. This is exactly what the taqweem project offers to the SMEs which, in turn, will obtain an evaluation certificate based on our (taqweem) project through developing a specific credit evaluation model for each bank and its (credit) requirements.
Q. Very recently you have affirmed that 99 percent of SME projects are individually owned or limited firms, how do you assess these projects to ensure delivery of loans to their owners? And what assurances the banks could get from the lending process?
A. That is true. SIMAH realizes that most SME projects are either individually owned or limited liability firms. We have recently launched an initiative to qualify more than 20,000 SME projects and will be prepared to get an evaluation that will, hopefully, ensure their success and continuity.
Q. The volume of bounced checks has substantially declined by almost 50 percent, and for comparison it fell from SR 14 billion in 2009 to SR 5 billion in 2011. In your view, what are the causes behind this significant decline?
A. These developments were the outcome of the concerted efforts of all relevant sectors. Since 2008, we have realized that bounced checks are, undoubtedly, a financial crime because of clear infringements on the rights of others. We have been observing and analyzing the situation and also seriously trying to develop a project in order to minimize this phenomenon. Having reviewed many studies, estimations, and statistics, we concluded that bounced checks infringe on the rights of creditors, exposing them to many problems such as their inability to fulfill their obligations toward clients besides many social and family problems. This situation will, in turn, lead to halting of creditors' projects due to lack of liquidity. Moreover, debtors are exposed to legal and judicial prosecution causing adverse social and economic effects. Therefore, SIMAH launched a system for registering bounced checks, as well as its awareness campaign under the motto "2010 ... all our checks with balance" in order to monitor all bounced checks and deal with them as a case of probability of default. Hence, the bounced checks have a direct negative effect on the credit report, be it individuals or companies. According to our periodic reports on bounced checks, we confirm that the phenomenon is receding. I would like to point out that the total number of bounced checks has declined during the first quarter of 2012 by 54 percent compared to the first quarter of 2011. The total number of bounced checks by the end of the first quarter of this year was 10,575 checks, compared to 23,212 checks by the end of the first quarter of 2011. Reports also revealed that the overall value of bounced checks by the end of the first quarter of this year witnessed a significant decrease by 57 percent, at SR 1.074 billion compared to SR 2.490 billion by the end of the first quarter of last year.
Q. SIMAH recently launched a series of technical services reportedly meant to enhance customer communication (SMS service). What goals do these services want to realize from practical points of view? How do you see them in the framework of comprehensive financial services?
A. This is true. SIMAH recently launched a series of modern technical complementary services with the aim of speeding communication with all categories of customers, both individuals and companies who have credit records. We are keeping pace with technical development and utilizing it to reach all sectors of society in the shortest and easiest way. We also firmly believe in raising the level of credit knowledge among society, serving them and enabling them to obtain their rights. So we are talking about several projects - an SMS project (SMS 510001) and the Unified Call Center project, in addition to an awareness campaign titled (Your Report on Your Mobile). One of the most important and main objectives of this project is to provide the broadest segment of citizens and residents with more accurate information and faster access to their credit information whenever they want. Also, it aims to notify customers about periodic updates and payment behaviors, in addition to communicating with them via SMS messages regarding complaints. Additionally, we undertake our social responsibility through cultivating credit awareness among community members. Our SMS (510 001) service consists of three main reports during its first phase.
Q. Informing customers of their credit behavior means communicating with his bank through phone or email. To what extent is this type of communication secure? What role SIMAH could play in raising awareness in this context, particularly with the various incidents of PIN theft or other types of fraud?
A. That is an excellent question. SIMAH considers the security of credit and funding information a top priority. The system of credit information and regulations strictly calls for application of all security measures and procedures to maintain confidentiality of information. We have prepared regulations, technical standards and special precautionary measures to facilitate informing people of their credit reports without leaking information and protecting it from inappropriate use, thus maintaining confidentiality. We have external and internal procedures. External procedures involve binding individuals to certain measures such as personal introduction through attendance, filling out forms for the provision of services through a written statement, and direct contact address. This also applies to other technical services. On the other hand, SIMAH members (private or governmental sector) are not allowed to access customers' credit information unless the customer approves and allows the inquiry. Regarding internal procedures, they are a set of procedures and measures, which include developing complex IT systems for saving data and credit information. This involves the security of communication channels as well as linking members through specific mechanisms and devices that are subject to strict control and check on the round-the-clock basis with every inquiry made.
Q. The idea of "Black Lists" is still capturing attention of some people who are linking SIMAH with banks. Would you please elaborate on this?
A. This is an important issue, which has to be emphasized and clarified. First of all, the Saudi Credit Bureau (SIMAH) is not concerned with black or white lists. SIMAH is a neutral company that provides credit information. It was established by ten local banks under the direct supervision of the Saudi Arabian Monetary Agency (SAMA) since the nature of this sector is that it requires significant investments. Moreover, we have repeatedly stressed that SIMAH does not represent banks at all, but enters into unified agreements with banks according to specific regulations, which determine the nature of the relationship. We do not interfere with funding decisions, positively or negatively. In fact, credit information companies in most countries were initially established within the financial sector. One of SIMAH's main goals is solidifying its vital role in raising credit awareness, but this is contrary to what some believe, as they think that SIMAH only serves banks or that its members represent the banking sector exclusively, or the old idea of black lists.
Q. How do you evaluate SIMAH's role in the framework of Saudi economy and economic planning? Why information is only limited to members, and is it possible for individuals to join SIMAH's services?
A. SIMAH is part of the credit environment system in the Saudi market. It provides banks and companies with databases to facilitate serving customers, which ultimately contributes to economic growth. SIMAH seeks to achieve a number of goals such as assisting creditors in making correct and more objective decisions. To achieve this, SIMAH collects information from participating members to provide creditors with the full information of the client. Our members, likewise, send information of their clients to SIMAH to assess the financial ability of current and future clients that will help creditors make decisions. Moreover, SIMAH seeks to help its members of special clients obtain diversified and unlimited financial services including all kinds of credit facilities with less cost and guaranties. It also aims to help creditors to take better and faster decisions, reduce non-payment risks, and help clients to benefit from their credit history at less commissions and easier conditions. SIMAH will provide more transparency in the credit market and the client's positive credit history will have a positive impact that will allow customers to get credits.