Credit Information Bureau (CIB)-Automated Clearing House-Asian Clearing Union.
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Credit Information Bureau (CIB)-Automated Clearing House-Asian Clearing Union.
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3.0 Credit Information Bureau (CIB)
The Credit Information Bureau (CIB) of Bangladesh Bank is responsible among others for collection, processing and maintaining an updated database of credit related information supplied by participants, institutions which extend credit i.e. banks (Act.14, 1991), Financial Institutions (Act.27, 1993), HBFC (Presidential Order 7, 1973), ICB (ICB Order 40, 1976). The CIB was set up on 18 August 1992 in the Bangladesh Bank. One of the objectives behind setting up of the CIB was to minimize the extent of default loans by providing the participants with timely reports on credit information based on the enquiry/request about the loan applicants so as to facilitate credit risk analysis by the banks/FIs and decide promptly on the loan applications.
1.2. The formation of CIB has, however, eliminated the need for adhoc collection of certificates and decreased the time necessary for loan approval and disbursement. In practice, banks are usually more willing to lend to clients based on their borrowing capacity and good repayment histories. Using CIB reports, lending institution have been able to cut loan-processing time, lending costs and extent of default loans to a considerable extent.
1.3. The goal of CIB is also to ease problems arising between borrowers and lenders. Formal information exchanges help lenders to identify good borrowers, thus reducing the incidence of adverse selection. The practical consequence is better risk management, which enables banks and FIs to avoid risky large loans and increase their lending volume to small and medium-sized enterprises (SME) thus contributing to economic growth, employment generation and poverty alleviation.
1.4. The CIB’s fundamental obligation is to generate ‘trust’ among its participants and borrowers so that borrowers’ information is not mishandled or abused. All the participants should, however, have confidence in the CIB. This trust, in turn, motivates lenders to contribute their credit information to CIB and helps it to develop more rapidly and effectively. The CIB has various operational methods in place to ensure data reliability, integrity and security.
1.5. Credit reporting to CIB database by banks/FIs enables proper sharing of credit information to take proper decision avoiding defaulted borrowers thus to reducing default rates, while allowing borrowers to obtain credit promptly thus facilitating timely implementation of projects and reducing time to market their products.
1.6. The CIB report is especially useful when lending institutions make decisions regarding individuals and SMEs. While lending to large companies, a detailed analysis of the potential borrower’s financial standing and payment history is found to be a sufficiently good predictor of the probability of default of those companies. It is agreed that the CIB report helps to reduce the ex-ante cost and time of loan processing and the ex-post rate of default, which encourages banks to report credit information to the CIB database.
1.7. The goal of Credit Information Bureau is to ease problems fundamental to credit markets. Although credit bureau can help to accelerate the development of financial markets and the private sector, it is important to have the right framework for credit information sharing guidelines. The legal act, regulatory framework and information technology are needed to support a credit information bureau in sharing credit information between CIB and its partners. As per Bangladesh Bank Order (BBO) 1972 Chapter IV-Revised (Annex-A), a clear legal and regulatory framework has been laid down which allows credit reporting and furnishing of credit reports to banks/FIs to function successfully while fulfilling all the requirements for data protection (privacy) as summarized bellow:
1) The CIB of Bangladesh Bank may
(a) collect credit information from every banking company as required; and
(b) furnish such information to any banking company to facilitate assessment of lending risks.
2) For the purpose of enabling the CIB to discharge its functions effectively under this Chapter, it may at any time direct any banking company to submit statements relating to credit information as required and within a specified time as decided by the CIB from time to time.
3 (a) A banking company may make an application to the CIB in a prescribed form requesting it to furnish them with a CIB report on the borrowers.
(b) On receipt of an application, the CIB may, furnish the applicant with the CIB report relating to the items specified in the CIB input forms as per the service standard which may change from time to time.
(i) Provided that the information so furnished shall not disclose the names of the banking companies which have submitted the same as per specified forms to the CIB. (ii) The CIB, imposes a service charge as per Article 45(3) of BBO 1972 in respect of each application (which may be changed as it may deem fit), for furnishing credit information.
4) Any credit information contained in any statement submitted by a banking company or financial institution is treated as confidential and shall not be published or otherwise disclosed. 5) (a) If any banking company i) fails to submit any statement as required or submits a statement which is false in any material particular; or
- ii) fails to comply with any condition imposed, every director or other officer of the company and every other person who is knowingly a party to the breach shall be punishable with fine which may extend to [Taka five lakh]
(b) If any person discloses any credit information he shall be punishable with imprisonment which may extend to six months or with fine which may extend to [Taka one lakh] or with both.
5.0 Automated Clearing House
Automated Clearing House (ACH) is an electronic network for financial transactions in the United States. ACH processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit payroll and vendor payments. ACH direct debit transfers include consumer payments on insurance premiums, mortgage loans, and other kinds of bills. Debit transfers also include new applications such as the point-of-purchase (POP) check conversion pilot program sponsored by NACHA-The Electronic Payments Association. Both the government and the commercial sectors use ACH payments. Businesses increasingly use ACH online to have customers pay, rather than via credit or debit cards.
BACH, the first ever electronic clearing house of Bangladesh, has two components – The Automated Cheque Processing System and The Electronic Funds Transfer. Both the systems operate in batch processing mode – transactions received from the banks during the day are processed at a pre-fixed time and settled through a single multilateral netting figure on each individual bank’s respective books maintained with the Bangladesh Bank. A state-of-the-art Data Center (DC) and a Disaster Recovery Site (DRS) have been established comprising of most modern software and hardware for dealing with the operations of BACH. A Virtual Private Network (VPN) has been created between the participating commercial banks and Data Center (DC) & Disaster Recovery Site (DRS) for communicating necessary information related to BACH. Digital Certificate has been formulated for the first time in Bangladesh for secured data communication.
Asian Clearing Union:
The Asian Clearing Union (ACU), with headquarters in Tehran, Iran, was established on December 9, 1974 at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The primary objective of ACU, at the time of its establishment, was to secure regional co-operation as regards the settlement of monetary transactions among the members of the Union and to provide a system for clearing payments among the member countries on a multilateral basis.
Members
Currently (2009), the members of ACU are the central banks of Bangladesh, Bhutan, Iran, India, Maldives, Nepal, Pakistan, Sri Lanka, and Myanmar. The central banking authority of member countries has issued detailed instructions and modalities for channeling the monetary transactions through the ACU. Membership in the ACU is open to central banks located in the geographical area of ESCAP.
Unit
The unit of settlement of ACU transactions is a common unit of account of ACU, and the unit is equivalent to one USD, and the Asian Monetary Unit may be denominated as ACU dollar & EURO Dollars.
Eligible transactions
All eligible transactions between member countries are required to be settled through the Asian Clearing Union. The monetary transactions eligible to be settled through the Asian Clearing Union includes the following: –
- Payments from the resident in the territory of one participant to a resident in the territory of another participant,
- Payment for current international transactions as defined by the Articles of Agreement of the International Monetary Fund,
- Payment permitted by the country in which the payer resides,
- Payment which are in compliance with FEMA 1999, rules, regulations, orders or directions issued thereunder and the specific provisions of the Memorandum ACM.
- Payment for exports and / or import transactions between ACU member countries on deferred payment terms.
Ineligible transactions
The payments not eligible for settlement though the Asian Clearing Union include the following: –
- Payment between Nepal and India; and between Bhutan and India, except certain exceptions pertaining to imports from India by an importer resident in Nepal and who has been permitted by the Nepal Rashtra Bank to remit payment in foreign exchange,
- Payments which are not on account of current international transactions, as defined by the International Monetary Fund, except to the extent mutually agreed upon between the member countries, and
- Such other payments as may be declared, from time to time, by the Asian Clearing Union to be ineligible for being routed through the facility provided by the Asian Clearing Union.
Asian Clearing Unit
Asian Clearing Union (ACU) is the simplest form of payment arrangements whereby the members settle payments for intra-regional transactions among the participating central banks on a multilateral basis. The Asian Clearing Union is a Clearing Union among the clearing houses/payments arrangements which have been operating in various regions of the world. The ACU was established at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
The Draft Agreement Establishing the ACU, was finalized at a meeting of senior officials of the governments and central banks held at ESCAP, Bangkok, in December 1974 after five central banks (India, Iran, Nepal, Pakistan and Sri Lanka) signed the Agreement. Bangladesh and Myanmar were the sixth and seventh signatories to this Agreement. Bhutan signed the Agreement in 1999. As the ninth member, Maldives joined the ACU in 2009. At present, the ACU enjoys the membership of the following participants:
1. Bangladesh Bank.
2. Reserve Bank of India.
3. Royal Monetary Authority of Bhutan.
4. Central Bank of Islamic Republic of Iran.
5. Maldives Monetary Authority.
6. Central Bank of Mayanmar.
7. Nepal Rastra Bank.
8. State Bank of Pakistan.
9. Central Bank of Sri-Lanka. Among the basic reasons for the formation of a clearing union, the following can be mentioned:
1. To provide a facility to settle on a multilateral basis, payments for current international transactions among the territories of participants.
2. To promote the use of participants’ currencies in current transactions between their respective territories and thereby effect economies in the use of the participant’s exchange reserves.
3. To promote monetary co-operation among the participants and closer relations among the banking systems in their territories and thereby contribute to the expansion of trade and economic activity among the countries of the ESCAP region.
4. To provide for currency SWAP arrangement among the participants so as to make Asian Monetary Unit available to them temporarily.
5. Exports and imports among members can expand relatively faster because of conservation of foreign exchange in intra-group transactions, at least until the settlement date.
6. Trade liberalization can be promoted initially among the members.
7. Economizing the use of exchange reserves the utilization of national currencies for settlement of import payments.
8. An adjustment process can be promoted that would raise the international competitiveness of the members which have similar distortions in trade and production.
9. Measures and surveillance by the union can help to secure a more balanced current account which in turn contributes to the creation of conditions for the future convertibility of each of the currencies of member countries.
10. Ground can be prepared for regional economic, financial and commercial co-operation among the nations of the region’ The following payments shall not be eligible to be made through the clearing facility:
(a) Payments between Nepal and India;
(b) Payments which are not current international transactions as defined by the International Monetary Fund.