New legislation will help Dubai-based Emcredit provide lenders with better credit information, but its effectiveness could be hampered by the absence of a federal mandate. The Dubai law will make it mandatory for local and international banks operating in the emirate to share customer data with Emcredit. The requirement extends to the Dubai offices of banks from other emirates, even though such banks would share data from Abu Dhabi only on a voluntary basis, creating a potentially large gap in credit data.
But the agency hopes banks, regardless of their location, will volunteer credit information on their customers. "Banks will not be legally required to share their data across the country but it is better for them to share," said Ali Ibrahim, the managing director of Emcredit and the deputy director of Dubai's Department of Economic Development, which helped establish the agency. The legislation gives Emcredit access to about 80 per cent of all the banking data in Dubai once the large local and international banks are on board, Mr Ibrahim said. That compares with 30 per cent now.
"At least you get some idea of the [creditworthiness of] people living in Dubai. You would not get the 100 per cent usefulness. It is better than in the past, but it should include Abu Dhabi as well," said Janany Vamadeva, an analyst at Al Futtaim HC Securities. Experts say the absence of an effective credit bureau was one factor contributing to excesses in lending and to mounting bad loans in the banking sector.
After rapid credit growth between 2005 and 2008, local banks faced a liquidity squeeze and a sharp rise in the number of non-performing loans. It is unclear whether the new law could eventually lead to a joint federal credit information office. Abu Dhabi does not yet have a credit bureau, but the Central Bank has alluded to the need to establish one. "Credit agencies are a key part of any financial services infrastructure," said Zaid Kamhawi, the chief business officer at Emcredit. Credit agencies say they help to encourage credit growth where they operate and allow banks to expand lending.