Earlier this week , news was awashed with the publication of names of those who owe the country’s financial institutions. I want to assume that the financial institutions have done all they can to recover their funds and publishing the names of the dead beats was their last resort.
Personally I find this method to be a very crude, primitive and an inefficient way of recovering debts.
The CBN and the financial institutions are trying to use school yard tactics in the world of finance and credit management by publishing the names. All that does is cater to the already prevalent knowledge that there is corruption in the country and feeds into the distrust and dissatisfaction of the general public. It does nothing to address the problem.
This strategy stems from our natural instinct to complain and lay blame, but doesn’t go further to create a solution.
Years ago, this method was also used. We cannot tell whether the names published then was effective in recovering their debts.
In credit management, there are four basic ways by which debts can be collected, personal communication and consultation with your client, a written request to settle the debt ( also called a letter of demand),a debt collection agency and legal action.
Let us assume that the financial institutions have carried out the first two. This brings us to the next step. Debt collection agencies. The banks should start looking at ways of encouraging the establishment of collection agencies to help them retrieve their debts as obtainable in advanced economies. Financial institutions can either outsource to third party agencies or create an in-house debt collection agency.
The problem is, these agencies will find their job to be very difficult without consequences. Which brings me to the main thrust of my rant. Credit rating agency. Financial institutions should start looking at instituting an independent credit rating agency to rate borrowers.
There cannot be any headway if there are no consequence. Transunion and Equifax are the major rating companies for individuals while Dun and Bradstreet is well suited for businesses. So when an individual or a business realizes that defaulting on a loan will affect their credit rating and ultimately affect securing future loans, they have a rethink.
In North America and other advanced economies, no financial institution grants any loan without first getting a report from these agencies.
Like I mentioned earlier, we do not know the outcome of the names published couple of years ago. The only thing I can think of that the name publishing will achieve is shame the debtor. There is a prevalent undertone of shaming in our culture, and we still think it works for everyone.
I believe there should be consequence for not managing your debts properly and a reward for managing it properly. The credit rating will take care of this.
The financial institutions will do the economy a lot of good by putting heads together with the CBN and other stakeholders to formulate a framework for the collection agencies , institute a credit rating agency and improving the laws related to debt matters. This will be more beneficial to the economy than meeting with CBN to strategize on how to publish names of debtors in national dailies.