'Payment history can be the biggest relevant database in the country' an interview with Mumtaz Hussain Syed, CEO Tasdeeq

Mumtaz Hussain Syed is the Chief Executive Officer of Aequitas Information Services Limited, Pakistan’s first SBP licensed private credit bureau operating under the name Tasdeeq. He has 30+ years of experience in investments, finance and operations across a varied cross section of industries including information technology, telecommunication, textile, financial services, cement, infrastructure and energy. Prior to Aequitas, Mumtaz has held key management positions at leading corporate & investment banks, telecommunication companies and advisory firms. His ability to identify the value proposition in unique business ideas has led him to incubate and grow multiple startups during his career and most recently his focus has shifted towards data companies. He holds a master’s degree in business administration from Lahore University of Management Sciences.

BR Research met with Mr. Mumtaz Hussain for a discussion on the first credit bureau in the country; following are the edited excerpts:

BR Research: Tell us about yourself and your business ventures?

Mumtaz Hussain Syed: Having a corporate finance background, I started my corporate finance consultancy business back in 2003. Aequitas Group has extensive financial advisory experience in multiple sectors including banking, power, real estate, aviation and cement. We have invested in various companies and have ownership and management control of Pakistan Credit Rating Agency (PACRA), the largest credit rating agency in Pakistan.

Then we have Tasdeeq, which is the first private licensed credit information bureau in Pakistan. We were granted the license in November 2018 under the Credit Bureau Act, 2015. We collect and collate information from member banks and other non-conventional sources such as insurance companies, leasing companies, utilities, telcos, etc. to build a comprehensive repository of credit information data of individuals and corporate entities, and subsequently utilize such data for generating credit information and scoring reports. After us, DataCheck, which was founded in 2001 was also granted the license to operate as a registered private credit bureau.

We also have the license for the first independent ATM operator in Pakistan by the name CASH1, and we have set up 20+ of such machines. So far, all these agnostic based Automated Teller Machines are largely set up by banks in their branches, or malls etc. Our differentiation is that all our machines are and will be offsite in areas where banking penetration is low with the aim to improve accessibility and convenience to the public. Currently, there are around 18-20K ATMs in a country of around 220 million populations, which is inadequate. And these do not also meet the SBP required ATMs to branches ratio of 2 : 1. CASH1 is the first ever ‘white-label ATM’ in Pakistan, and we are a non-bank member of 1Link Pakistan.

We also have a software company which provides services in business analytics, business consulting, AI, big data, and machine learning to companies, banks, insurance companies etc. In short, we work in areas that can support the financial system and promote financial inclusion.

BRR: Speaking of financial inclusion, have you not thought of going in the payment system space?

MHS: We have started with low hanging fruits and areas that have not been taken up by the market as such. But the kind of business we are in, we will eventually have to venture into the payment space as well.

BRR: Let’s pivot our discussion to the first licensed credit bureau in the country.

MHS: Our primary objective to set up a credit bureau was financial inclusion. Financial inclusion basically means inclusion of people on the lower end of the pyramid into the financial system. For that, we have microfinance sector, which has grown tremendously over the last ten years.

Apart from going into the microfinance sector, we realized that we do not have a developed market for consumer products and white goods largely being managed by the dealers. There is a huge market for micro-leasing and consumer finance as people in the lower-middle and middle income bracket - which is majority of the population -  might not be able to afford buying these consumer goods and electronics including mobile phone, but are willing to buy them in installments.

Consumer finance as a percentage of the total loan portfolio is very small in the country. To tap this huge market potential, however, there was a need to look at the payment history of the prospective customers, and that is done through the development of a scorecard based on a certain number of users. Whether it’s the utility bills payment history, house rent or credit card payment history, it’s all about financial data. It can be the biggest relevant database in the country.

BRR: But there are many reservations in sharing the liability-side data.

MHS:  Unfortunately, our financial institutions do not want to share this information, especially the liability side data, At the same time, the customer is equally hesitant to share such information. However, this data is crucial for determining the credit score and building the credit history. We have submitted a white paper to SBP to allow the sharing of liability-side data with fintechs and credit bureaus. This will also help in addressing the key issue of cash flow estimation in SME financing.

Even though they belong to the poorest of the poor segment, why is it that the microfinance sector has high rates and lowest NPLs? It is because the borrowers know that their data is being shared and they don’t want to mess up their credit history and chances of getting the next loan.

Rather than keeping data in silos, it should be shared in a central depository as in the developed world where it is available to everyone and is used to innovate and come up with meaningful financial products and service. However, now that formal sector credit bureaus are working, hopefully one day we will have access to that kind of data and generate reports that are vital and instrumental for enhanced financial inclusion, greater availability of credit in the market and thus serve as cornerstone of modern economies which extensively use such reports for prudent lending decisions. Some of our existing laws are in conflict e.g. mobile phone subscribers’ data is to be kept confidential; and meters are allocated to a piece of land rather than the person using gas or electricity, which is a big gap in developing the payment history of a tenant. There is a need for a fundamental change in the system and regulations, and we are meeting with all the regulators to develop this market.

BRR: Once these scorecards for individuals are developed, are they accessible to everyone?

MHS: No, the element of privacy is there. In credit scoring, we aim to quantify credit worthiness of an individual by assigning a score based on parameters such as payment history, credit utilization, age of credit history, type of credit etc. These scorecards are either accessible by the individuals concerned, or registered potential lender.

BRR: You talked about the market opportunity in micro leasing and consumer financing. Is there an opportunity on the mortgage side?

MHS: Mortgage in Pakistan has two issues. One, there is no long-term funding available primarily because of interest rates and lack of bond market for individuals. As a consequence, equity rates are much higher here because of non-availability of long-term funding unlike in developed markets where these rates are considerably lower.

BRR: What kind of reports or analyses can data with a credit bureau generate?

MHS:  All the reports, trends and analysis that we generate will mostly be related to the payment performance of individuals. A Credit Information Report is a basic tool used by banks to check a potential borrower’s credit history and evaluate his/her credit worthiness. A Credit Information Report consists of a borrower’s personal data, credit data, dispute information and public record.

In our recent report on microfinance, we have identified the percentages of multiple and single borrowers in the sector, prepared a geographical heat map for the concentration of MFIs etc. which will help them in risk assessment. We will be producing such reports and more on quarterly basis.

BRR: What are your recommendations to develop this market.

MHS: From the regulation perspective, the government has done the job of providing a framework. It now has to proactively bring all the regulators together and to ensure efficient implementation of these regulation as well as educating the market. Ministry of finance is actively playing its role through the National Financial Inclusion Strategy (NFIS). Regulators will have to play a part in developing and enabling the market. This will create an environment of data sharing. There are no shortcuts to develop markets and institutions; you have to be in for a long haul.

The markets and the consumers also have a responsibility here. They need to understand the benefits of data as well as of data sharing.