Ravi Chandran
In 2010, the Credit Bureau (Singapore) introduced blended score to help banks better assess SMEs’ credit worthiness.
By: Hitesh Khan/
The score blends business owner’s credit data, company’s tradelines and public registry data to increase credit risk transparency of small and medium-sized enterprises (SMEs) with a view to lessening the challenges they face in obtaining financing.
In partnering with FICO, Credit Bureau (Singapore) developed a credit risk score that factors in the credit performance of both the business owner and his company, known as an “SME Blended Score”. Supported by SPRING Singapore, the scoring system is the first of its kind in the Asia Pacific to assess SMEs’ credit worthiness and is aimed at helping banks to make more informed credit decisions and SMEs to increase their access to financing.
A good score can also enhance SMEs’ credit worthiness and increase its access to trade credit.
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Before 2009, there was no standardised credit assessment tool in the market that assesses the SMEs’ credit worthiness by taking into account its tradelines, public registry data and its owner’s credit behaviour. This is despite the fact that for small businesses, commercial and individual credit performances are almost indistinguishable. In many small businesses, the company’s finances and the owner’s personal finances are often not kept separate.
As an example, small business entrepreneurs keep their business afloat by injecting personal cash into their company or take on personal credit lines to fund their business. Without a comprehensive tool that melds a business owner’s consumer credit behavior with his company’s commercial data, it is difficult for lenders to holistically assess the credit risk of an SME and decide whom to extend credit to and what terms to set.
In the same vein, an SME with limited credit information on file may find doors to financing closed. The SME Blended Score from CBS solves this problem by integrating powerful commercial and consumer data to create a sophisticated scoring system that will be made available to lenders. CBS is partnering with FICO, whose credit scoring formulas have calculated more than 100 billion FICO credit scores for creditors around the globe to date. Clients in 80 countries work with FICO to increase customer loyalty and profitability, manage credit risk, cut fraud losses, meet regulatory and competitive demands, and rapidly build market share.
The SME Blended Score will leverage consumer credit data captured by CBS’ consumer credit bureau and commercial tradeline data available from its sister company Dun & Bradstreet (S) Pte Ltd. The consumer data that will be factored into the scoring algorithm include the shareholder’s payment profile on his secured and unsecured credit accounts, account balances and demographic information.
Since CBS’ consumer data is retrieved and forms part of the score report, consent from the consumer must be sought when lenders use the score to assess SMEs’ credit worthiness.
The company data comprise commercial tradelines loaded by the company’s suppliers, litigation and bankruptcy information, macro-economic indicators such as the inherent risk associated with the business sector, how long a company has been in business as well as trends in business performance and the overall economy.
CBS said then that as it has a comprehensive coverage of member banks that provide consumer credit facilities, it was confident that the SME Blended Score will be reflective of the business owner’s credit history. It said that the product will enhance trade credit as well as the SME’s access to financing from lenders. It will also give banks a proven risk assessment tool to assess the SMEs’ credit worthiness a reliable and consistent manner as well as make more informed lending decisions within a shorter timeframe and at a lower cost.
The product was to provide greater visibility and availability of credit data, so that lenders can also expand their small business lending, such as micro loans.
The banking community also expressed its support of the SME Blended Score. The Association of Banks in Singapore, said that given the more stringent credit assessment environment, the SME Blended Score is a relevant risk assessment tool for new credit applications as well as the review of existing credit facilities. it was certain that the product will enhance both the risk and account management decisions of its member banks.
SPRING Singapore said then that the SME Blended Score will enhance SMEs’ access to credit and trade credit especially in uncertain times when banks are likely to subject loan applications to closer scrutiny, and that this initiative serves as a timely and comprehensive risk assessment tool for the banks and financial institutions. It believed that the availability of this solution as a review tool will be beneficial to SMEs.
The Singapore Business Federation said that besides guiding both banks and SMEs to better manage their credit risks, it will also help SMEs to know more about their counterparty to trade with confidence, leading to an increase in potential trade outside Singapore.
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