Vahid Abbaszadeh, CEO of the Ice platform, suggested that creating and using credit cards instead of debit cards could be a solution to the problem of insufficient data and information for establishing credit ratings.
According to him, if small loans were provided to each individual in the country through credit cards and their credit behavior were monitored, data could be collected to establish credit ratings for all citizens.
The Nature of Credit Purchases
Abbaszadeh initially explained the nature of credit rating. According to him, in many countries, this task is typically handled by a government-affiliated company.
He stated: “Around the world, there is usually a company dedicated to credit rating, often government-run, tasked with collecting all credit-related data, including any bank statements or statements issued on credit by various companies. Based on the payments made by the credit recipient, their installment information is updated, and their credit behavior is assessed to determine whether they have paid their installments on time and are a reliable payer. This can be observed through bank installments, fintechs, or payment statements.”
The CEO of Ice continued: “For example, if a company issues a statement that must be paid by a specific time, the person’s behavior in making this payment essentially reflects their credit behavior and impacts their credit rating. Other factors such as age, place of residence, and other details also influence an individual’s credit score. In Iran, in 2007, the Iranian Credit Rating Company was assigned this task and began operations following a legal bill approved by the Parliament. Banks and insurance companies are shareholders of this company, which collects information from about 750 points and calculates scores based on these ratings.
There is insufficient data to establish credit ratings in the country
In Iran, credit rating is not progressing as it does in other parts of the world because the concept of credit purchasing is fundamentally different from that in other countries.
The CEO of Ice explained: ‘The issue in Iran is that credit rating companies need to receive data from accurate sources in order to process it correctly. First, various sources need to be identified, which has almost been done in Iran. However, once this data is obtained, its accuracy is often problematic. For example, a person might have paid their installment on time at the bank, but if the bank does not report this in a timely manner, the credit rating company may not be able to include it in the rating, negatively affecting the individual’s score.’
He continued: ‘Therefore, the problem in Iran is that we do not have a concept similar to credit cards. In foreign countries, instead of using debit cards, they use credit cards and make most of their purchases on credit. This practice ensures that all segments of society have a payable statement, leading to credit ratings for all citizens.’
Abbaszadeh added: ‘Since we do not have a credit card system in Iran like in other countries, Iranians do not receive loans that could contribute to a credit rating. For example, when we approach a bank for a small loan, the bank requires a credit rating score, yet no rating exists for the individual. Even if one attempts to establish a rating, there is no data available for this purpose.’
In Iran, credit rating is not progressing as it does in other parts of the world because the concept of credit purchasing is fundamentally different from that in other countries.
The CEO of Ice explained: ‘The issue in Iran is that credit rating companies need to receive data from accurate sources in order to process it correctly. First, various sources need to be identified, which has almost been done in Iran. However, once this data is obtained, its accuracy is often problematic. For example, a person might have paid their installment on time at the bank, but if the bank does not report this in a timely manner, the credit rating company may not be able to include it in the rating, negatively affecting the individual’s score.’
He continued: ‘Therefore, the problem in Iran is that we do not have a concept similar to credit cards. In foreign countries, instead of using debit cards, they use credit cards and make most of their purchases on credit. This practice ensures that all segments of society have a payable statement, leading to credit ratings for all citizens.’
Abbaszadeh added: ‘Since we do not have a credit card system in Iran like in other countries, Iranians do not receive loans that could contribute to a credit rating. For example, when we approach a bank for a small loan, the bank requires a credit rating score, yet no rating exists for the individual. Even if one attempts to establish a rating, there is no data available for this purpose.’
Providing Small Loans: A Way to Establish Credit Ratings for Citizens
The CEO of Ice discussed the coverage of credit behavior data in Iran: “In Iran, the coverage of information is very limited. As a result, Iranian companies have decided to use other types of statements, such as municipal bills, mobile phone bills, or traffic violation fines, to create credit ratings. However, this approach does not accurately cover credit ratings because we calculate several models of credit scores or credit risks. There are also various types of ratings, such as financial, credit, and social ratings, which are being integrated. Therefore, the best approach in the country is to move towards creating credit cards.”
He added: “For instance, we could provide a very small loan, around 100 dollar, to individuals and monitor their credit behavior. Over time, as individuals build their creditworthiness, if they prove to be reliable, their credit could increase from 100 dollar to higher amounts, thus establishing their credit rating. Unfortunately, in Iran, there is much more focus on checks.”
The Infrastructure for Credit Cards is Available in Iran
The CEO of Ice discussed the infrastructure for credit cards in Iran: “It seems that the infrastructure for this initiative is available. If small loans of around 25 dollar are provided to individuals nationwide, the rate of default would not be high. Defaults typically occur with larger loans and obligations rather than with small loans. Generally, people who receive small loans make their payments on time because they need to maintain a good credit history to qualify for larger loans. Therefore, it is feasible to offer small loans and monitor their payment behavior to gather data for credit rating purposes.”
He also emphasized at the end that globally, credit cards are increasingly used instead of debit cards, with debit cards typically issued to individuals with less established credit profiles.
No Comment! Be the first one.