This refers to the article ‘Increasing the size of the pie’ (Sept 28). What caught my interest was the fact that the credit bureau, Tasdeeq, and the Pakistan Credit Rating Agency (PACRA) were both part of the same holding group called Aequitas.

As a former international banking and payments executive of Pakistani origin, I have been observing the challenges and opportunities associated with developing robust credit markets in Pakistan.

Rating agencies and credit bureaus are foundational to trust, without which credit markets will simply not develop. Credit bureaus must ensure integrity of financial data, as important credit decisions are based on such data.

Rating agencies should avoid conflict of interest because even bigger credit decisions are based on their assessment. Credit bureaus deal only with data, but rating agencies provide opinions. Since opinions can be biased, rating agencies can be highly susceptible to conflicts of interest.

Rating agencies should be tightly regulated with a special focus on conflict of interest, and fined heavily for any breach. In the United States and in Europe, governments have enacted various laws and imposed heavy fines for conflict of interest.

It, therefore, concerns me to see that Tasdeeq and PACRA have common shareholding.

This should raise issues of potential conflicts of interest. For example, companies and banks may be pressurised by rating agencies to use their ancillary services, such as credit bureau, in return for a higher or better rating.

Such potential conflicts of interest can be quite detrimental to building trust which is a key component for the development of credit markets in Pakistan. As a first step, to control conflict of interest, owners and management of rating agencies and their relatives should not be allowed to invest in credit bureaus and vice versa.

Kamran Rashid Siddiqi

Dubai

Published in Dawn, October 24th, 2020