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Credit Infrastructure
Luz Maria Salamina
Lead Financial Sector Specialist
Finance, Competitiveness & Innovation Global Practice
World Bank Group
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Agenda
• Why is Credit Infrastructure important for financial inclusion?
• Challenges/opportunities for public and private sector actors
• Potential actions to include in an NFIS
• Country case study
• Identifying and measuring outcomes
• Key technical resources
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Why is Credit Infrastructure important for
financial inclusion?
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CREDIT INFRASTRUCTURE
Enablers of a Responsible Credit System …
Credit Information
Collateral Registry
Insolvency/ Debt
Resolution
Unique Identity
Systems
Consumer’s rights
&Financial Literacy /
Consumer awareness
..have an impact on Financial Inclusion
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5
“The priority reform measures are:
1. Improvements of the credit reporting framework for SMEs
2. Reforms that allow banks and non-banks to lend to SMEs
against movable collateral
3. Insolvency reforms”
Joint Action Plan on SME Financing – page 2
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Challenges and opportunities for public and
private sector actors
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Credit information – market failures & challenges
7
Lower cost of credit, thus increase access to credit
Reduce information asymmetries
Improve borrower discipline / prevent over indebtedness
Support bank supervision and credit risk monitoring
• Information asymmetries
• High cost
• High levels of NPLs
• Restrictive regulations (caps, negative only, defined set of collateral)
• Discriminating factors from digital solutions
• Consumer protection
• Lack of knowledge / awareness
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Secured transactions – market failures & challenges
8
Mismatch
between assets
owned by
companies and
collateral
required by
Financial
Institutions
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Challenges in the digital economy
10
• verifying identities especially
from social networks
• multiple fragmented data
sources which are difficult to
collate and aggregate
• completeness and timeliness
of data
• lack of digitized data due to
minimal usage of digital
platforms
• absence of enabling legal and
regulatory framework on data
privacy, and cross border
information sharing
• unintended side effects such
as potential for discrimination
• opaqueness of tools used in
credit such as scoring
methodologies.
• Over-indebtedness
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Potential actions to include in an NFIS
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Credit information actions to strengthen an NFIS
12
• Promote credit information
systems: laws and
regulations to license
institutions with adequate
governance and processes,
respectful of consumer
rights.
• Unique ID Systems
• Strategy to include
alternative data
sources(telcos,
municipalities, digital
services)
• Credit providers use the
tools for credit decisions, risk
monitoring, risk based pricing
– compliance
• Regulatory oversight by
qualified supervisors –
capacity building
• Promote awareness and
literacy campaigns to inform
consumers of their rights and
responsibilities.
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Quick wins for the digital economy
13
• Define country context of
alternative data.
• Legal reforms to promote
usage of alternative data
and safeguards for
protecting consumers.
• Promote the use of digital
platforms.
• Piloting and testing the
use of alternative data and
credit scoring in controlled
environment.
• Capacity building
• Consumer awareness and
literacy.
Adoption of
alternative data
will go a long
way in
promoting
inclusion of
marginalized
groups of
societies
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Collateral registry actions to strengthen an NFIS
14
• Centralized on-line access
• For all types of security
interests in movables &
functional equivalents
• Registration by creditors
• Notice based registry (no
documentation)
• Public search available to all
• Reasonable flat fees
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Country case studies
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Impact from Insolvency
16
Latvia:
Recovery rates by creditors from insolvent firms increased
71% within five years post-reform.
Mauritius:
Recovery rates by creditors from insolvent firms increased
17% within two years post-reform.
Moldova:
Recovery rates by creditors from insolvent firms increased
10% within three years post-reform.
Mexico:
Recovery rate for secured creditors from 19cents to 32
cents. Time reduced from 7.8 to 2.3 yrs
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The case
of
ECUADOR
From 2006
Project SERVIR
• Sierra Central of Ecuador
• Rural area / difficult access
• High level of poverty
• Underserved by regulated lenders
• 100+ small MFIs
MFIS, Cooperatives, NGOs
DID NOT BELIEVE IN CREDIT REPORTING
MSME
• Indigenous, and poor
• 80% rural, 15% urban marginal, 5% urban
• Small producers, small farmers
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• MFIs had good growth…☺
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
2005 2006 2007 2008
MFI total loans outstanding (US$ mn)
Microcredit loans
How to
convince
the MFI to
use CRB
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MFIs
motivated
by
Regulator
• CRB collected data from MFIs and compared the data base against all credit providers in the DB.
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
800,000,000
900,000,000
2005 2006 2007 2008
MFI total loans outstanding + credit cards (US$ mn)
Microcredit loans Credit card utilized Credit card approvedCredit line authorizedCredit line usedMFI Loans
MFI borrowers with loans at other institutions
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RESULTS FROM USING CRB
Game
changer…
• 33.65% increase in clients to MFI• 53% increase MFI portfolio• NPL decreased 2%• 90% of credit decisions supported
by credit information from bureau
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Identifying & measuring outcomes
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• Number of individuals and
firms reported
• % of adults reported to the
database.
• Indicators:
– Data on individuals
and consumers
– Positive and
negative
– Alternative data
– Historical (min2 yrs)
– Of all amounts
– Right to access own
data
– Online access
– Value added (score)
24
Doing Business indicators
• Recovery rate (cts. to $)
• Time (years) recovery
• Cost (% of the estate)
• Strength of insolvency
regimes (16):
– Commencement of
proceedings (3)
– Management of
Debtors Assets (6)
– Reorganization
Proceedings index
(3)
– Creditor
participation index
(4)
Credit Information
8 indicators and coverage
• Rights of borrowers and
lenders (10)
– Legal framework
– Collateral registry
with electronic
database
– Online searches by
any interested
• Protection of secured
creditors (2)
– Secured creditors
can sell the
collateral through
public auction or
private tender or
keep the asset
Secured Transactions
12 indicators
Insolvency and Debt
Resolution
16 indicators
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Depth of information ranking – 8 indicators
25
%
Coverage
Accessibility of information
2/8
Quality and Depth of Information reported
6/8
Min
5%
• The law establishes that borrowers can inspect their data in the bureau.
• On line access to credit information
• Information on consumers and companies
• Information of all type of data (retailers)
• Positive and negative information
• Historical Data for more than 5 years
• Credit s of all amounts
• Credit Scoring
100%• % (adult population)
New
New
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Regional benchmarking
26
DEPTH OF CREDIT INFORMATION
INDEX (0-8)
CREDIT BUREAU COVERAGE
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Key technical resources
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World Bank Group
28
Technical Assistance Program
Research & KS
→ Knowledge sharing / Study
tours
→ Conferences
→ Industry and country
assessments and monitor
Standards
→ ICCR
→ UNIDROIT
→ INSOL
Global Practice
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Key Resources for Credit Information
29
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ICCR – General Principles for Credit Reporting
30
The objective is to have a systematically designed guideline for the various stakeholders in
dealing with the challenges associated with implementing and operating a credit reporting
system.
GP1 DATA
→ Relevant
→ Accurate
→ Timely
→ Sufficient
→ Positive and
negative
→ For sufficient
time to make
history
GP2
SECURITY
→ Rigorous
standards
→ Documented
access
policies
→ System
availability
GP3
GOVERNANCE
→ Accountability
→ Transparency
→ Fair access to
information by all
users
GP4 LEGAL
→ Clear
→ Predictable
→ Non
discriminate
→ Proportionate
→ Supportive
consumer
rights
GP 5 CROSS
BORDER
→ Data transfer
should be
facilitated when
appropriate with
adequate
requirements and
authorizations in
place
CEOCORE BUSINESS OF CREDIT BUREAUS BOD REGULATOR
INTL.
AGREEMENTS
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Policy recommendation for alternative data
31
IMPROVING AVAILABILITY AND ACCURACY OF INFORMATION
EXPANDING CREDIT INFORMATION SHARING
ENABLING RESPONSIBLE CROSS BORDER DATA EXCHANGES
BALANCING INTEGRITY, INNOVATION AND COMPETITION
• Adoption of unique identifiers
• Promote digitization of Public information
• Open data systems and standards
• Promote use of digital platforms
• Digitization of government services
• Regulatory reforms for fintech lenders
and expand information sharing to NBFIs
• Assess credit registries new role
• Assess reporting thresholds
• Cross border collaboration
• Harmonization of data protection and
privacy laws
• Consideration of regulatory sandboxes
• Promoting risk based pricing
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Thank you!
Questions?