The value of comprehensive credit reporting

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The value of comprehensive credit reporting
Wider access to credit, GDP growth and consumers
empowerment through information sharing. A
project for the Eastern Caribbean
Oscar Madeddu 15th November 2006 - Port of
Spain, CAIB AGM
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Agenda

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IFC and the Global Credit Bureau Program
A crucial correlation retail credit credit
reporting
Info-sharing in the Caribbean and possible
developments
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IFC one of the 5 organizations part of the
World Bank Group
IFC is owned by its 176 member countries, which
jointly determine policies.
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2005-2006 IFCs Global Credit Bureau Program
LAC activity highlights

• 48 Technical assistance missions in Latin
  America and Caribbean
• 17 countries covered
• 1 new CB start-up Nicaragua in November 2005
• 1 new credit bureau development supported
  project underway Mexico
• 2 new potential credit bureau projects under
  discussions Jamaica Haiti
• 1 new SME credit bureau supported project
  under way Panama
• 6 country assessment studies BO, JA, TT, MX,
  HA, EC,
• 7 new / revised CB laws/regulations
  enforcement NI, HO, PA, BR, BO, JA, CR,
• 2 external legal studies commissioned and
  reviewed Costa Rica, Bolivia
• 8 info sharing events speeches BR, D.R., NI,
  GU, HO, CO, AR, PA
• 1 Bureau Score development project fostered
  Panama

• WHY?
• to increase access to finance,
• credit reporting system is a key pillar

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Agenda

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IFC and the Global Credit Bureau Program
A crucial correlation retail credit credit
reporting
Info-sharing in the Caribbean and possible
developments
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How can access to finance be expanded?
Full information sharing

• Is about negative and positive shared credit
  information, shared by all lending sectors
• Public / other information (utilities, voters
  roll, telephone) are part of the equation

Example of a credit report
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The death of collateral reputational collateral

• This information is provided for each single
  loan account

History of payment

• Payment is current
• 1 to 29 days late
• 3 30 to 59 days late
• Higher number longer arrear

History of payment to be read from left to right
Oldest month
Last month but the current one
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Full information sharing increases consumers
access to credit
increase in lending volumes
Source Barron and Staten (2000). Note Figure
shows the simulated acceptance rate assuming a
default rate of 4 overall
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Full information sharing reduces constraints for
SME
Small Firm Finance Constraints
Small Firm Probability of Obtaining a Bank Loan
Source Love and Mylenko (2003) based on
enterprise survey responses in 52 countries.
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Full information sharing reduces NPL and losses

• Default Rates

Source Hadlow (2003)
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Full Information sharing improves bank
performance

• World Bank assessments of the credit reporting

Source Doing Business in 2004, based on World
Bank surveys of banks in 34 countries in
2001-2002.
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Credit Bureaus increase the standing of the
nations

• Ratings of countries financial system soundness
  increases with a more controlled
  credit risk situation

Source Doing Business in 2005, IMF Global
Stability Report 2004, Moodys rating of
financial system soundness
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Case study how Credit Bureaus reshaped the
credit industry in Ecuador
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Agenda

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• . . . . 2
• . . . . 3

IFC and the Global Credit Bureau Program
A crucial correlation retail credit credit
reporting
Info sharing in the Caribbean and possible
developments
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How are credit reporting systems rated?

• The World Bank uses two basic parameters to rate
  CBs worldwide, every year
• Credit Information Sharing Index (score 0-6
  based on the following parameters)
• Both firms and individuals are listed
• Both positive and negative information are stored
• Retailers, NBFI, utilities, etc. share data
• Consumer right to inspect data is guaranteed by
  law
• Loans above 1 GNI per capita are stored
• 5 or more years of historical data is held
• Percent of population covered by credit bureaus

Source World Bank Doing Business in 2005
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And how do Eastern Caribbean countries score in
2006 in LAC?

• 19 countries worldwide scored a full 6 in 2006
• 10 in LAC AR, CL CR, DO, MX, PA, PY,
  PE, SV, UY

Country Credit Information Index Public registry coverage ( adults) Private bureau coverage ( adults)
AVERAGE 4.6 9.4 35.4
Argentina 6 25.4 100
OECS 0 0 0
Brazil 5 9.2 43
Chile 6 31.3 19.3
Colombia 4 0 28.3
Haiti 2 0.7 0
Honduras 5 8.3 18.7
Jamaica 0 0 0
Mexico 6 0 69.5
Nicaragua 5 12.5 3.4
TT 3 0 31.5
Uruguay 6 13.2 85.3
() Percent of adult population covered
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Eastern Caribbean quite behind LAC and others
countries
USA EC CH MX TT JA
Private Credit Bureaus existing
Consumers rights granted by law
Lenders obliged to consult a Private Credit Bureau ()
Lenders obliged to share data ()
Consumers consent necessary ()
CB or data privacy law / regulation enforced
Other EC






() In the USA there is no legal obligation to
share data or inquiry a CB however no credit
is granted without a credit report inquiry
and every year 3,5 billion credit report are sold
by Trans Union, Experian, and Equifax the 3 major
international CBs () In Ecuador regulated
entities are obliged to supply info to the
Superintendence which provides the CBs with the
data, monthly without consent. Non regulated
entities must ask for consumers consent.
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The future? An advanced model to serve the
Caribbean Hub and Spokes

• Benefits of HS to data providers / users
• First class international CB operation despite
  small individual size of countries
• Efficiency, cost-effectiveness of development
• Extremely short time to market ( 6-9 months)
• World class data security (continuous
  improvement)
• Lower costs per report (savings in customization,
  operational support costs)
• Product and service consistency in region ease
  of use and economies of scale
• More consistent cross-border risk lending
  strategies and decisions
• Same sophisticated Value Added Services available
  / used in advanced markets
• Web-based technology makes it open to all lenders

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The future? Hub and Spokes in the Caribbean

• Trans Union has a CB operation in TT
• The suggested Hub Spoke model would be the
  optimal approach for the EC
• Hub the existing operations in Trinidad Tobago
• Spokes Jamaica, OECS, Barbados, others
• IT and Customer Support resources will reside at
  the Hub (Trinidad Tobago)
• Each Countrys data will be independently housed
  and managed in TT
• Country offices spokes will cater for
• sales
• data collection
• customer relations
• consumer support

• To be supported with the enforcement of an
  ad-hoc
• Credit Reporting Act
• Central Bank regulation ( if empowered by law)
• IFC could support the stakeholders in drafting
  the regulation / law

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The value of comprehensive credit reporting
Thank you
Oscar Madeddu 15th November 2006 - Port of
Spain, CAIB AGM
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