Strengthening Infrastructure for Financial Systems – Credit

Bureaus

December 5, 2002

Nataliya MylenkoConsultantFinancial Sector Operations & PolicyThe World BankTel: (202) 458-5917Fax: (202) 614-1548Web: http://econ.worldbank.org/programs/credit_reporting/

World Bank Credit Reporting Systems Project

• Legal reform - bank secrecy, privacy and data protection, consumer rights

• Regulatory Reform• Establishment and enhancement of credit bureaus

- special emphasis on SME and micro-finance credit reporting

• Public Database Modernization• Education and Outreach

- consumers, judiciaryhttp://econ.worldbank.org/programs/credit_reporting/

World Bank Credit Reporting Systems Project

Research

• Surveys of public and private credit registries worldwide, survey of financial institutions regarding their use of credit information 1999-2002

• Book “Credit Reporting Systems and International Economy” edited by Margaret J. Miller, MIT Press, forthcoming in early 2003

http://econ.worldbank.org/programs/credit_reporting/

World Bank Credit Reporting Systems Project

2002 Global survey of private credit registries jointly with “Doing Business” project at the World Bank

• Goal: Understand how to improve the environment for credit information firms and private sector development

• Comprehensive assessment of credit information availability across countries

• More than 100 countries around the world• Directory of credit reporting firms

http://econ.worldbank.org/programs/credit_reporting/http://rru.worldbank.org/doingbusiness/

Credit scoring –efficient use of credit history information

• Credit scoring is a statistical method used to predict a probability that a borrower will default or become delinquent.

• Credit scoring was introduced in consumer lending in 1950s

• Since early 1990s credit scoring was applied in SME lending

Efficiency gains from using credit registry information

0%

10%

20%

30%

40%

50%

60%

70%

decrease inprocessing time

decrease incosts

decrease indefaults

% o

f res

pond

ed b

anks

change of25% or more no change

Percentage of Banks which consult a credit registry for small

business loans

yes93%

no7%

Public vs. Private Credit Registries

Feature Public Private Source of information

Supervised institutions

Varied sources

Participation mandatory?

Yes No

Positive Info? Yes In some cases

Borrowers assigned a rating?

Yes No

Minimum loan size In some countries No

Fee for service No charge or minimal charge

Yes

Who submits information to public and private registries?

0

5

10

15

20

25

30

35

priv com bank

pub com bank

pub devt bank

cred union/coop

finance corp/leasing

cred card issuers

firms provd'g loans

retail & merchants

No.

of r

egis

trie

s

Public (of 29,w orldw ide)

Private (of 28 inLAC)

Firm data collected by public and private registries

0

5

10

15

20

25

30

Name of report

ing in

stitut

ion

amou

nt of

loanna

me

type of lo

an

taxpay

er ID

ratin

g of lo

an

busin

ess a

ctivit

y

type of c

ollater

al

value

of co

llater

al

maturity

addre

ss

intere

st ra

te

name of

owner(

s)

Busines

s grou

p or c

onglo

merate

tax in

fo

balanc

e shee

t

incom

e stat

emen

t

PublicCreditRegistries(30worldwide)

PrivateCreditBureaus(26 in LatinAmerica)

Cost and time savings from credit reports and credit scoring

Some case studies:• A bank in Canada: processing time decreased from 9 days

to 3 days, in 18 month since scoring was implemented• A bank in US: processing time decreased from 3-4 weeks

to a few hours.• A bank in Netherlands: processing time decreased from 8-

10 hours to 15 minutes for existing clients and 45 minutes for new clients

• A bank in the US: average cost of processing a small business loan decreased from $250 to $100 after implementing scoring system

Survey of Latin American Banks -importance attached to credit reporting

0

5

10

15

20

25

30

35

Collateral Financial Standing ofthe Borrower

Borrower's Historywith the bank

num

ber o

f firm

s

Information from a credit registry is more importantInformation from a credit registry is less important

Efficiency gains from using credit registry information

0%

10%

20%

30%

40%

50%

60%

70%

decrease inprocessing time

decrease incosts

decrease indefaults

% o

f res

pond

ed b

anks

change of25% or more no change

Percentage of Banks which consult a credit registry for small

business loans

yes93%

no7%

Public vs. Private Credit Registries

Feature Public Private Source of information

Supervised institutions

Varied sources

Participation mandatory?

Yes No

Positive Info? Yes In some cases

Borrowers assigned a rating?

Yes No

Minimum loan size In some countries No

Fee for service No charge or minimal charge

Yes

Who submits information to public and private registries?

0

5

10

15

20

25

30

35

priv com bank

pub com bank

pub devt bank

cred union/coop

finance corp/leasing

cred card issuers

firms provd'g loans

retail & merchants

No.

of r

egis

trie

s

Public (of 29,w orldw ide)

Private (of 28 inLAC)

Firm data collected by public and private registries

0

5

10

15

20

25

30

Name of report

ing in

stitut

ion

amou

nt of

loanna

me

type of lo

an

taxpay

er ID

ratin

g of lo

an

busin

ess a

ctivit

y

type of c

ollater

al

value

of co

llater

al

maturity

addre

ss

intere

st ra

te

name of

owner(

s)

Busines

s grou

p or c

onglo

merate

tax in

fo

balanc

e shee

t

incom

e stat

emen

t

PublicCreditRegistries(30worldwide)

PrivateCreditBureaus(26 in LatinAmerica)

Status of credit reporting around the world

• Maps indicating development of credit reporting in private and public sector across all regions of the world can be accessed at:

http://econ.worldbank.org/programs/credit_reporting/topic/16017/