Micro Finance and Credit Information Sharing: Emerging Trends

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Micro Finance and Credit Information Sharing
Emerging Trends Key Issues
Public Policy for Credit Reporting
Systems Beijing, China September 28-30, 2004

• Lisa M. Taber
• Financial Sector Operations and Policy Department
• The World Bank

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Credit information sharing contributes to

• Lower interest rates
• More sustainable debt levels
• Better access to finance

Small micro businesses, and lower-income
consumers, should benefit at least as much as
others because

• Relatively higher costs of smaller loans
• Poor collateral
• Poor proof of income

Essential data qualities

• Accuracy
• Timeliness
• Comprehensiveness

Positive negative data from all sources
3
Some sources of micro credit information

• Micro Credit Institutions (MCIs) NGOs,
  for-profit lenders and cooperatives
• Banks NBFIs
• Wholesale retail merchants (e.g. vendors of
  consumer goods, durables or agricultural or
  industrial inputs)
• Public utility companies (gas, water,
  electricity, (cellular) telephone)
• Post dated checks
• Other businesses (accounts receivables)

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WB Study of Micro Credit Information
SharingPhase 1

• Where how is micro credit information being
  formally shared?
• Litmus Test Inclusion of Micro Credit
  Institutions
• (MCIs) MC NGOs For-Profit Micro Lenders
• What is the scope of micro credit information
  sharing?
• What are the main factors key issues that
  determine the scope of micro credit information
  sharing?

5
Market structure of selected countries w/ formal
micro credit information-sharing
Micro credit reporting is also under development
in

• Albania
• Montenegro

• Pakistan
• Morocco

• Russia
• Armenia

• Uganda
• Ecuador

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Micro Credit Specialized Registry ONLY NICARAGUA
Very few merchants consult
Socio- Demographic data Public
Registries E.g.. courts, liens
Utilities
Micro Credit Registry
12 MCI s report consult
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Markets w/Micro Credit Registries
Only(Nicaragua, Haiti, Benin)

• Contributing Factors
• Critical mass of MCIs
• No other private credit registries exist
• Donor support for micro credit registry
• Key Issues
• Will there be sufficient volume/participation of
  MCIs to cover costs or make profit?
• Can micro credit registries become a platform for
  the growth of inclusive registries or will they
  become silos?

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Micro AND Non-Micro Specialized Credit
Registries GUATEMALA
Socio- Demographic data Public
Registries E.g.. courts, liens
CR
CR
CR
Credit Cards Co.
CR
2 banks report their MC portfolios
Micro Credit Registry
4 MCIs report, and 10 consult
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Micro Non-Micro Specialized Registries(Guatemal
a, El Salvador)

• Contributing Factors
• Critical mass of MCIs, donor support for micro
  registry
• No credit registry existed or would accept MCIs
  as members
• Key Issues
• No private credit registry has all data from any
  one sector
• Small portion of MCIs participate
• Sharing of bank/NBFI data is very limited
• Will micro non-micro registries merge?
  cooperate? stay segmented/ fragmented?

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Micro AND Non-Micro Specialized Credit
Registries SOUTH AFRICA
Socio- Demo. Data Public Registries E.g.courts,
liens
Larger MCIs
Larger MCIs
Micro Consumer Data
Micro Consumer Data
NLR--Consumer Micro Loan Database
Micro Credit Registry
Micro Credit Registry
Micro Credit Registry
MCIs
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Micro Non-Micro Specialized Registries(South
Africa)

• Contributing Factors
• Debt crisis sparked regulatory reforms
• mandatory micro credit reporting
• Competitive, private micro credit registries were
  already in place
• Key Issues
• Contractual arrangements allow one stop
  consultation of micro non-micro data
• Significant costs for smaller MCIs
• Reporting requirements data access for banks
  vs. micro lenders is this a level playing field?
• How segmented is this market?
• Have micro borrowers benefited?

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Inclusive Credit Registry (Micro Non-Micro)
ONLY Bosnia
Bank Superintendency
Credit Card Cos.
CR
CR
Largest MCIs report consult
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Inclusive Credit Registries ONLY COLOMBIA
Bank Superintendency
CR
Credit Card Cos.
Largest MCIs report consult
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Inclusive Credit Registries Only (Colombia,
Peru, Brazil, Bosnia, Philippines)

• Contributing Factors
• Bosnia Philippines government donor
  appeals/support for inclusion of micro credit
  providers
• Colombia, Peru, Brazil Competition in credit
  information markets incentives to collect
  more data
• Key Issues
• Significant gaps in data still exist, e.g.
• Brazil Philippines mostly negative data
  sharing
• Lack of socio-demographic data most countries
• Relatively few MCIs participatewill downscaling
  occur organically as markets develop?

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Coverage consultation rates, selected CRs
Brazil
Brazil
Brazil
Colombia
Brazil 120,000,000
Peru
Brazil 46,000,000
Colombia 12,000,000
Philippines
Peru 3,720,000
Philippines 1,800,000
South Africa 2,500,000
El Salvador 445,000
Guatemala 99,362
Bosnia 450,000
Nicaragua 130,625
Haiti 8,400
Benin 3,750
Bolivia 161,500
For Profit MC Specialized
Non Profit MC Specialized
For Profit MC Inclusive
Non Profit MC Inclusive
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Integrating micro credit information

• When does it make sense? Depends on
• Numbers of formal creditors
• Degree of client overlap
• How feasible is it? Depends on
• Ability to distinguish borrowers --unique IDs
• Level of development Scale of MCI operations
• Problems of data quality/timeliness of reporting
• Revenues must cover IT investments consultation
  fees
• Demand for micro borrower data

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How to achieve better integration?

• Private Sector
• Organize into associations to
• Lobby credit registries for inclusion
• Standardize reporting, validate data
• Batch data transmission/consultations, negotiate
  lower prices?
• Segment portfolios
• For MCIs report only larger loans?
• For banks/NBFIs separate micro/non-micro
  portfolio for data sharing purposes?

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How to achieve better integration?

• Public sector
• Mandate credit information sharing?
• Build the capacity of MCIs/Associations to share
  data?
• Condition MCI support on information sharing?
• Educate different creditors the public re
  benefits of sharing application of
  comprehensive credit information

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Thank You!
Comments welcome at ltaber_at_worldbank.org