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  • What I am presenting is based on a research project on credit information which was funded by : The Latin American Regional Studies Program Financial Sector Board World Bank Institute Genesis of the study was from operational work the Bank was doing in Argentina and Brazil where public policy aspects of credit information were being discussed. There was no consensus on how to proceed and no literature to refer to. So we undertook the first rigorous study of credit reporting systems to focus on the institutional aspects. Since this is a new topic for many people, I thought it wise to begin with a definition of the type of institutiona we’ll be discussing - credit registries.
  • On the private sector side, virtually all countries have a registry, with the exception of small island economies which act as offshore banking centers. Credit reporting is a young industry. Discuss slide. PCR policies, in addition to being established to aid supervision, usually also have the objective of jump starting information on credit markets to spur lending and improve credit quality. So, in addition to collecting information for supervision, they disseminate it to the financial institutions. Some have suggested that PCRs are substitutes for private registries. We’ve found important differences.
  • Go through graph. Also mention consumer relations and value-added services.

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  • Credit Reporting Systems Around the Globe Session on Credit Information Systems Finance Forum 2002 Chantilly, Virginia June 21, 2002 Margaret Miller, Senior Economist World Bank
  • Empirical Evidence of the Importance of Credit Registries for Credit Markets
    • Jappelli & Pagano (1999)
      • relationship between registries characteristics (age, type of data) and credit / GNP
    • Barron & Staten (2000)
      • greater availability of information reduces default rates, improves access to credit
    • Kallberg & Udell (2000)
      • data from D&B has greater predictive power than firm financial statements
    • Galindo & Miller (2001)
      • Firms in countries with better credit information are less credit constrained – rely less on internal funds
  • Importance of Registry information relative to other sources of creditworthiness
  • The credit reporting industry is in transition, with many new entrants
    • The median age of private registries in the survey sample is 10 years. Thirty percent of the private registries were established since 1995.
    • Of the 29 private registries from Latin America, 13 were established since 1993.
    • In ECA, Estonia established the first private registry in 1993 – since then 9 public and private registries have been established in the region.
    • Latin America led all other regions in the 1990s in the establishment of public credit registries.
  • Public vs. Private Credit Registries
  • Who submits information to public and private registries?
  • Distribution of data by public and private registries
  • Consumer Attention: Comparing Private and Public Registries
  • Elements of a Credit Reporting System
    • the public credit registry, if one exists
    • private credit registries, including chambers of commerce, and banking associations
    • the legal framework for credit reporting
    • the legal framework for privacy, as it relates to this activity
    • the regulatory framework for credit reporting
    • the characteristics of other pertinent borrower data available in the economy
    • the use of credit data in the economy, by financial intermediaries and others
    • the cultural context for credit reporting
  • Emerging elements of good practice Legal and regulatory framework
    • Legal framework should encourage information sharing among lenders
      • review bank secrecy laws which can constrict information flows
    • Regulatory framework with enforcement
      • consumers have ability to bring complaints outside judicial system
    • Consideration of privacy issues important
    • Competition policy aspects of credit info.
  • Emerging elements of good practice Credit Registry Design
    • Open system, not closed network
      • ownership by a limited group of lenders, bank association, may discourage a broader database
    • Integrity and transparency are paramount
      • special standing of any group, including owners or government, will discourage participation
    • Reciprocity not necessary
    • Restrictions to prevent “cherry-picking”
  • Emerging elements of good practice Data Characteristics
    • Collect both positive & negative information
    • Maintain data for a reasonable time frame - 5 years minimum
      • do not delete data on non-payments when debt repaid
      • do not provide amnesty for bad payment history
  • Emerging elements of good practice Data Characteristics
    • Access to detailed information preferable
      • loans described individually, not aggregates
      • institutions providing credit identified
    • Credit reports should not include highly sensitive information such as sexual orientation, political or religious affiliation, etc.
      • Other identifying information, such as gender, should be evaluated more carefully
  • Emerging elements of good practice Credit reporting and bank supervision
    • Supervisors include financial institution’s use of credit information as part of inspections
    • Require publicly (government) owned financial institutions to provide data to legitimate credit reporting firms, associations
    • Encourage all financial institutions to participate in credit reporting
    • Data from public credit registry may be useful in meeting New Basel Capital Agreement
  • Emerging elements of good practice Consumer Rights
    • Borrowers should have access to their own data
    • Consumer-friendly procedures in place to challenge erroneous information in reasonable time frame
    • Record who has accessed data as part of report
    • Clearly established privacy policy
    • Educate consumers as to their rights and responsibilities with the credit system, credit reports
  • The Role of the World Bank Product Concept Document
    • Legal reform
    • Regulatory reform and institutional capacity building
    • Establishment or enhancement of credit reporting activities
    • Credit reporting and credit scoring for SMEs
    • Credit reporting and credit scoring for microcredit and microenterprises
  • The Role of the World Bank Product Concept Document
    • Credit reporting and credit scoring for consumer loans
    • Development of credit scoring solutions (with IFC)
    • Public database modernization
    • Consumer protection, consumer outreach and education
  • Conclusions
    • Credit registries are an increasingly important part of modern financial systems
    • Empirical evidence supports the importance of credit registries for access to credit, especially by consumers and small and micro enterprises
    • Policy conditions, including the legal and regulatory framework, are critical in the development of robust credit reporting systems
    • The Bank is uniquely placed to contribute to the development of sound public policies to support credit reporting