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Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
Microfinance Bureaus : Balancing Vision and Pragmatic Solutions
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Microfinance Bureaus : Balancing Vision and Pragmatic Solutions

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  • Most of you are from a banking background, and as you know… Credit scoring , as most of you may know, is a quantitative method used to predict repayment risk based on the performance of past loans with characteristics similar to current loans. By use of a scorecard, points are assigned to the attributes of an applicant, and the sum of the points is the “score”, with more points meaning more risk. Consumer loans borrowers have steady and verifiable income … send out loan officers to applicants’ homes and businesses where they work up financial statements and visit with the applicant, family, neighbors, employees, suppliers, and customers. Financial ratios are checked against pass/fail filters (for example, monthly installments cannot exceed 30 percent of free cash flow). Once past official credit-policy hurdles, the loan officer judges whether—based on qualitative impressions—the applicant will repay as promised.
  • On July 2, 2001, associations of poor fruit vendors, cobblers and farmers took Bolivia’s Superintendency of Banks hostage. Laden with dynamite, they demanded forgiveness or reduction of the debt they’ve incurred through microlenders and consumer lenders. The situation was resolved, but over-indebted microfinance clients and the sour taste of revolt remain. How did the flourishing, socially-motivated Bolivian microfinance industry of the late 1990s attract such public anger? Since the early 1990s, Bolivia has boasted successful microfinance institutions (MFIs). Bolivia's commercial microfinance experience took on a new dimension in the late 1990s, as transformed MFIs grew and consumer lenders began overlapping with microfinance markets. These events led to a crisis in which borrowers became overindebted and institutions suffered falling profits and dangerously high delinquency rates. The Credit Bureau was fragmented The Crisis of 1999-2000 Clients capitalized on the increased competition, often maintaining two or more loans at a time, borrowing more than they could handle. Some let repayments slip, or worse, they began bicycling loans – using the proceeds of one loan to pay off another. In 1999, after fifteen years of progress, Bolivia suffered its first serious economic setback just as overlending was heating up. Interactions with clients started to sour, as loan officers spent more time wheedling collections from customers faced with too much debt and shrunken demand. These conditions set off a backlash against microcredit. Most of the consumer lenders did not survive in Bolivia. And among microlenders, defaults rose to unprecedented heights, although still well below those of consumer lenders.
  • Risk: give too much focus on the credit report at the expense of while microenterprise repayment capacity assessment
  • The vision for this Microfinance Credit Bureau System (CBS) is that it will both : - help empower the borrower/consumer who applies for credit in another location and, - assist the MFIs in maintaining high levels of compliance with lending methodologies.
  • More and more necessary as individual lending develops Competition is getting stronger Enables scoring, which has following strengths vis-à-vis microlenders’ “high-touch” approach: • Assesses risk explicitly and consistently (rather than implicitly and variably) • Produces quantitative (rather than qualitative) risk forecasts • Uses the experience of the whole organization (rather than only the loan officer) • Allows “low-risk” attributes to compensate for “high-risk” attributes (rather than pass/fail rules)
  • Contre : compliqué à mettre en palce, les moyens abnques IMFs ne sont pas les memes, pas les memes données échanges, pas les memes infrastructures informatiques. contre si les données IMF sont noyées dans la masse et qu'on perd la possibilité de scoring spécifique Je suis pour ma part pour mais une fois qu’il y a un CB banque et un CB IMF qui marche pendant 4-5 ans, la SFI elle pense qu’il faut faire tout d’un coup, je pense qu’il se trompe.
  • You know this map from the WB, I think it sums up quite clearly the difference between African countries from Latin influence (light blue) where only public bureaus officially exist and those of English/American influence (medium blue) where private bureaus are recognized
  • Here is an interesting exemple of an private led initiative in French speaking Africa, which may soon be integrated into a regional public initiative
  • The process is the following: the CB DB and website are administered by a webmaster. Once a month, the webmaster asks the MFIs to send him the data. The data received are processed, uploaded and sent back to the MFIs in the following days. Inquiries by MFIs on the CB website are unlimited. Excel to start with -> then Mysql makes it possible to manage different database and to have dynamic website Diskett to start with -> CD-ROM has replacing paper because of data size -> PDA makes for the lack of internet connection in rural areas
  • Open source, Linux plateform, J2EE, Apache Tomcat server, javascript document. The application can get information from different MIS types (to feed the CB), from Excel sheet to MySQL databases to Oracle databases
  • la CdR, pour être efficace, devrait être alimentée chaque fois que de nouveaux prêts sont octroyés => chaque semaine par exemple. C'est le siège qui fait l'extraction des données à envoyer à la CdR (processus très simple: extraction à partir de la base de données du siège, création d'un fichier XML, envoi au serveur de la CdR via FTP, traitement en batch de l'alimentation de la base )
  • On peut consulter les données dès le lendemain: consultation en direct (1 no de CIN à la fois) ou par batch (envoi de fichier XLS contenant un certain nb de CIN à consulter) au siège ou dans les antennes
  • Phase de pré déploiement dans les deux princiapes IMF :  AL AMANA et Zakoura. Installation dans les antennes, amélioration technique en cours (gestion multi prêts car maintenant au maroc les microentrepreneurs peuvent avoir 2 prêts dans la meme IMF (logement et activités par exemple) + amélioration de la consutlant agence. Terminer installation dans les deux IMF cet automne, inclure petit à petit d’autres IMFs, les IMFs reprennent les contrats avec hébergeur et développeur. Actuellement, la FNAM n'a pas la capacité de gérer  la CdR. En +, gros pb de 'gouvernance' due à la nature hétérogène de ses membres. 1 AMC=1 voix alors que les 3 grosses AMC (Al Amana, Zakoura, FBPMC) représentent (au 31/12/05) 84% de l'encours et 88% des clients et que les 4 grosses AMC (Al Amana, Zakoura, FBPMC et Fondep) représentent 91% de l'encours et 95% des clients. Les 7 petites peuvent donc faire bloc alors qu'elles ne représentent que 5% des clients... pour la gestion de la CdR, le mieux c'est une entité indépendante, genre GIE (avec partage équitable des voix) mais qui aura autorité sur les AMC pour les obliger à alimenter la CdR avec des données de bonne qualité et de manière régulière jusqu'ici  PF a financé le tout (dvpt (+ la Grameen), suivi, déploiement pour les tests,...) Maintenant, pour la nouvelle phase de test en grandeur réelle, les 2 AMC concernées Al Amana et Zakoura, vont contracter avec le prestataire Allser qui a développé l'application (participation de 1/3 avec une subvention d'1/3 de PF). Quand l'app sera rodée, intégration des 2 autres AMC FBPMC et FONDEP. Ensuite, intégration des 7 petites AMC. on est encore en phase de test => AMC ne paye pas au nb de consultations mais contrat forfaitaire comprenant l'hébergement sécurisé et la maintenance de l'application. kan ce sera opérationnel, les AMC paieront une cotisation annuelle, au nb de consultations (tarif dégressif). On a également prévu l'abonnement à d'autres services comme des alarmes en cas de défaut de paiement, ou de client blacklisté.
  • The increasing importance of scoring for all types of loans will create incentives for better credit bureaux.
  • Transcript

    • 1. Microfinance Bureaus : Balancing Vision and Pragmatic Solutions Regional Conference on Credit Reporting in Africa Organized by the World Bank and the IFC Break-out Session on Microfinance Bureaus Cape Town, South Africa October 6, 2006 Mehdi Dutheil, Regional Director
    • 2. AGENDA THE CASE FOR CREDIT REPORTING IN THE MICROFINANCE SECTOR INTEGRATED CREDIT BUREAUS: LONG TERM VISION AND PRESENT DAY REALITIES CASE STUDIES: INDUSTRY-LED VS. GOVERNMENT-LED MICROCREDIT BUREAUS PERSPECTIVES
    • 3. AGENDA THE CASE FOR CREDIT REPORTING IN THE MICROFINANCE SECTOR INTEGRATED CREDIT BUREAUS: LONG TERM VISION AND PRESENT DAY REALITIES CASE STUDIES: INDUSTRY-LED VS. GOVERNMENT-LED MICROCREDIT BUREAUS PERSPECTIVES
    • 4. ARE CREDIT BUREAUS REALLY USEFUL IN MICROFINANCE ?
      • Banks make consumer loans using credit-bureau data for salaried borrowers with an automated, “ high-tech ” credit scoring approach
      •  Quantitative data are essential, hence credit bureaus are a priority
      • On the contrary, microfinance enterprise loans are based on an individualized, labor-intensive “ high-touch ” approach to get data directly from the applicant and analyze the cash flows and personal character of the microentrepreneur *
        • self-employed poor cannot document income and credit history
        • to compensate, MFIs send out credit officers to applicants’ homes
      •  Consequently, credit reporting and credit bureaus used to be deemed secondary in the microfinance sector
      (*) Hans Dellien, WWB, and Mark Schreiner, MRM, December 2005
    • 5. In the late 1990s there was a crisis in the Bolivian microfinance sector due to over indebtedness of the clients The main cause for the crisis was the lack of information sharing tools . BEFORE CREDIT BUREAUS: THE BOLIVIAN CRISIS IMPACT OF NOT HAVING CREDIT REPORTING: THE EXAMPLE OF BOLIVIA Bad Debt Rate - Bolivia COOPERATIVES
    • 6. HOW IS CREDIT INFORMATION USED?
      • To identify bad borrowers
      • To price risk accordingly
      • To use automated / semi-automated underwriting tools like credit scoring
      In pre-selection In credit underwriting In portfolio management
      • To identify deterioration of existing borrowers
      • To avoid aggregation of bad debt among a number of financial institutions
      • To collect the most risky debt first
      • To sort out bad borrowers up-front
      • To offer better conditions to good borrowers
      • To reduce the cost of credit
    • 7.
      • Increased efficiency in the evaluation of a loan can result in faster loan processing
      • Clients with a good record can get preferential services and lower prices
      • Clients are empowered to apply for credit in another location
      • Default prone clients have the desire to obtain a good report and will hence be encouraged to pay their bad debts
      • Lower risk of over-indebtedness by clients
      AT THE CLIENT’S LEVEL BENEFITS OF CREDIT BUREAUS IN THE MICROFINANCE SECTOR
    • 8.
      • More reliable decision making
      • Minimizing risk because of a better visibility on borrowers’ past and ongoing default history and on their current outstanding balance of payments in different institutions
      • Reducing transaction costs as it facilitates the analysis and quantification of credit risk
      • Avoiding the aggregation of bad debt by borrowers among a number of financial institutions
      • Increasing the number of loans granted as potential borrowers who were before excluded from the system because of the lack of information on their concern become beneficiaries
      AT THE INSTITUTIONAL LEVEL: BETTER INFORMATION SHARING AND DECISION MAKING BENEFITS OF CREDIT BUREAUS IN THE MICROFINANCE SECTOR
    • 9.
      • Facilitates financial sector’s supervision (Public Credit Registries in particular)
      • Provides data for economic research and microfinance regulation improvement
      • Facilitates the entry of new players in the market, such as banks willing to downscale into microfinance
      AT THE SECTOR LEVEL: BETTER REGULATION AND INCREASED COMPETITION BENEFITS OF CREDIT BUREAUS IN THE MICROFINANCE SECTOR
    • 10. BENEFITS OF SHARING NEGATIVE AND POSITIVE INFORMATION Simulated credit defaults assuming an acceptance rate of 60% Negative information only Negative & positive information Percent decrease in default rate 12% decrease in default rate REDUCTION OF DEFAULT RISK AT THE INSTITUTIONAL LEVEL Negative information only Negative & positive information Percent of applicants who obtain a loan 90% increase in access Simulated credit availability assuming a target default rate of 3% INCREASED ACCESS TO CREDIT AT THE CLIENT’S LEVEL Source: Barron and Staten (2000)
    • 11. CB SELF- FINANCING INITIAL FUNDING SETTING UP A CREDIT BUREAU IMPROVEMENT OF MFIs FINANCIAL VIABILITY INCREASE IN THE TOTAL NUMBER OF MICROLENDING BENEFICIARIES INCREASE IN THE PROPORTION OF BENEFICIARIES WITH REPAYMENT CAPACITY MFIs’ SUBSCRIPTION TO CB SUSTAINABILITY OF THE CREDIT BUREAU REDUCED POVERTY REPAYMENT CREDIT BUREAUS AND SUSTAINABLE POVERTY ALLEVIATION Source: Développement de la première Centrale des Risques sur Internet pour les Institutions de MF au Bénin , PlaNet Finance BENEFITS OF CREDIT BUREAUS IN THE MICROFINANCE SECTOR
    • 12. AGENDA THE CASE FOR CREDIT REPORTING IN THE MICROFINANCE SECTOR INTEGRATED CREDIT BUREAUS: LONG TERM VISION AND PRESENT DAY REALITIES CASE STUDIES: INDUSTRY-LED VS. GOVERNMENT-LED MICROCREDIT BUREAUS PERSPECTIVES
    • 13. THE VISION OF AN INTEGRATED CREDIT BUREAU
      • Full information sharing between financial (banks, consumer credit institutions, MFIs) and non financial institutions (retailers, telecom operators, utilities, etc.)
        • prevents clients over-indebtedness
        • fosters profitability at the financial system level
      • In the long run, global and specialized private operators should be better positioned to ensure maintenance and evolution of the credit reporting system and bring technological and marketing innovations: real time updates, mobile access, applicant scoring, payment default alerts, etc.
      • Depending on countries, the supervision of the credit bureau can be taken care of either by the industry itself or by a public entity (Central Bank, Supervision Commission, etc.)
    • 14. THE CASE FOR INTEGRATED CREDIT BUREAUS Lowest predictiveness (e.g. Morocco, South Korea) Lower predictiveness (e.g. Poland, Czech Republic) “ Fragmented” (e.g. information shared among banks only or retail only) Lower predictiveness (e.g. Australia, Brazil) High predictiveness (e.g. US, UK, Italy, South Africa) “ Full” (information shared by banks, retailers, NBFIs, mobile operators) Sources of Information “ Negative Only” Types of Information “ Positive & Negative” Source: Microfinance and Credit Bureaus , Peer Stein (IFC) THE IMPORTANCE OF SHARING INFORMATION ACROSS SECTORS
    • 15. PRESENT DAY REALITIES OFTEN HAMPER INTEGRATED CREDIT BUREAUS IMPLEMENTATION
      • Many MFIs have very basic information systems (some are simply not computerized), which cannot compare with those of banks
      • Microcredit bureaus business models are usually based on a big number of inquiries for small loans. Therefore, the amount charged /inquiry cannot be the same as the one charged for banks
      • Because of short term loan cycles, MFIs need more frequent data updates and payment default after 30 days , rather than 6 months
      • A large part of MFIs’ staff being poorly educated, the ease of use of the Credit Bureau’s application is more important than the number of functionalities
      • The key for inquiries is different between MFIs (informal businesses identified by name and ID number) and banks (mostly formal businesses identified by corporate number)
      • In a multi-sector credit bureau initiative, achieving a wide-ranging buy-in by all the players in a country is possible only if credit reporting has already reached sufficient maturity
    • 16. AGENDA THE CASE FOR CREDIT REPORTING IN THE MICROFINANCE SECTOR INTEGRATED CREDIT BUREAUS: LONG TERM VISION AND PRESENT DAY REALITIES CASE STUDIES: INDUSTRY-LED VS. GOVERNMENT-LED MICROCREDIT BUREAUS PERSPECTIVES
    • 17. INDUSTRY-LED VS. GOVERNMENT-LED MICROCREDIT BUREAUS
      • The role of the National Regulator differs widely according to countries:
      • In many countries, Microcredit Bureaus initiatives stem from the industry and do not require investments in IT in the short run :
        • In Mali’s « Fleuve Niger » region, MFI executives hold an informal meeting and exchange their lists of delinquent clients. No software was developed
        • In Haïti, MFIs have developed an Microcredit Bureau based on an Access database restricted to negative information
      • In Mozambique, there is both:
        • a Credit Bureau based on SAP and supervised by the Central Bank , to which leading MFIs contribute monthly as well as banks, and
        • an informal exchange of delinquent clients lists (Excel) between MFIs’ directors (more-up to-date)
      • In Jordan, Tunisia and Egypt, legal difficulties impede the set up of banking / microfinance credit bureaus
    • 18. Source: World Bank 2002
    • 19. CASE STUDY: BENIN MICROCREDIT BUREAU IMPLEMENTATION CONTEXT OF MICROFINANCE IN BENIN
      • 400,000 microfinance beneficiaries out of a total potential number of 4,000,000 beneficiaries
      • High level of competition with around 400 MFIs competing on the same segments of the market  risks: over-indebtedness of clients and increased default on payments
    • 20.
      • The idea of a credit bureau was first launched by 5 local MFIs including PADME, FINADEV and Vital Finance which realized in 2001 that their portfolio was deteriorating
      • The objective was to consolidate portfolio quality by sharing information on payments overdue for more than 30 days via an internet system
      INTRODUCTION TO THE CREDIT BUREAU CREATION PROJECT A PIONEERING INITIATIVE
    • 21.  
    • 22.
      • PROJECT ROADMAP
      • Office set-up and equipment
      • Design of the data base
      • Establishment of procedures
      • Training of credit bureau’s administrator
      • Creation of the website
      • Training of MFI personnel
      • Choice of legal statute and registration of the statute
      • Maintenance of the website
      • Awareness campaigns to convince other MFIs on the advantages of becoming a member of the credit bureau
      MAIN AREAS OF ACTION IN THE PROJECT
      • MAIN CHALLENGES ENCOUNTERED
      • Technology challenge : not all MFIs in Benin are equipped with the adequate technology (internet…)  necessity to provide relevant technology and diversify the information channels
      • Data collection challenge : it took time to make sure that the MFIs had a common vision on the information they need and the way to collect it
    • 23.
      • Monthly filling and actualization of INFORMATION GRIDS listing the number of overdue payments of more than 30 days.
      • 3 tools to access information
      • Internet
      • CD-ROM
      • PDA (Personal Digital Assistant)
      Files are sent to the CB
      • Centralization of the information
      • Consistency check of the information collected
      • Information processing
      • Information storage in the CB database
      CREDIT BUREAU
      • Confidential information gathered on each borrower
      • Personal information on each borrower
      • Occupation
      • Number of credits obtained
      • Nature of outstanding credit
      MFIs Transmission of the information required MFIs HOW THE BENIN CREDIT BUREAU WORKS
    • 24.  
    • 25.  
    • 26.  
    • 27. EARLY TANGIBLE RESULTS
      • The number of applications rejected has significantly decreased
      • Participating MFIs have reported better discipline amongst the clients, as they became aware that a bad credit history will deny them future access to credit
      An average of 150 inquiries per loan officer each month
      • LOAN OFFICERS
      • Better knowledge of the applicants enabling a better decision making
      • MFIs
      • Better quality of lending portfolio
    • 28. DECREASE IN REJECTED APPLICATIONS AFTER THE IMPLEMENTATION OF THE CREDIT BUREAU ‘’ 0% 1% 3% 5% CFAD ‘’ 0% 1% 3% 6.8% FINADEV « Beneficiaries are more disciplined » 0.5% 0.5% 1% 2% PADME Comments of MFIs Apr. Mar. Feb. Jan. MFI
    • 29.
      • The World Bank has granted the budget required to extend the project to 17 MFIs in 2002
      • Following the success of this experiment, it was decided to further develop the credit bureau in a 3-year program, with the objective of bringing it to financial viability and increasing the number of members to 40
      • Today, the ownership and responsibility of the project has been transferred to Consortium Alafia, the Benin Microfinance Association
      • The Credit Bureau is now operating in 6 provinces, through local agencies
      • In July 2006, there were 20,000 clients in the database
      • Discussions have been held with the BCEAO in order to transfer the Credit Bureau in the context of a regional Credit Bureau project
      CONSEQUENCES OF THE SUCCESS OF THE PROJECT
    • 30.
      • Microfinance credit bureaus are effective tools to prevent delinquency, even when the budget allows only for the sharing of negative information
      • Very basic technologies can be sufficient in the short-to-mid-term
      • Progressive buy-in of MFIs can be ensured by
        • offering a highly professional service
        • using technologies adapted to MFIs capacity
        • proposing an adequate fee structure
      • In case of management of the credit bureau by the professional association and moderate maintenance costs, the fee can be included into the membership fee to the association
      • Ownership and leadership issues must be tackled at the start of the project
      KEY LEARNINGS
    • 31. CASE STUDY: THE MOROCCAN CREDIT BUREAU IMPLEMENTATION CONTEXT OF MICROFINANCE IN MOROCCO
      • 12 MFIs in Morocco, with a microfinance market characterized by a high rate of repayment: 99% average
      • This rate is deteriorating due to increased competition between MFIs covering the same areas and an increase in the number of cross-debts
    • 32.
      • The Moroccan Credit Bureau, which began its operations in 2005, is mostly aimed at preventing crossed loans to clients whose loans are not delinquent yet. Hence the need for
        • negative and positive information
        • enabling access to the database for all the Moroccan MFIs (from the largest to the smallest)
      • The project was supervised by a work group comprising the MFIs, their federation (FNAM) and PlaNet Finance Maroc. The Grameen Foundation USA and USAID also took part to the project design
      • An estimated 1,000,000 yearly inquiries are needed to make the project viable
      INTRODUCTION TO THE CREDIT BUREAU CREATION PROJECT
    • 33.
      • Development phase
      • Analysis of each of Morocco’s MFIs capacity to provide the Credit Bureau with the required data, and identification of the actions needed to develop this capacity (beg. 2004)
      • Identification of information that can be exchanged
      • Establishment of the conditions of contract
      • Evaluation of the financial viability of the CB / business plan
      • Call for tender for the choice of an information system provider of services
      • Choice of the IS service provider in cooperation with the MFIs
      • Parameter settings (beg. 2005)
      CREDIT BUREAU DEVELOPMENT: INITIAL STEPS
    • 34. CRITERIA USED IN THE CHOICE OF AN INFORMATION SYSTEM SERVICE PROVIDER
      • Choice of a provider with existing experience in the management of data
      • Choice of a provider not using sub-contractors, which guarantees the continuity of the assistance
      • Choice of a partner proposing an IS capable of evolution, in order to process one million loans in the near future
      • Choice of simple tools that can be used by all MFIs even with basic IT equipment
    • 35. HOW THE MOROCCAN CREDIT BUREAU WORKS: ARCHITECTURE Database Credit Bureau Server MySQL 4.1 Software: - Application server TOMCAT 4.1 - Application CB-ADMIN - FTP SERVER Software: - Application server TOMCAT 4.1 - Application CB-CLIENT - FTP SERVER Clients
    • 36.
      • Initially: up-loading of all relevant information by all MFIs participating in the project
      • Regularly:
        • Entry of all new borrowers and loans
        • Changes in current borrowers and loans details
        • Loan cancellation
      • How :
        • From the MFI Head Office or authorized branch locations
        • Interactive : direct uploading of information from MFIs’ databases by the Credit Bureau
        • Batch : Preparation and sending of data by the MFIs for treatment by the Credit Bureau
        • Follow-up of operations by delivery of notification with identification number
      HOW THE MOROCCAN CREDIT BUREAU WORKS: UPDATES
    • 37.
      • The credit Bureau can be searched at all times from the Head Office or authorized MFIs branches
        • The National Identification Number is the default search key
        • Inquiries can be carried out:
          • On the web
          • By batch : after information is sent to the Credit Bureau by the MFIs, detailed reports are sent back
          • By SMS
        • Contents of Results Page :
          • Identification of the borrower’s information
          • Identification of loan information
        • Various tools for visualization of results
      HOW THE MOROCCAN CREDIT BUREAU WORKS: INQUIRIES
    • 38.
      • Security
        • Login and encrypted password
        • Verification of contents
        • Encrypting of exchanged information
        • Server protected from external intrusion
      • Level of Interaction :
        • The role of each user is clearly specified: manager, administrator, updater, enquirer
      • Archives of exchanged information
      • Reporting on Credit Bureau usage frequency
      HOW THE MOROCCAN CREDIT BUREAU WORKS: ADMINISTRATION
    • 39. Operational phase Once the project is fully operational, PF Morocco will help institutionalize the Credit Bureau and will share the code with the selected CB manager Options of management for the CB Consortium of member MFIs (“Economic Interest Group”) Central Bank National Federation of Microcredit Associations Specialized private entity or third party (Experian, etc.)
    • 40.
      • The institutional framework must be set up precisely even before setting up the technical framework
      • The technical side of it is quite simple
      • The buy-in from MFIs top management is essential
      • The ease of use of the Credit Bureau’s application is important, as a large part of the MFIs’ staff is not highly educated
      KEY LEARNINGS
    • 41. AGENDA THE CASE FOR CREDIT REPORTING IN THE MICROFINANCE SECTOR INTEGRATED CREDIT BUREAUS: LONG TERM VISION AND PRESENT DAY REALITIES CASE STUDIES: INDUSTRY-LED VS. GOVERNMENT-LED MICROCREDIT BUREAUS PERSPECTIVES
    • 42. CREDIT SCORING, A POTENTIAL FOR MICROFINANCE A quantitative method used to predict repayment risk based on the performance of past loans with characteristics similar to current loans. By use of a scorecard, points are assigned to the attributes of an applicant, and the sum of the points is the “score”, with more points meaning more risk. DEFINITION Evaluate the risk from all potential customers when applying for credit, through the forecast of delinquent accounts or default of payment OBJECTIVES
    • 43. BENEFITS OF CREDIT SCORING (1/2)
      • Clients are evaluated on non-subjective data through a well defined methodology
      • Better pricing of loans
      • Increased efficiency in evaluating loans can result in faster loan processing
      • Default prone clients who wish to obtain a good report will have an incentive to pay their bad debts
      • Lower risk of over-indebtedness by beneficiaries
      AT THE CLIENT’S LEVEL: A FAIR EVALUATION SYSTEM
    • 44. AT THE INSTITUTIONAL LEVEL
      • More reliable decision making through better knowledge of the clients’ past behavior
      • Better pricing of loans and provision against loan losses through the analysis of individual client risks
      • Clear segmentation of population by score and delinquencies that helps design better strategies for delinquency prevention and for marketing
      • Increase in the transferability of borrowers from one institution to another
      BENEFITS OF CREDIT SCORING (2/2)
    • 45.
      • Mexican MFI with more than 100,000 clients.
      • 40 branches
      • Assets over 100 millions USD
      • Consolidated MIS
      • Commitment of Top Management
      PRECONDITIONS FOR THE SUCCESS OF THE PROJECT CASE STUDY OF CREDIT SCORING: MEXICO THE CONTEXT
    • 46.
      • A fragmented credit process
      • Lack of standardization in decision making
      • Authorization delays (up to 10 days)
      • Impossible to measure ex - ante risk
      SITUATION BEFORE SCORING CASE STUDY OF CREDIT SCORING: MEXICO
    • 47. The scorecard can identify ex-ante risk from groups where the ratio of good to bad clients is almost 35/1 to those high risk groups where the ratio is 2/1 CASE STUDY OF CREDIT SCORING: MEXICO Low Risk Medium Risk High Risk
    • 48.
      • A scorecard was implemented in the MIS of the MFI
      • The MFI also have an Excel tool for testing the model
      CASE STUDY OF CREDIT SCORING: MEXICO
    • 49.
      • Credit in 24 hours
      • 80% of the applications with immediate results
      • Reduction of 35% of credit cost
      • Reduction of bad debt rate as analysts only focus on relevant applications (medium or high risk, leaving the rest to the score)
      • Standardization of risk
      RESULTS OF THE CREDIT SCORING PROJECT CASE STUDY OF CREDIT SCORING: MEXICO
    • 50.
      • Ensure that MFIs are ready for a credit bureau based on their IT systems and credit underwriting processes
      • Work with experienced credit bureau operators and consultants
      • Ensure that MFIs are given sufficient support and training to include credit reports and value-added services into their credit underwriting processes
      • Collect both positive and negative information about borrowers in order to reduce information asymmetry
      • Adjust credit bureau inquiry prices to the MFIs financial capacities
      CONCLUSION: KEY SUCCESS FACTORS KEY SUCCESS FACTORS FOR MICRO CREDIT BUREAUS
    • 51.
      • Ensure that the information is actively shared between all involved institutions
      • To foster the Credit Bureau’s success, a law requiring its use by all relevant players can be put in place
      • To ensure coherency in policy and administration, a Credit Bureau should have one single overseeing body
      KEY SUCCESS FACTORS FOR MICRO CREDIT BUREAUS CONCLUSION: KEY SUCCESS FACTORS
    • 52. Like in Benin or Morocco, the objective of PlaNet Finance is to be technical and institutional advisor to the Credit Bureaus project teams. Our philosophy is to build sustainable credit bureaus managed by local operators using open-source technologies. Our credit bureau software has been designed in order to be easily adapted. The technologies used are widely known. PlaNet Finance carefully selects the local technical operator for the project development and administration through a formal invitation to tender followed by a transparent process of bid selection. PlaNet Finance also ensures that MFIs are given sufficient support and training . Implementing a credit bureau is a long process (over one year usually) but not necessarily a very costly one. Most often, the major issues are not the technology but the institutionnal framework. Once this solved, PlaNet Finance can lobby to help gather the needed financial support from potential partners and donors. CONCLUSION: PLANET FINANCE CONTRIBUTIONS
    • 53. To know more, feel free to contact PlaNet Finance: [email_address] www.planetfinance.org Thanks for your attention.

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