Larry Chiang CEO World Bank Presentation

Strengthening Public and Private Credit Registry Ties Jun 20, 2011  2004 UCMS, Inc. Confidential and Proprietary Reproduction Prohibited World Bank 2004 In Beijing By Larry Chiang

Public and Private Sectors Working together in harmony or discord?!
Public credit registries (PCR) sharing of non-sufficient data amongst multiple agencies / branches of government
Private sector sometimes fears losing competitive advantage if data is “pooled” with weaker companies
No great models available to blueprint cooperation techniques
PCRs don’t share data to make data better
Jun 20, 2011

“ Self-interest doesn’t just govern, it RULES”
Jun 20, 2011

Priming the Cooperation Pump
Expecting parties to share goes against simple game theory
What primes the pump? A government mandate, an olive branch, a philanthropic corporation, or…
A technical tool that works with EXISTING data
Jun 20, 2011

Jumpstarting A Country’s Credit System with Thin File Analysis (TFA) Jun 20, 2011 Incomplete Files (Private) Credit System Old Credit Data New Credit Data TFA Private Sector Data Public Sector Data PCA Not Commercially Organized Add’l Dimension Adjust The Axis of Emphasis

Jun 20, 2011

Thin File Analysis (TFA) Leverages
TFA gives private credit registries a technique without full cooperation of PCRs (Public Credit Registries)
TFA allows for a “first stab” at credit underwriting
TFA is dynamic and adjusts to the level of cooperation (initially low interdependence, later more cooperation)
TFA helps a developing nation “import” a mature nation’s credit scoring system without symptoms and side effects
Jun 20, 2011

A Quantum Leap Forward With Thin File Analysis Jun 20, 2011 Old Way (Bad Chicken, Bad Egg) Thin File Analysis Who Private and public sectors are at odds Together Where Your server Your server What Scorecard unknown Formula + FICO Development When Not really even once ‘ Underwritten’ 3x Why Stab in the Dark Scientific! How Copy from other country and hope for non-collapse Custom Country Optimization ++

Origins of TFA
Thin file analysis was used where public information was there but not organized
Private registries (Experian Equifax Trans Union) had thin credit files (i.e. very little credit data)
TFA bridged the gap
TFA catalyzed underwriting and credit line scoring
Jun 20, 2011

The Old Way Jun 20, 2011 f (  ) The old technique of measuring credit worthiness with a score from 350-800. This (with all its parameters) is a one dimensional match.

When the Old Way Works Great
In countries with a mature credit industry
Great with fully stocked public data compilation that is “organized” and “accessible”. Public data by its nature is difficult to access, process and underwrite
Its great when the credit industry is ONE BIG COOKIE… not when its crumbs you’re piecing together.
Jun 20, 2011

Fighting Over Crumbs
Mature credit industry countries don’t bicker over who controls credit data
Burgeoning credit countries wrangle over control of data
Thin file analysis “primes the pump” when credit files are thin and morsels of public record data can scientifically build up a credit system
Jun 20, 2011

Adding a New Axis- Public Registries Jun 20, 2011 “ f” is the function with traditional credit data with CRAs “ e” function factors in applicant data, gov’t agency data & more

Thin File Analysis Marries Both… Jun 20, 2011 “ f” is the function with traditional credit data “ e” function factors in applicant data, gov’t agencies & more

The New Way Jun 20, 2011 You set how much influence the epsilon function gets

Recipe for a Rough Transition Jun 20, 2011 f usa (  ) The credit scoring system is directly imported from one country to Another. Charge-offs shoot over 17% f korea (  )

Why direct transferal doesn’t work.
Cultural differences in perception of credit default
Different realities of credit default
Behavior predictions based on income to asset ratio don’t transfer country to country
Private credit registries wield different influences
Jun 20, 2011

Customize an “Imported” Credit System Jun 20, 2011 “ f” is the function with traditional credit data “ e” function factors in applicant data, gov’t agencies & more

Sequence of Steps to a Country Specific System Jun 20, 2011
(2) is goal for China in the goal for 2007
Is the goal for 2011
(4) Is the goal for 2015

Private Registries And- Public Registries Jun 20, 2011 “ f” is the PRIVATE function that slightly depends on “e” function “ e” is the PUBLIC function supports a temporarily weak “f” function

Perhaps Yet Another Axis is Needed Jun 20, 2011

Larry Chiang CEO World Bank Presentation

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