4th CREDIT REPORTING AND RISK MANAGEMENT TRAINING

Transcription

1 4th CREDIT REPORTING AND RISK MANAGEMENT TRAINING INTRODUCTION TO CREDIT REPORTING Overview & Current Status Jennifer Barsky - IFC Kuala Lumpur November, 2012 Session 1

2 Content I. The Issue: Financial Inclusion & Access to Credit II. Credit Reporting: Overview & Benefits III. Global Trends Credit Reporting IV. Doing Business: Methodology & 2013 Results V. Future Directions

3 What does it mean to be unbanked? Dharavi Asia s biggest slum located in Mumbai, India Population: ,000 Poverty premium 5 25 times what the rich pay for same services Water $ 1.12 vs. $0.03 (cubic meter) Diarrhea medication $20.00 vs. $ 2.00 Rice $ 0.28 vs. $ 0.24 Banking in Dharavi Number of banks branches: 0 Only source of lending: moneylenders Average APR: 600% -1000% Collateral: bond labor for generations Collection methods: local thugs 77% of the poor are unbanked Source: Global Findex Database, World Bank 2012

4 55-68% of MSMEs in emerging markets are either unserved or underserved Percentage of unmet credit needs (Smaller type refers to the total value of the gap in each region) High-income OECD $1,035-1,265 Bn 6-8% ource: MSME database 2011, McKinsey & Company Middle East & North Africa $ billion % Latin America $ billion % Sub-Saharan Africa $ billion % Central Asia & Eastern Europe $ billion 29-36% South Asia $ billion 18-22% East Asia $ billion 14-17% $ trillion globally < >60

5 Global Credit Reporting Program at a glance Provided Advisory Services in over 60 countries in FY12 Created or significantly improved credit reporting service providers in over 20 countries (Bangladesh, Bosnia, Bulgaria, Cambodia, Cape Verde, Costa Rica, China, Egypt, Ethiopia, Guatemala, Honduras, India, Jamaica, Lao PDR, Maldives, Morocco, Nicaragua, Nigeria, Panama, Pakistan, Papua New Guinea, Samoa, South Africa, Tanzania, Tonga, Vanuatu, and Vietnam) million* credit bureau inquiries in those countries in countries covered under Doing Business Report for credit reporting Drafted or contributed to drafting 32 new laws/regulations to date Supported 145 events in over 90 countries** including roundtables, seminars, conferences, and other outreach events: Key contributions to developing General Principles of Credit Reporting. * Excluding China. **Reflects documented events to date, counting key events / workshops per country. 5

6 Program scope and deliverables Develop credit information sharing environments Advice and support to government authorities, review legal and regulatory frameworks, outreach and awareness raising, standards setting Brazil, China, Morocco, Panama, Romania, Vietnam, Algeria, Cambodia Direct support to develop new private credit bureaus and public credit registries Feasibility studies, assessments, operational support, honest broker role, encourage international best practices Egypt (i-score), Central America (TUCA), Romania (Biroul de Credit), Algeria (Bank of Algeria), Bangladesh (CIB), Ethiopia Enhance existing private credit bureaus Positive information sharing, value-added services, commercial solutions South Africa (CompuScan), Pakistan (Datacheck) 6

7 Content I. The Issue: Financial Inclusion & Access to Credit II. Credit Reporting Systems: Overview & Benefits III. Global Trends in Credit Reporting IV. Doing Business Methodology & 2013 Results V. Future Directions

8 What is a Credit Reporting System? Legal/ Regulatory Framework Technology Individuals Databases (PCB & PCR) Institutions Standards Enables information flows relevant to making decisions related to credit and loan agreements Rules & Procedures 8

9 Why does credit information matter? Increase access to credit with lower interest rates Support bank supervision and credit risk monitoring Credit Information Sharing Reduce information asymmetries Improve borrower discipline

10 No Surprise. Countries without private credit bureaus are mainly the same.. as where access to credit is more difficult 10

11 Who participates in a credit reporting system? Users Public/Private Commercial Banks Central Banks MFIs / Leasing, etc Judiciary Tax authorities Insurers Employers Landlords Users Credit Reporting Service Providers Authorities, regulators, supervisors Data subjects Data Providers Data Providers Public/Private Commercial banks MFIs Leasing companies Credit Unions /Coops Credit card issuers Collection agencies Retailers/ Telecoms Utility providers Employers Courts

12 PCB and PCR roles and functions PCR Input of information Supervision Internal Reporting Support data for offside supervision Macro economic indication Statistics PCB Input of information Output of information Value Added Services Consumer Services Additional Sources of Information Output of information

13 Ownership Structure of PCBs Industry Associations/ Chambers of Commerce 12% Partially government owned Private owned by banks/fis/ other credit providers 39% Government owned, 1% Private not owned by banks/fis/ other credit providers 44% The majority of PCBs are privately owned by non-bank private entities (i.e. global credit bureaus, funds, other private firms) A large share of the PCBs is owned by banks or FIs or other credit providers The bank vs. non-bank ownership is becoming more balanced. In 2005, non-bank private entities owned 60% of the surveyed PCBs. The third most frequent ownership model is ownership by industry associations Partial or full government ownership of PCBs is rare (e.g. Armenia, Sri Lanka, Thailand) Source: Doing Business 2012

14 Benefits: Increased Access, Better Performance EGYPT A consortium of Egyptian banks led the establishment and registration of iscore, the country s first private credit bureau, owned in equal shares by 34 Egyptian banks. The project is now focusing on integrating Egyptian MFIs into the bureau Sub-standard loans % (30-90) Average 2009 % Average 2010 % Average 2011 % 14

15 Benefits: Reduced Default Rates / Npls Non-performing loans down by 66% Million PALESTINE Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Mar-10 2,600 Banks & MFIs portfolio growth up by 52% Bad debt rate decreases with a higher % of positive information 2,200 1,800 Million 1,400 1,000 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Mar-10

16 Benefits: Reduction in Cross Lending LATIN AMERICA: How MFIS reduced credit shopping, multiple lending, and over indebtedness CLIENT NUMBER BY INSTITUTIONS % 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% Before PCB After PCB With more than 5 institutions With 4 institutions With 3 institutions With 2 institutions With 1 institution 16

17 Content I. The Issue: Financial Inclusion & Access to Credit II. Credit Reporting: Overview & Benefits III. Global Trends in Credit Reporting IV. Doing Business Methodology & 2013 Results V. Future Directions 17

18 Growth of credit reporting systems 120 Private Credit Bureaus Latin America & Caribbean East Asia & Pacific Eastern Europe & Central Asia Sub-Saharan Africa Middle East & North Africa South Asia OECD Public Credit Registries Latin America & Caribbean Eastern Europe & Central Asia Sub-Saharan Africa Middle East & North Africa South Asia OECD 2010 Source: Doing Business and GCBP team knowledge 18

19 International coverage expanding Source: Global Credit Reporting Program and Doing Business

20 Across regions, private bureaus dominate (% of adults) OECD Source: Doing Business Latin America & Caribbean Private credit bureaus dominate and have a higher coverage. Public credit registry critical to guarantee initial development of credit information sharing processes Eastern Europe & Central Asia East Asia & Pacific Middle East & North Africa Sub-Saharan Africa 1. LAC continues to lead, being the second strongest region after OECD in the extent of private credit bureau coverage 2. South Asia has the lowest coverage 3. ECA, EAP and MENA are big reformers demonstrating significant leaps in improving the coverage South Asia PCBs PCRs 20

21 Global trends driving expanded data sources 100% 90% 91% 90% Over 50% of bureaus report receiving information from MFIs Data quality and coverage remains an issue -most bureaus capture data only from regulated MFIs (if any) Private bureaus now receiving information from additional sources - alternative/utilities data sources expanding 80% 80% 79% 79% 70% 60% 69% 60% 55% 61% 71% 65% 58% 54% % Total 2012 % Total % 40% 39% 46% 47% 47% 47% 43% 48% 30% 20% 28% 25% 21% 31% 19% 10% 8% 0% Private Commercial Banks (90) Public Commercial Banks (65) Development Banks (49) Credit Union/Coops (53) Finance Corps (78) Credit Card Issuers (66) Firms prov loans/trade Creditors (46) Retailers (45) Utilities Providers (40) Other Credit Bureaus (25) Microfinance Institutions (49) 0% 0% 0% 0% Employer (14) Courts (20) Statistical agencies (11) Other (29) Source: Doing Business 2012

22 Value added services increasingly important offering 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 41% Bureau Credit Score 32% Fraud Detection 20% Debt Collection 34% 34% Marketing Services Other - Portfolio statistical analysis - Statistical data mining - Risk management support - Investigative business reports - Scorecards for banks and FIs - Pre-scoring - Financial Education - Identity verification services - Business Information reports Source: Doing Business

23 Public credit registry data sources more limited 120% % of PCRs receiving information from each source 100% 80% 60% 40% 20% 0% 99% Private Com Banks(96) 70% Public Com Banks (64) 67% Dev Banks (64) 36% Credit Union/Coops (34) 71% Finance Corps (69) Compared to private bureaus, public credit registries are significantly less inclusive in obtaining data from alternative sources (e.g. retail, utilities ) and obtaining data from microfinance institutions 23% Credit Card Issuers (22) 0% 1% 1% Firms prov loans/trade Creditors (0) Retailers (1) Utilities Providers (1) 10% Credit Bureaus (9) 32% 2% 7% 5% Microfinance Employers (2) Courts (7) Stat agencies Institutions (5) (30) 26% Other (23) Source: Doing Business 2012 : Data based on 101 PCRs that provided information

24 Content I. The Issue: Financial Inclusion & Access to Credit II. Credit Reporting Overview & Benefits III. Global Trends in Credit Reporting IV. Doing Business Methodology & 2013 Results V. Future Directions 24

25 Doing Business What is it? Provides measures of business regulations and their enforcement across world economies. Looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Launched in Doing Business 2013 is the 10 th report. First report: covered 5 indicator sets and 133 economies; Doing Business 2013: covered 11 indicator sets* and 185 economies. 2 indicator sets not included in doing business rankings: Employing Workers & Getting Electricity 25

26 Doing Business What is covered? Topic Starting a business Dealing with construction permits Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business Description Procedures, time, cost and paid-in minimum capital to open a new business Procedures, time and cost of obtaining construction permits, inspections and utility connections Procedures, time and cost to register a transfer of commercial real estate Strength of legal rights, depth of credit information Indices of extent of disclosure, extent of director liability and ease of shareholder suits Number of tax payments, time to prepare and file tax returns and pay taxes, total taxes as a share of profit before all taxes borne Documents, time and cost to export and import Procedures, time and cost to resolve a commercial dispute in court Time, cost and outcome of insolvency proceedings involving domestic entities - recovery rate in bankruptcy 26

27 Doing Business Methodology (credit information? Affects ranking Depth of credit information: (Index from 0 to 6) 1. Data on both firms and individuals are distributed 2. Both positive and negative credit information is distributed 3. Data from retailers, trade creditors or utilities as well as financial institutions are distributed 4. 2 years or more of historical data are distributed 5. Data on all loans below 1% of income per capita are distributed 6. By law, borrowers have the right to access their data Does NOT affect ranking Public registry coverage: number of individuals/firms as a % of adult population Private bureau coverage: number of individuals/firms as a % of adult population Only impacts score if coverage is less than 0.1% of adult population

28 2013 -Where is it easier to get credit & why? 1. Malaysia Good common practices: Source: Doing Business South Africa 3. United Kingdom 4. Australia 5. Georgia 6. Hong Kong SAR, China 7. Latvia 8. Montenegro 9. New Zealand 10. Poland Cambodia was best reformer in 2013 Distribute information on all the loans. Gather historical credit information on individuals and companies. Distribute information from alternative sources, such as retailers or utility companies. Allow a wide range of assets to be used as collateral without requiring a specific description. Most of them allow out-of-court enforcement of security rights. Cambodia strengthened access to credit by establishing its first private credit bureau, which began operating in March

29 Continued challenges Reluctance/resistance by lenders to share positive data Lack of capacity/ appreciation of the value of credit bureau data for risk management Data quality issues Lack of enabling environment legislation, sometimes where it does exist Lack of enforcement of credit reporting regime by regulator/selfregulation by industry Small size of some credit markets 29

30 ECA leads in number of credit information reforms Note: The data sample for DB2006 (2005) includes 123 economies. The sample for DB2013 (2012) includes a total of 146 economies. Source: Doing Business 2013

31 Borrower s right to access data - biggest focus of credit information reform Source: Doing Business 2013

32 Who improved credit information sharing in 2012/13?

33 Content I. The Issue: Financial Inclusion & Access to Credit II. Credit Reporting Overview & Benefits III. Global Trends in Credit Reporting IV. Doing Business Methodology & Results V. Future Directions 33

34 The G20 SME Finance Initiative G20 Leaders create: Financial Inclusion Experts Group (2009) Two primary roles: 1.Support innovative modes of financial service delivery aimed at the poor 2.Scaling up models of SME finance Converted into: Global Partnership for Financial Inclusion (2010) IFC designated as one of the implementing partners SME Finance Forum and SME Finance Initiative (2012) SME Finance Policy Guide (2011) A refined roadmap for FI strategies and SME Finance action plans covering all sub-groups* Role of credit reporting in SME Finance Scaling-Up SME Access to Financial Services (2011) Role of SMEs in economic development Non financial barriers to SME development Access to finance as a key constraint to SME development SME finance models Suggested actions and policy Recommendations Credit reporting case studies (p.61-66) *(i) i.e. focal areas: women-owned SMEs, SMEs in the agricultural sector, SMEs in LDCs (ii) Mix of private (4) and public (6) examples from EAP contributions

35 Implications for Credit reporting Section 5.1, Recommendations for Policymakers Establishing a solid financial infrastructure should be a priority in the financial development agenda of most developing countries. The aim should be to develop a comprehensive credit reporting system that covers both personal and commercial credit information. positive as well as negative. From all relevant players.

36 General Principles on Credit Reporting I II III IV V Data Data collection and retention Security & Efficiency Security Measures Reliability & Efficiency of Data Governance & Risk Management Accountability Transparency Effectiveness Fair Access Legal & Regulatory Framework Clarity & Predictability Non- Discrimination Proportionality Consumer rights and data protection Dispute resolution Cross-border Data Flows Pre-conditions Requirements

37 Responsible Finance and Financial Literacy More than 2.7 billion people and over 400 million businesses still lack basic financial services in the developing world. Enormous growth in the financial sector, especially microcredit Versus Over-indebtedness and coercive credit collections (India, Bosnia, etc) Ongoing Financial Crises in Europe and the importance of transparency and accountability. 37

38 Thank you!