4.4.1. Build Credit Bureaus

DESCRIPTION

A credit bureau is an agency that researches and collects credit information on individuals and sells that information to creditors when they are making decisions on loans. As such, credit bureaus and electronic funds transfer systems can increase security and transparency, further reducing risks and cost-to-serve (Source: Mobilizing Private Finance for Development: A Comprehensive Introduction). Without credit bureaus, finance providers must use staff time and other resources to assess the credit worthiness of each borrower.

Without effective, transparent collateral registries, lenders are unable to check if collateral being offered as security for a loan has already been pledged to another lender.

CONSTRAINTS ADDRESSED 

1. Ability of borrowers to provide the details/documentation needed to get a loan
2. Ability of borrowers to show formal registration
3. Ability to file/record a security interest on moveable property pledged as collateral
4. Ability to file/record a security interest on real estate (land and buildings) pledged as collateral
5. Access to reliable credit information on borrowers
6. Transaction costs associated with originating and managing loans to target sector/region

ADVANTAGES

Increased access to finance, quicker access to finance

DISADVANTAGES 

Coming soon.

MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER

Coming soon.

VIGNETTE: KAZAKHSTAN: FINANCIAL PROTECTION INITIATIVE

SITUATION

The National Bank of Kazakhstan (NBK) has a public credit registry that began in 1996 and required reporting above a threshold. No private credit bureau and no credit reporting law.

STRUCTURE

In 2001, consultants engaged and completed market analysis, feasibility study, and drafted bureau legislation. In 2002, the team created a business plan, financial projections, and marketing plan for the private credit bureau, to be followed by the first Central Asian Credit Bureau conference held in Almaty, Kazakhstan.The draft law was negotiated with the government and debated in Parliament, and to further understanding, government officials took a study tour to Experian in London. In 2004, the law passed and became enforced, requiring mandatory reporting to a private CIA by banks and mandatory CIA check by banks on all legitimate credit applications.The First Credit Bureau, owned by banks, was established, and led to the building of a registry.

IMPACT

Law and regulations were passed and in place, creating a best practice for a private credit bureau serving marketplace. It also created majority ownership by banks and minority ownership by international operator CreditInfo from Iceland. Later, NBK credit registry wound down and any information the national bank needs can now be provided by the private credit bureau.