Credit Reporting for Full Financial Inclusion: Financial Inclusion 2020 Credit Reporting Working...

7/29/2019 Credit Reporting for Full Financial Inclusion: Financial Inclusion 2020 Credit Reporting Working Group

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Credit Reporting for FullFinancial Inclusion

Financial Inclusion 2020 Credit Reporting Working Group

September 2013

CreditReportingFinancialCapability ClientProtection Addressing Customer

Needs

Technology-EnabledBusinessModels


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www.financialinclusion2020.org

Roadmap to Financial InclusionCredit ReportingSeptember 2013

About the FI2020 Roadmap Working Groups

Whatwillittaketoachieveastateoffullfinancialinclusion?In2011,theCenterforFinancialInclusionaskedthis

questioninaglobalsurvey,andover300practitionersgavetheirperspectivesonthekeyopportunitiesand

obstaclestofinancialinclusion .

Basedontheresponses,theCenteridentifiedfivepriorityfocusareasthatarekeytoachievingfinancialinclusion,

whichhavebeenusedasthebasisforabroadconsultativeprocesstowardaRoadmaptoFullFinancialInclusion.

Overthecourseof2012and2013,thisprocessengageddozensofexpertsandindustryparticipantsindeveloping

anaction-orientedblueprintforreachingnewandunderservedmarkets.Thefivefocusareasare:

AddressingCustomerNeeds ,chairedbyConsultativeGrouptoAssistthePoor(CGAP),focusesondeepeningourunderstandingofclientneedsandtranslatingthatknowledgeintopracticewhile

expandingtherangeoffinancialservicesavailabletounderservedmarkets

Technology,chairedbyVisa,analyzesthepotentialofnewtechnology-intensivechannelstoreachnewcustomers,loweroperatingcosts,increasesecurity,anddiversifyfinancialproductsavailabletolow-incomeclients.

FinancialCapability,chairedbyCiti,focusesonempoweringclientstoknowtheirrightsasconsumers,andhavetheskills,attitudes,aspirations,andconfidencetoexercisethoserights.

ClientProtection ,chairedbytheSmartCampaign,outlinesstepstodeepentheimplementationofclientprotectionmeasuresforthebenefitofconsumersandstabilityofmarkets.

CreditReporting,chairedbyInternationalFinanceCorporation(IFC),promotesextendingcreditreportingsystemsinordertoexpandaccessfornewclientswhilemanagingriskforfinancialinstitutions.

Eachofthefiveworkinggroupshascraftedaroadmapthatasks:Whatisthevisionforthistopic?Whatstandsin

thewayofachievingthevisionandwherearethegreatestopportunities?Whataretheenablingactionsand

correspondingactorswhocanadvancethevision?

The Main Idea

While experts agree on theprinciples of effective creditreporting, challenges toestablishing credit reportingsystems arise from the needto bring regulators, financialservices providers and creditreporting providers togetheraround a business model

that works for all.

Effective credit reporting forBOP customers requiresseamless data from thesmaller financialinstitutions those customertend to use often requiringregulatory change. Smallerinstitutions may needassistance to prepare their

internal systems to workwith credit reporting.

New approaches arespringing up that usealternative sources,such as mobile phonedata and bill paymentrecords, to overcomethe thin files of newand low-incomecustomers.

Client data privacymust be respected,with rules that giveclients somecontrol, such asaccess to theirrecords, a way tocorrect errors, andsome say over third

party use.


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I.Introduction

Effectivecreditreportingsystemsenablefinancialinstitutionstolearnaboutthepastbehaviorof

prospectiveclients 1efficientlyandfromreliablesources.Whenthatinformationincludespeoplewho

arerelativelynewtoformalfinancialservices,financialinstitutionsareenabledtoprovidethema

deeperarrayofproductofferingsoreventoservethemforthefirsttime.Inthisway,creditreporting

systemscancontributesignificantlytofinancialinclusion.Theavailabilityofcreditreporting

informationaffectsnotonlytheprovisionofcredit,butalsotheabilitytoofferbankaccounts,insurance

andotherproducts.

Creditreportinghasimportantbenefitsforfinancialstability.Byprovidinginformationonclients

financialbehaviorandoutstandingdebt,creditreportingsystemshelpfinancialinstitutionslendto

clientswhocansustainablyusecredit.Atalargescale,thisisessentialforpreventingover-indebtedness

crises,suchasthosethathaverecentlyaffectedthefinancialsectorsofanumberofcountries.

Expertsagreebroadlyontheprinciplesofeffectivecreditreportingsystems.In2011,ataskforce

assembledbytheWorldBankGrouppublishedtheGeneralPrinciplesforCreditReporting,which

articulatedaconsensussetofstandardsforeffectivecreditreportingsystems.Theseprinciplesprovide

goodpracticeguidancetonewordevelopingcreditreportingsystemsandunderpinthisroadmap.

Despitethepotentialofcreditreportingtocontributetogreaterinclusion,thedevelopmentofeffective

creditreportingsystemsthatworkforpeopleatthebaseoftheeconomicpyramidhasremaineda

challenge.Manyactors,includinglegislators,regulators,financialinstitutions,creditreporting

companiesandmoremustcometogetheraroundcommonsolutions.Thebusinessmodelsmustwork

forboththeprovidersofinformationandtheusers,whileprotectingclientsrights.Inmanycountries,

creditreportingisnotyetarealityforprospectivebaseofthepyramidclients,butiftheprinciplesare

consistentlyapplied,thiscouldchangedramaticallyby2020.

1Whilewerecognizethatshadesofmeaningexist,withinthisdocumentthetermsclient,customerandconsumer

areusedinter-changeably.


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TheGeneralPrinciples

TheGeneralPrinciplesaimatthefollowingpublicpolicyobjectivesforcreditreportingsystems:Credit

reportingsystemsshouldeffectivelysupportthesoundandfairextensionofcreditinaneconomyasthe

foundationforrobustandcompetitivecreditmarkets.Tothisend,creditreportingsystemsshouldbe

safeandefficient,andfullysupportiveofdatasubjectandconsumerrights.

Data

GeneralPrinciple1: Creditreportingsystemsshouldhaverelevant,accurate,timelyandsufficient

dataincludingpositivecollectedonasystematicbasisfromallreliable,appropriateandavailable

sources,andshouldretainthisinformationforasufficientamountoftime.

DataProcessing:SecurityandEfficiency

GeneralPrinciple2: Creditreportingsystemsshouldhaverigorousstandardsofsecurityandreliability,

andbeefficient.

GovernanceandRiskManagement

GeneralPrinciple3: Thegovernancearrangementsofcreditreportingserviceprovidersanddata

providersshouldensureaccountability,transparencyandeffectivenessinmanagingtherisksassociated

withthebusinessandfairaccesstotheinformationbyusers.

LegalandRegulatoryEnvironment

GeneralPrinciple4: Theoveralllegalandregulatoryframeworkforcreditreportingshouldbeclear,predictable,non-discriminatory,proportionateandsupportiveofdatasubjectandconsumerrights.The

legalandregulatoryframeworkshouldincludeeffectivejudicialorextrajudicialdisputeresolution

mechanisms.

Cross-BorderDataFlows

GeneralPrinciple5: Cross-bordercreditdatatransfersshouldbefacilitated,whereappropriate,

providedthatadequaterequirementsareinplace.


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II.AVisionforCreditReporting

AttheClientLevel

Whileclientsrarelyinteractwithacreditreportingsystem,inastateoffullfinancialinclusionitis

almostcertainthatthosewhopaypromptlywillbenefitfromtheservicesofsuchasystem. Clients

willbeabletousetheireconomichistoriesastestimonialstotheircreditworthinessandsuitabilityas

usersoffinancialservices.Thisinformationwillincludenotonlypriorinteractionswithformalfinancial

institutionsbutalsointeractionswithentitiessuchasutilitycompanies,landlords,telephonecompanies

andothers.Clientswillbeincentivizedtobehaveresponsibly,knowingthatdefaultsanddelinquency

willaffecttheircontinuingaccesstoservices.Theywillunderstandhowinformationaboutthem

translatesintoacreditscore,howtheycanimprovetheircreditworthiness,andhowtheycanconfirm

thatinformationaboutthemisaccurate.Clientswillbeuniquelyidentified,andwillcarrytheirfinancial

historieswiththemwherevertheygo,includingacrossborders,givingthemfreedomtochooseamong

providers.Thispaperenvisionsanidealstateinwhichthesebenefitsareenjoyedbyallpeoplewhoareinterestedinusingfinancialservices,includingsegmentsthatarecurrentlyunreachedordiscriminated

against.

AttheProviderLevel

Financialservicesproviderswillvaluecreditreportingservicesasanessentialpartoftheirrisk

managementprocesses.Theywillbenefitfrombeingabletopricetheirserviceswithrisktakeninto

account.Financialinstitutionswillprovideaccurateandtimelyinformationtocreditreportingsystems,

capturingbothpositiveandnegativeinformationaboutclientbehavior,withoutincurringexcessive

costs.Eachfinancialservicesproviderwillhaveclearandefficientinternalprocessesforprocessing

informationfromcreditbureaus,resolvingerrorsandhandlingdisputes,andsubmittingdatatocredit

reportingsystems.

AttheMarketLevel

Thecoreofthevisionadvocatedbytheworkinggroupisforeverycountryintheworldtohave

implementedtheGeneralPrinciplesforCreditReportingtoasubstantialdegreeby2020.I nthe

idealstate,therewillbeconsensusamongthefinancialservicesindustryandregulatorsthatcredit

reportingisacriticalcomponentoftheinfrastructureofthefinancialsector.Inordertosupportacredit

reportingsystem,thatinfrastructuremustfacilitatethecollection,protection,anddisclosureof

information.Creditreportingsystemswillcovereveryonewhocouldusefinancialservicesandconsents

totheirdatabeingshared,particularlylow-incomepopulations,andtheywillcoveralltypesoffinancial

institutions,fromfullyregulatedtosemi-formal.Non-financialserviceproviders,suchastelecomsand

utilitycompanieswillalsoseethevalueinsharinginformationandwillparticipateincreditreporting

systems.


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III.CurrentStatusandIssues

Creditreportingaroundtheworldhasgrownsignificantlyoverthelastseveraldecades.TheWorldBankandInternationalFinanceCorporation(IFC)jointreport,DoingBusiness2013,statesthat

approximately146countriesaroundtheworldhaveeitheracreditbureauoracreditregistry.The

numberofcreditbureausaroundtheworldbetween1990and2011isestimatedtohavetripled,with

muchofthisgrowthhappeninginCentralandEastAsia,theCaribbeanandinEurope.

Despitethisgrowth,creditreportingremainsunderdevelopedinmanycountries,andarelativelysmall

numberofcountrieshaveeffectivecoverageatthebaseofthepyramid.Manymarketsareevolving

fromapastinwhichcreditreportingmayhavebeenlimitedtocommercialbanks,offeredbyonlyone

serviceprovider,withdataonlyonloandefaultsofblacklistedclients,updatedinfrequentlyand

unusableacrossborders.Ifcreditreportingistobeusefulenoughtocontributetofinancialinclusion,

eachoftheselimitationsmustbeovercome.TheConsultativeGrouptoAssistthePoor(CGAP)andIFCsCreditReportingattheBaseofthePyramid:KeyIssuesandSuccessFactorsprovidesadeeperlookat

theseissues.

TheGeneralPrincipleslayouttheconditionsthatenableaneffectivesystem,startingwithdataquality.

Onlyifdatacoverspositiveaswellasnegativebehavior,comesfromrelevantsources,andiscurrent

andaccuratewillitbevaluableenoughforproviderstoactivelyparticipateincreditreportingsystems.

Achievingthislevelofdataqualityinturnrequiressecureandefficientprocessingandgovernancethat

allowsallpartiestoputconfidenceinthesystem.Confidenceinthesystemissupportedbyaclearand

predictablelegalenvironmentthatbalancesthecollectionandsharingofdatawithconsumerrightsand

whereultimatelyconsumerswouldtransporttheircredithistorieswhentheymigrateacrossborders.

Clientinformationmustfirstandforemostbeprotected,requiringthatnecessarylegislationcurtailthe

potentialexploitationormisuseofclientinformationbyactorswithprofitseekinginterests.

Effectivecreditreportingsystemsmustalsobeviablebusinesses.Amarketisrequiredinwhichcredit

reportingservicesselltheirreportstofinancialinstitutions,whocontributetheircustomerdataasa

conditionforreceivingreports.Creditbureausarefinanciallyviableonlyifasufficientnumberof

financialservicesprovidersarewillingtobothcontributetheirdataandpayforreports.Financial

institutionswillonlyuseandpayifthereportsenhancetheirabilitytoattractcustomersandmanage

risk.AttheBaseofthepyramid,whereloansandaccountsaresmall,thesechallengesareheightened.

Becauseofthemultipleinterestsinvolved,theprocessofestablishingawell-functioningcreditreporting

systemrequiressustainedcoordinationamongdifferenttypesofactors.Governments,becauseoftheir

responsibilityforconsumerrightsandfinancialsectorstability,aregenerallycalledontoleadthesecoordinationprocesses.Thishasoftenstretchedthecapabilitiesofregulatorsandpolicymakers.

Governmentscanbenefitfrommodelregulations,newlegislationandpolicyassistance.From

understandingthecomplexitiesofsettingupasoundcreditreportingsystem,topromotingcompetition

amongproviders,tothechallengesinoverseeingthissystem,capacitybuildingforpolicymakersand

regulatorsisaclearneed.TheWorldBankandtheIFChavetakenleadershipasmultinationaldonorsto

supportthiswork.


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New credit reporting technology will

not work unless you build capacity

and educate people on how to use it.

The credit report might be there, but

the user has to look at it and have the

systems and know-how to use this

information effectively.

Tony Lythgoe, Principal Financial

Specialist & Head, Financial

Infrastructure, IFC

Inconsideringhowtocreatecreditreportingsystemsthatcontributetofinancialinclusion,theworking

grouphighlightsthreeimportantchallengesthatareparticularlysalientforlowerincomecustomers:

coverageofthinfilecustomers,buildingthebusinesscaseforbaseofthepyramidproviders,and

protectingcustomerrights.

InclusionofPeoplewithThinFilesTraditionally,creditreportingwaslimitedtocommercialbanksorinsomecasesotherregulated

financialinstitutions.Effectivecreditreportingforfinancialinclusionrequiresparticipationfromall

financialserviceproviders,bothregulatedandunregulated.Inmanycountries,policychangemusttake

placetoenablecreditbureaustoincludeprovidersattheBaseofthepyramidotherthanbanks,suchas

microfinanceNGOs,financecompanies,andcreditunions.Suchchangemayrequireworkingacross

regulatoryagenciesthatoverseesuchinstitutions,and,asdiscussedbelow,anotherchallengeisto

ensurethatsmallerfinancialserviceprovidersarewillingandabletoparticipate.

Openingcreditreportingtothefullrangeoffinancialserviceproviderswillenablecoverageofmanylower

incomecustomers.However,whataboutthefinancially

excludedorcustomerswhohaveneverreceivedaloan

fromaformalfinancialinstitution?Muchofthefinancial

activityofthepoortakesplaceintheinformalsector

wheretransactionsareunrecordedandcannotbeusedto

buildtheindividualsfinancialhistory.Thepoorareleft

withthinfilesandreputationalcollateralthatisnot

sufficientlydocumentedoraccessibletoestablishcredit

worthiness.

Aprerequisitetocoveringnewcustomersistheabilitytoestablishuniqueidentity.Creditreportingsystemsuseavarietyofinformationtoestablishidentity,but

intheabsenceofwidely-usednationalIDcards,financiallyexcludedpeopleoftenlacktheotherforms

ofidentificationneededtolinkbehavioraldatatothecorrectindividual.Thereisongoingdebateabout

theextenttowhichtheimplementationofnationalidentificationsystemscanalleviatethisproblem,as

oneidentifiermaybeinsufficientforeffectivelyestablishingfinancialidentity.

Thenextchallengeistoobtainrelevantdataonclientsnewtofinancialservices.Verypromising

developmentsarenowoccurringintheuseofalternativedatafromsourcesotherthanfinancial

institutionsbasedonactivitylowincomepeoplealreadyengagein.Thesesourcesincludephoneusage

andpayments,utilitypayments,rentalinformation,remittancedata,behavioraldata,andevensocial

mediatodemonstratereputationalcollateral.Successfulmodelsthatincorporatenon-traditionaldata

coulddramaticallychangethecreditreportinglandscape.

Today,anumberofstart-upcompaniesworkwithalternativedatatobuildnewmodelsforassessing

creditworthiness.Newdataanalytictechniquesextractusefulinformationfromnewly-abundant

sources.OneofmanyexamplesisCignifi,whichoperatesinBrazil,TanzaniaandMexico.Cignifiuses

complexdataanalyticsofmobilephonebehaviorandpaymentstocreateanassessmentofcredit

worthiness(forfinancialservicesproviders),predictchurnbehavior(fortelecommunicationcompanies),

andprovideinsightsonoptimalproductofferings.AlthoughtheCignifimodelisnew,itdemonstrates


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First Access to Base of the Pyramid

First Access is a social enterprise that

facilitates access to financial services

and other products designed for

consumers at the base of the

pyramid, through its patent-pending

technology. They process and

understand new types of consumer

data using a wide range of alternative

data sources, including mobilephones, in order to bring people with

thin files into the system. First Access

launched in Tanzania, with plans to

expand to other countries in East

Africa.

thepotentialforbusinesssolutionsbasedondatasharingandanalysis.Whilemuchofthistypeof

innovationistakingplaceinstart-upcompanies,manyoftheestablishedcreditbureausarealso

exploringthespace.

Regulatoryrestrictionsandmarketforcesmaycurrentlystandinthewayofsuchalternativecredit

reporting.Rulesmaypreventcreditbureausfromobtainingsuchinformation,andrevisionsmayrequire

cooperationofmultipleregulatoryagencies(forexample,telecommunicationcompanyregulators).

Moreover,alternativedataproviders,suchastelecomscompanies,maynotwishtovoluntarilyshare

theirdatainadesiretomaintainacompetitivemarketposition,andtheywilleitherneedtobepaidor

toreceivesomebenefitfromuseofthecreditreportingservices.Accordingly,iftheopportunities

presentedbyalternativedataaretoberealized,market-buildingisrequiredsothatalternativedata

providershaveabusinesscaseforparticipatingindatasharingandthelegalandregulatory

environmentallowsforit.

CreatingIncentivesforBase-of-the-PyramidFinancialInstitutionsThepotentialbenefitsofcreditreportingforbaseofthepyramidfinancialserviceprovidersareclear.

Replacingexistingresource-intensivemethodsforassessingcredit-worthinesswiththeuseofacredit

scorecanautomatemuchoralloftheloan-approvalprocess,cutcosts,and,itishoped,allowthe

institutiontoprovideclientswithfasteraccesstocredit.Butgettingtothosebenefitsisnotsoeasy.

Providersservingbaseofthepyramidcustomershaveusuallydevelopedwithoutbenefitofcredit

bureaus,sowhencreditbureausbecomeavailabletheymayneedbothencouragementandassistance

tousethem.Forexample,themicrofinanceindustrydevelopeditsowncreditassessmentmethods,

suchasgrouplendingorhigh-touchinteractionbetweenloanofficersandborrowers.Many

microfinanceinstitutionsprefernottoshareinformationtopreventcompetitorsfromaccessingtheir

clients.Providersmayalsofearthattheuseofacreditreportingsystemwillleadsomeexisting

borrowerstobedisqualified.

Ascreditreportingbecomesmorenecessarydueto

heightenedcompetition,microfinanceinstitutionshave

greaterincentivestousecreditreporting.Evenso,the

useofcreditreportingbyamicrofinanceinstitution

requiressubstantialchangetotraditionaloperationsand

willrequiredocumentingindividualcreditbehaviorwithin

grouplending.Ifcreditscoresareanadd-ontoexisting

credit-assessmentmethodologies,theprocesscanfeel

unnecessaryandcostly.Moreover,forcreditreporting

servicestobeuseful,theywouldneedtoalignwiththe

servicestheseprovidersoffer,likegrouplendingandveryshorttermloans.Ifthedatainacreditbureauisonly

updatedonceeveryseveralmonths,itmaynotbeuseful

tomicrofinanceinstitutions.Consequentially,credit

bureausshouldupdateinformationasfrequentlyas

possiblewithreal-timeupdatesasthegoal.


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Overcomingthegapbetweencreditreportingservicesandbaseofthepyramidprovidersrequiresboth

tomakechanges.Thecreditreportingindustrywillneedtomakeadjustments,forexamplethrough

standardizingdefinitions(e.g.,thedifferencebetweenmicroandSMEloans)anddata-collectionformats

(e.g.,pointatwhichaloanbecomespastdue).

Baseofthepyramidserviceprovidersmayalsohavetochangetheiroperations.Theywillneednewor

updatedsystemstoenablethemtoexchangeinformationwiththecreditbureau.Specializedstaff

needstobehiredandtrainedinusingthesesystemsandcommunicatingdataproperly.Theymust

complywithqualitystandards,becausesubmittingpoor-qualitydatacanhaveimportantconsequences

forconsumersandproviders.Dependingonhowitplanstousecreditreports,aprovidermayneedto

changelendingmethodologiesandotheroperations.

Buildingthiscapacityrequireshumanandfinancialresources.Smallerfinancialinstitutionsmayoften

finditdifficulttoraisethefundsneededtobuildtheirinstitutionalcapacity.Donorsandsupport

organizationshaveanopportunitytosupportthisprocess,withtherationalethatexpandingcredit

reportingwillincreasefinancialaccesstomarginalizedpopulations.

Inaddition,therunningcostsassociatedwithusingcreditreportingservicescausesomesmaller

financialserviceproviderstoquestionthesustainabilityofparticipatingincreditreportingsystem

(althoughtherearesometimesmisconceptionsaboutthescaleofsuchcosts).Theseincluderoutine

subscriptionandinquiryfees,aswellasdatadisputeresolutioncosts.Onlywhenprovidersare

convincedofthevaluefortheirmoneywilltheyusecreditbureauservicesatthevolumecreditbureaus

needtobefinanciallyviable.

ProtectingConsumerDataDataprivacyrightsareimportantforfinancialconsumerswhetherrichorpoor.Asthecreditreporting

landscapechanges,regulatorschargedwithupholdingtheserightsmustrespondtothenewopportunitieswithrulesthatpreservethoserightswithoutstiflingthedevelopmentofcreditreporting

systems.Governmentsmayneedtoamendrulesgoverningwhoownsandwhocanusedatainorderto

openthewayforalternativedatatobesourcedandanalyzed.Today,alternativedatastart-upsand

pilotsarepayingattentiontonationalpolicyandregulationonusageofdatawhendecidingwheretotry

newmodels.

TheGeneralPrincipleoncustomerrightsstatesthatcustomersshouldbeallowedtogiveordenytheir

consentforuseofdata,assuredofaccesstodatacollectedonthemandofferedapathtocorrecterrors

inthedata.Inorderforprivacyrightstobeprotected,customersmustbeinformedabouthowcredit

reportingaffectsthem.Theirrightsandresponsibilitiesasconsumersoffinancialservicesneedtobe

transparentandeasytounderstand.GiventhatcreditreportingattheBaseofthepyramidisjustemerginginmostmarkets,initiativesbypolicymakers,non-profits,financialservicesproviders,andthe

creditreportingindustryareneededtoeducateandempowercustomersaboutcreditreporting.


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Theworkinggrouprecommendationsarestraightforward,inpartbecauseoftheworkalreadydonein

developingtheGeneralPrinciplesonCreditReporting.Theyfollowdirectlyfromthepreceding

discussion.Effectiveclientprotectionmeasuresmustbeconsideredforalloftheserecommendations,

asisfurtherdiscussedintheroadmaponClientProtection.

1. Implement Credit Reporting in Line with the General Principles on CreditReporting in Every Country (or Regionally) by 2020

PolicymakersandcentralbankersshouldusetheGeneralPrinciplesonCreditReportingto

implementorimprovecreditreportingsystems.Incountrieswithlaggingcreditreportingsystems,

regulatorsandgovernmentofficialsshouldfocusonapplyingbestpracticesforaddressingthe

complexity,time,andextensivecollaborationrequiredbyarangeofactorsforestablishingeffectivecreditreporting.

ActionPoint:Conductindependentassessmentstoidentifyhowthelocalcreditreporting

marketcanbeimproved.

ActionPoint:TrackprogressusingthemetricsestablishedbytheWorldBanksTaskForce

onCreditReporting.

ActionPoint:Enlargecomprehensivecredit-reportingcoveragetoincludeBASEOFTHE

PYRAMIDprovidersandtheircustomers.TobroadencredithistorycoverageforBASEOF

THEPYRAMIDcustomers,governmentsshouldincentivizeorrequireallfinancialservicesproviders,includingunregulatedinstitutions,toreporttoallcreditregistry,creditbureau,

oranalternativecredit-informationsharingsystems.Todoso,theyshouldcreatean

environmentacrossbothregulatedandunregulatedinstitutionsthatallowsforthecredit

reportingecosystemtodevelop.

IV.Recommendations

ProvidersRegulators


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2. Enable Alternative Data to Be Collected and Shared to Build theFinancial Histories of Borrowers with Thin Files

Policymakersandprovidersfromdifferentsectors(financialinstitutions,telecommunicationscompanies,utilitycompanies,etc.)shouldcollaboratewheneverpossibleandappropriatetoenable

sharingofalternativedata.Creditreportingserviceprovidersshouldworktoidentifyandservethe

dataanalyticsneedsofalternativedataproviders.

3. Build the Technical Capacity of Microfinance Institutions and OtherSmall or Rural Providers at the Base of the Pyramid to Incorporate CreditReporting into their OperationsForfinancialinstitutionstousecreditreportingservices,theyneedadequateMISsystemsand

underwritingprocessesthatsmoothlyincorporatedatafromcreditreportingsystems.These

systemchangesareoftencostlyandtimeconsuming,andareanimportantdeterrenttocredit

bureauuse.

ActionPoint:EstablishaUS$50millionglobalfundthatprovidesrepayablegrantstodeploy

specialiststhathelpequipsmallfinancialinstitutionstointerfacesmoothlywithcredit

reportingandintegratereportingintooperatingprocesses.

ActionPoint:Implementcustomizedcreditreportingservicesforgrouploans,andsmall

/frequentloansthatareespeciallydesignedforlow-incomehouseholds.Theseserviceswouldbedesignedaroundthelendingmethodologiesandborrowerrealitiesfoundatthe

baseofthepyramid(e.g.mixedpersonalandbusinessaccounting).

ActionPoint:Workwithcorebankingproviderswhichcatertomicrofinanceinstitutionsto

ensuretheirsystemscanexport/importdatatocreditbureaus.

Providers

ProvidersRegulators

SupportOrganizations

Capacity-BuildingAgenda


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Thisworkingpaperwascreatedthroughaseriesofconsultationswithanexpertsworkinggroupon

CreditReporting.WewishtoexpressourgratitudetotheCreditReportingWorkingGroupmembers

fortheiractiveparticipationingroupdiscussionsandthoughtfulcontributions.

Wealsothankthemanyadditionalexpertswhorevieweddraftsofthepaperandprovidedinput.

Finally,wewishtothankthemanyCFIandAccionstaffmemberswhoprovidedsupportincluding

AllisonBernstein,MereneBotsio,ElizabethDavidson,SonjaKelly,andAmandaLotz.

TheCenterforFinancialInclusionacceptsresponsibilityfortheviewsexpressedinthispaper.Those

viewsdonotnecessarilyreflecttheviewsofindividualworkinggroupmembersortheir

organizations.

ExpertsWorkingGrouponCreditReporting

TonyLythgoe,IFC(Chair)

AnitaGardeva,CenterforFinancialInclusion

(Facilitator)

CeciliaBouras,WesternUnion

CornelioPimentel,Consultant,Brazil

JoachimBartels,BIIA

MichaelTurner,PERC

NeilMunroe,ACCIS

SyedMohsinAhmed,PakistanMicrofinance

Network


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This publication was produced by Financial Inclusion 2020:

1101 15th Street NW, Suite 400, Washington, DC 20005 USA Tel 202.393.5113 Fax 202.393.5115www.centerforfinancialinclusion.org

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