C o n f i d e n t i a l

1 Apr 8, 20232004 UCMS, Inc.Confidential and Proprietary Reproduction Prohibited

Strengthening Public and Private

Credit Registry Ties

World Bank 2004 In Beijing

By Larry Chiang

C o n f i d e n t i a l

2 Apr 8, 2023

Public and Private SectorsWorking 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

C o n f i d e n t i a l

3 Apr 8, 2023

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

C o n f i d e n t i a l

4 Apr 8, 2023

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

C o n f i d e n t i a l

5 Apr 8, 2023

Jumpstarting A Country’s Credit System with Thin File Analysis (TFA)

Credit System

Old Credit Data

New CreditData

TFA

Private SectorData

Public SectorData

PCA Not Commercially

Organized

Add’l Dimension

AdjustThe Axis of Emphasis

Incomplete Files

(Private)

C o n f i d e n t i a l

6 Apr 8, 2023

C o n f i d e n t i a l

7 Apr 8, 2023

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

C o n f i d e n t i a l

8 Apr 8, 2023

A Quantum Leap Forward With Thin File Analysis

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 ++

C o n f i d e n t i a l

9 Apr 8, 2023

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

C o n f i d e n t i a l

10 Apr 8, 2023

The Old Way

f ()

The old technique of measuring credit worthiness with a score from350-800. This (with all its parameters) is a one dimensional match.

C o n f i d e n t i a l

11 Apr 8, 2023

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.

C o n f i d e n t i a l

12 Apr 8, 2023

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

C o n f i d e n t i a l

13 Apr 8, 2023

Adding a New Axis- Public Registries

“f” is the function with traditional credit data with CRAs

“e” function factors in applicant data, gov’t agency data & more

C o n f i d e n t i a l

14 Apr 8, 2023

Thin File Analysis Marries Both…

“f” is the function with traditional credit data

“e” function factors in applicant data, gov’t agencies & more

                                                                                                   

C o n f i d e n t i a l

15 Apr 8, 2023

The New Way

You set how much influence the epsilon function gets

C o n f i d e n t i a l

16 Apr 8, 2023

Recipe for a Rough Transition

fusa ()

The credit scoring system is directly imported from one country toAnother. Charge-offs shoot over 17%

fkorea()

C o n f i d e n t i a l

17 Apr 8, 2023

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

C o n f i d e n t i a l

18 Apr 8, 2023

Customize an “Imported” Credit System

“f” is the function with traditional credit data

“e” function factors in applicant data, gov’t agencies & more

                                                                                                   

C o n f i d e n t i a l

19 Apr 8, 2023

Sequence of Steps to aCountry Specific System

(2) is goal for China in the goal for 2007

(1) Is the goal for 2011

(4) Is the goal for 2015

C o n f i d e n t i a l

20 Apr 8, 2023

Private Registries And- Public Registries

“f” is the PRIVATE function that slightly depends on “e” function

“e” is the PUBLIC function supports a temporarily weak “f” function

C o n f i d e n t i a l

21 Apr 8, 2023

Perhaps Yet Another Axis is Needed