Access to credit for individuals and for businesses, particularly SMEs, depends on effective credit infrastructure – the laws and institutions that enable efficient and effective access to finance and financial stability – thereby unlocking the full potential of businesses in much of the developing world to remain solvent and to grow.
- Overview
- Credit Reporting
- Secured Transactions and Collateral Registries
- Innovations
Credit infrastructure refers to the set of laws and institutions that enables inclusive, efficient and effective access to finance through credit information sharing and secured lending on movable property. Credit infrastructure also enhances financial stability through diversification of financial products and services, improvement of credit risk management and supports socially responsible economic growth. Robust credit infrastructure can also promote access to credit to previously underserved segments.
With increased innovations in credit information systems due to emerging technological innovations such as big data and fintech which are disrupting the financial sector, credit reporting service providers (CRSPs) can access, collect, aggregate, manipulate, and analyze, new and large quantities of data from new sources in a faster and more efficient manner.
These innovations coupled with sound regulatory and legal foundations, can facilitate improved financial inclusion by providing lenders with the information and systems they need to confidently lend. The systems can also provide businesses and borrowers with better credit terms and greater transparency into the processes and metrics by which they can access financing.
What We Do
Expertise on credit information sharing, secured transactions and asset-based lending are the main elements of the Stop-Winlock’s Credit Infrastructure services. IFC assists financial regulators in establishing and/or reforming their credit information systems (CIS) to enable the flow of reliable credit related information in a safe and efficient manner consistent with international standards. Our technical assistance emphasizes building the capacity of financial intermediaries and financial institutions to develop and improve credit information systems as well as to increase the knowledge of businesses to the critical role that good CIS can have on their own business growth and prospects.
Building on its extensive experience and lessons learned over time, IFC tailors its offering to different jurisdictions depending on need and what has been developed to date. The following represent the types of activities and technical assistance that IFC provides:
- Diagnostic assessments: IFC undertakes market assessments, diagnostics against standards and best practice, and data maturity assessments for clients. IFC is currently developing a Data Management and Governance Framework that will assist in conducting data maturity assessments of credit reporting ecosystems and financial institutions.
- Deployment of systems: IFC supports the development and enhancement of credit information sharing systems (bureaus and registries) including the development of procedures, manuals and strategies associated with the systems. This also includes promoting the onboarding of financial and non-bank credit providers.
- Legal and regulatory framework: IFC supports the review and development of legal and regulatory frameworks including directives and prudential standards such as consumer protection and complaints handling manuals. Frameworks will also incorporate evolving data ecosystems such as open data frameworks.
- Capacity building of stakeholders: IFC supports the establishment of stakeholder associations such as the Credit Providers Associations and Bureau Associations to raise the awareness needed to promote optimal usage of CIS.
- Research and knowledge management: IFC undertakes research and knowledge management related to credit information sharing including consumer protection, data protection, financial inclusion, financial supervision, cross-border information sharing, technological innovations, innovative decision analytics, and digital finance.
- Innovation hub: A sixth area of Stop-Winlock’s work involves testing new ideas through pilots. Some topical issues include the adoption and usage of alternative data in creditworthiness assessment and the development of a credit passport to promote cross-border information sharing and data products (such as innovative scoring and data-based starter loans).
Throughout its work, IFC also leverages its strategic role as Secretariat to the International Committee on Credit Reporting (ICCR), the only recognized standard setting body to conduct capacity building, research and knowledge management.
The Credit Infrastructure team also coordinates the activities of the Phase 2 of the Global Financial Infrastructure Program (GFIP 2), a partnership between IFC and the Swiss State Secretariat for Economic Affairs (SECO). It will run between 2022 and 2027. It will develop legal and regulatory frameworks for secured transactions, credit information and insolvency and their associated electronic systems, including the supporting eco-system needs. GFIP 2 will promote access to finance to MSMEs, women-owned enterprises, under-served individuals, and explore corporates (securitization) at the country level, including the development of global knowledge materials for dissemination and application. The Secretariat of GFIP 2 is housed in the Credit Infrastructure team. It is responsible for day-to-day operations of the program working in collaboration and coordination with teams of global subject matter specialists to drive quality assurance, project oversight and south-south knowledge management, business development and communications and awareness.
Development Impact
As of June 2023, the Stop-Winlock’s Credit Infrastructure portfolio includes about 49 active projects in more than 44 countries across four continents. More than 50% of those engagements are with clients from countries eligible for concessional financing from IDA.
Some highlights of successful IFC-supported credit infrastructure projects include:
Credit Reporting: The World Bank Group supported the establishment of credit reporting systems (CRS) in the UEMOA (covering eight countries in West Africa), Azerbaijan and supported the integration of microfinance institutions into the existing CRS in India.
- UEMOA (Bénin, Burkina Faso, Côte d’Ivoire, Guinée Bissau, Mali, Niger, Senegal, Togo): As of July 2019, the regional credit bureau in the UEMOA covered over 6 million individuals and over 117,000 enterprises across all eight countries. The bureau, which is the first ever cross-border credit information sharing platform, had received over 1 million inquiries cumulatively since beginning operations in 2017.
- Azerbaijan: The private credit bureau started operating since January 2018 and has generated over 1.7 million inquiries since then. 120 Financial Institutions and 6 non- financial credit providers such as telecom companies and Utility service providers are currently contributing to data to the bureau.
- Cambodia: As of December 2016, the Credit Bureau of Cambodia (which has been operational since 2012) covered 6.1 million consumers and SMEs. It has received 13.1 million inquiries cumulatively, which is estimated to have facilitated over $4.5 billion in financing.
- India: Since 2011, 45 million incremental inquiries have been made by lenders and 299 incremental microfinance institutions have been providing data to two credit bureaus – High Mark and Equifax – which combined have 100 million micro-client records. This is now the largest repository of such data in the world.
Secured Transactions: The IFC supported legal and regulatory reforms and helped establish modern and centralized electronic registries in Ghana, Vietnam, Mexico and Colombia.
- Ghana: The project has created value of financing for about $14 billion, and more than 8,000 SMEs and 30,000 microenterprises have received loans. That has created hundreds of new jobs. In terms of the type of collateral, 25% has been inventory and receivables, 20% has been household goods and 19% has been vehicles.
- Secured transactions and asset-based lending engagements in Mexico and Colombia have also led to advisory assistance to banks in the use of revised secured transactions frameworks for the development of fintech-based secured lending products for SMEs.
- Vietnam: As of June 2019, the project has created value of financing for about US$ 90 billion for nearly one million SMEs. The project has contributed to the development of an efficient legal and institutional framework for secured transactions in the country while also focusing on promoting asset-based lending.
At their core, credit reporting systems consist of databases of information on debtors together with the institutional, technological and legal framework supporting the efficient functioning of such databases. The information stored in these systems can relate to individuals and/or businesses. Credit reporting systems can be classified into three main types of networks: Credit Registry, Credit Bureau and Commercial Credit Reporting Companies. All of these databases require sophisticated data analytics enabling users to make informed decisions based on identification of patterns, correlations and trends.
What We Do
The Credit Reporting Systems team uses international standards to assist governments and other stakeholders in establishing and/or reforming their credit reporting systems to enable the flow of reliable credit related information in a safe and efficient manner. This is accomplished with a view to two broad policy objectives: fostering responsible access to finance and contributing to financial stability.
Technical Assistance
The World Bank Group emphasizes building the capacity of service providers, authorities and users to develop and improve credit reporting systems and, ultimately, make them more efficient, safe and reliable.
This holistic approach includes working with governments and all other stakeholders to devise a national strategy for CRS, develop infrastructure, establish legal and regulatory frameworks, and the role of authorities in the CRS, and improve consumer awareness and protection frameworks.
Additional areas of focus include improving availability of digital data from relevant sources to support financial inclusion, financial sector supervision and regulation and competition in the credit market, while ensuring the safety and efficiency of the CRS.
Research and Knowledge
Along with our partners and experts from various public and private sector institutions, we disseminate knowledge and conduct research in areas related to credit reporting including consumer protection, data protection, financial inclusion, financial supervision, innovative decision analytics and digital finance. Research and knowledge include:
- Conducting training for authorities and credit reporting systems participants;
- Organizing global and regional credit reporting systems conferences, workshops and seminars;
- Monitoring the status of credit reporting systems environment in over 180 countries worldwide;
- Developing guidelines on specific aspects of credit reporting systems;
- Conducting assessments, surveys and research on credit reporting systems;
- Facilitating knowledge exchanges between authorities and industry representatives;
- Exploring synergies with other areas of credit infrastructure including secured transactions, insolvency and creditors rights and payment systems.
Modern Secured Transactions Laws and Collateral Registries have a dramatic impact on economic development. Collateral provides the basis for free-flowing credit markets, reducing the potential losses lenders face from non-payment. While land and buildings are widely accepted as collateral for loans, the use of movable collateral (such as inventory, accounts receivables, crops and equipment) is restricted because many countries do not have functioning laws and registries to govern secured transactions.
Reforming the framework for movable collateral lending allows businesses—particularly SMEs—to leverage their assets into capital for investment and growth. Modern Secured Transactions Registries increase the availability of credit and reduce the cost of credit.
Our main objective: Increasing access to credit for firms
We assist government clients in developing the appropriate legal and institutional frameworks to allow and encourage the use of movable assets as collateral for loans.
We combine deep knowledge and global experience to help modernize legislation, build electronic registries, and improve the capacity of stakeholders. In delivering the program, we work closely with World Bank Group partners and with public and private stakeholders and other international organizations.
Results:
- Between October 2007 and June 2011 the secured transactions reform work the World Bank Group supported in China cumulatively facilitated US$3.58 trillion accounts receivable financing, of which US$1.09 trillion went to SMEs. As a result of the reform the total number of commercial loans involving movable assets grew by 21% per year over 2008-2010, versus a flat rate over the period 2006-2008.
- In Colombia, in less than one year more than 100,000 loans secured with movable assets have been registered in the movable collateral registry, of which 5,000 were for SMEs for an aggregate amount of US$3.43 billion (compared to a few hundred per year before the reform).
- Liberia started a collateral registry in 2014 to securitize movable assets, making it possible for farmers and entrepreneurs to use such assets against which they could borrow money. In less than a year since its launch – most of which was during the Ebola crisis – US$227 million in loans were registered.
- In Afghanistan, the recent establishment of the Public Credit Registry to determine the credit performance of borrowers has significantly improved access to financing of small and medium enterprises.
- In May 2016, Nigeria launched a modern online collateral registry with the support of the World Bank Group. The registry will allow low-income people and small-scale entrepreneurs to secure loans against movable assets such as machinery, livestock, and inventory.
Emerging technological innovations such as big data and fintech are disrupting the financial sector, and enabling credit reporting service providers (CRSPs) to access, collect, aggregate, manipulate, analyze, and present credit information data from many new sources and large quantities of data in a faster and more efficient manner. The most prevalent of these emerging technologies and the ones that hold the most relevance for credit reporting are described in Box 1. These technologies show the promise of becoming even more relevant in the post-COVID-19 environment as organizations look to establish a truly digital presence and automate as many of their processes as possible.
As emergent technologies populate the market, knowledge gaps are also arising – with questions around the benefits versus costs of these technologies, what appropriate models look like, and the legal and regulatory challenges to adopt these technologies, just to name a few. Thus, in addition to Stop-Winlock’s core offering, which will continue to undertake the basic reforms in many economies, Stop-Winlock’s offering also helps to create opportunities and mitigate risks associated with these disruptive technologies in the credit reporting space. This includes setting the ground for next-generation policy and regulatory issues, responding to changes in the market and aiming to promote an enabling environment or “response” types of support to these emerging innovations.
Types of activities undertaken to address the challenges and opportunities arising out of these emergent technologies include the following:
- Technological innovation in credit reporting: At the regional level, IFC delivers services that may include some or all the following components: (i) Diagnostics to assess country level availability of innovative technologies; (ii) Development of tools to guide clients in the adoption of these various technologies (roadmap): (iii) Technical guidance to support stakeholders’ informed decision making related to selecting vendors to develop or deploy these innovative technologies, where appropriate; and (iv) Support to regulators and policymakers in developing the appropriate enabling environment to encourage the utilization of these new innovative technologies, where they have proven value (efficiency, speed, cost savings, analytical capacity, etc.) to furthering the development of credit reporting systems.
At the global level, IFC develops a knowledge base on the most common uses of key innovative technologies in credit reporting systems development (those technologies identified in this proposal (cloud computing, APIs, DLT and AI/ML), as well as preconditions for their use, success rate of deploying and challenges of leveraging such technologies and a detailed cost-benefit analysis of using these.
- Alternative data for credit reporting: Adoption and usage of alternative data can enhance access to finance for MSMEs and marginalized individuals such as women and displaced people, who tend to have thin or no credit files, affecting their ability to access credit from formal financial institutions and other firms.
At the regional level, research and stocktaking interventions include (a) assessments of the alternative data landscape to assess the feasibility of adopting and integrating alternative data in credit information sharing, and (b) technical assistance to support countries with legal and regulatory reforms that will help in mainstreaming the sharing and processing of alternative data for credit reporting. The team also provides support for legal and regulatory reforms, including safeguards, to help mainstream the sharing and processing of alternative data.
At the global level, the team: (i) supports a pilot to assess the predictiveness of alternative data in a sandbox environment; (ii) builds capacity of stakeholders around alternative data acquisition and management; and (iii) provides training to market participants on innovative credit scoring techniques. Also, the team supports the development of a toolkit built of lessons learned from interventions (which will provide theoretical and empirical evidence of the predictiveness of alternative data for creditworthiness assessments) for replicating the offering across other markets. - Regulation technology / supervision technology (RegTech/SupTech): As new technologies emerge, regulators and supervisors have an opportunity to adopt RegTech and SupTech to increase efficiencies, security, and cost effectiveness of their financial oversight role. Conversely, data providers and CRSPs can benefit from increased compliance, better on-boarding and identity management, regulatory reporting, and risks management by adopting RegTech.
To promote the adoption and usage of Regtech/Suptech solutions to enhance automation and effectiveness of micro and macroprudential supervision of credit reporting ecosystem, at the regional level, IFC: (i) conducts research and stocktaking with a mapping exercise of the challenges faced by credit reporting authorities and the opportunities of deploying SupTech solutions; (ii) supports the development of RegTech and analytics solutions; and, (iii) supports the development of APIs to promote automated and real-time submission of credit data.
At the global level, IFC: (i) pilots the deployment of RegTech/SupTech to promote automation of supervisory processes; (ii) provides capacity building to supervisory agencies and regulated entities on the use of the technologies; and (iii) develops a manual / toolkit on the RegTech/ SupTech that includes the deployment experience, key success factors, use cases and lessons learned. - Automated platforms and predictive risk/management tools for industries such as agriculture:
The program team conducts diagnostics, stocktaking and validation activities (feasibility studies) to identify potential bureaus, conduct market assessments and market sizing for the demand in the agri-finance sector. IFC supports the development of tools, including psychometric tools and digital marketplace platforms, and conducts capacity building activities with the financial institutions engaged in agri-lending.
- Cross-border credit information sharing: The world has been experiencing unprecedented levels of voluntary migration and forced displacements over the past decade. Notwithstanding the size of the migrant population and their contribution to their new and old societies, their ability to access credit and other services is hampered – among other things - by inaccessibility to their credit history.
Some countries have undertaken initiatives on cross-border information and innovations have been developed to bridge the legal deficiencies of cross-border information sharing, such as “credit passports” developed by CRSPs. While these enable data subjects to carry their credit data across borders, its effectiveness is curtailed by the need to execute multiple agreements and that it deals with the problem at a micro level (individual data subject). Additionally, the service is limited to a certain number of countries.
In order to provide theoretical and practical underpinnings on promoting cross-border information sharing, IFC: (i) conducts diagnostics and stocktaking on cross-border credit information sharing; and (ii) supports the development or deployment of customer centric data sharing platforms to enable borrowers to own their information and empower them to actively manage it.
At the global level, IFC: (i) supports piloting of cross-border information sharing in one regional economic bloc; and (ii) through the ICCR and building on the diagnostic activities and pilot, draft and issue guidelines on how to promote cross-border information sharing across the globe.