Transcript The importance of credit bureau and need of legal framework for it

LITHUANIA
The importance of credit bureau and
need of legal framework for it
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Ranking of Lithuania in World Bank research

10 categories of
the research
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175 economies
research
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Lithuania is
generally very
well ranked ….
16th place
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Different
variables,
different results

Getting Credit …
33 out of 175
economies
Source: World Bank and IFC – Doing Business, http://www.doingbusiness.org/
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Roles of credit bureaus in the National Economies
•
Decreases information asymmetries between borrowers and
lenders.
•
Increase access to credit for a larger segment of the
population. It supports idea of equal conditions for majority of
the population.
•
Reduce the general over-indebtedness in the economy and
support the idea of civil responsibility of the debtors.
•
Increases credit activity of the financial institutions and reduce
the barriers of the small and medium business to get a loan.
•
Stimulate economic growth by increase of consumption and
investments in the economy.
•
Press the financial insititutions to decrease the Interest Rates
and propose more fair and better conditions on the market
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Credit Information Coverage by Priv x Pub Bureaus
Public
Large
Corporates
Mid-size
Companies
Small
Businesses
Private
Rating Agencies
Public
Registries
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2
Commercial
Credit
Bureaus
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Consumer
Credit
Bureaus
Consumers
1 – Purpose of public registries is banking supervision, while private bureaus seek to help lenders
make better credit decisions. However, there is a need for greater differentiation and
development of relevant public registries and data sources, e.g. financial statements databases.
2 – The role of public registries vs. private bureaus: What role can national loans registries play
and what other public registries or data sources can provide valuable input for private bureaus,
e.g. ID data (lost/stolen, unique identifier, tax header information etc.)
3 – Link between consumer and commercial credit reporting very important, in particular for owners
of small businesses and directors on SMEs: Closing the gap of information coverage and
developing value-added services such as small business scores
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Private credit bureaus growths
50
Eastern
Europe
Middle
East
Latin
America
Asia
45
40
35
30
25
20
15
10
Africa
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OECD
2001
1998
1996
1993
1990
1987
1981
1977
1969
1963
1957
1927
0
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Private credit bureaus are associated with lower
financial constraints
Estimates based on data on 5000 firms in 51 countries
% of small firms reporting high
financing constraints
Probability of obtaining a bank
loan for a small firm
49%
Source: Love and Mylenko (2003)
27%
Without credit
bureau
With credit
bureau
40%
28%
Without credit
bureau
With credit
bureau
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The most important qualities of credit bureaus
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•Guarantee consumer’s right to inspect their data and amend it
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•Contain data on all loans
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•Contain five or more years of historical data preserved
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•Contain data from financial institutions and others (retailers, utilities)
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1
•Contain data on both individuals and firms
•Contain both positive and negative information
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Work which has to be done in Europe - IFC
Legend:
Market assessment
Country
Activity
Outreach
Advice on Regulatory Framework
Diagnostic/Feasibility Study
Status
Armenia
PCB established in 2005; competition from Central Bank
Bulgaria
PCB established in 2004; competition from Central Bank
Croatia
Bank-owned bureau established in 2005
Georgia
Negative-only bureau in 2005. Regulatory issues to be addressed.
Kazakhstan
Kosovo
Kyrgyz Rep.
Lithuania
Credit Bureau Law. Bank-owned, positive bureau established in 2005.
Advice to WB and BPK on improvement of credit reporting infrastructure.
Regulatory issues being addressed.
Negative-only bureau in 2004. Upgrade to positive bureau required.
Macedonia
Advice to WB on improvement of existing credit reporting infrastructure.
Poland
Bank-owned bureau operative since 2001. Limited information sharing.
Romania
Bank-owned bureau established in 2004 following IFC Feasibility Study.
Russia
CB Law passed in 2005. PCBs being established.
Serbia
CB established by Banking Association.
Slovakia
Ukraine
Private Credit Bureau established in 2004.
Source: Love and Mylenko
(2003)
Bank-owned
bureau being established. IFC assistance requested.
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The best practice elements of the PDPA in EU
• PDPA allowed creation of positive and negative credit bureaus in
the individual countries
• PDPA guarantee once a year the „cost based“ credit report for
citizens and they can comply and ask for changes if something is
wrong
• PDPA guarantee that Financial Institutions use the credit reports
data for credit risk and business risk prevention and debt collection.
• PDPA guarantee that data stored in the bureau are not subject of
sensitive personal data (health, religion, etc.)
• PDPA creates the area of cross industrial data exchange for
business risk prevention.
• PDPA helps to minimize the miss interpretations on the market
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Improtance of business pro-active legal framework
• Personal Data Protection Act (PDPA) has to create the balanced
framework for the rights of citizen (debtors) and rights of financial
institutions (creditors).
• Together with the cross-border exchange of employees and
capital, the PDPA has to support the exchange of positive and
negative data on debts.
• The data processing should be organized on the basis of personal
consent which is not call-able by data subject.
• The credit bureau database processing company has to be
covered by consent delivered to the financial institutions
• The PDPA has to support the idea of storage and processing of data
about debts with the historical outlook of 4 – 7 years after the
termination of the contract.
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Data items, which credit bureaus exchange
• Personal ID
– Personal ID is important to protect the miss-matching situation in the
credit bureau database.
• Contact adresses
– The adresses of applicant, co-applicant, guarantor, employer, etc.
• The type of the loan or service
– The majority of data are on consumer loans, credit cards,
mortgages,overdrafts, paid and unpaid bills, etc.
• The payment history of the loan
– The credit bureau usually stores detailed 1 year history of existing
contracts and 4 – 7 history of terminated contracts
• The type of guarantee
– The type of guarantee is important to prevent the fraud and minimize
the future potential difficulties
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Data security and miss-use of the data
• The credit bureau is build on trust, but the trust is not enough.
• The credit bureau system has to be very secure and there has to
be real possibility to control any access to the bureau.
• The credit bureau has to be supervised either by financial
institutions authority or by personal data protection authority.
• The credit bureau company has to have a right to review and
control the activity of individual user to prevent the miss-use of the
data.
• The users and data providers have to be able to confirm the
existence of the consent of the customer.
• The information system security audit is neccesary to repeat every
2 years.
• The credit bureau has to be transparent and all major rules and
guidelines should be open to public control.
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Credit Bureau influence on Economy
The PDPA enables creation of fully positive x negative
credit bureau
The credit bureau improves a lot the credit activity in
the country
The high credit activity can help a lot to increase overall
consumption and investments in the country
This could INCREASE GDP of the country for 1% – 2%
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THANK YOU….
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