Read the Roadmap below or download a PDF version here.
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The Main Idea: |
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While experts agree on the principles of effective credit reporting, challenges to establishing credit reporting systems arise from the need to bring regulators, financial services providers and credit reporting providers together around a business model that works for all. |
Effective credit reporting for BOP customers requires seamless data from the smaller financial institutions those customer tend to use – often requiring regulatory change. Smaller institutions may need assistance to prepare their internal systems to work with credit reporting. |
New approaches are springing up that use alternative sources, such as mobile phone data and bill payment records, to overcome the “thin files” of new and low-income customers. |
Client data privacy must be respected, with rules that give clients some control, such as access to their records, a way to correct errors, and some say over third party use. |
Credit reporting is an important part of a financial system’s infrastructure. It facilitates access to credit for all who can use it, protects clients from overindebtedness, and helps providers manage risk and decrease costs. But establishing credit reporting agencies that support financial inclusion can be challenging for a number of reasons, including lack of universal identification, limited information on clients at the bottom of the pyramid, and a need to strengthen and communicate the value proposition of credit reporting for institutions serving low-income clients.
In 2011, the World Bank established a Task Force on Credit Reporting which articulated the following five general principles on credit reporting. The FI2020 Experts Working Group supports this task force in its effort to make these principles a reality in all countries.
General Principles on Credit Reporting
- Data. Credit reporting systems should have relevant, accurate, timely and sufficient data—including positive data—collected on a systematic basis from all reliable, appropriate and available sources, and should retain this information for a sufficient amount of time.
- Data Processing Security and Efficiency. Credit reporting systems should have rigorous standards of security and reliability, and be efficient.
- Governance and Risk Management. The governance arrangements of credit reporting service providers and data providers should ensure accountability, transparency and effectiveness in managing the risks associated with the business and fair access to the information by users.
- Legal and Regulatory Environment. The overall legal and regulatory framework for credit reporting should be clear, predictable, non-discriminatory, proportionate and supportive of data subject and consumer rights. It should include effective judicial or extrajudicial dispute resolution mechanisms.
- Cross-Border Data Flows. Cross-border credit data transfers should be facilitated, where appropriate, provided that adequate requirements are in place.
The growing availability of data is changing the future of credit reporting. A variety of existing and new actors are looking at how alternative data (such as records of utility bill payments or phone usage) can enable new ways of scoring borrowers’ credit worthiness.
Working Group Members
Tony Lythgoe, Advisor, International Finance Corporation (Chair)
Anita Gardeva, Center for Financial Inclusion (Facilitator)
Syed Mohsin Ahmed, CEO, Pakistan Microfinance Network
Joachim Bartels, Managing Director, Business Information Industry Association
Cecilia Bouras, Vice President, Business Intelligence, Consumer Analytics Database, Western Union
Neil Munroe, President, Association of Consumer Credit Information Suppliers/Equifax
Cornelio Pimentel, Consultant, Brazil
Michael Turner, CEO, The Policy and Economic Research Council
FI2020's Roadmap to Inclusion is generously supported by Visa, Inc.
