biia october 2006 - all rights reserved 2006 - business information industry association asia...
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October 2006
www.biia.com - All Rights Reserved 2006 - Business Information Industry Association Asia Pacific - Middle East Limited -
1
BIIA
Credit Reporting Systems in Africa
Role of Public Sector Information in Risk
Assessment
6 October 2006
Cape Town, South Africa
October 2006
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2
BIIA
Public Sector Information and Risk Assessment
Joachim C. Bartels Managing Director
Business Information Industry Asia Pacific – Middle East
Limited
Hong Kong
Stefano Stoppani Credit Bureau and Risk Management Advisor
Global Financial Markets Development – International
Finance Corporation
October 2006
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3
BIIA
Agenda
• Value of Information and Economic Development
• The State of Information – Global Overview
• The Digital Divide in Lending
• How to Bridge the Digital Divide?
• General Discussion
October 2006
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4
BIIA
Economic Benefits
Information
Economy• More Stable Financial Sector• Economic Growth with Lesser
Need for a ‘Bail-out’ of Banks• Stabilizes Allocation of Capital
• Accurate Risk Prediction• Can Lend to Broader Risk Segments• Pricing Reflecting Individual Risk
Financial Sector
Businesses
• Objective Assessment• Better Access to Credit• Quicker Reward for
Responsible Credit Behavior
Consumers• More Accurate
Information on Health of Financial Sector
Bank Supervision
October 2006
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BIIA
Credit and Information
• Strong Positive Linkages between Financial Sector and Economic Growth*
• Strong Linkage between Greater Access to Credit / Higher Bank Borrowings and Existence of Credit Information Companies or Credit Bureaus* * Source: World Bank
** Small and Medium Size Enterprises
• A Well-functioning Financial Sector Provides Individuals, SMEs** and Corporations with Access to Credit*
October 2006
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6
BIIA
SMEs and the Problem of Obtaining Credit
• “The Difficulty of Obtaining
Credit is Consistently Rated
by SMEs as one of the
Greatest Barriers to
Operation and Growth”
World Bank 2003 Study on Credit ReportingWorld Bank 2003 Study on Credit ReportingEstimates Based on Data on 5000 Firms in 51 CountriesEstimates Based on Data on 5000 Firms in 51 Countries
49%49%
28%28%
High Financing High Financing ConstraintsConstraints
Probability of Probability of Obtaining a Obtaining a LoanLoan
Source: World BankSource: World Bank
October 2006
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BIIA
Relevance of Credit Bureaus
49%49%
27%27%
% of Firms Reporting % of Firms Reporting High Financing High Financing ConstraintsConstraints
Without Without With With Credit BureauCredit Bureau
Probability of Obtaining Probability of Obtaining a Bank Loana Bank Loan
28%28%
40%40%
Without Without With With Credit BureauCredit Bureau
Source: World BankSource: World Bank
October 2006
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8
BIIA
Impact on Availability of CreditA
vail
abil
ity
of I
nfo
rmat
ion
Penetration of Credit
< 33%< 33% 35 - 66%35 - 66% > 66%> 66%
Subjective Credit Granting – High Risk - No Transparency
Subjective Credit Granting – High Risk - No Transparency
High Credit Losses - Little Transparency
High Credit Losses - Little Transparency
Moderate Credit Losses – Accurate Risk Prediction
USAUSA
UKUK
NoneNone
HighHigh
October 2006
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BIIA
Impact on Availability of CreditA
vail
abil
ity
of I
nfor
mat
ion
Penetration of Personal Credit
< 33%< 33% 35 - 66%35 - 66% > 66%> 66%
No Information No Information Sharing Sharing No Credit BureauNo Credit Bureau
No Information No Information Sharing Sharing No Credit BureauNo Credit Bureau
Negative Negative Information Information onlyonly
Positive and Positive and Negative Negative Information Information Sharing with Sharing with Credit BureauCredit Bureau
Source: McKinsey & Company 2002Source: McKinsey & Company 2002
Subjective Credit Granting – High Risk - No Transparency
Subjective Credit Granting – High Risk - No Transparency
High Credit Losses - Lack of Transparency
High Credit Losses - Lack of Transparency
Moderate Credit Losses – Accurate Risk Prediction
•Overall China Credit Penetration app.. 5%Overall China Credit Penetration app.. 5%** Under Development** Under Development
USAUSA
UKUK
ShanghaiShanghai**
JapanJapan TaiwanTaiwan
Singap.*Singap.***
India**India**
KoreaKorea HKHK
China**China**
October 2006
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BIIA
0
1,000
2,000
3,000
4,000
5,000
6,000
UK Example – Non-Performing Loan Provisions
Pounds Sterling [000]McKinsey Report on State of UK McKinsey Report on State of UK BankingBanking
• Recommending Greater Reliance Recommending Greater Reliance on External Information and on External Information and Credit ScoresCredit Scores
McKinsey Report on State of UK McKinsey Report on State of UK BankingBanking
• Recommending Greater Reliance Recommending Greater Reliance on External Information and on External Information and Credit ScoresCredit Scores
• UK Banks Revamped Credit Systems
• UK Banks Revamped Credit Systems
NPL ProvisionsNPL ProvisionsNPL ProvisionsNPL Provisions
October 2006
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BIIA
AGENDA
• Linkages: Value of Information and Economic Development
• Overview: State of Information
October 2006
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12
BIIA
• The Imperfect World of The Imperfect World of InformationInformation
• Attitudes and Infrastructure Attitudes and Infrastructure Impact Availability & Impact Availability & ReliabilityReliability
State of Information
• Complexity of Risk is Complexity of Risk is Growing Growing
• New Demands on Information New Demands on Information
• Overcoming the Overcoming the Information DeficitInformation Deficit
• Investment in Public / Private Investment in Public / Private Sector InformationSector Information
October 2006
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13
BIIA
THE STATE OF INFORMATION
0
10
0 10
Effectiveness of Information in Credit Risk Assessment
Co
un
try
Infr
astr
uct
ure
Co
un
try
Infr
astr
uct
ure
Co
un
try
Infr
astr
uct
ure
Co
un
try
Infr
astr
uct
ure
GovernmentLegalITCreditBusinessHR
State of Registers, Information Exchange Mandated & Voluntary Disclosure
Information AvailabilityInformation Availability
Thailand Pre 1990’s
Finland
October 2006
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BIIA
Government
LegalInfrastructure
COUNTRY INFRASTRUCTURE CRITERIA
• Communication Quality & Availability
• New IT Meeting Business Needs
• Data Security Enforced
• Communication Quality & Availability
• New IT Meeting Business Needs
• Data Security Enforced
Information
Infrastructure
• TransparencyTransparency• Bribery and Bribery and
CorruptionCorruption• Parallel EconomyParallel Economy
• TransparencyTransparency• Bribery and Bribery and
CorruptionCorruption• Parallel EconomyParallel Economy
• Legal Framework Legal Framework for Commercefor Commerce
• Justice – Dispensed Justice – Dispensed FairlyFairly
• Rights & Rights & Responsibilities of Responsibilities of ShareholdersShareholders
• Legal Framework Legal Framework for Commercefor Commerce
• Justice – Dispensed Justice – Dispensed FairlyFairly
• Rights & Rights & Responsibilities of Responsibilities of ShareholdersShareholders
October 2006
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BIIA
CreditInfrastructure
Human Resources
BusinessInfrastructure
COUNTRY INFRASTRUCTURE CRITERIA
• Economic LiteracyEconomic Literacy
• Education in FinanceEducation in Finance
• Finance SkillsFinance Skills
• Worker MotivationWorker Motivation
• Adaptability & Adaptability & Flexibility of Flexibility of WorkforceWorkforce
• Ease of Doing BusinessEase of Doing Business
• Transfer of Know-howTransfer of Know-how
• Venture CapitalVenture Capital
• Insider TradingInsider Trading
• Cash Flow - Self Cash Flow - Self FinancingFinancing
• Ethical PracticesEthical Practices
• Credibility of ManagersCredibility of Managers
• Credibility of Corporate Credibility of Corporate BoardsBoards
• EntrepreneurshipEntrepreneurship
• Adaptability of CompaniesAdaptability of Companies
• Financial Institution Financial Institution TransparencyTransparency
• Central Bank PolicyCentral Bank Policy
• Export Credit & Export Credit & InsuranceInsurance
• Confidentiality of Confidentiality of Financial TransactionsFinancial Transactions
• Legal Regulation of Legal Regulation of Financial InstitutionsFinancial Institutions
• Flow of Credit from Banks Flow of Credit from Banks to Businessesto Businesses
October 2006
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BIIA
CreditAcceptance of the Concept of Information Pooling
BusinessAttitudes and Compliance
GovernmentAvailability of Information
LegalRequirement to Disclose
INFORMATION AVAILABILITY
• Efficient Credit BureausEfficient Credit Bureaus
• Voluntary DisclosureVoluntary Disclosure
• Attitudes Towards Disclosure Attitudes Towards Disclosure and Transparencyand Transparency
• Reliability / Reliability / Accuracy of Accuracy of DataData
• Disclosure - SECDisclosure - SEC• Disclosure - Filing of FinancialsDisclosure - Filing of Financials
• Availability of Court RecordsAvailability of Court Records• Access to Court RecordsAccess to Court Records
• UCC Filings or EquivalentUCC Filings or Equivalent• State of Public RegistersState of Public Registers• Access to Public RegistersAccess to Public Registers• ComplianceCompliance
October 2006
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17
BIIA
0
1
2
3
4
5
6
7
8
9
10
Information Availability
High
High
Low
Low High0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Cou
ntr
y In
fras
tru
ctu
re
Low
High
China
Hong Kong
Indonesia
India
Singapore
Japan
ASIA / PACIFICASIA / PACIFIC
Finland
Australia
Korea
Philippines
Malaysia
New Zealand
Taiwan
Thailand
Low
Trend UpTrend Up
Trend DownTrend Down
No ChangeNo Change
Source: IMD 2003 Source: IMD 2003 & IEI 2003 Surveys& IEI 2003 Surveys
October 2006
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BIIA
0
1
2
3
4
5
6
7
8
9
10
Information Availability
High
High
Low
Low High
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Low
Source: IMD 2003 & Source: IMD 2003 & IEI 2003 SurveysIEI 2003 Surveys
Cou
ntr
y In
fras
tru
ctu
re
Low
High
S. AfricaS. Africa
Slovak RSlovak R
PolandPoland
Finland
Czech RCzech R
RomaniaRomania
RussiaRussia
HungaryHungary
TurkeyTurkey
SloveniaSlovenia
Trend UpTrend Up
Trend DownTrend Down
No ChangeNo Change
GermanyGermany
FranceFrance
October 2006
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19
BIIA
1
2
3
4
5
6
7
D&
B C
oun
try
Ris
k R
atin
g
Information Availability
Low
Low Risk
High
High Risk
High Risk
Low Risk
Finland
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
High Risk
Pakistan
Azerb
Nepal
Sri Lanka
Bangladesh
Georgia
Kazakhstan
Myanmar
Vietnam
Congo DR
Tanzania
Nigeria
Zimbabwe
Kenya
Angola
Algeria
Peru
Cuba
Paraguay
Source: D&B IRPRSource: D&B IRPR& IEI 2003 Surveys& IEI 2003 Surveys
Bulgaria
Ukraine
October 2006
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20
BIIA
5
6
7
8
9
10C
oun
try
Infr
astr
uct
ure
Information Availability
High
High
Low
Low High
Low
High
6 7 8 9 10 6 7 8 9 10
Source: IMD 2004 & IEI 2003 SurveysSource: IMD 2004 & IEI 2003 Surveys
France
Austria
Italy
Finland
Denmark
IrelandNetherlands
Sweden
Belgium
Spain
Portugal
Germany
POTENTIAL ROLE MODELS
Trend UpTrend Up
Trend DownTrend Down
UK
Switzerland
September 2006
FEBIS ANNUAL CONFERENCE 2006 - WWW.BIIA.COM - All Rights Reserved -
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BIIA
• Market Characteristics
• Introduction to BIIA
• Content Information Market
• World Bank Survey
October 2006
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BIIA
Agenda
• Value of Information and Economic Development
• The State of Information – Global Overview
• The Digital Divide in Lending
• World Bank Survey on Public Sector / Private Sector Information Relationship
October 2006
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23
BIIA
The Digital Divide
• Short term bank and trade credit are the largest sources for short term capital
• The existence of bank & trade credit depends on accurate, reliable and timely information and credit management skills
• In many countries trade credit has not reached its full potential because of the lack of accurate, reliable and timely information caused by underdeveloped and dysfunctional public records infrastructures
October 2006
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BIIA
The Imperfect World of The Imperfect World of InformationInformation
• Difficult to Access Difficult to Access
• Paper BasedPaper Based
• Poor Quality – Out of DatePoor Quality – Out of Date
• Lax ComplianceLax Compliance
• Underdeveloped Underdeveloped InfrastructuresInfrastructures
• Underdeveloped Underdeveloped InfrastructuresInfrastructures
• Information is Secret!Information is Secret!
• Lack of Voluntary and Legal Lack of Voluntary and Legal DisclosureDisclosure
• No Enforced ComplianceNo Enforced Compliance
• Lack of TransparencyLack of Transparency
• Attitudes of Attitudes of Businesses Businesses
• Attitudes of Attitudes of Businesses Businesses
How to Create Value ?How to Create Value ?
?
October 2006
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BIIA
Digital Information and Credit Risk Assessment
Public
Sector
Data Sources
PrivateSector CreditInformation
Private
Sector
Credit
Grantors
Private
Sector
Borrowers
Value Creation and Impact on Economic
Development
Value Creation and Impact on Economic
Development
October 2006
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BIIA
Digital Information and Credit Risk Assessment
Private
Sector
Borrowers
PrivateSector CreditInformation
Private
Sector
Credit
Grantors
Public
Sector Data
Sources
Low Value Creation Impaired Economic
Development
Low Value Creation Impaired Economic
Development
October 2006
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BIIA
From Data to Knowledge
Public
Sector
Data Sources
PrivateSector CreditInformation
Private
Sector
Credit
Grantors
Private
Sector
Borrowers
RawData
Data Collection
Data Validation
Modeling External Internal
Data Decision
October 2006
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BIIA
CREDIT INFORMATION CYCLE
Public Sector Information
Public Sector Information
Register & Court DataRegister & Court Data
Private SectorCreditors
Private SectorCreditors
Credit BehaviorCredit
Behavior
Credit Grantors
Credit Grantors
Risk Assessment
Risk Assessment
Credit Information
Credit Information
Private Sector Value AddedInformation
Private Sector Value AddedInformation
October 2006
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29
BIIA
PRIMARY USERS
0
25
50
75
100
Banks
Cred
it I n
sure
rs
Trad
e Cr
edit
Retai
l
Cred
it Ca
rd I
Regul
ator
s
Source: World Bank Survey 2006
% o
f R
espo
nden
ts
October 2006
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30
BIIA
Public Sector – Private Sector Information Sources
Public Sector Private SectorPrivate SectorBusiness Registers
Court System
News Media
Company News & Information
Trade Directories
Compulsory VoluntaryPrivate Sector Publications
Trade InformationTrade Information
Financial StatementsFinancial Statements
InvestigationInvestigation
Press Clippings
Product Information
RegisterDataRegisterData
Suits, Liens JudgmentsSuits, Liens Judgments
FinancialStatementsFinancialStatements
Database
October 2006
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BIIA
MOST FREQUENTLY USED DATA SOURCES
0
25
50
75
100
Source: World Bank Survey 2006
% o
f R
espo
nden
ts
October 2006
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BIIA
DEFICIENCIES IN PUBLIC SECTOR INFORMATION (PSI)
0
25
50
75
100
CorporateRegisters
Court Collateral
Paper Format Electronic Format
Source: World Bank Survey on Business Credit Information and PSI
% o
f R
espo
nden
ts
October 2006
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33
BIIA
PSI – QUALITY AND RELATIONSHIP
123456789
10
CorporateRegisters
Court Records CollateralRegisters
Data Quality Relationship
Source: World Bank Survey on Business Credit Information and PSI
1 –
10 R
anki
ng
September 2006
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BIIA
SUCCESS FACTORS
0%
5%
10%
15%
20%
25%
30%P
ublic
Secto
r
Mandato
ry
Dis
clo
sure
/
Regula
tory
Bank
Secre
cy
Tra
de
Info
rmatio
n
Data
Qualit
y
Attitu
des
tow
ard
s
Custo
mer
Educatio
n
Speed o
f
Serv
ice
Fre
shness
of data
Technolo
gy
Sta
ndard
s
October 2006
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BIIA
October 2006
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BIIA
October 2006
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BIIA
October 2006
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BIIA
AGENDA
• Linkages: Value of Information and Economic Development
• Overview: State of Information
•How to Bridge the Digital Divide?
October 2006
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39
BIIA• Data-Pooling (A) Data-Pooling (A)
- Credit Bureaus -- Credit Bureaus -
Bridging the Digital Divide
• Investments in Modern Investments in Modern Information SystemsInformation Systems
• Electronic Access to Electronic Access to RegistersRegisters
• PartneringPartnering
• Value AddedValue Added
• Change ‘Mind Set’Change ‘Mind Set’ • Broadening DisclosureBroadening Disclosure
• Encourage Voluntary DisclosureEncourage Voluntary Disclosure
• Improvement in Corporate Improvement in Corporate GovernanceGovernance
• Value of TransparencyValue of Transparency
• Value of Information in Credit Value of Information in Credit TransactionsTransactions
• Value of Information PoolingValue of Information Pooling
RegistersRegistersRegistersRegisters CourtsCourtsCourtsCourts
Public SectorPublic SectorPublic SectorPublic Sector Central BanksCentral BanksInternational / NationalInternational / NationalCentral BanksCentral BanksInternational / NationalInternational / National
Credit Credit Grantors Grantors (A)(A)
Credit Credit Grantors Grantors (A)(A)
InformationInformationSuppliers Suppliers (A)(A)
InformationInformationSuppliers Suppliers (A)(A)
Private SectorPrivate SectorPrivate SectorPrivate Sector
October 2006
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BIIA
The Thai Example
0
10
0 10
FinlandC
ou
ntr
y In
fras
tru
ctu
reC
ou
ntr
y In
fras
tru
ctu
reC
ou
ntr
y In
fras
tru
ctu
reC
ou
ntr
y In
fras
tru
ctu
re
Information AvailabilityInformation Availability
Thailand
Success Factors ?
October 2006
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BIIA
The Thai Example
Pre 1994Pre 1994
• Paper Based
• No Online Distribution
• Paper Based
• No Online Distribution
Registration DataBalance Sheets
Ministry of Ministry of CommerceCommerceBusiness Business RegistrationRegistration
Public SectorPublic Sector
BankruptciesAuctions
Ministry of Ministry of JusticeJusticeCourt SystemCourt System
• How to Digitize Data?
• How to Provide Online Distribution?
• How to Digitize Data?
• How to Provide Online Distribution?
• Public Sector Initiative?
• Private Sector Involvement?
• Public Sector Initiative?
• Private Sector Involvement?
October 2006
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BIIA
The Thai Example
Private SectorPrivate Sector
• Information Skills?
• Marketing Skills?
• Add Value?
• IT Skills?
• Proven Track Record?
• Information Skills?
• Marketing Skills?
• Add Value?
• IT Skills?
• Proven Track Record?
Registration DataBalance Sheets
Ministry of Ministry of CommerceCommerceBusiness Business RegistrationRegistration
Public SectorPublic Sector
BankruptciesAuctions
Ministry of Ministry of JusticeJusticeCourt SystemCourt System
October 2006
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BIIA
The Thai Example
‘Business Online’ Database760,000
Companies7 Years of Financial Statements (Basel II)
• Data• Company Register• Bankruptcy
• Data• Company Register• Bankruptcy
• Information• Company Reports• Payment Information• News Briefs from 20 Sources
• Information• Company Reports• Payment Information• News Briefs from 20 Sources
Private Sector (BOL)Private Sector (BOL)Public SectorPublic Sector
From Data to KnowledgeFrom Data to Knowledge
October 2006
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BIIA
AGENDA
• Linkages: Value of Information and Economic Development
• Overview: State of Information
• How to Bridge the Digital Divide?
• Role Model: Public Sector / Private Sector Partnership Example
• General Discussion
October 2006
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BIIA
RECOMMENDATION
• Change ‘Mind Set’Change ‘Mind Set’ • Broadening DisclosureBroadening Disclosure
• Encourage Voluntary DisclosureEncourage Voluntary Disclosure
• Improvement in Corporate Improvement in Corporate GovernanceGovernance
• Value of TransparencyValue of Transparency
• Value of Information in Credit Value of Information in Credit TransactionsTransactions
• Value of Information PoolingValue of Information Pooling
RegistersRegistersRegistersRegisters CourtsCourtsCourtsCourts Credit Credit Grantors Grantors
Credit Credit Grantors Grantors
InformationInformationSuppliers Suppliers
InformationInformationSuppliers Suppliers
Public SectorPublic SectorPublic SectorPublic Sector Central BanksCentral BanksInternational / NationalInternational / NationalCentral BanksCentral BanksInternational / NationalInternational / National
Private SectorPrivate SectorPrivate SectorPrivate Sector
• Investments in Modern Investments in Modern Information SystemsInformation Systems
• Investments in Modern Investments in Modern Information SystemsInformation Systems
• Electronic Access to Electronic Access to RegistersRegisters
• Electronic Access to Electronic Access to RegistersRegisters
• PartneringPartnering• PartneringPartnering
• Value AddedValue Added• Value AddedValue Added
• Data-Pooling Data-Pooling - Credit Information Suppliers - - Credit Information Suppliers -
- Credit Bureaus -- Credit Bureaus -
• Data-Pooling Data-Pooling - Credit Information Suppliers - - Credit Information Suppliers -
- Credit Bureaus -- Credit Bureaus -
October 2006
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BIIA
Disclosure of Loan Information
0
25
50
75
Nam
e of
Ban
k
Loan
A
Loan
Typ
e
On
Tim
e
Past D
ue
Mat
urity
Colla
tera
l
Credit Information User Group
• Closed User Groups vs. Credit Information
% o
f R
espo
nden
ts
Source: World Bank Survey 2006
October 2006
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BIIA
Credit Reporting Systems in Africa
Thank You
The presenter and BIIA are not responsible for the use which might be made of the information contained in this presentation or report. Nothing in this presentation implies or expresses a warranty of any kind.
Presented by Joachim C. BartelsPresented by Joachim C. BartelsManaging Director of Business Information Industry Association Asia Pacific – Middle East [email protected]