1. POLICY & ECONOMIC RESEARCH COUNCIL By Robin Varghese, Ph.D. Manila, Philippines November 2015 So, You Want to Build a Credit Bureau… Considerations for Developing Effective Credit Information Sharing Systems

2. Credit Bureau Development Why build credit bureaus? Financial infrastructure that: Improves access for Consumers Improves access for Micro-, Small- Enterprises Allows faster, cheaper, & more accurate underwriting Improves safety and soundness by reducing overindebtedness

3. Some parts are at a certain level one-size E.g., data: CIS systems are about sharing data: Negative Credit Data (late payments, defaults, bankruptcies) Positive Credit Data (on time payments, open accounts, outstanding balances) Non-financial payment data (+/- on utilities, telecom, rents, media, education) Public data (ID databases, public records, but also payments on publicly provided services) What Data

4. Challenge of Regulating a Bureau Most questions depend on policy goals and capacities—hence no one size fits all Balancing 2 primary goals: Consumer protection: Sharing data must be conducted in a framework that protects consumers from having the privacy violated and their welfare exploited & Economic fairness, growth and stability: Bureaus increase access, especially for the financially excluded, promote growth by limiting financing constraints, and enhance safety and soundness by limiting overindebtedness

5. Regulating Data Regulating Data Collection & Use (Privacy): Omnibus approach: Covers all data protection, not just bureaus Siloed approach: Data collection is governed differently in different sectors because different considerations come into play. (Financial data, health data, educational data—each may be regulated differently) Note that omnibus approaches like the EU’s “derrogate” or customize for legitimate purposes, allowing exemptions for credit bureaus

6. Regulating a Bureau Regulating Credit Bureaus: Contractual approach (industry Code): Bureaus are regulated by a series of contracts between data furnishers and the bureau (data regulations & consumer protection provide legal framework) Legal approach (statutes): There is a credit bureau law, licensing process and oversight mechanism. Usually Government Agency or a Mix Extensively regulated by a mix of statute and industry code—Guatemala, India, Italy, the Netherlands, the United Kingdom, and South Africa. Regulation carried out by solely a government agency—Costa Rica, El Salvador, Honduras, Nicaragua, Dominican Republic, Hong Kong, Malaysia, the PRC, Colombia, Spain, Russia, Norway, Morocco, Estonia, Singapore, and Denmark

7. Oversight of a Bureau Methods of oversight depend in large part on the Capacity of regulators Capacity of regulated and The structure of the legal and regulatory framework. Approach to oversight: Examinations: government inspections of bureau activities. Audits: reviews by the bureau or by third party inspectors. Usually a mix of both. Audits are more frequent that examinations Where examinations are the main approach, either they take place when there is an incident or the bureau reports regularly on predetermined benchmarks like In most developed markets, examinations take place rarely or when there is a serious incident. Bureaus have audits (3 rd party) and results are shared with regulators

8. How Can Policy Encourage the Development of the Sector Again depends on Capacity and Environment: Data sharing mandates (often found for negative data) Data use mandates (hard and soft) Capital provisioning Government can take the lead and share the data from government lenders, public records, utilities Licensing and incorporation policies can encourage those with capacity & know how to enter the market APFF proposed initiative on regional minimal data format and definitions—working with bureaus, banking sector and regulators.

9. POLICY & ECONOMIC RESEARCH COUNCIL 6409 Fayetteville Rd. Suite 120, #240 Durham, NC | 27713 www.perc.net Phone: +1.919.338.2798