Breakaway Session-1: Building an Effective Credit Information
System
Financial Inclusion Conference
4:15pm – 5:30pm, 7th Aug 2012
Convention Hall, Ashok Hotel, Chanakyapuri, New Delhi
Colin Raymond
Credit Bureau & Risk Management Advisor
IFC- CAI Advisory Services
In emerging markets, roughly two-thirds of the population
remain unbanked and underserved
 The bottom of the pyramid remains
underserved:
34% of
Large
companies and
top retail clients
Population Banked
• Banking sector penetration of 5% to 25% vs.
70% to 90% in developed markets
• Banks tend to focus on large commercial
clients and top retail clients
 Targeting the underserved:
• Microfinance (up-scaling):
Total reach: 105 million clients globally
66% of Population
Unbanked
• Banks (down-scaling):
Retail,
micro and
Requires retail skills and systems
small
businesses • Non-bank financial institutions
(diversifying):
Leasing, factoring, housing, insurance
2
The Case for Microfinance Credit Reporting (MCR)
KEY RISKS
RISING NPLs
OVER-INDEBTEDNESS /
MULTIPLE BORROWING
DIFFICULTY TO LEND
RESPONSIBLY DUE TO
INFORMATION ASYMMETRIES
HIGH SECTOR GROWTH WITH
LACK OF CONTROLS /
INSTITUTIONAL DEVELOPMENT
FINANCIAL EXPOSURE IN
SECTOR
MINIMIZE RISK BY: SUPPORTING MFI PARTICIPATION IN
CREDIT REPORTING
Evidence from functional microfinance credit
bureaus operating in Ecuador, Peru, and Guatemala
shows that credit reporting can be tremendously
beneficial for microfinance institutions (MFIs) and
financial sector stability.
MFI credit reporting (MCR) can help MFIs become
more sustainable by improving risk assessment and
risk management processes and thereby portfolio
quality and enhancing efficiency.
As a result, MCR will help MFIs to (i) Increase access
to finance to more clients (ii) Prevent and identify /
address client over-indebtedness or bad debt which
is becoming increasingly evident in the current
financial crisis.
3
Risks Facing Global Microfinance Industry
• Banana Skins 2012 Survey
 Top 3 Risks Globally – Over-Indebtedness, Corporate Governance,
Management Quality
 Top 3 Risks Asia – Liquidity, Political Interference, Corporate
Governance
 Report raises question “Are credit bureaux the answer?
• Pros – most respondents blamed absence of centralised CIBs as
CIBs help identify potential risks and help client build credit
history
• Cons - Effectiveness of CIB depend on MFI willingness to use them
– Bureau data not complete
– MFIs not following rigorous practices to avoid overindebting
clients
Microfinance Banana Skins 2012 – The CSFI survey of Microfinance Risk
4
India - Recent Stocktake (June-July 2012)
• Contacted 120 MFIs across 13 states
 Varying size portfolios – from
< than 1,000 to > than 50,000 members
 34 respondents – portfolio mix SHGs, JLGs and individual loans
 Most are computerized and have data available for bureau submission
• Key concerns
 Lack of awareness of statutory requirement
 Lack of awareness about the actual process involved in terms of how
data will be submitted and how data can be accessed.
 Belief that benefits of CB are for larger MFI not smaller ones
 Cost of membership and integration is “uneconomical” given the
thinning spreads, the capped margins and escalating operations cost
 Changes in internal credit evaluation processes as well as capability
of the ground staff to handle these changes
5
India Microfinance –IFC’s Focus of Work
1
3
2
Component I
Broadening
of
Component II
Awareness
Raising
Component III
Research
Study
Coverage
Increase MFIs as CIB Members; Increase No. of Enquiries; Explore
inclusion of SHGs & cooperatives; Communications Package;
Dissemination by practitioners & through workshops; Research
report on impact of CIBs. (Timeframe: 2012  2014)