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The Status of Information Sharing and Credit Reporting Infrastructure

Recent enterprise surveys conducted by the World Bank show that on average only 20 percent of small and medium enterprises (SMEs) in the Middle and North Africa (MENA) have a loan or a line of credit, a smaller share than those in all other regions. Roughly 85 percent of MENA banks identify weaknesses in credit information as an important or very important obstacle to SME lending. Effective credit reporting systems reduce uncertainties and allow creditors to evaluate the risk associated with lending money, lowering the cost of finance and promoting access to a broader range of borrowers. Access to credit information allows lenders to screen potential borrowers more easily and monitor their performance more easily as well. Other empirical studies have shown that effective credit information systems promote banking competition, contribute to the growth of SMEs, and reduce default rates.  Well-functioning credit reporting systems also induce borrowers to meet their obligations in order to avoid problems accessing finance in the future as a result of their credit rating.

The quality of credit reporting in MENA has improved in recent years, due largely to the introduction of new credit bureaus in some countries; however, much remains to be done, both in terms of design and coverage. Though Public Credit Registries are crucial to a short term strategy aimed at the development of credit reporting, they are far from satisfying the needs of a growing, demanding, modern credit industry. Private Public Credit Bureaus (PCBs) can contribute to higher coverage and improve the depth of credit information sharing substantially by collecting data from other financial and non-financial institutions such as micro-finance institutions.  Two key difficulties preventing faster development of a comprehensive credit reporting system are a generally lax, non-specific, legal framework, and the reluctance of lenders to share data as a result of a lack of awareness about information sharing benefits.

Public Credit Registries are important to banking supervision but should also play a preparatory role towards the establishment of a private credit reporting industry to improve ineffective information flows and to satisfy the needs of a growing, demanding, modern credit industry.  Regulators can collaborate to promote the establishment of a complete, efficient and reliable information sharing system, and address the challenges of creating a predictable and proportionate legal framework, fostering awareness among lenders, enhancing the confidence of consumers, and promoting innovation in financial services. Supranational efforts and coordination among the Arab countries appears to be the shortest avenue towards the standardization of practices and the adoption of harmonized legislation, aiming at simplifying the exchange of information within and cross- borders. The creation of the forthcoming Credit Reporting Standards can constitute a great opportunity to promote regional harmonization, while allowing sufficient flexibility to enforce laws and regulations that consider the individual nature and interests of each country.

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