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Credit Reporting: What’s the Role for the State?

December 7, 2011


Miriam Bruhn, Economist, DECFP; Subika Farazi, Research Analyst,
and Martin Kanz, Economist, FPDCE



Fredes Montes, Legal Specialist, FFIFI



Asli Demirgüç-Kunt, Director, DECVP & Chief Economist, FPD


Credit Reporting: What Role for the State?
Miriam Bruhn (DECFP), Subika Farazi (FPDCE),Martin Kanz (FPDCE)

Credit Reporting: What’s the Role for the State?
Fredes Montes,Financial Infrastructure,The World Bank


Credit Reporting: What Role for the State? is the first in a series of  seminars related to the 2013 Global Financial Development Report (GFDR).  The objective of the GFDR seminars is to present preliminary findings from the various background papers underlying the 2013 GFDR.  In this first seminar, the presenters show some early results on credit reporting for the GFDR chapter dealing with the role of state in financial infrastructure.

Why should we worry about credit reporting? The recent financial crisis has highlighted the importance of credit reporting as a key tool for risk management, prudential oversight and regulation. However, reliable credit reporting is hard to achieve. Existing evidence points to significant coordination problems in information sharing between private lenders. In their draft paper, the presenters examine the possibility that private credit reporting initiatives may not emerge successfully since large lenders can capture monopoly rents by not sharing credit information. They also highlight ways in which the state can exercise its role as a regulator, promoter, or operator of credit reporting systems to overcome this barrier to credit information sharing. Using a unique dataset on credit reporting in 195 countries building on the Doing Business survey of credit reporting institutions, they show that countries with high bank concentration are less likely to have private credit bureaus. Similarly, in countries with high bank concentration, fewer institutions participate in the credit reporting system and these institutions provide less detailed credit information. While public credit registries that provide information to private sector lenders tend to crowd out private credit reporting initiatives, they find evidence that the existence of a public credit registry can attenuate of the negative relationship between bank concentration and private credit reporting.

What are the policy implications? The preliminary results provide evidence that the state can play a useful role in overcoming market failures and realizing economies of scale in credit reporting, but they also highlight that public sector involvement in credit reporting needs to be carefully managed to avoid crowding out private sector initiatives.The presenters and the discussant will discuss policy implications of the findings and relate them to relevant country cases.

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