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> Posted by Ana Ruth Medina Arias, Lead Specialist for Latin America and the Caribbean, the Smart Campaign

“The risk is to regulate by anecdotes and not by evidence.” – Mariela Zaldivar, Deputy Superintendent, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru)

In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the most conducive environment for financial inclusion, but also for its historic collaborative effort to establish a fully-interoperable nationwide digital payments platform (Bim) to support the supply of financial services. But buckle up, there is more.

The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.

Client Voices was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.

Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.

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> Posted by John Hartman, President, International, Equifax

This post is part of Financial Inclusion Week, a week of global conversation on advancing financial inclusion. This year’s theme is keeping clients first in a digital world. Throughout the week participants will share their thoughts in events and webinars, on social media, and through blog posts. Add your voice to the conversation using #FinclusionWeek.

Easy access to credit is something most of us take for granted. Getting the green light from the bank may depend on how you pay your day-to-day bills and your repayment history on any previous loans. A good credit history can create financial opportunity and is an important part of economic mobility.

Credit histories, however, are nowhere to be found or are extremely limited in a number of countries around the world, such as the rural regions of El Salvador, Paraguay, and even India. Farmers living in these regions have always operated outside the global financial system. It may not surprise the readers of this blog to learn that over 40 percent of the Indian population is unbanked, which means roughly 500 million people do not have access to financial services. In Latin America, the World Bank says this figure is even greater, with 61 percent of the population lacking access to formal financial services.

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> Posted by the Smart Campaign

What do microfinance clients in Peru think about their experiences with financial services? A few weeks ago the Smart Campaign released its Client Voices reports, a four-country research investigation that directly asked microfinance clients about their experiences. After previously spotlighting Benin, Georgia, and Pakistan on this blog, today we’ll take a look at findings from the fourth country in the project, Peru.

The research was carried out by Bankable Frontier Associates (BFA) and IPM Research. A qualitative research phase was first conducted, which included focus group discussions, individual interviews, and a photography exercise to allow clients to visually describe how they view good and bad treatment. The quantitative survey that followed included a sample of 1,000 current and former microfinance clients.

What did the clients say? In Peru, a well-regulated market, a different set of problems emerged from those we found in less-protected Benin and Pakistan. While severe abuses have been curtailed, emerging problems in Peru tended to arise from aggressive competition for customers.

Overall, clients in Peru are satisfied with their providers, suggesting that they’re benefitting from the industry’s well-regulated, competitive market and effective credit reporting system. Less than 10 percent of respondents rated their experiences with microfinance providers as either “bad” or “very bad”. In an exercise where respondents ranked various formal institutions in terms of how they treat clients, microfinance providers scored above commercial banks.

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> Posted by Center Staff

2015 was a year full of great reads (and listens). As we enter 2016, we wanted to take a look back at last year and what we were most excited to explore.  Through our work writing the FI2020 Progress Report, which assesses global progress in five key areas of financial inclusion, we benefited from important research from many in the financial inclusion field.  As part of this effort, we were eager to update our FI2020 Resource Library with the most informative reports and research outputs.  We encourage you to check it out – and in the meantime to review the highlights listed below.  The organizations responsible for these reports cover a wide array of stakeholder types, from support organizations, to telecommunication companies, to financial service providers – proof that progress in financial inclusion is being driven by many.

What Happens to Microfinance Clients Who Default? (January)
The Smart Campaign
Author: Jami Solli
This report looks in-depth at the enabling environment, the practices of providers, and customer experiences in Peru, India, and Uganda, to understand what happens when microfinance clients default on their loans. We were especially interested in the paper’s findings that demonstrate that effective credit bureaus give financial service providers the confidence to treat customers who default more humanely.

Money Resolutions: A Sketchbook (January)
CGAP
Author: Ignacio Mas 
This working paper explores the underlying logic for how people make money resolutions, including how people organize their money and make decisions about financial goals and spending. The paper focuses on peoples’ approaches to making financial decisions – rather than evaluating the decisions themselves – identifying the inner conflicts they face in the process.

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The government of China is launching a mandatory credit scoring system in 2020 and since the publishing of a piece on the system by the American Civil Liberties Union (ACLU) last week, it’s become a topic of passionate discussion. It remains to be seen how the system will work, but in reading a released State Council planning document, it seems likely that credit scores will be determined by more than just financial behaviors. While the creation of a country-wide credit reporting system potentially presents big benefits to lenders and borrowers, it’s essential that such a system doesn’t unfairly discriminate or breach citizens’ privacy. Below are the opening excerpts from the ACLU post and from a Tech in Asia post, which weighs in on the ACLU’s points and offers additional food for thought.

“China’s Nightmarish Citizen Scores Are a Warning For Americans”

> By Jay Stanley, Senior Policy Analyst, ACLU Speech, Privacy & Technology Project

China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator put it, “authoritarianism, gamified.” Read this piece for the full flavor—it will make your head spin. If that and the little other reporting I’ve seen is accurate, the basics are this:
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> Posted by Susy Cheston, Senior Advisor, CFI

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Data analytics is a big story these days, and we’re excited about its potential. In fact, we discuss its promise in the Technology, Addressing Customer Needs, and Credit Reporting sections of the FI2020 Progress Report. In terms of credit reporting, data analytics start-ups claim that their algorithms can cull information from Internet searches, social media, mobile apps, and so on to identify creditworthy people who might otherwise be left out of the system.

GO Finance, operating in Tanzania, and Konfio, in Mexico, are online lenders whose models are based on data analytics. GO Finance leverages digital data and mobile money channels to underwrite and manage loans for small and medium-sized enterprises (SMEs), particularly targeting farmer cooperatives and others in the agricultural value chain. Konfio uses credit algorithms based on alternative data to help micro and small businesses obtain working capital loans. Konfio’s digital platform allows for low-cost customer acquisition and rapid credit assessment, enabling the company to offer lower rates. Demyst Data, by contrast, partners with financial institutions – global banks, online lenders, and card issuers. It analyzes online, social, and internal data to help its partners lend to thin-file, underbanked customers. Alibaba’s Ant Financial and its new Sesame Credit use proprietary customer data drawn from non-banking transactions to support lending, with Alibaba’s e-commerce business, financial service provider (Ant), and credit reporting service (Sesame Credit) all arms of the same conglomerate.

For data analytics to reach its enormous potential for credit reporting, there are big questions that need to be worked out. Is it really predictive? Will it really enable more customers at the base of the pyramid to obtain credit? Will customers’ rights to data privacy be protected? How can data analytics be effectively regulated?

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> Posted by Center Staff

Credit reporting systems are a critical component of a financial system’s infrastructure. They facilitate access to credit for all who can use it, protect clients from overindebtedness, and help providers manage risk and decrease costs. What’s the state of credit reporting in the Middle East and North Africa (MENA) region? That’s the focus of the Arab Credit Reporting Guide, a new resource from the Arab Monetary Fund (AMF) and the International Finance Corporation (IFC). The guide was launched earlier this week alongside a meeting between the region’s central banks’ governors. In short, the guide finds that MENA countries have come a long way in developing credit reporting systems in recent years, but there’s still a long way to go.

The guide examines the region – 19 countries in total – in the context of global trends and best practices in credit reporting. A regional overview sheds light on credit reporting as well as credit access and risk management in MENA, while the guide also provides detailed investigations into the practices and progress of individual countries. A composite index comprised of the key elements for a comprehensive credit information sharing system is applied to each of the studied countries, offering a quantified status on credit reporting in each.

What were the big findings?
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Financial Inclusion 2020 Blog Series banner imageFinancial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.

PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. Part one and two can be found here and here; the following is part three.

Misperceptions abound about how to impact credit information sharing in emerging markets. Let me weigh in on this debate and set the record straight.

  • Technology is not the problem. There are abundant and affordable platforms to enable robust information sharing in even the most extreme environments.
  • Scoring models are not the problem. FICO, SAS, Dunn and Bradstreet, and a host of multi-national credit bureaus and lenders have plenty of smart mathematicians, computer scientists, statisticians, and others with lots of letters behind their surnames to ensure innovation in this space. The breakthrough that will move markets won’t be found here.
  • End-user capacity and incentives are not the problem. Many pro-poor lenders are already using automated underwriting solutions and can quickly assimilate new data or new scoring models.

So if investing in the technology, risk modeling, and end-user trenches aren’t going to galvanize things, let alone revolutionize them, in which trenches will the revolution begin? The answer lies further upstream, in the consumer and commercial credit ecosystems.

The answer is data access.

This is a deceptively simple response and raises a number of related questions. Which data is both predictive of credit worthiness and covers broad segments of the unbanked and underserved populations? Who owns it? Can traditional credit bureaus access this data? Why haven’t they so far? Are other parties needed to provide lenders access to this data? How can data subjects (people) access and “port” their data from mobile payment systems the same way they can carry their credit report information?

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PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. Part one can be found here; the following is part two.

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While the jury may be out on M-Shwari (see here), the verdict is in on M-Pesa. M-Pesa offers real value to an estimated 14 million disenfranchised and financially excluded Kenyans. Indeed, for many lower-income Kenyans, M-Pesa is not only a payments service, but also a form of insurance. Think of it like an online strategy game. You donate units to members of your group in the belief that they will reciprocate when you request. This same norm operates in Kenya with M-Pesa users, who send spare shillings to friends and family every opportunity they get with the operating belief that if there is ever a need (say their tire pops and they need to pay for a repair) they can send out a request for funds to members of their group and have confidence that their needs will be met. This is a great contribution for a product that former Safaricom CEO Michael Joseph called “a gadget” to make phone service stickier.

Another unintended contribution stemming from M-Pesa is the gradual building of a non-financial payment transactions database at Safaricom. Practice and research from around the world proves that this data is highly predictive of consumer and small business credit risk. The collection and use of this data could be an extremely useful tool to drive meaningful financial inclusion in Kenya. Safaricom Financial Services fully realizes this, and like so many other mobile network operators around the world, moved to limit access to this data to themselves and their bank partners.

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PERC, a “think and do tank” advancing financial inclusion through information services, has been effective in addressing credit invisibility by advocating the use of alternative data in credit reporting, including in Australia, Brazil, China, Kenya, and the U.S. We invited Michael Turner, PERC’s CEO, to submit an opinion piece, and are publishing the results in a three-part series. The following is part one.

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Recently, a number of players have flaunted an impressive array of promising digital technologies to expand credit access, advertising nothing less than a full on revolution in financial inclusion. While the promise of many of these solutions is inarguable, in most cases they are limited to lower-value, higher-interest consumption loans at best, or, at worst, are at risk of being useless as they suffer from the classic error of putting the cart before the horse. The principle limitation on these solutions is a lack of access to sufficient quantities of regularly reported, high-quality, predictive data upon which to base credit decisions and develop credit products.

Consider the case of Safaricom, which revolutionized the payment systems market in Kenya with its M-Pesa offering. The rapid uptake of M-Pesa by lower-income Kenyans was proof positive of the value of digital financial services and spawned a wave of investment into hundreds of copycat service providers around the world.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.