Saturday, October 04, 2003
Microfinance and Credit Bureaus
One of the major conundrums of economc development is the unavailability of credit, especially to poor, rural consumers. By extension, the lack of effective national credit bureaus is a problem most developing countries face, and is something I have given considerale thought to. So, I read this old-ish (2001) Development Alternatives paper with some interest, and yes, its worth a read. It tackles the issue of whether credit bureaus are a necessity for micro-finance to work effectively and concludes that credit bureaus are very useful to the healthy functioning of markets, especially if they can prevent fragmentation (of the credit information market) by super-specialisation.
The abstract -- Why and how do regulated and unregulated microfinance institutions share information? What information do they share? Additionally, the paper argues that microfinance institutions, particularly those in competitive markets, need to share information and will benefit from credit bureau consultation. However, a review of the information markets in five Latin American countries reveals that such markets are far from perfect and, in fact, vary tremendously in terms of their levels of development. The paper then turns its attention to institutional and market structure questions. Should microfinance institutions form their own credit bureaus, regardless of the state of development of the market, or should they participate in private or public credit bureaus, however imperfect they may be? Finally, the paper discusses the roles of governments, MFIs, and donors and how they can help promote healthy credit information markets: As markets become more complex, the development community must be prepared to respond. Government authorities, donors, technical assistance providers, microfinance networks, banking and commerce associations, and large institutional users must work together to develop an effective policy and institutional framework for client information sharing.
The abstract -- Why and how do regulated and unregulated microfinance institutions share information? What information do they share? Additionally, the paper argues that microfinance institutions, particularly those in competitive markets, need to share information and will benefit from credit bureau consultation. However, a review of the information markets in five Latin American countries reveals that such markets are far from perfect and, in fact, vary tremendously in terms of their levels of development. The paper then turns its attention to institutional and market structure questions. Should microfinance institutions form their own credit bureaus, regardless of the state of development of the market, or should they participate in private or public credit bureaus, however imperfect they may be? Finally, the paper discusses the roles of governments, MFIs, and donors and how they can help promote healthy credit information markets: As markets become more complex, the development community must be prepared to respond. Government authorities, donors, technical assistance providers, microfinance networks, banking and commerce associations, and large institutional users must work together to develop an effective policy and institutional framework for client information sharing.
