16TH EDITION

Training for Reform

Getting Credit

Nadine Abi Chakra

Edgar Chavez
Position
Department
Development Economics │Global Indicators
February 5, 2019
How is the ranking on Getting Credit constructed?
Based on strength of legal rights and depth of credit information

 Do lenders have credit information on Getting Credit:

entrepreneurs seeking credit? collateral rules and
credit information
 Is the law favorable to borrowers and
lenders using movable assets as
collateral?

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 What do the Getting Credit indicators measure?

Strength of Legal Rights index (0–12)

Protection of rights of borrowers and lenders through collateral laws

Protection of secured creditors’ rights through bankruptcy laws

Depth of Credit Information index (0–8))

Scope and accessibility of credit information distributed by public credit registries and private credit bureaus

Public credit registry coverage (% of adults)

Number of individuals and firms listed in a public credit registry as % of adult population

Private credit bureau coverage (% of adults)

Number of individuals and firms listed in largest private credit bureau as % of adult population

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 LEGAL RIGHTS INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices

Development Economics │Global Indicators

Why does Legal Rights matter? From the small and medium-size
enterprises’ & the lenders’ perspective

• Affordable credit.

• Collateral.
Small and
medium-size
• Immovable property: Most SMEs do not own real estate.
enterprises
• Movable property: In developing countries movable property
is not accepted as collateral due to a lack of legal framework.

• The lender’s cost of capital, transaction costs to make the loan,

and risks the loan will not be repaid.

• Impact: smaller availability, shorter loans at higher interest

Lenders rates.

• If creditors have priority over other creditors or more bargaining

power to force repayment or take control of the firm, they will
extend credit on more favorable terms.

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LEGAL RIGHTS INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices
What is measured by Legal Rights?
Secured transactions system & non-possessory security interest (NPSI)

Functional
Creation Publicity Enforcement
approach

Single law or same Parties to a security Priority rules

agreement Third party
principles apply for outside/inside
effectiveness
all security bankruptcy
interests and their
functional Types of movable
equivalents property that can be Secured creditors
used as collateral Recommended protection during
approach: reorganization or
Types of obligations registration bankruptcy
that can be secured procedures
with collateral
Registration in one
collateral registry Unified, notice
Description Out of court
based and modern
requirements of the enforcement
collateral registry
collateral

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What is not covered by Legal Rights?

X
No immovable property

No specialized assets
(aircrafts, ships, bonds, shares, IP rights)

No non-mandatory legal provisions

Contractual liberty is considered a given by Doing Business. The law
is the standard

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 LEGAL RIGHTS INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices

Development Economics │Global Indicators

Top performers in 2017/18
Getting Credit – Legal Rights

31 economies obtain all three points on the

Colombia questions relevant to collateral registries
Montenegro Afghanistan Micronesia, Fed. Sts.
Australia Mongolia
New Zealand
Azerbaijan Montenegro

Brunei Darussalam Bosnia and Herzegovina Nepal

Brunei Darussalam New Zealand
Puerto Rico Cambodia Palau
Colombia Papua New Guinea
Australia
Costa Rica Puerto Rico (U.S.)
El Salvador Samoa
United States
Honduras Solomon Islands
Kosovo Jamaica Tonga
Lao PDR Uzbekistan
Vanuatu
Liberia Vanuatu
Zambia Malawi West Bank and Gaza
Marshall Islands Zambia
Mexico

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 Who reformed in Getting Credit – Legal Rights in 2017/18?

Feature Economies Some highlights

Created a unified and/or modern Azerbaijan; Belgium; Kenya; United Arab Emirates established a modern and
collateral registry for movable Nicaragua; United Arab unified collateral registry.
property Emirates

Introduced a functional and
secured transaction system
Azerbaijan; Kenya
Kenya strengthened access to credit by implementing
a functional secured transactions system. The new law
regulates functional equivalents to loans secured
with movable property, such as financial leases and
fiduciary transfer of title.

Allowed for general description of Djibouti Djibouti allowed the general description of debts and
assets that can be used as obligations.
collateral
Expanded range of movable assets Azerbaijan; Belgium; Djibouti; Egypt, Arab Rep. introduced a new law that broadens
that can be used as collateral Egypt, Arab Rep.; Turkey; the scope of assets which can be used as collateral
United Arab Emirates to secure a loan.

Granted absolute priority to Afghanistan; Belgium; Djibouti; Afghanistan introduced a new law that grants secured
secured creditors or allowed out- Egypt, Arab. Rep.; India; Sudan; creditors absolute priority over other claims within
of-court enforcement Turkey; United Arab Emirates insolvency proceedings.

Granted exemptions to secured Azerbaijan; Rwanda; Sudan Rwanda adopted a new law on insolvency that
creditors from automatic stay in contemplates protections for secured creditors
insolvency proceedings during an automatic stay in reorganization proceedings.

10
12 economies implemented reforms on the strength of legal rights
index in 2017/2018

Reformers in strength of legal rights (0-12)

12
11
10 10 10
10
9 9
8 8 8
8
7 7
6
6
5 5 5
4 4
4
3
2 2 2 2
2
1 1

2017/18 2016/17

Source: Doing Business database.

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 LEGAL RIGHTS INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices

Development Economics │Global Indicators

Legal Rights
Good practices

Global good practices

 Establishing a functional approach to

secured transactions

 Allowing a general description of

collateral

 Maintaining a unified registry

 Protecting secured creditors’ rights

during an automatic stay when a debtor
enters a court-supervised reorganization
procedure

 Allowing out-of-court-enforcement

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Examples of good practices in all regions

Practices Economies Examples

Establishing a functional approach to
secured transactions and having a notice- Australia; Guatemala; Peru; Palau;
41
based registry where they can be Vietnam; Kosovo; Mexico; Tonga
registered

Allowing a security right in a single Gabon; Canada; India; Romania; Rwanda;

112
category of assets Kenya; United Kingdom; Vanuatu

Jamaica; Lao PDR; Cambodia; Bosnia and

Maintaining a modern and online
51 Herzegovina; Honduras; Hong Kong SAR,
collateral registry
China; Nepal

Protecting secured creditors’ rights during

Azerbaijan; Finland; Greece; Latvia;
automatic stay when a debtor enters a 28
Moldova; Brazil; Thailand, United States
court-supervised reorganization procedure

Armenia; China; Egypt, Arab Rep; Japan;

Granting priority to secured creditors
59 Montenegro; New Zealand; Estonia;
outside and inside of bankruptcy
Namibia

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CREDIT INFORMATION INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices
Why does credit reporting matter?

• Borrowers know their financial abilities and investment opportunities

better than lenders do. The inability of lenders to accurately assess the
creditworthiness of borrowers contributes to higher default rates and
smaller loan portfolios.
Reduced
information • Credit reporting systems offer one way to minimize the problems of
asymmetries asymmetric information since past behavior is considered a reliable
predictor of future behavior. A good credit history—sometimes referred to
as reputational collateral—minimizes the perception of risk and can
enable an individual or firm to gain access to financing.

• Lenders are also more likely to lend to larger firms, which may be more
transparent as a result of more elaborate legal and accounting rules and
Greater access regular publication of certified auditors' reports on financial transactions.
to credit for
small firms • With better, cheaper and faster access to credit information, lending
officers can use accurate and objective data to make unbiased decisions
in offering loans. And when they can assess the risk of default, banks
have more incentive to lend to individuals and small firms.

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Why does credit reporting matter?

• When lenders are known to share information about customers’ credit

Better borrower records, borrowers know that defaults on loans from one lender may
discipline disrupt future access to credit from all other lenders. So borrowers have
greater incentive to repay.

• Regulators often use information from credit bureaus and credit registries
Support for bank
to assess whether current provisioning is adequate and to analyze
supervision and credit
developments in credit markets and interest rates. The results may
risk monitoring
guide changes in the legislation governing financial institutions.
• As more credit information becomes available, competition among
banks and nonbank financial institutions should increase.

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CREDIT INFORMATION INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices
What does the Depth of Credit Information index measure?

• The depth of credit information index measures rules and practices affecting the coverage, scope
and accessibility of credit information available through either a credit bureau or credit registry.

• A score of 1 is assigned for each of the following 8 features of the credit bureau or credit registry (or
both):

Who is 1. Data on both firms and individuals are covered.

covered? 2. Data on loan amounts below 1% of income per capita are covered.

3. Both positive credit information (e.g. original loan amounts, outstanding loan
amounts and a pattern of on-time repayments) and negative information (e.g.
late payments and the number and amount of defaults) are reported.
Type of credit 4. Data from retailers or utility companies are reported in addition to data from
information? financial institutions.
5. At least 2 years of historical data are reported. Credit bureaus and registries
that erase data on defaults as soon as they are repaid or report negative
information more than 10 years after defaults are repaid receive a score of 0 for
this component.

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What does the Depth of Credit Information index measure?

6. By law, borrowers have the right to access their data in the largest credit
bureau or registry in the economy. Credit bureaus and registries that charge
more than 1% of income per capita for borrowers to inspect their data obtain a
Additional
score of 0 for this component.
features
7. Banks and financial institutions have online access to the credit information
(through a web interface, system-to-system connection or both).
8. Bureau or registry credit scores are offered as a value added service to help
financial institutions assess the creditworthiness of borrowers.

Credit bureau and credit registry coverage:

• The coverage reports the number of individuals and firms listed in a credit bureau or credit registry’s
database as of January 1, 2018, with information on their borrowing history from the past 5 years +
the number of individuals and firms that have had no borrowing history in the past 5 years but for
which a lender requested a credit report from the bureau or registry in the period between January 2,
2017 and January 1, 2018.

• The number is expressed as a percentage of the adult population (the population age 15 to 64 in
2017 according to the World Bank’s World Development Indicators).

• If the credit bureau or credit registry covers less than 5% of the adult population, the score on the
depth of credit information index is 0.
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CREDIT INFORMATION INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices
42 economies score 8 out of 8 on the depth of credit information
index in 2017/18
Argentina Germany Panama

Armenia Honduras Peru

Azerbaijan Indonesia Poland

Bahrain Iran, Islamic Rep. Rwanda

Brazil Jamaica Saudi Arabia

Darussalam Kenya Taiwan, China

Canada Korea, Rep. Tanzania

China Latvia Turkey

Cote d’Ivoire Lithuania United Arab Emirates

Dominican Republic Malaysia United Kingdom

Ecuador Mexico United States

Egypt, Arab Rep. New Zealand Uruguay

Georgia Nicaragua West Bank and Gaza

Guyana Nigeria Zambia

22 Source: Doing Business 2019.

19 economies implemented reforms improving their credit
information systems in 2017/18

Feature Economies Some highlights

Established a new Azerbaijan; Benin; Haiti; Ireland; San Marino improved access to credit information by launching
credit bureau or San Marino a new credit registry.
registry

Improved regulatory Antigua and Barbuda; The Madagascar improved access to credit information by adopting
framework for credit Bahamas; Grenada; Madagascar a law that creates a new credit information system.
reporting

Expanded scope of Brazil; Cote d’Ivoire; Jordan; In Cote d’Ivoire four utility companies began submitting
information collected Jamaica; Turkey; Indonesia positive and negative information on consumer accounts to
and reported by credit the credit bureau.
bureau or registry

Introduced bureau or Brunei Darussalam; Zimbabwe In Brunei Darussalam, the credit registry began offering credit
registry credit scores scores to banks and other financial institutions to better inform
as a value-added their lending decisions.
service

Guaranteed by law Qatar, Mauritania Qatar adopted the Consumer Credit Act 2016 guaranteeing
borrowers’ right to borrowers’ right to inspect their own data.
inspect data

23 Source: Doing Business 2019.

The number of operational, active credit bureaus and registries has
increased in the recent years

130
125
120

110
105
100

90

80

70 66

60
56
50

40

Number of credit bureaus measured by DB Number of credit registries measured by DB

24 Source: Doing Business database.

CREDIT INFORMATION INDEX

I. Why does it matter?

II. What does it measure – and what does it not?
III. What are the main findings in DB19?
IV. Good practices
Good practices in credit reporting and share of economies with them
in 2017/18

Practices Economies Examples

Reporting positive as well as Azerbaijan; Brazil; Cote d’Ivoire; China;

116
negative data Greece; Ireland; Pakistan

Collecting and distributing data Argentina; Belgium; Estonia; Trinidad and

from retailers and utility 79 Tobago; Madagascar; West Bank and
companies Gaza

Lowering or eliminating minimum Albania; Bhutan; Cabo Verde; Equatorial

loan thresholds 136 Guinea; Seychelles; Zambia

Guaranteeing by law borrowers’ Bahrain; India; Jamaica; Mauritania;

125
right to inspect data Mozambique; Nicaragua

Offering bureau or registry credit Brunei Darussalam; Canada; Chile;

91
scores as a value added service Nigeria; United Arab Emirates; Qatar

26 Source: Doing Business 2019.

 THANK YOU!

www.doingbusiness.org

Doing Business
Development Economics │Global Indicators