Creating

GETTING CREDIT 37
But public registries are less effective than private
bureaus in most countries (figure 6.3). Private bureaus
are better set up to serve lenders, covering 5 times as
many borrowers and scoring 73% higher on the depth
of credit information index. Fewer than 10% of public
registries report offering such services as credit scoring
or borrower monitoring—compared with 90% of private
bureaus. But in some countries private bureaus are
struggling because public registries are performing some
of the same functions—as in Armenia, Bolivia, Bulgaria,
Indonesia and Malaysia. In Belgium the private bureau
closed down in 2003 after the public registry expanded
its operations.
Public registries can leave room for private bureaus
by focusing on loan information that matters for systemic
risk—typically large loans for corporations—as those in
Austria, Germany and Saudi Arabia do. The Colombian
central bank went further and closed its public registry,
keeping the data only for the purpose of supervising
banks. In countries where public registries focus on bank
supervision, private bureaus score higher on the depth of
credit information index and cover more borrowers.
Another solution is to join forces. The bureaus in
India, Sri Lanka and Thailand were established as publicprivate
partnerships. Chile outsourced operation of the
registry to a private bureau. The bureaus in Romania,
Saudi Arabia and Singapore are private but were set up
with support from the central banks. Some public registries
collect information from banks and share it with
private bureaus, including those in Argentina, Bolivia
and the Dominican Republic. And in March 2005 the
Nepalese public registry was reincorporated as a limited
liability company, 90% owned by financial institutions
and 10% by the central bank.
Give secured creditors clear priority to collateral
Securing a loan with collateral reduces lending risk and
gives entrepreneurs better terms of credit. But these
benefits are eroded if the secured creditor loses priority
to other claimants—taxes, workers, judgment creditors,
buyers of collateral or others. This can happen in
bankruptcy or outside it. More credit is available when
secured creditors have absolute priority (figure 6.4).
Reforming secured transactions and bankruptcy
laws is not always enough to assure priority. Other laws
may interfere. The Malawi Companies Act places secured
creditor claims first, but the labor laws put worker claims
ahead. In China the security law gives priority to the
secured creditor, while the tax law allows it to be taken
away in favor of unpaid taxes. Reformers need to ensure
that such conflicts are addressed when revising laws.
Priority rules work best with a unified collateral
registry, so that prospective lenders can easily establish
whether there is a prior claim on an asset. And even if
other claimants are given priority—a second best for
credit markets—laws can require that such claims be
registered in the collateral registry. Ukraine’s reform
made registration mandatory for all claimants, even the
state. If tax liens are not registered, they lose priority.
That way banks can account for the risk, and choose
whether or not to lend.
Introduce summary enforcement proceedings
With summary proceedings, collateral enforcement is
resolved quickly when it winds up in court. Only 2 pieces
of evidence need to be presented to a court in a summary
proceeding: a valid security agreement and proof of default.
Fifty-six countries have summary proceedings.
Those that do require 50% less time to enforce collateral