Business Removing

42 DOING BUSINESS IN 2005
The rationale for such arrangements is that borrowers
need protection. The irony is that they hurt the very
people they are meant to protect. Insiders can always get
loans. But high-risk borrowers—most start-ups, small
firms, poor people—will not get a loan at a capped interest
rate. Nor if they cannot offer their main business
assets as collateral. They will be refused credit.
Borrower protections often backfire. Introduce
strong ones and there will be no borrowers to protect.
Take the Maldives. After a few years of successful development
of mortgage lending, politicians thought it
would be a popular reform to prohibit creditors from
seizing the primary residence in case of default. Within
months the mortgage market dried up. (In April 2004
the law was amended to address some of its weaknesses).
Bankruptcy receives a lot of attention in reform
proposals for improving access to credit. Yet bankers
and corporate lawyers estimate that more than threequarters
of collateral enforcement takes place outside of
bankruptcy. In poor countries, more than 90%. This
may decrease if bankruptcy were more efficient. But
even in countries with the most efficient insolvency, the
majority of creditors enforce outside of bankruptcy.
Credit markets work best with an effective assessment of
the borrower’s credit history, an ability to use a wide
range of assets as collateral cheaply, and enforcement of
collateral out of court. This is where Albania, India and
Latvia have focused their reform efforts.
Who is increasing access to credit?
Sharing credit information
Twenty-five years ago, only a third of countries had either
a private bureau, a public registry or both. Today 80% do.
The growth in poor and middle income countries has
been dramatic, with 37 new public registries and 23 private
bureaus, mainly in Latin America, East Asia and
Central and Eastern Europe. But poorer countries still lag
well behind rich ones, especially in information sharing
through private bureaus (figure 6.2, table 6.1).
Credit registries are useful to lenders only if they
distribute a broad range of high quality and easily accessible
data. Fourteen countries have credit information
systems with:
• Both positive information, meaning loans outstanding,
assets, payment behavior on accounts in good
standing—as well as negative information, meaning
defaults and arrears.
• Data on both firms and individuals.
• Data from retailers, or utilities as well as financial
institutions.
• Five or more years of historical data preserved.
• Data on all loans above 1% of income per capita.
• Legal guarantees for the consumer’s right to inspect
their data.
These are Argentina, Belgium, Brazil, Chile, Germany,
Italy, Japan, Malaysia, Mexico, Paraguay, Peru, Spain, the
United Kingdom and the United States.
But in many other countries, credit information is
limited—21 have at most 2 of these features including
Ghana, Morocco, the Philippines, Serbia and Montenegro,
Sri Lanka and Yemen. And 25 countries have no
FIGURE 6.2
Scant private information sharing in poor countries
Presence and coverage of credit information registries
90
Presence
(percentage of countries)
60
60
57
33
Source: Doing Business database.
Private bureau
21 Poor 47
Middle
income
Rich
Public registry
Poor 14
Middle
income
65
Rich 68
Coverage
(borrowers per 1,000 adults)
information sharing including Albania, Ethiopia, Jamaica,
the Kyrgyz Republic, Malawi, Papua New Guinea,
Russia and Syrian.
Reforms of registries focused on 5 areas:
• Providing data online. The bureaus in Bosnia and
Herzegovina and Spain—as well as the Brazilian, Belgian,
Mozambican, Pakistani and Portuguese public registries—launched
online systems. Creditors can now obtain
information instantly. In most countries it used to
take more than a week. Bangladesh and Bulgaria plan to
launch online access in late 2004.
• Sharing positive information. The public registries in
Belgium, Brazil and Turkey began sharing more positive
information. Backed by new laws, the Greek and Hong
Kong (China) private bureaus did the same. In Greece
the number of consultations to the bureau grew by more
223
499