Syndicate content

May 2013

Credit Reporting under the Shadow of Big Banks

Subika Farazi's picture

Credit information sharing has been shown to have several benefits for the financial system. Reliable credit information can address the fundamental problem of asymmetric information between borrowers and lenders, it can alter borrowers’ behavior countering moral hazard, and improving repayment rates, and it can place banks in a better position to assess default risk, counter adverse selection, and monitor institutional exposures to credit risk. Perhaps most importantly, credit reporting can allow borrowers to build a credit history and to use a documented track record of responsible borrowing and repayment as "reputational collateral" to access credit outside established lending relationships. In addition, financial regulators can draw on credit reporting systems to understand the credit risk faced by financial institutions and systemically important borrowers, to define capital provisioning requirements, and to conduct essential oversight functions.

Despite the numerous benefits of information sharing for credit market efficiency, credit reporting institutions do not always emerge spontaneously. The Doing Business dataset shows that 26 percent of countries do not have any credit reporting institution at all (figure 1). Low and middle income countries have a relatively higher presence of credit registries while credit bureaus are more common in high income countries.

How Competition Affects the Performance of Microfinance Institutions in Bangladesh?

Shahid Khandker's picture

The spectacular expansion of microcredit programs in Bangladesh, including a growing number of borrowers availing credit from multiple microfinance institutions (MFIs), have brought recent concerns that MFI competition might be taking a toll on the industry in terms of reduced rates of loan repayment and a higher incidence of overlapping debt. Microfinance programs have been running in Bangladesh for more than two decades, reaching more than 10 million households, nearly half the rural population. By 2008, the annual disbursement of microfinance programs was close to US$1.8 billion with an outstanding balance of US$1.5 billion. The country’s wholesale microcredit agency, the Palli Karma Shahayak Foundation (PKSF), with support of the World Bank has orchestrated microfinance penetration through a wide network of small but highly competitive partner organizations.

Have Capital Markets Aided Growth in China and India?

Tatiana Didier's picture

Among the most notable developments in the global economy over the past 20 years has been the rise of China and India as world economic powers. Along with high overall growth in these economies has come an increase in their financial activity. But how much have different types of firms used capital markets and benefited from their expansion?

In a new study and VoxEU column, we argue that the expansion of financing to the private sector in China and India has been much more subdued than the aggregate measures of financial depth suggest. Although capital raising activity in equity and bond markets expanded substantially in 2005–10, it remained small as a percentage of GDP. Importantly, this expansion was not associated with widespread use of capital markets by firms. Not only have few firms made recurrent use of equity and bond markets; even fewer firms have captured the bulk of the capital market financing. Moreover, firms that use equity or bond markets are very different from—and behave differently than—those that do not do so. While non-issuing firms in both China and India grew at about the same rate as the overall economy, issuing firms grew twice as fast in 2004–11.

What factors triggered the liquidity risk of the mortgage SOFOLs in Mexico?

Eduardo Mendoza's picture

The year 1994 saw the birth of the SOFOLs[1] in Mexico. These societies are non-bank financial institutions (NBFIs). One feature of these institutions is that the financial resources they supply must be exclusively directed to funding a market niche, e.g. consumption credit, commercial credit, mortgages, or credit cards. Moreover, SOFOLs are not allowed to take deposits from the public. During 2000-2010, these institutions placed a significant amount of financial funds in almost every market niche, and many of them consolidated over time.

The stronger growth and best performance was registered by the SOFOLs that granted mortgages (mortgage SOFOLs). By the end of 2005 the financial resources granted by these institutions accounted for over 60% of the credit balance of all SOFOLs in México. However, their good performance did not last long: their funding flows and the number of societies began to decline in 2006. The global financial crisis of 2008 also affected their financial performance. See graph below.