Credit infrastructure is the set of laws and institutions that enables efficient and effective access to finance, financial stability, and socially responsible economic growth through credit reporting, secured transactions & collateral registries; and insolvency & debt resolution.
Access to credit for individuals and for businesses is severely constrained in much of the developing world. Weak legal and regulatory frameworks for lending – combined with the lack of predictability for lenders, the inability to leverage productive assets, and the absence of credit information – creates a lending environment that is unfriendly to Micro, Small and Medium Enterprises (MSMEs) and individuals. “Credit infrastructure” refers to the set of laws and institutions that enables efficient and effective access to finance, stability and socially responsible economic growth. Expertise on credit reporting, secured transactions and collateral registries – as well as creditor/debtor rights and insolvency and debt resolution processes – are the main elements of the World Bank Group’s Credit Infrastructure services.
WHAT WE DO
We provide timely, high-quality advice and strategic direction on issues involving credit infrastructure – through such World Bank Group products as IBRD lending and Reimbursable Advisory Services and IFC’s Advisory Services – to ensure high-impact delivery to clients. The World Bank Group offers structured, comprehensive and multifaceted credit-infrastructure interventions using the following global business and delivery model:
- Reforming credit infrastructure legal and regulatory frameworks,
- Creating and/or strengthening credit infrastructure institutions,
- Raising awareness and building capacity,
- Monitoring impact, and
- Setting international standards and promoting global knowledge and expertise.
In addition, the World Bank Group is also the global standard-setter, designated by the Financial Stability Board, in the area of insolvency and creditor/debtor rights. It has developed the World Bank Principles for Effective Insolvency and Creditor Rights Systems which, together with the UNCITRAL Legislative Guide, form the global standard for insolvency. Countries can seek assistance from the World Bank Group in being benchmarked against those standards through the Report on the Observance of Standards and Codes (ROSC) program.
Nonexistent or poor credit infrastructure poses considerable risks, and it constrains financial institutions’ ability to expand their financial products and services. However, the availability of credit information-sharing and secured lending – along with rules that govern distressed businesses and bankruptcy – significantly increases financial institutions’ willingness to support the underserved and unserved individuals and MSMEs. In addition to boosting access to finance, credit infrastructure plays a crucial role in mitigating investor and creditor risk and in reducing the instability that could be caused by high levels of non-performing loans. This, in turn, reduces the cost of credit. The possibility of using reputational, traditional and non-traditional collateral helps individuals and MSMEs gain access to finance as well as more favorable and competitive financing options. The World Bank Group focuses on countries where limited financial inclusion and weak insolvency systems remain a severe constraint to individuals and MSMEs.
As of May 2017, the World Bank Group’s Credit Infrastructure portfolio includes about 125 active projects in more than 90 countries across six continents, totaling about $96 million. More than 60% of those engagements are with clients from countries eligible for concessional financing from IDA.
Successful World Bank Group-supported credit infrastructure reforms include:
Credit Reporting: The World Bank Group supported the establishment of credit reporting systems (CRS) in Cambodia and supported the integration of microfinance institutions into the existing CRS in India.
- Cambodia: As of December 2016, the Credit Bureau of Cambodia (which has been operational since 2012) covered 6.1 million consumers and SMEs. It has received 13.1 million inquiries cumulatively, which is estimated to have facilitated over $4.5 billion in financing.
- India: Since 2011, 45 million incremental inquiries have been made by lenders and 299 incremental microfinance institutions have been providing data to two credit bureaus – High Mark and Equifax – which combined have 100 million micro-client records. This is now the largest repository of such data in the world.
Secured Transactions: The World Bank Group supported legal and regulatory reforms and helped establish modern and centralized electronic registries in Ghana and China.
- Ghana: About 60,000 loans have been registered, for a value of $14 billion, and more than 8,000 SMEs and 30,000 microenterprises have received loans. That has created hundreds of new jobs. In terms of the type of collateral, 25% has been inventory and receivables, 20% has been household goods and 19% has been vehicles.
- China: By the end of 2016, the number of registrations in China’s Collateral Registry reached $2.41 million, and the cumulative value of financing facilitated was $12 trillion (for receivables finance and lease only).
Insolvency and Creditor/Debtor Rights: The World Bank Group supported the reform and implementation of modern insolvency regimes in Latvia and Mauritius.
- Latvia: Introduced a voluntary out-of-court debt-restructuring mechanism. Recovery rates by creditors from insolvent firms increased 71% within five years after the reform.
- Mauritius: Introduced and helped implement a regulatory framework for insolvency practitioners. Recovery rates by creditors from insolvent firms increased 17% within two years after the reform.
WHO WE WORK WITH
Credit Infrastructure clients typically include public and private constituents such as central banks; Ministries of Finance, Economy, Justice and Trade; commercial banks; chambers of commerce; courts; business associations; credit reporting service providers; and independent alternative dispute resolution centers.