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PERC Study: Credit Bureaus in Emerging Markets: Overview of Ownership & Regulatory Frameworks

PERCA new PERC study examines how regulators and economies develop credit sharing systems that reflect their policy priorities and their capacities. Credit Bureaus in Emerging Markets: Overview of Ownership & Regulatory Framework, answers a number of questions regarding information sharing governance and structure in emerging markets, among them, how ownership should be configured and how the regulation of credit information sharing should be implemented.

Abstract:  Currently, private credit bureaus exist in over 80 economies. Most of these formed in emerging markets in only the last decade or two. For policymakers and other stakeholders, the focus of concern has shifted from whether information sharing and private credit bureaus are needed, and whether more comprehensive data is better than a negative-only system (these are now generally settled issues), to the structure and governance of the credit information sharing market:

  1. How much competition is needed?
  2. How should ownership of private credit bureaus be configured?
  3. What are the consequences on efficiency when user-furnishers are owners?
  4. And how should the regulation of credit information sharing be implemented?

The PERC study focuses on these questions.

Evidence suggests that bank ownership may not inhibit bureau development in the very early stages. Instead, bank ownership of credit bureaus may actually help get data reported by banks that own the bureau. However, concentrated majority ownership by banks (or data furnishers-data users), appears to act as a drag beyond this initial stage by misaligning incentives. In these circumstances, credit bureau incentives to create value added service and products that serve all lending and non-lending markets appear to be weak. And in the extreme, the bureau can become a tool to serve the narrower interests of the owners.

Bank ownership has also been seen to fragment data sharing as one group of lenders / financial services companies owns a bureau and only reports to the bureau that they own, whereas other lenders / financial services companies then establish their own bureau, and only report to it. The fragmented data inhibits value-added service development and competition as bureaus have different sets of data and do not compete directly in terms of price, value added services, and data quality. As such, private bureau ownership by independent third parties (not data furnishers or data users) is seen as the optimal owner configuration to enable long-term bureau and credit information sharing development.

On regulations and governance, a survey PERC conducted revealed the absence of any discernible patterns—there does not appear to be any trend by state of economic development for example. This suggests strongly that many policymakers and regulators in emerging markets (while no doubt surveying global practices) are developing models of regulatory implementation and oversight based on their specific concerns, needs, and capacities. PERC supports the customization of credit bureau enforcement regimes to meet the idiosyncrasies of a given market being mindful of both the varying objectives (financial inclusion, economic development, privacy, consumer protection) and the capacities of the key stakeholders (regulators, judicial system, data furnishers, credit bureaus, and end users).

To download the study click on this link

About PERC:  The Policy and Economic Research Council (PERC) is a non-profit, non-partisan organization devoted to research, public education and outreach on public policy matters. PERC’s goal is to educate and engage policy makers, consumers, the financial/economic community and the larger public, in the firm belief that a better informed public makes better decisions. Areas of expertise include information policy, economic development, credit access and the global information economy. The Council is funded by both for-profit and not-for-profit organizations that support the Institute’s general mission and agenda.

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