Credit infrastructure refers to the set of laws and institutions that enables efficient and effective access to finance, stability and socially responsible economic growth. It builds better access to finance and is a much-needed enabler for development.
In much of the developing world, access to credit for individuals and businesses is severely constrained. The winds of change have brought with it the emergence of disruptive technologies and big data, with which the credit infrastructure reforms need to rapidly align to discount the advantages of these technological changes. The logical convergence of these two aspects can further improve the lending environments for micro, small and medium enterprises (MSMEs) and individuals across the globe.
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. In Malaysia, Bank Negara Malaysia (BNM) have been leveraging on this expertise regularly to continue to build capacity on credit infrastructure.
In November 2017, the WBG and BNM organized the sixth consecutive installment of the Credit Infrastructure Program. Participants addressed issues related to credit infrastructure with a goal to improve access to finance.
The four-day training, held from November 6 to 9, was attended by over 140 regulators, policy makers, lenders associations, credit reporting, secured lending, and collateral registries, including insolvency and debt resolution professionals from 47 countries.
Three key elements of credit infrastructure were highlighted during this program - credit reporting, insolvency and secured transactions - with the specific insights on how disruptive technologies are impacting these three streams. Also, specific topics such as innovative credit reporting solutions for SME lending, SME insolvency system, credit infrastructure reforms and its impact on women’s access to financial services were covered in detailed by the experts from these fields.
The key takeaways from the discussions include:
- Non-existent or poor credit infrastructure constrains the ability of financial institutions to expand their financial products and services.
- Availability of credit information-sharing, secured lending and insolvency systems – significantly increases the willingness of financial institutions to support financially excluded segments.
- Systems have a potential to boost financial growth and stability as access to finance is improved.
- Credit infrastructure has a crucial role to play in mitigating investor and creditor risk which can reduce the instability caused by high levels of non-performing loans.
- Production of financial services can be unbundled, modularized, and reconfigured to offer new services, optimize efficiency, and manage risk.
- Organized interactions across the range of new entities participating in the credit ecosystem to take advantage of advances in identity, data, and asset tracking need to be ensured to create Credit Infrastructure of tomorrow.
- Weak credit infrastructure impacts people disproportionately.
As an international leader in strengthening credit infrastructure, the WBG is supporting around 125 active projects in over 90 countries, across six continents – totaling approximately US $96 million. Over 60 percent of these engagements are with clients from countries eligible for concessional financing from the International Development Association.
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. To have worked with BNM to host a sizable cohort of practitioners was indeed a great fit for all.