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FEATURE STORY February 26, 2019

The Europe and Central Asia Region’s Credit Infrastructure Shows Biggest Reform Potential Among Emerging Economies


Photo: tenkl, Shutterstock


  • Azerbaijan and Central Asia Financial Inclusion (ACAFI) project is currently in its third phase and is continuing to facilitate the development of efficient and sustainable credit infrastructure by supporting stakeholders with regulations, knowledge dissemination, and providing technical advice to private sector firms
  • Operating in Tajikistan, the Kyrgyz Republic, and Azerbaijan - the ACAFI project has made significant progress in the region by improving accountability and transparency in the credit reporting process

Much of the developing world is still grappling with the issue of inadequate access to credit—both for individuals and for businesses. Uncertainty for lenders, the inability to leverage productive assets, and information asymmetry creates major hurdles in the lending ecosystem for Micro, Small and Medium Enterprises (MSMEs) as well as individuals. This has been exacerbated by weak legal and regulatory frameworks.

Yet things seem to be changing in the Europe and Central Asia region. Although the region experienced financial sector turmoil in 2015, it has been the biggest reformer over the past six years by significantly improving credit bureau coverage. In the most recent World Bank Doing Business report, the region recorded the best Credit Information Index (6.3 out of 8) among the emerging markets.

The Azerbaijan and Central Asia Financial Inclusion (ACAFI) project has been a significant catalyst to this process. Started by the World Bank Group and funded by SECO, the ACAFI project aims to improve access to financial services for individuals and MSMEs. It is doing this by supporting the development of efficient and sustainable credit infrastructure—or  the set of laws and institutions that enables efficient and effective access to finance, stability and socially responsible economic growth, e.g. Credit Reporting Systems (CRS) and Secured Transactions (ST) Systems.

 “CRS is a crucial and undisputed element of financial infrastructure that ensures a fair extension of credit for individuals and MSMEs. It helps unlock a variety of financial products for savings, credit, and risk management, catalyzing private sector development,” says Rolf Berhndt, Practice Manager, Finance, Competitiveness and Innovation Global Practice, World Bank Group.

The third phase of the project (ACAFI III) started in January 2016 and is expected to be completed by June 2019.  Currently the project is focusing on three levels of reform—regulatory, sectorial and institutional—to support stakeholders with regulatory modifications, to raise awareness and disseminate knowledge, and to provide technical advice to private sector firms.  The project’s partners include regulators like the respective national banks, other financial institutions, mobile network operators as well as other private sector players that act as agents for key players.

Tajikistan, the Kyrgyz Republic and Azerbaijan, are three countries that the ACAFI is operating in, which have already made some big strides in developing their credit infrastructure.

In 2017, nearly 90% of the loans in Tajikistan were issued only after looking into the credit bureau data base.  With support from the ACAFI project, the country introduced evidence-based decision-making tools in the credit bureau, that together with automated technology, eliminated paperwork and redundant data. This has helped reduce the operating costs and time to process borrower information by an average of one to three days. Additionally, customer credit history inquiries increased twelve-fold as borrowers became increasingly aware of the benefits of loan repayment discipline.

In Kyrgyz Republic, the main challenge was the tensions that existed among the Credit Information Bureau’s (Ishenim) 52 shareholders. The decision-making process was based on a one-share, one-vote principle and this created bottlenecks. The ACAFI project supported reforms to the credit bureau’s legislative and regulatory environment. This helped cut down managerial layers, separate shareholders’ interests from those of the users, and make the system more transparent. It also advised on recommendations to mandate periodic revisions of Ishenim’s corporate governing documents and practices, as well as recommendations to include written rules in the founding documents to ensure a certain percentage of its revenues are allocated for innovations and development, in the likelihood of conflicting interests among stakeholders.

As a result, in June 2017, ‘Ishenim’, and Creditinfo Solutions, a leading operator of credit bureau technology worldwide, signed a shareholder agreement. The strategic and technical partnership provides ‘Ishenim’ with modern solutions for credit granting processes and the ability to include non-traditional data in the databases. This presented an opportunity to improve the quality of customer data, enable lenders to assess risk better, promote responsible lending, and provide factual and predictive credit information.

In Azerbaijan, the project’s ongoing support led to a major milestone—the launch of a new credit bureau.  The ACAFI project supported the country’s effort to enhance the legal and regulatory framework for credit information systems which completely reshaped the CRS and extended its function for financial sector resilience. It also provided assistance in building the capacity of credit bureaus to better serve financial intermediaries and enhance professional risk management certification for their staff.

These outcomes of the ACAFI project shows how country-wide reforms can be implemented in a feasible way with the continued effort of the project team and global experts. The combination of global-local knowledge brings best practices to the market, making it sustainable and vital in local conditions.