Credit Reporting at the Base of the Pyramid: Key Issues and Success Factors

Context

Over the past five years, the microcredit sector has experienced unprecedented growth. The number of borrowers served by microfinance institutions (MFIs) has increased threefold to reach 120 million clients, according to Microfinance Information Exchange (MIX) estimates as of December 2009 and by other estimates the number may be as high 190 million (Microcredit Summit Campaign 2011).

In large markets, such as Mexico and South Africa, commercial banks and consumer lending companies have expanded their activities to include microfinance for low-income households. Unfortunately, the growth of microcredit is not always sustainable. Some iconic markets, such as India and Bosnia Herzegovina, are experiencing large-scale credit crises, and they are not alone.

Overview

Credit Reporting at the Base of the Pyramid takes a fresh look at the state of credit reporting at the base of the pyramid, describing three main approaches: credit bureaus, credit registries and MFI-specific systems for exchanging client information. The data and analysis for this paper are drawn from International Finance Corporation (IFC) and Consultative Group to Assist the Poorest (CGAP) market intelligence on credit reporting systems.

• Part I presents the microlending market, the diversity of players, and their evolving demand for credit information.  
• Part II describes three main approaches for credit reporting at the base of the pyramid: credit bureaus, credit registries, and MFI-specific systems for exchanging client information. Each of these approaches is illustrated by country examples.  
• Part III examines the lessons learned for effective credit reporting at the base of the pyramid and identifies key success factors as well as common challenges.   
• Part IV presents a summary of recommendations for policy makers, microlenders, donors, and others interested in encouraging credit reporting at the base of the pyramid.