Credit Registries (CRs) serve a unique function in credit ecosystems. These entities are the storehouse for all data concerning the past repayment behaviour of a borrower’s debt. Such information helps reduce the information asymmetry between creditors and borrowers and allows creditors to make better lending decisions. These CRs come in various forms and capture different factors concerning an individual’s credit behaviour. A credit registry may be publicly (by the government or the central bank) or privately owned. It may capture only repayment behaviour of corporate or personal loans, details of all loans, or selectively focus on certain types or values of loans. There is, thus, no singular playbook to guide the formation of a new CR.
In India, four competing privately-owned companies currently serve as CRs, namely, TransUnion CIBIL, Equifax, Experian and CRIF Highmark. These entities are licensed by the Reserve Bank of India (RBI) under The Credit Information Companies (Regulation) Act 2005. The credit bureaus presently perform five distinct functions. First, they collect credit information like loan amounts, repayment terms, repayment behaviour, restructuring of the loan, and so on. Second, they collate data for different loans of the same borrower and store it. Third, they furnish the data to lenders, upon request. Closely associated with the third function is the fourth, whereby bureaus use their proprietary models to assign a creditworthiness score for each borrower and share it with the lender. The fifth function is ensuring that borrowers can view their credit history, and request edits if the data captured is erroneous.
However, the regulatory and institutional design leaves much to be desired from the current cohort of credit bureaus. Currently, credit bureaus are unable to capture the full scope of indebtedness in the country and borrower repayment behaviour. In the case of the household sector, data from various sources of borrowing, say from microfinance institutions (NBFC-MFIs), Banks (SCBs), Rural Banks (RRBs), Self-Help Groups (SHGs), among others, is seldom housed together in the databases of the credit bureaus. Similarly, older bureaus tend to have access to more data than newer ones, thus limiting their scalability. In the case of corporates, the credit bureaus are not empowered to capture data pertaining to debt in the form of Market Borrowings (MBs), Foreign Currency Convertible Bonds (FBBCs), External Commercial Borrowings (ECB), Masala Bonds, etc. This fragmentation of credit information in India forms the prelude to the ongoing process of setting up a public credit registry (PCR) in India.
In October 2017, the RBI formulated a High-level Task Force to investigate operational aspects of a Public Credit Registry (PCR) with the objective of “enhancing efficiency of the credit market, increase financial inclusion, improve ease of doing business and help control delinquencies”[1]. The report of the High-level Task Force outlines the need for a PCR and recommends various operational strategies. Since then, the RBI has sought comments from experts on the legislative instrument through which the PCR can be operationalised[2], and has formulated a staggered approach for its implementation[3]. Further, the RBI envisages setting up the PCR by 2021-2022[4]. In this series of blog posts, we compare 5 international jurisdictions and their experiences with setting up a PCR.
Presently, there are over 100 jurisdictions with entities that resemble a PCR[5]. Of these, 5 countries were selected for the study using purposive sampling (countries with similar debt profiles, financial institutions, banking infrastructure, legal tradition, and so on.) and convenience sampling (jurisdictions where the legislative and administrative instruments were available in English). The five shortlisted jurisdictions that are compared and analysed are Brazil, the European Union, Germany, Ireland, and the Philippines.
The analysis was conducted along four parameters. The first parameter focused on the factors that led to the formation of the PCR. This allowed us to contextualise the PCR better and investigate whether the jurisdictions had private credit bureaus before a PCR was set up. The second aspect focused on the reporting standards, i.e., the data being captured, minimum loan amount for reporting, and so on. The third aspect focused on institutional design, vis-à-vis, the supervising entity, and the powers vested in the central bank to direct its policies, including data recording features. The final line of enquiry revolved around the costs associated with the operationalisation of the PCR, and revenue generation mechanism (if any).
In this post, we restrict the discussion to just the formulation of the PCR, while the second post of the series discusses the rest of the features. Finally, once the legislative instrument and design of the PCR is released in the public domain, we envisage a third post to compare its features with the five studied jurisdictions.
Formation of PCR
Germany’s PCR, called the Central Credit Register (CCR), is the oldest in the world. It was set up in 1934 by the Central Bank of Germany, Deutsche Bundesbank, drawing legislative authority from the German Banking Act. The next jurisdiction that we studied, Brazil, set up its PCR (“Sistema de Informações de Crédito”) in 1997[6], as a response to the macro-economic crisis it faced in the two preceding decades[7]. The next country from the studied sample to set a legislative mandate for PCR was Philippines in 2008 through the Credit Information Systems Act- CISA. This, however, remained dormant for three years until it was revitalised in 2011 and thereafter started collecting data in 2015[8].
The fourth jurisdiction, the European Union (EU) initiated a project titled “AnaCredit”[9] in 2011, driven by the European Central Bank (ECB) to set up an international database containing information on loans in the eurozone[10]. In February 2014, ECB announced the establishment of a central credit register to record the loan details. The final regulation was decided by ECB’s governing council in 2016[11], and data collection to this effect started in September 2018[12]. The final jurisdiction studied, Ireland, established the legislative mandate for its PCR (referred to as the Central Credit Register (CCR)) under the Credit Report Act 2013. This Act was a result of the Inter-agency Working Group on Credit Histories’ recommendations and provides for a Central Credit Register to resolve weaknesses identified in the aftermath of the 2008 banking crisis.[13] The PCR began capturing information from June 2017 and started providing credit reports in December 2017. This publicly developed CCR was agreed as part of the EU/IMF Programme of Financial Support for Ireland.[14]
Though these PCRs were set up at different times and often for contrasting reasons, there are three features common to all. The first feature is the requirement for a legislative instrument to set up the PCRs. In India, the RBI has sought feedback on such a draft bill. The second feature, especially for more recent PCRs, is a prolonged gestation period between the legislative mandate, the setting up of the PCR, and its operationalisation. The final feature, in all these cases, private credit bureaus coexist wi the public credit registries. A classic example of this is Germany, where the private credit bureau (Schufa Holding AG) pre-dates the formation of the PCR (in [15] operational). See Table-1 for details of private credit bureaus and the timeline on the formation of PCRs in different jurisdictions.
The co-existence of PCRs and credit bureaus in all the studied jurisdictions suggests that the same is feasible for India. However, to understand how such a system of a private bureau and a public PCR is coexisting, studying the mandates of the PCR and the private credit bureau becomes vital. In the next post, we investigate the mandates of the PCRs in these jurisdictions and the operational models adopted by credit bureaus.
The next part of the series is available here.
[1] See Annexure I of the Report of the High Level Task Force on Public Credit Registry for India, accessible at: https://rbidocs.rbi.org.in/rdocs//PublicationReport/Pdfs/PCRRR09CF7539AC3E48C9B69112AF2A498EFD.PDF
[2] See Paragraph X.72 of the RBI Annual Report 2020-21 (June 2021), accessible at: https://rbidocs.rbi.org.in/rdocs/Bulletin/PDFs/0RBIAR202021_FFCAEF6CD487E487D9E5476D7AB3B8B70.PDF
[3] See Paragraph X.79, ibid.
[4] See Paragraph X.79, ibid.
[5] Rethinking the Role of the State in Finance: World Bank (2013), accessible at: http://documents.worldbank.org/curated/en/853761468326979957/pdf/728030PUB0Publ07926B009780821395035.pdf
[6] Credit Information System – The Use Of Micro-Data In Credit Statistics: Renato Baldini Jr. IFC Bulletin No 37. Accessible at: https://www.bis.org/ifc/publ/ifcb37n.pdf
[7] ibid.
[8] https://www.creditinfo.gov.ph/milestones
[9] Abbreviated for analytical credit datasets
[10] What is AnaCredit?, European Central Bank, July 2019, available at https://www.ecb.europa.eu/explainers/tell-me-more/html/anacredit.en.html
[11] Regulation (EU) 2016/867 of the ECB of 18 May 2016 on the collection of granular credit and credit risk data (ECB/2016/13), available at https://www.ecb.europa.eu/ecb/legal/pdf/celex_32016r0867_en_txt.pdf
[12] AnaCredit, European Central Bank, available at https://www.ecb.europa.eu/stats/money_credit_banking/anacredit/html/index.en.html
[13] What is the Central Credit Register?, Central Bank of Ireland, available at https://www.centralcreditregister.ie/about/background/
[14] Central Credit Register Factsheet- Knowing how the Central Credit Register works, Central Bank of Ireland
Cite this Item:
APA
Fernandez, M., & Bhattacharya, D. (2021). Public Credit Registries: An International Comparison. Retrieved from Dvara Research.
MLA
Fernandez, Maria and Dwijaraj Bhattacharya. “Public Credit Registries: An International Comparison.” 2021. Dvara Research.
Chicago
Fernandez, Maria, and Dwijaraj Bhattacharya. 2021. “Public Credit Registries: An International Comparison.” Dvara Research.
