Key Terms Explained
Credit Registry/Public Credit Registry
There are two main types of credit reporting institutions, namely the credit registries (public credit registry) and credit bureau (private credit registry). Both agencies collect a database of information on borrower, but generally differ in sources of data, types of data collected, and distribution policy of data.1 A credit registry is a public entity managed by bank supervisors or central banks, and typically collects information from supervised financial institutions banks on credit information.2 Historically, credit registries have beendeveloped to support the state’s role as a supervisor of financial institutions to assess and monitor credit risks. Hence, they focus on collecting data needed to analyze aggregate risk of an institution and fail to collect more specific data on borrowers. These institutions are required to report on a regular basis, usually monthly, and access of the data is typically limited to those institutions providing data.3
The information provided may only be negative such as defaults or late payments, or it may also contain positive information such as timely repayments. It could also contain information on personal information and court records, which have some bearings on creditworthiness. On average, the two types of credit reporting institutions collect approximately the same extent of information on the personal or identifying information of borrowers.4 Due to their traditional role as a supporter of the state’s supervisory function, registries tend to record more detailed information about the type, terms and structure of individual loans. For instance, data on the loan portfolio of banks with associated risk measures. In most nations, public credit registry only distributes current data, such as data for previous month, and doesn’t offer a historical record of a borrower’s credit behavior.5 On the other hand, credit bureau aims at tracking the repayment history of individual borrowers to provide commercially viable data to private lenders. For this purpose, they may need credit scores and information on payment behavior of other liabilities, such as utility bills. Therefore, credit bureau covers smaller sized loans and is usually more comprehensive.6
The Development of Credit Reporting Institutions
As late as the early 1980s, few countries had a significant credit information infrastructure in place. The first private credit reporting institutions emerged in the United States only in the 1830s in response to repeated defaults and financial instability. Due to the lack of appropriate legal infrastructure and incentive for lenders to share information, credit reporting institutions did not arise in many other countries until much later.7 However, technological innovation and the liberalization of the financial markets spurred the growth of credit reporting industry.8
The first public credit registries started in Europe - Germany in 1934, followed by France in 1946 and Spain in 1962.While a handful of nations added credit registries in the 1970s and 1980s, the expansion of this internationally occurred only in the 1990s. Today, there’s scarcely a country or region that does not have at least one or several credit reporting institutions.9 Credit market reforms, growing availability of consumer credit in emerging economies, and extension of financial services to new client groups have increase the demand for comprehensive credit information. Against this backdrop, there’s an important role for the state in supporting the development of better credit reporting institutions. The state could firstly, act as an operator and user of credit reporting systems for prudential oversight and regulation.10 Secondly, act as a regulator of credit information systems to maintain high quality data and overcome information sharing barriers through the introduction of appropriate legal framework and mandatory exchange of credit information. Finally, the state can act as a promoter of the development of private credit reporting by working closely with lenders to help them overcome coordination failures and make credit information available to a credit bureau.11
1 Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press.
3 Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press.
4 Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press.
5Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press.
7 Olegario, 2003 and Djankov and others, 2007
8Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press.
9 Edited by Margaret Miller. (2003). Credit Reporting Systems and the International Economy. Cambridge, Massachusetts: MIT Press.
10 Gutierrez and Hwang 2010