National Approaches to Credit Registry Creation and the Resultant Consumer Protection Implications

This paper explains the role of credit bureaus in creating more inclusive financial service sectors. It highlights the importance of credit bureaus with an example from Ecuador. A credit bureau collects credit data on consumers' credit from lenders, and aggregates all information on a person into a single score. Credit bureaus help to deepen financial inclusiveness by:

• Increasing loan approval rates;
• Lowering default rates;
• Helping banks decrease processing time, costs and defaults.

The Ecuadorian economic crisis in 1999 had a harsh social impact on the country. Although fighting poverty was a priority for the government, the banking sector was not focusing on servicing the poor in rural areas. MFIs faced high loan processing costs due to the lack of reliable information. Ecuador's MFI sector undertook a pilot project to facilitate sharing of information amongst MFIs. The result of this project was a 33% growth in client numbers, 53% increase in total portfolio and an increase in average loans from $1800 to $2400. The paper also discusses frequently asked questions on the setting up and running of a credit bureau.