Credit registry
Definition and comparison to credit bureaus
A credit registry is one of the two main types of credit reporting institutions. Credit registries generally developed to support the state’s role as a supervisor of financial institutions. Where credit registries exist, loans above a certain amount must, by law, be registered in the national credit registry. In some cases, credit registries have relatively high thresholds for loans that are included in their databases. Credit registries tend to monitor loans made by regulated financial institutions.
One of the main differences in comparison with credit bureaus—the other main type of credit reporting institution—is that credit registries tend to be public entities. They are usually managed by central banks or bank supervision agencies. In contrast, credit bureaus tend to be privately owned and privately operated companies
More substantively, credit registry data are geared towards use by policymakers, regulators, and other officials. Against the backdrop of the financial crisis, many countries have made efforts to optimize the credit registry data so that they can be better used in macroprudential regulation and oversight. In comparison to credit registries, credit bureaus, as privately owned commercial enterprises, tend to cater to the information requirements of commercial lenders. Thus, they typically provide additional value-added services, such as credit scores and collection services.
Chapter 5 of the 2013 Global Financial Development Report provides an update on the state of public and private credit reporting. It presents data on the ownership structure and extent of information collected by credit reporting institutions around the world. For a detailed discussion of the historical development of credit reporting institutions, see Miller (2003).
The World Bank Group has supported the development of credit reporting systems around the world for more than a decade. The World Bank’s General Principles for Credit Reporting (2011) reviews best practices and makes policy recommendations for developing credit reporting systems.
Why credit reporting?
Transparent credit information is a prerequisite for sound risk management and financial stability. Credit reporting institutions, such as credit bureaus, support financial stability and credit market efficiency and stability in two important ways. First, banks and nonbank financial institutions (NBFIs) draw on credit reporting systems to screen borrowers and monitor the risk profile of existing loan portfolios. Second, regulators rely on credit information to understand the interconnected credit risks faced by systemically important borrowers and financial institutions and to conduct essential oversight functions. Such efforts reduce default risk and improve the efficiency of financial intermediation. In a competitive credit market, these efforts ultimately benefit consumers through lower interest rates.
Effective credit reporting systems can mitigate a number of market failures that are common in financial markets around the world, and most severely apparent in less developed economies. The availability of high-quality credit information, for example, reduces problems of adverse selection and asymmetric information between borrowers and lenders. This reduces default risk and improves the allocation of new credit. Information sharing can also promote a responsible “credit culture” by discouraging excessive debt and rewarding responsible borrowing and repayment.
Perhaps most important, credit reporting allows borrowers to build a credit history and to use this “reputational collateral” to access formal credit outside established lending relationships. This is especially beneficial for small enterprises and new borrowers with limited access to physical collateral. Stylized evidence from the recent financial crisis also suggests that positive credit information helped to safeguard the financial access of creditworthy borrowers that would have otherwise been cut off from institutional credit.
Suggested reading:
Avery, Robert; Paul Calem, and Glenn Canner. 2004. Credit Report Accuracy and Access to Credit. Federal Reserve Bulletin, Summer 2004. Federal Reserve, Washington, DC.
Djankov, Simeon, Caralee McLiesh, Andrei Shleifer. 2007. “Private Credit in 129 Countries.” Journal of Financial Economics 84 (2): 299–329.
Girault, Matias Gutierrez, and Jane Hwang. 2010. “Public Credit Registries as a Tool for Bank Regulation and Supervision.” Policy Research Working Paper 5489, World Bank, Washington, DC.
Miller, Margaret. 2003. Credit Reporting Systems and the International Economy. MIT Press, Cambridge, Massachusetts.
World Bank. 2011. General Principles for Credit Reporting. World Bank, Washington, DC.
World Bank. 2012. Global Financial Development Report 2013: Rethinking the Role of the State in Finance. World Bank, Washington, DC (https://www.worldbank.org/en/publication/gfdr), chapter 5.