ECREDIT INFORMATION : OPPORTUNITIES FOR SMEs ACCESS TO FINANCE AND EFINANCE

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E-CREDIT INFORMATION OPPORTUNITIES FOR SMEs
ACCESS TO FINANCE AND E-FINANCE

• Rouben Indjikian, Head of E-Finance UNCTAD
• New Technologies for SME Finance
• World Bank Conference 4-6 December, 2002

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INTRODUCTION

• Importance of information
• What information
• Reliability and consistency
• Why do we need information
• When and how do we need information
• The present situation
• Ways forward

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Vital importance of information
________________________

• Trade and investment flows depend on consistent,
  transparent and up to date information
• Decisions cannot be taken in an information
  vacuum
• Lack of information restricts, delays or totally
  forbids trade and investment and related
  financial flows
• The maturity and size of the US credit industry
  and the economy as a whole are in many way a
  result of its highly developed system of credit
  reporting and information

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Vital importance of information
________________________

• One of the reasons why the US businesses and
  households enjoy relatively easy access to
  finance and e-finance is the fact that
  financiers enjoy the similar ease in assessing
  with a click the credit risk
• Instantaneous access to the applicants credit
  history and current debt profile helps also to
  automate and move online the credit decisions
• The credit report has a powerful disciplining
  effect on the borrower as the bad report could
  have long term adverse impact even after the
  borrower improved its performance

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Vital importance of information
________________________

• Key stages to ensure adequate information flows
• Banks and companies should produce in clearly
  specified format and detail their audited
  financial statements
• Monitoring of compliance and, where necessary,
  enforcing
• Ensuring information generally available in most
  cost-effective way
• Possibilities to track payments and performance
  records

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What information? ________________________

• Financial statements audited to international
  standards
• Information on relevant aspects of legal system
  and related government policy
• Details of court judgments and debt enforcement
• Paymentperformance records from partners

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Why information?________________________

• For risk assessment
• The creditworthy buyer is one whom the seller
  and/or, banker, underwriter, factor, lessor etc
  judge to be willing and able to meet its
  obligations
• The good buyer is one who shows commercial
  morality, good managerial capacity, trading
  prudence, good payments record etc

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Why information?________________________

• Whether buyer is private or public?
• Private - structure (sole trader, partnership,
  limited company, multi-national, subsidiary etc)
  type of business (manufacturer, distributor,
  wholesaler, retailer etc) source of revenue,
  trade experience, insolvency
• Public status (state trading organisation,
  publicly owned corporation, local authority)
  ability to commit the full faith and credit of
  the government, especially, as regards payment in
  foreign currency

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When how information?________________________

• Up to date and accurate
• Readily accessible available
• At economic cost

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The present situation ________________________

• Globally poor with a few bright spots
• Main players are banks, credit information
  agencies, ecas, buyers and sellers
• In developing countries they lack the capacity
  due to scarcity of reliable data to assess risk
• That hinders not only the operation of the banks
  but also the creation of non bank services such
  as credit insurance leasing factoring and other
  forms of trade finance and investment

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The present situation ________________________

• Missing players
• The developing governments and related
  institutions that cannot yet act due to lack of
  political will and /or lack of resources and
  technical knowledge
• Bankers and industry associations which are not
  yet organised themselves to systematically
  collect data on their borrowers and members
• Third party risk managers like credit insurers,
  factors inexistent in many developing countries

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The present situation ________________________

• Missing elements
• Details of companies being set up and in
  existence
• Keeping of books and filing of accounts on
  regular basis
• Details of debts and unpaid accounts
• Details of court judgement and their enforcement
• No central authority to collect and verify data

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Ways forward________________________

• Locally- general
• Adopt laws on equitable debtor creditor
  relations, including bankruptsy law, data
  protection laws, relax certain banking secrecy
  requirements
• Create trustful company registries and public
  repositories of the companies financials either
  on local or regional levels
• While ownership and control should stay with
  states the operation might be entrusted to
  private sector

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Ways forward________________________

• Locally-credit bureaus information companies
• Create credit bureaux and build up
  interoperable databases on SMEs and other
  companies performance including buyers payments
  and sellers performance records
• To do that establish relations with local company
  registries, public repositories, financial
  service providers
• To lower unit costs combine databases on regional
  level and attract domestic and foreign private
  and public investors to build up those regional
  credit bureaus invite

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Ways forward________________________

• Thus setting up mechanisms to enforce the legal
  requirements to produce timely and affordable
  information inter alia on the financials of
  companies and banks is of paramount importance
• A good credit information model for developing
  countries is Serasa of Brazil. Created by
  Brazilian banks it is actually the largest
  depositary of credit information in Latin America

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Ways forward________________________

• Internationally
• Attract and retain governments attention
• Attract and retain international communitys
  attention
• Secure funding and ensure technical assistance
  especially from IFIs.
• While private entities might transfer know how
  and participate in investment, the IFIs should
  actually take a lead in helping the developing
  countries to create legal basis and requisite
  infrastructure (credit bureaus) of modern
  Internet compatible credit information systems

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Ways forward________________________

• Beware for immediate future
• The effects of e-commerce data mining will
  become an imperative force very soon
• B2B will demand information failure to provide
  will be potential disaster for those countries
  falling short

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Ways forward________________________

• Some conclusions
• Developing country governments increasingly
  recognise that failure to ensure information is
  available will be to their own detriment
• However to do something about gaps
• they will need financial and technical
  assistance
• Local credit information providers might become
  one of the hubs of credit information. They also
  need adequate technical assistance in that
  respect

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Thank you for your attention_____________________
___

• For further information
• Please contact
• rouben.indjikian_at_unctad.org
• Or consult documents at
• www.unctad.org/ecommerce