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Credit confidential

Credit confidential

Regional governments could realize significant benefits from the creation of a stronger credit culture, argues Katherine Azmeh.

May 16, 2010 2:06 by

That is unfortunate, because “firms consistently rate access to credit as among the greatest barriers to their operation and growth,” according to the 2010 report Doing Business in the Arab World. The report, a publication of the World Bank and the International Finance Corporation, benchmarks business regulation in economies worldwide.

The wider Arab world has a unique opportunity to embrace credit information system reforms, according to the report, and the implications for the business sector are considerable.

Establishing strong credit bureaus is important, of course, and need not be expensive. Costs can generally be recovered within a couple of years, analysts say. But credit reporting is only part of what the reforms should encompass. They should center around the collection of pertinent data, moving away from exclusive use of a client’s banking history. This will help ensure wider access to capital and open the business playing field to more players – in particular those that have traditionally faced barriers to accessing capital thanks to their banking past. A consideration of the type of data that should be collected is equally important. Relevant, current data that is not solely reliant on historic bank statements is key.

Additionally, a regulatory framework to allow effective data sharing must be in place to make the reforms effective. “In many economies credit bureaus have the capacity to collect more information but lack the legal backing to do so,” the report says.

Actually empowering regional economies to collect pertinent data is the first step in the creation of a viable credit-reporting framework. Including credit information from utilities, retailers, telecom companies et cetera is an effective way to increase coverage and empower banks to consider new categories of borrowers.

A seemingly simple initiative, this new approach to data collection could offer a two-fold benefit: it would invigorate small business, and it would spur lending in the banking sector.

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