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The challenge of information sharing in competitive microfinance markets
In over-crowded microfinance markets, borrowers tend to take loans from a variety of lenders, which leads to over-indebtedness on their part, and to a deterioration in the quality of the microfinance institutions'loanportfolios. Credit reference agencies have the potential to make the process of loan appraisal more effective and impose a disciplinary regime on borrowers. This article outlines the problem of lenders'lack
of information on the creditworthiness of their customers, and how credit bureaus can operate to overcome the problem. The roles of public and private credit bureaus are covered. Establishing credit bureaus
as start-ups in developing countries may be very expensive and involve high charges for MFIs, but alliances with private bureaus already operating in the formal sector may offer a greater potential for
information-sharing arrangements.
In over-crowded microfinance markets, borrowers tend to take loans from a variety of lenders, which leads to over-indebtedness on their part, and to a deterioration in the quality of the microfinance institutions'loan
portfolios. Credit reference agencies have the potential to make the process of loan appraisal more effective and impose a disciplinary regime on borrowers. This article outlines the problem of lenders'lack
of information on the creditworthiness of their customers, and how credit bureaus can operate to overcome the problem. The roles of public and private credit bureaus are covered. Establishing credit bureaus
as start-ups in developing countries may be very expensive and involve high charges for MFIs, but alliances with private bureaus already operating in the formal sector may offer a greater potential for
information-sharing arrangements.
portfolios. Credit reference agencies have the potential to make the process of loan appraisal more effective and impose a disciplinary regime on borrowers. This article outlines the problem of lenders'lack
of information on the creditworthiness of their customers, and how credit bureaus can operate to overcome the problem. The roles of public and private credit bureaus are covered. Establishing credit bureaus
as start-ups in developing countries may be very expensive and involve high charges for MFIs, but alliances with private bureaus already operating in the formal sector may offer a greater potential for
information-sharing arrangements.
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