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Photo credit: World Bank Group photo library. i s s s CONTENTS ACRONYMS.........................................................................................................................................................................xiii ACKNOWLEDGEMENTS.................................................................................................................................................... xv PREFACE............................................................................................................................................................................ xvii 1. INTRODUCTION TO THE GUIDE.................................................................................................................................... 1 2. OVERVIEW OF CREDIT ACCESS IN MENA................................................................................................................... 5 3. RISK MANAGEMENT IN MENA.................................................................................................................................... 25 4. INTRODUCTION TO CREDIT REPORTING.................................................................................................................. 29 5. ARAB CREDIT REPORTING INITIATIVE..................................................................................................................... 43 6. ARAB CREDIT REPORTING INFORMATION SHARING INDEX.............................................................................. 45 7. CREDIT REPORTING IN MENA — DETAILED OVERVIEW OF MENA COUNTRIES............................................ 51 7.1 ALGERIA..................................................................................................................................................................... 51 7.2 BAHRAIN.................................................................................................................................................................... 59 7.3 EGYPT......................................................................................................................................................................... 67 7.4 IRAQ............................................................................................................................................................................. 79 7.5 JORDAN....................................................................................................................................................................... 87 7.6 KUWAIT....................................................................................................................................................................... 99 7.7 LEBANON................................................................................................................................................................. 107 7.8 LIBYA......................................................................................................................................................................... 117 7.9 MAURITANIA........................................................................................................................................................... 125 7.10 MOROCCO.............................................................................................................................................................. 135 7.11 OMAN...................................................................................................................................................................... 147 7.12 QATAR..................................................................................................................................................................... 157 7.13 SAUDI ARABIA...................................................................................................................................................... 167 7.14 SUDAN..................................................................................................................................................................... 177 7.15 SYRIA...................................................................................................................................................................... 185 iii s s s Contents 7.16 TUNISIA.................................................................................................................................................................. 191 7.17 UNITED ARAB EMIRATES................................................................................................................................... 201 7.18 WEST BANK AND GAZA ..................................................................................................................................... 209 7.19 YEMEN.................................................................................................................................................................... 219 8. CONCLUSIONS, LESSONS LEARNED, AND RECOMMENDATIONS.................................................................... 229 9. CASE STUDIES............................................................................................................................................................... 237 9.1 CASE STUDY: LEGAL & REGULATORY FRAMEWORK, SAUDI ARABIA AND JORDAN......................... 237 9.2 CASE STUDY: CREDIT BUREAU DEVELOPMENT, MOROCCO....................................................................243 9.3 CASE STUDY: BUREAU SCORE DEVELOPMENT, WEST BANK AND GAZA AND SAUDI ARABIA...... 248 9.4 CASE STUDY: INCLUSION OF MICROFINANCE DATA IN I-SCORE, THE CREDIT BUREAU OF EGYPT............................................................................................................................ 253 ENDNOTES.......................................................................................................................................................................... 259 FIGURES Figure 2.1: GDP Growth (Annual %)................................................................................................................................ 5 Figure 2.2: Population (2012).............................................................................................................................................6 Figure 2.3: Assets of Financial Institutions as a Percentage of GDP.................................................................................7 Figure 2.4: Domestic Credit Provided by Banking Sector (% of GDP).............................................................................8 Figure 2.5: SME Loans/Total Loans (%)*: MENA Countries............................................................................................9 Figure 2.6: Declines in Real Credit Growth (year-on-year-growth)...................................................................................9 Figure 2.7: Microfinance Outreach in MENA (2010)......................................................................................................10 Figure 2.8: Leasing Activity — Lessor’s Distribution by Type........................................................................................11 Figure 2.9: Housing Loans/GDP — Regional..................................................................................................................12 Figure 2.10: MFI, Postal, and Commercial Bank Branches in Select Arab Countries.....................................................13 Figure 2.11: Outstanding Guarantees (US$ Million, 2009)..............................................................................................14 Figure 2.12: Credit Cliff...................................................................................................................................................15 Figure 2.13: NPLs in Some MENA Countries.................................................................................................................16 Figure 2.14: Number of Economies in Region with Each Score on Strength of Legal Rights Index (0-10)...................17 Figure 2.15: Outstanding Loans as % of GDP in Select MENA Countries.....................................................................19 Figure 2.16: Account Penetration.....................................................................................................................................19 Figure 2.17: Housing Loans as % GDP............................................................................................................................19 Outreach and Scale (2010).................................................20 Figure 2.18: The Sate of Microfinance in the Arab Region– Figure 2.19: Leasing Volumes as a Percentage of GDP in Selected World Regions........................................................20 Figure 2.20: Access to a Line of Credit or Loans from Financial Institutions (% of Firms)............................................21 Figure 2.21: Credit Needs and Access for Formal SMEs with at Least One Female Owner by Region (Percent)..........23 Figure 4.1: Public Policy Objectives and Key Considerations.........................................................................................33 Figure 4.2: Growth of Credit Bureaus..............................................................................................................................34 Figure 4.3: Growth of Credit Registries...........................................................................................................................34 Figure 4.4: Depth of Credit Information Sharing.............................................................................................................37 Figure 4.5: Data Providers to PCRs..................................................................................................................................37 iv s s s Arab Credit Reporting Guide Figure 4.6: Data Providers to PCBs..................................................................................................................................38 Figure 4.7: Data Providers to PCBs — World vs MENA.................................................................................................38 Figure 4.8: Credit Reporting System Coverage (% of Population)..................................................................................39 Figure 6.1: ACRISI Score.................................................................................................................................................48 Figure 7.1.1: GDP Growth Rate (%) at Current Prices.....................................................................................................52 Figure 7.1.2: GDP (Current USD in Billion)....................................................................................................................52 Figure 7.1.3: Inflation.......................................................................................................................................................52 Figure 7.1.4: Population (Million)....................................................................................................................................52 Figure 7.1.5: Getting Credit Rank — 2013......................................................................................................................54 Figure 7.1.6: Commercial Bank Network per 100,000 Adults.........................................................................................54 Figure 7.1.7: Domestic Credit by Financial Sector (% of GDP)......................................................................................54 Figure 7.1.8: Domestic Credit to Private Sector (% of GDP) for Selected MENA Countries — 2012...........................54 Figure 7.1.9: Number of Firms and Consumers Listed in the CdR..................................................................................55 Figure 7.2.1: GDP Performance.......................................................................................................................................59 Figure 7.2.2: Population....................................................................................................................................................60 Figure 7.2.3: Inflation (CPI) ............................................................................................................................................60 Figure 7.2.4: Credit Market..............................................................................................................................................60 Figure 7.2.5: Outstanding Loans and Credit Facilities.....................................................................................................61 Figure 7.2.6: Bank Lending by Sector (%) — 2012.........................................................................................................61 Figure 7.2.7: Microfinance Lending.................................................................................................................................61 Figure 7.2.8: Family Bank — Borrower Portfolio............................................................................................................62 Figure 7.2.9: Getting Credit Rank — 2013......................................................................................................................62 Figure 7.2.10: Domestic Credit to Private Sector (% of GDP).........................................................................................62 Figure 7.2.11: Domestic Credit to Private Sector (% of GDP) for Selected MENA Countries — 2012.........................62 Figure 7.2.12: Number of Individuals in the PCB............................................................................................................63 Figure 7.2.13: Number of Inquiries to the PCR................................................................................................................63 Figure 7.2.14: Number of Credit Reports by the PCB......................................................................................................64 Figure 7.3.1: GDP Performance.......................................................................................................................................67 Figure 7.3.2: Population and Per Capita Income..............................................................................................................68 Figure 7.3.3: Number of Loans.........................................................................................................................................69 Figure 7.3.4: Value of Loans.............................................................................................................................................69 Figure 7.3.5: Value of Mortgage Finance Loans (EGP Million)......................................................................................70 Figure 7.3.6: Development of Leasing Market.................................................................................................................70 Figure 7.3.7: Bank Nonperforming Loans to Total Gross Loans (%)..............................................................................71 Figure 7.3.8: Getting Credit Rank — 2013......................................................................................................................71 Figure 7.3.9: Commercial Bank Network per 100,000 Adults.........................................................................................71 Figure 7.3.10: Domestic Credit to Private Sector (% of GDP).........................................................................................72 Figure 7.3.11: Individuals and Firms in the PCR.............................................................................................................73 Figure 7.3.12: Data Sharing Model..................................................................................................................................74 Figure 7.3.13: Credit Reports by I-Score..........................................................................................................................75 v s s s 1. Introduction to the Guide Figure 7.4.1: GDP Performance.......................................................................................................................................79 Figure 7.4.2: Average per Capita GDP.............................................................................................................................79 Figure 7.4.3: Inflation (%)................................................................................................................................................80 Figure 7.4.4: Bank Credit — 2012...................................................................................................................................80 Figure 7.4.5: Getting Credit Rank....................................................................................................................................81 Figure 7.4.6: Domestic Credit to Private Sector (% of GDP)...........................................................................................81 Figure 7.4.7: Domestic Credit to Private Sector (as % of GDP) for Some MENA Countries.........................................82 Figure 7.4.8: Commercial Bank Network.........................................................................................................................82 Figure 7.4.9: PCR Database — February 2013................................................................................................................83 Figure 7.5.1: GDP performance........................................................................................................................................88 Figure 7.5.2: Inflation (CPI).............................................................................................................................................88 Figure 7.5.3: Population and GDP per Capita..................................................................................................................88 Figure 7.5.4: Number of Banks and Branches in the Banking System............................................................................89 Figure 7.5.5: Credit Facilities by Banks...........................................................................................................................89 Figure 7.5.6: Credit Facilities by Economic Activity.......................................................................................................89 Figure 7.5.7: Private Sector Credit...................................................................................................................................90 Figure 7.5.8: NPLs in the Banking Sector........................................................................................................................91 Figure 7.5.9: Getting Credit Rank....................................................................................................................................91 Figure 7.5.10: Domestic Credit to Private Sector (% of GDP).........................................................................................91 Figure 7.5.11: Domestic Credit to Private Sector (% of GDP) in Some MENA Countries — 2012...............................91 Figure 7.5.12: Commercial Bank Network per 100,000 Adults.......................................................................................91 Figure 7.5.13: Theoretical Number of Accounts/Records to Form the PCB Initial Database (all mobiles post and pre-paid are considered)....................................................................................................................................................94 Figure 7.6.1: GDP Performance.......................................................................................................................................99 Figure 7.6.2: Population — 2012 (Million)....................................................................................................................100 Figure 7.6.3: GDP per Capita (USD)..............................................................................................................................100 Figure 7.6.4: Financial System of Kuwait......................................................................................................................100 Figure 7.6.5: Total Credit (KD Billion)..........................................................................................................................101 Figure 7.6.6: Bank Credit by Sector — FY 2012/13 (KD Billion)................................................................................101 Figure 7.6.7: Getting Credit Rank 2013.........................................................................................................................101 Figure 7.6.8: Domestic Credit to Private Sector (% of GDP).........................................................................................101 Figure 7.6.9: Commercial Bank Network per 100,000 Adults.......................................................................................101 Figure 7.6.10: PCR Coverage — Number of Loans Registered.....................................................................................102 Figure 7.7.1: Real GDP Growth (%)..............................................................................................................................107 Figure 7.7.2: GDP (Current U.S. Dollars, in Billions)...................................................................................................108 Figure 7.7.3: CPI Inflation..............................................................................................................................................108 Figure 7.7.4: Population (Million)..................................................................................................................................108 Figure 7.7.5: Credit Market............................................................................................................................................108 Figure 7.7.6: Commercial Banks Deposits (Billion LBP) by Sector..............................................................................109 Figure 7.7.7: Utilised Loans by Type — End of 2012 (%).............................................................................................110 vi s s s Arab Credit Reporting Guide Figure 7.7.8: Financial Institutions Performance............................................................................................................111 Figure 7.7.9: Total Credit by Financial Institutions........................................................................................................111 Figure 7.7.10: Sectoral Distribution of Credit (%) — 2012...........................................................................................111 Figure 7.7.11: Getting Credit Rank — 2013..................................................................................................................112 Figure 7.7.12: Commercial Bank Network.....................................................................................................................112 Figure 7.7.13: Domestic Credit to Private Sector (% of GDP).......................................................................................112 Figure 7.7.14: Domestic Credit to Private Sector (as % of GDP) for Selected MENA Countries, 2012.......................112 Figure 7.7.15: Number of Individuals and Firms Listed in the CdR..............................................................................113 Figure 7.7.16: Number of Inquires.................................................................................................................................114 Figure 7.8.1: GDP Performance.....................................................................................................................................117 Figure 7.8.2: CPI Inflation..............................................................................................................................................118 Figure 7.8.3: Population (Million)..................................................................................................................................118 Figure 7.8.4: Getting Credit Rank, 2013........................................................................................................................119 Figure 7.8.5: Commercial Bank Network.......................................................................................................................119 Figure 7.8.6: Number of Firms Listed in the LCIC........................................................................................................120 Figure 7.8.7: Number of Credit Reports Issued by LCIC...............................................................................................120 Figure 7.9.1: GDP Performance.....................................................................................................................................125 Figure 7.9.2: Inflation (%)..............................................................................................................................................126 Figure 7.9.3: Population..................................................................................................................................................126 Figure 7.9.4: Bank Deposits and Credit..........................................................................................................................127 Figure 7.9.5: Credit by Type (% of Total) — 2012.........................................................................................................127 Figure 7.9.6: Net Loans by the MFI Sector....................................................................................................................127 Figure 7.9.7: Getting Credit Rank — 2013....................................................................................................................128 Figure 7.9.8: Domestic Credit to Private Sector (% of GDP).........................................................................................128 Figure 7.9.9: Domestic Credit to Private Sector (% of GDP) for Some MENA Countries — 2012..............................128 Figure 7.9.10: Credit Volumes in the PCR......................................................................................................................129 Figure 7.10.1: GDP Performance...................................................................................................................................136 Figure 7.10.2: Population................................................................................................................................................136 Figure 7.10.3: GDP per Capita.......................................................................................................................................136 Figure 7.10.4: Total Credit Volumes by Sector...............................................................................................................137 Figure 7.10.5: Ownership Concentration (in %).............................................................................................................138 Figure 7.10.6: Domestic Credit by Banking Sector (% of GDP)...................................................................................138 Figure 7.10.7: NPLs by Sector........................................................................................................................................139 Figure 7.10.8: Getting Credit Rank — 2013..................................................................................................................139 Figure 7.10.9: Outstanding Loans from Commercial Banks (% of GDP)......................................................................139 Figure 7.10.10: Commercial Bank Branches and ATMs per 100,000 Adults.................................................................140 Figure 7.10.11: Morocco Sharing Model........................................................................................................................141 Figure 7.10.12: Credit Reports Issued by the PCB.........................................................................................................142 Figure 7.11.1: GDP Performance...................................................................................................................................147 Figure 7.11.2: CPI Inflation............................................................................................................................................148 vii s s s 1. Introduction to the Guide Figure 7.11.3: Population and GDP per Capita..............................................................................................................148 Figure 7.11.4: Bank Deposits and Credit........................................................................................................................149 Figure 7.11.5: Sectoral Distribution of Bank Credit (%)................................................................................................149 Figure 7.11.6: Credit Performance of FLCs...................................................................................................................149 Figure 7.11.7: Getting Credit Rank — 2013..................................................................................................................150 Figure 7.11.8: Domestic Credit (%of GDP)...................................................................................................................150 Figure 7.11.9: Domestic Credit to Private Sector (% of GDP) for Some MENA Countries in 2012.............................150 Figure 7.11.10: Credit Market Branch Network.............................................................................................................150 Figure 7.11.11: Commercial Banks Outreach................................................................................................................151 Figure 7.11.12: Number of Individuals and Firms in the PCR.......................................................................................152 Figure 7.11.13: Number of Loans in the PCR................................................................................................................152 Figure 7.11.14: Volume of Loans in the PCR.................................................................................................................152 Figure 7.11.15: Number of Credit Reports.....................................................................................................................153 Figure 7.12.1: GDP Performance...................................................................................................................................157 Figure 7.12.2: GDP per Capita (Current USD)..............................................................................................................158 Figure 7.12.3: Banking Network....................................................................................................................................158 Figure 7.12.4: Total Credit by the Banking Sector.........................................................................................................159 Figure 7.12.5: Private Sector Credit by Sector — 2012 (QR Billion)............................................................................159 Figure 7.12.6: Islamic Financing Activities....................................................................................................................159 Figure 7.12.7: Getting Credit Rank — 2013..................................................................................................................160 Figure 7.12.8: Domestic Credit to Private Sector (% of GDP).......................................................................................161 Figure 7.12.9: Domestic Credit to Private Sector (as % of GDP) for Some MENA Countries in 2012........................161 Figure 7.12.10: Commercial Bank Network per 100,000 Adults...................................................................................161 Figure 7.12.11: Number of Individuals Listed in the CBQ............................................................................................162 Figure 7.12.12: Number of Firms Listed in the CBQ.....................................................................................................162 Figure 7.12.13: Number of Credit Reports.....................................................................................................................163 Figure 7.13.1: GDP Performance...................................................................................................................................167 Figure 7.13.2: Population — 2012..................................................................................................................................168 Figure 7.13.3: Bank Credit.............................................................................................................................................169 Figure 7.13.4: Bank Credit by Sector.............................................................................................................................169 Figure 7.13.5: Disbursements by Specialised Credit Institutions...................................................................................170 Figure 7.13.6: Non-Performing Loans............................................................................................................................171 Figure 7.13.7: Getting Credit Rank 2013.......................................................................................................................171 Figure 7.13.8: Domestic Credit as % of GDP.................................................................................................................171 Figure 7.13.9: Commercial Bank Outreach....................................................................................................................171 Figure 7.13.10: PCB Database — Number of Individuals.............................................................................................173 Figure 7.13.11: PCB Database — Number of Firms......................................................................................................173 Figure 7.13.12: Credit Reports Issued by the PCB.........................................................................................................173 Figure 7.14.1: GDP Performance...................................................................................................................................177 Figure 7.14.2: CPI Inflation............................................................................................................................................178 viii s s s Arab Credit Reporting Guide Figure 7.14.3: Population................................................................................................................................................178 Figure 7.14.4: Banks’ Advances.....................................................................................................................................178 Figure 7.14.5: Sectoral Distribution of Advances — 2012.............................................................................................179 Figure 7.14.6: Getting Credit Rank — 2013..................................................................................................................180 Figure 7.14.7: Domestic Credit to Private Sector (% of GDP).......................................................................................180 Figure 7.14.8: Domestic Credit to Private Sector (as % of GDP) for Selected MENA Countries — 2012...................180 Figure 7.14.9: Commercial Bank Network.....................................................................................................................180 Figure 7.14.10: Number of Individuals and Firms Listed in the PCR............................................................................181 Figure 7.15.1: GDP Performance...................................................................................................................................185 Figure 7.15.2: Per Capita Income and Inflation..............................................................................................................186 Figure 7.15.3: Private Sector Credit...............................................................................................................................186 Figure 7.15.4: Getting Credit Rank — 2013..................................................................................................................187 Figure 7.15.5: Commercial Bank Network per 100,000 Adults.....................................................................................187 Figure 7.16.1: GDP (Current USD in Billion)................................................................................................................191 Figure 7.16.2: GDP Performance...................................................................................................................................191 Figure 7.16.3: CPI Inflation............................................................................................................................................192 Figure 7.16.4: Population................................................................................................................................................192 Figure 7.16.5: Loans by Sector of Activity (In TND Million)........................................................................................193 Figure 7.16.6: Loans in Economy by Various Financial Sources (in TND Million)......................................................194 Figure 7.16.7: Getting Credit Rank — 2013..................................................................................................................195 Figure 7.16.8: Commercial Bank Network.....................................................................................................................195 Figure 7.16.9: Domestic Credit by Finacial Sector (% of GDP)....................................................................................195 Figure 7.16.10: Domestic Credit to Private Sector (% of GDP) for Selected MENA Countries — 2012.....................195 Figure 7.16.11: No. of Individuals and Firms Listed in the CdR...................................................................................196 Figure 7.17.1: GDP Performance...................................................................................................................................201 Figure 7.17.2: Bank Credit.............................................................................................................................................202 Figure 7.17.3: Distribution of Private Sector Credit — 2012.........................................................................................203 Figure 7.17.4: Getting Credit Rank — 2013..................................................................................................................203 Figure 7.17.5: Commercial Bank Network per 100,000 Adults.....................................................................................203 Figure 7.17.6: PCR Database..........................................................................................................................................205 Figure 7.17.7: PCB Database..........................................................................................................................................205 Figure 7.18.1: GDP Performance...................................................................................................................................209 Figure 7.18.2: Inflation...................................................................................................................................................210 Figure 7.18.3: Distribution of Total Credit Facilities......................................................................................................211 Figure 7.18.4: Credit Facilities by Region......................................................................................................................211 Figure 7.18.5: Private Sector Credit...............................................................................................................................211 Figure 7.18.6: Types of Credit Facilities.........................................................................................................................211 Specialized Lending Institutions.......................................................212 Figure 7.18.7: Sectoral Distribution of Credit by Figure 7.18.8: NPLs in the Banking Sector....................................................................................................................212 Figure 7.18.9: Getting Credit Rank — 2013..................................................................................................................213 ix s s s 1. Introduction to the Guide Figure 7.18.10: Banking Sector Outreach......................................................................................................................213 Figure 7.18.11: Number of Individuals in the PCR........................................................................................................214 Figure 7.18.12: Number of Firms in the PCR.................................................................................................................214 Figure 7.19.1: GDP Performance...................................................................................................................................219 Figure 7.19.2: GDP per Capita (USD)............................................................................................................................220 Figure 7.19.3: Population................................................................................................................................................220 Figure 7.19.4: Inflation...................................................................................................................................................220 Figure 7.19.5: Share of Total Credit by Banks — 2012.................................................................................................220 Figure 7.19.6: Loans and Advances to Private Sector....................................................................................................220 Figure 7.19.7: Number of Loans.....................................................................................................................................221 Figure 7.19.8: Value of Outstanding Loans....................................................................................................................221 Figure 7.19.9: Getting Credit Rank................................................................................................................................222 Figure 7.19.10: Domestic Credit to Private Sector (% of GDP).....................................................................................222 Figure 7.19.11: Commercial Bank Network per 100,000 Adults...................................................................................222 Figure 7.19.12: Commercial Bank Network per 100,000 Adults for Some MENA Countries — 2012........................223 Figure 7.19.13: Individuals and Firms Listed in the PCR..............................................................................................224 Figure 7.19.14: Total Loans Listed in the PCR..............................................................................................................224 Figure 8.1: ACRISI Scores — 2008 and 2012................................................................................................................230 Figure 8.2: Rank Vs Score..............................................................................................................................................231 Figure 8.3: Parameters Comparison Across MENA.......................................................................................................233 Figure 9.1.1: Legal and Regulatory Best Practice..........................................................................................................237 Figure 9.1.2: CIL Timeline.............................................................................................................................................243 Figure 9.2.1: NPLs..........................................................................................................................................................245 Figure 9.2.2: Information Sharing Model.......................................................................................................................246 Figure 9.2.3: Loan Accounts and Value by Type of Institutions.....................................................................................247 Figure 9.2.4: Number of Inquiries..................................................................................................................................248 Figure 9.3.1: Additional Services and Products Offered by PCBs.................................................................................249 Figure 9.3.2: PMA Credit Report Snapshot....................................................................................................................250 Figure 9.3.3: Sample Credit Report and Score format for SMEs...................................................................................252 Figure 9.4.1: Number of Borrowers................................................................................................................................254 Figure 9.4.2: Gross Loan Portfolio.................................................................................................................................254 Figure 9.4.3: MFI Data in I-Score — NPAs (%)............................................................................................................256 TABLES...................................................................................................................................................................................... Table 2.1: Banking Soundness Indicators (%) — 2013......................................................................................................8 Table 2.2: Loans Requiring Collateral in MENA.............................................................................................................16 Table 2.3: Loans to Firms Requiring Collateral................................................................................................................21 Table 2.4: Regional Comparison for Getting Credit indicators, Doing Business, 2013...................................................22 Table 4.1: Key Characteristics and Functions...................................................................................................................31 Table 4.2: General Principles of Credit Reporting............................................................................................................33 Table 4.3: Credit Reporting System — MENA Region....................................................................................................36 x s s s Arab Credit Reporting Guide Table 4.4: Adult Population Coverage Ratio — MENA...................................................................................................39 Table 4.5: Initiatives and Value-Added Services in MENA..............................................................................................41 Table 7.1.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011........................................................55 Table 7.1.2: Arab Credit Reporting Information Sharing Index — Algeria.....................................................................58 Table 7.2.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011........................................................62 Table 7.2.2: Arab Credit Reporting Information Sharing Index — Bahrain....................................................................66 Table 7.3.1: Credit Industry Performance and Access to Credit.......................................................................................69 Table 7.3.2: Microfinance Lending...................................................................................................................................70 Table 7.3.3: Penetration in Formal Financial Institutions (% of Adults) — 2011............................................................72 Table 7.3.4: I-Score Database...........................................................................................................................................73 Table 7.3.5: Asset Performance (I-Score Database).........................................................................................................75 Table 7.3.6: Arab Credit Reporting Information Sharing Index — Egypt........................................................................78 Table 7.4.1 Population......................................................................................................................................................80 Table 7.4.2: Penetratration in Formal Financial Institutions (% of Adults) — 2011........................................................82 Table 7.4.3: Arab Credit Reporting Information Sharing Index — Iraq...........................................................................86 Table 7.5.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011........................................................91 Table 7.5.2: Outstanding Balances of Direct Facilities in the System..............................................................................92 Table 7.5.3: Number of Individuals and Firms.................................................................................................................93 Table 7.5.4: Number of Inquiries made by Bank to PCR.................................................................................................93 Table 7.5.5: Arab Credit Reporting Information Sharing Index — Jordan......................................................................97 Table 7.6.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011......................................................102 Table 7.6.2: Arab Credit Reporting Information Sharing Index — Kuwait...................................................................105 Table 7.7.1: Collateral Environment...............................................................................................................................109 Table 7.7.2: Sectoral Distribution of Utilised Credit......................................................................................................110 Table 7.7.3: Penetration in Formal Financial Institutions (% of Adults) — 2011..........................................................113 Table 7.7.4: Arab Credit Reporting Information Sharing Index — Lebanon.................................................................116 Table 7.8.1: Arab Credit Reporting Information Sharing Index — Libya......................................................................123 Table 7.9.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011......................................................129 Table 7.9.2: Arab Credit Reporting Information Sharing Index — Mauritania..............................................................133 Table 7.10.1: Loans Granted with and without Collaterals — 2012..............................................................................137 Table 7.10.2: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................140 Table 7.10.3: Bifurcation of Credit Facilities.................................................................................................................140 Table 7.10.4: Experian Services Morocco Database......................................................................................................141 Table 7.10.5: Arab Credit Reporting Information Sharing Index — Morocco...............................................................145 Table 7.11.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................151 Table 7.11.2: Arab Credit Reporting Information Sharing Index — Oman...................................................................156 Table 7.12.1: Population.................................................................................................................................................158 Table 7.12.2: Collateral Environment — 2012...............................................................................................................160 Table 7.12.3: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................161 Table 7.12.4: Arab Credit Reporting Information Sharing Index — Qatar....................................................................165 xi s s s Contents Table 7.13.1: Credit Market, Outstanding Loans............................................................................................................168 Table 7.13.2: Consumer and Credit Card Loans (SAR million).....................................................................................169 Table 7.13.3: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................172 Table 7.13.4: Collateral requirements for Individual loans............................................................................................172 Table 7.13.5: Arab Credit Reporting Information Sharing Index — Saudi Arabia........................................................176 Table 7.14.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................180 Table 7.14.2: Arab Credit Reporting Information Sharing Index — Sudan...................................................................184 Table 7.16.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................195 Table 7.16.2: Arab Credit Reporting Information Sharing Index — Tunisia.................................................................199 Table 7.17.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................204 Table 7.17.2: Arab Credit Reporting Information Sharing Index — United Arab Emirates..........................................208 Table 7.18.1: Banking Network......................................................................................................................................210 Table 7.18.2: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................213 Table 7.18.3: Arab Credit Reporting Information Sharing Index — West Bank and Gaza............................................217 Table 7.19.1: Loans with and without Collateral............................................................................................................221 Table 7.19.2: Penetratration in Formal Financial Institutions (% of Adults) — 2011....................................................223 Table 7.19.3: Arab Credit Reporting Information Sharing Index — Yemen..................................................................227 Table 8.1: Summary of Doing Business, Getting Credit Rank, and ACRISI Scores......................................................229 Table 8.2: Parameters Comparison across MENA..........................................................................................................232 Table 9.1.1: SIMAH’s Code of Conduct.........................................................................................................................240 Table 9.1.2: Contents of the Credit Information Law of 2008........................................................................................240 Table 9.1.3: Contents of the Credit Information Law No. 15 of 2010............................................................................242 Table 9.2.1: ESM Database.............................................................................................................................................247 Table 9.4.1: Comparison Between MF Network Relationship Analysis as of September 2011 vs. September 2013....256 Table 9.4.2: Microfinance Data Inclusion from December 2011 to September 2013....................................................256 xii s s s ACRONYMS ACRI Arab Credit Reporting Initiative NGO Non-Governmental Organization ACRISI Arab Credit Reporting – Information Sharing NPL Non-Performing Loans Index OECD The Organization for Economic Cooperation AMF Arab Monetary Fund and Development CB Credit Bureau SME Small and Medium Enterprise GCC Gulf Cooperation Council UEMOA Union Economique et Monetaire Ouest Africaine CR Credit Registry VAS Value-Added Services CRS Credit Reporting System WBG World Bank Group CRSPs Credit Reporting Service Providers DB Doing Business FDI Foreign Direct Investment GDP Gross Domestic Product IFC International Finance Corporation MENA Middle East and North Africa MFI Microfinance Institution MSME Micro, Small, and Medium Enterprise NBFI Non-Bank Financial Institution xiii s s s ACKNOWLEDGEMENTS The Arab Credit Reporting Guide was prepared by IFC’s The IFC working group team for the report was led by and AMF’s credit reporting experts supported by a team Oscar Madeddu, Bassim Sharafeldin, and Elsa Rodriguez. of external credit reporting experts. IFC and AMF are The work was undertaken in close collaboration with grateful for the support from Arab central banks in each AMF contributors Hafid Oubrik and Yisr Barnieh. IFC and country and credit bureaus, where present, for their input AMF would like to thank the external experts who worked to the credit information sharing survey distributed and to on this guide and exerted enormous efforts in putting it the case studies presented in this guide. IFC would also together. The experts include Satish Mehta and Rachna like to acknowledge the support of its donors, without Chandrashekhar who were supported by Swati Deshpande whom its Credit Reporting Program’s activities would and Arpita Tandon Narula. In addition, appreciation is not be possible. In specific we would like to thank donors extended to Sunita Rappai for editing support, Amy Quach contributing to the MSME Technical Assistance Facility, and Aichin Lim Jones for design, layout and production which is a joint initiative supported by UKaid, Department services, Bruno Bonansea for cartography service, Robert of Foreign Affairs, Trade and Development Canada, Wright for branding support, and Catherine Gozard and Danish International Development Agency, Japan, and Riham Mustafa for communication support. Switzerland’s State Secretariat for Economic Affairs. xv s s s PREFACE During the first decade of this century, from 2001 to IFC has focused attention on certain regions to ensure a 2010, attention focused on the development of the credit strong local presence which, with the support from regional information industry in the Middle East and North Africa organizations, intends to accelerate the development of (MENA) region. As MENA’s role in the global economy credit reporting. Within this context, IFC and the Arab increases along with its attendant demographic integration, Monetary Fund (AMF) have established the Arab Credit the development of comprehensive information sharing Reporting Initiative (ACRI) to promote the development systems across the region has become an imperative. of credit information sharing in MENA. ACRI leverages IFC’s global expertise in developing credit information The overall credit information system in the region services and AMF’s regional network of financial market requires reform at the initiative of stakeholders. Among the regulators, to promote reforms that support best practice challenges are the diverse levels of technology, and lack of in credit information sharing. In so doing, ACRI raises awareness and discipline in data collection. In response to awareness about the importance of credit information traditional risk-assessment methods and, in some cases, a sharing, while supporting regulators, governmental bodies, resistance to change, stakeholders have been encouraged and financial institutions in establishing and enhancing to undertake innovative changes in the methods of risk credit reporting systems. evaluation being used by the credit industry. As part of ACRI’s activities in sharing knowledge and In 2001, the International Finance Corporation (IFC) experience, IFC and AMF commissioned the production of launched the Global Credit Bureau Program. Later renamed this guide to map progress and provide an overview of the the Global Credit Reporting Program, its operations have credit reporting systems in the region. For the first time, an expanded to include the development of credit-reporting index representing a quantification of credit reporting in frameworks and systems in emerging markets, working each country has been developed. To offer lessons learned, with credit registries (CRs) and credit bureaus (CBs) to the guide highlights selected global trends and best practice create a sustainable credit reporting infrastructure on a for credit information sharing. The MENA region, for the global scale. Since 2002, IFC has also partnered with the purpose of this guide covers 19 countries, including Algeria, World Bank to monitor credit reporting environments Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, in more than 180 countries, incorporating survey results Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Sudan, into the annual Doing Business report. Through these Syria, Tunisia, the United Arab Emirates, West Bank and various initiatives, IFC and the World Bank have become Gaza, and Yemen. The guide contains case studies of the recognized leaders in the development of credit reporting 19 MENA countries with specific recommendations for in emerging markets. local conditions. xvii s s s Preface The Arab Credit Reporting Guide was prepared by IFC’s Bank. The facility is supported by UKaid, Department and AMF’s credit reporting experts as well as external of Foreign Affairs, Trade and Development Canada, credit reporting experts1. IFC and AMF are grateful for Danish International Development Agency, Japan, and the support from Arab central banks, credit registries in Switzerland’s State Secretariat for Economic Affairs. each country and credit bureaus, where present, for their input to the credit information sharing survey distributed This guide endeavors to inform stakeholders of the credit and to the case studies presented in this guide. IFC would information industry in MENA, including central banks, also like to acknowledge the support of its donors, without CRs, CBs, international agencies, and lending institutions. whom IFC’s MENA Credit Reporting Program’s activities Importantly, we hope that this guide will focus attention on would not be possible. In specific we would like to thank the development of the industry in the region. The result donors contributing to the MSME Technical Assistance would bring large benefits to the ultimate stakeholder, the Facility, a joint initiative between IFC and the World consumer. xviii s s s INTRODUCTION TO THE GUIDE 1 In the 19th century, the first seeds of a credit information Given the singularity of each country and regions, they sharing were planted in Chicago, USA. An up-market have progressed differently. For example, South Asia saw tailor offered credit to customers with financial integrity. significant development in the past two decades, from This ability and willingness to pay was confirmed by 1990 to 2010, as India, the largest country in the region, the behavior of earlier customers. The tailor’s clientele established its first credit bureau. grew, and he did not have any delinquencies in payment. This established the importance of referencing in taking The global economic crisis led to an increasing recognition business decisions. of the importance of credit information and related products, tools, and services in order to manage risk. The presence of The environment was not initially supportive of a new international credit reporting providers at local levels has credit system, however, given the complete absence of provided new opportunities to inform stakeholders across information technology and communication support a variety of stages. systems. There was no legal or regulatory framework. Most importantly, the industry’s development was hindered by IFC plays a lead role in the development of global financial lack of knowledge and understanding by stakeholders infrastructure, particularly credit reporting systems. (regulators, lenders, and borrowers). How could this In addition to successfully extending these activities concept be leveraged to the advantage of the credit industry to MENA as a part of its global initiative, IFC has also and the benefit of the economy, lenders, and borrowers? partnered with AMF to create ACRI, a regional initiative for credit information. To fast forward to more recent times, developed countries, including Australia, Canada, Europe, South Africa, the Since 2008, IFC and AMF have assessed the credit reporting United Kingdom, and the United States, have advanced system in this region in order to recommend a better way credit information systems with robust frameworks. forward. Thirteen Arab countries were assessed, and reports were prepared for authorities to: (i) highlight credit At the global level, technology and innovation now affect industry dynamics; (ii) underscore issues that will affect and all aspects of life. This is pertinent in the case of credit be impacted by credit information sharing; (iii) determine information sharing. Additionally, legal frameworks have critical success factors and logical dependencies to any evolved along with best practice. The role played by credit information sharing; and (iv) provide international multi-lateral organizations, notably the IFC and the World best practice examples and case studies. In addition, ad-hoc Bank, has provided for the export of technical and domain domestic workshops and annual regional events are also expertise to countries in the process of developing new organized to raise awareness among relevant authorities, credit systems. market players, and customers, to stress the importance of 1 s s s 1. Introduction to the Guide undertaking necessary reforms that would provide each by some individuals, and the focus by most lenders on country with an efficient credit information sharing system. collateral as a measure to mitigate risk. This chapter clearly By reporting on 19 MENA countries, this guide represents establishes that traditional risk-management methods will an effort to analyze the status and development of credit have to give way to more modern solutions, in order to reporting across the region. address the ease of access to credit and the consequent need for financial inclusion. The chapter includes sectorial In any credit information framework there are four key analysis across banking, housing finance, microfinance, stakeholders: and small and medium enterprise lending; it also discusses n The Credit Registry/Bureau; demographic issues, such as access to finance for women. n Credit Providers (regulated and unregulated); Chapter 3 examines risk-management mechanisms in the n The Regulator (typically the central bank of the country); region. Based on best-practice policies globally, the chapter reviews the availability and use of risk-management tools n The Consumer (individual or non-individual). in the region, and the level of automation and its impact on the use of these global tools. It focuses on the availability Any successful and well-ordered system should strike a of advanced credit reporting systems and other solutions, balance between the various interests of each stakeholder. like credit scores. Crucially, the consumer’s credit history is key to the entire process. An over-regulated environment, however, Chapter 4 is divided into three sections. The first section would stifle the consumer as well as credit providers; an introduces the fundamentals of credit reporting—the under-regulated environment would lead to the abuse of elements of a functioning and comprehensive credit data. Consumer rights and privacy must be protected, reporting system. The second section discusses global without creating inefficiencies that lead to incomplete and trends in credit reporting as they have emerged, especially fragmented data collection. in the past few decades. The third section reviews trends in MENA. This chapter reiterates the developments in the In general, the region’s banking, credit, and risk-evaluation MENA region in the recent past and identifies work that strategies have much in common. Collateral-based lending, needs to be done to bring the region’s credit information conventional methods of risk evaluation, relationship- system to global standards. based lending, and a low appetite for risk all mesh with more modern tools of risk mitigation. The emerging trend Chapter 5, describes ACRI, the joint program of IFC and of introducing topical and relevant credit information, or AMF. It summarizes the various efforts and achievements using credit behavior as a significant component, are in line of ACRI in the past five years along with proposed with traditional modes of credit. activities for the future. Many of the reforms undertaken by authorities in the region were part of the ACRI team’s The guide explores the situation in each country in depth recommendations; in some cases the willingness to reform while finding connections and regional trends. The guide was strengthened by ACRI’s efforts to raise awareness. seeks to sweep across MENA in order to understand the credit reporting system—as it exists, as it has developed, Chapter 6 introduces ACRISI, an index developed to and as it is evolving in each of the 19 countries. Of note is measure and, thus, quantify the development of credit the index (Chapter 6), a new tool that IFC and AMF hope information systems in each of the 19 countries. Specific will offer an objective approach to tracking the progress of parameters comprise of the key elements needed for credit information sharing in the region. a comprehensive credit information sharing system. The chapter also explains the rationale of the index and Chapter 2 provides an overview of access to credit discusses the process for its development. The chapter also in MENA. Issues covered include the level of credit suggests methods of ensuring updates and maintenance penetration, low consumer debt exposures, overborrowing guidelines on a going forward basis. 2 s s s Arab Credit Reporting Guide Chapter 7 gives a detailed overview for each of the 19 case studies highlights efforts to include microfinance countries. The focus is each country’s specific credit institution data into the mainstream information landscape along with penetration and financial inclusion sharing system. These case studies represent interesting levels. The chapter looks at each country’s financial system developments in the region. and infrastructure, status of credit reporting (from initial development to its current status), legal framework, and It is important to note that in certain countries it was difficult emerging role of technology. It concludes with a summary to get full responses to the credit information sharing of recommendations specific to each country. survey, which was distributed to gather information on the status of each country and utilize in this guide. The quality Chapter 8 examines the lessons from learned from ACRI, of information in the country section and in other chapters and then goes on to make specific recommendations for the of this guide is a reflection of available data. way forward. The intended audience for this guide is the various Chapter 9 uses case studies (six countries and four stakeholders for credit information in the region, including subjects) to provide snapshots for better understanding the government authorities, regulators, credit providers (banks, development process of certain specific aspects of credit housing finance companies and microfinance institutions, information, such as the legal framework, value-added the CRs and CBs), and individual and corporate consumers services, and, in some cases, the system itself. One of the most affected by information sharing systems. 3 s s s OVERVIEW OF CREDIT ACCESS IN MENA 2 2.1 ECONOMIC OVERVIEW From 2008 to 2011, GDP growth was extremely volatile as a result of multiple factors. Economic performance across MENA is an economically diverse and important region in oil importing and exporting countries exhibited substantial terms of its geographic location and vast natural resources. variation. The freezing of credit markets combined with a The region accounts for a large share of world petroleum drop in the oil prices and burst of the real estate bubbles production and exports, and plays a critical role in the resulted in a sharp contraction of credit. In GCC countries, world energy market with about 70 percent of the world’s there was a significant decline in GDP growth from 6 oil reserves and 50 percent of gas reserves. Phosphate, iron percent in 2008 to 1 percent in 2009. Non-GCC countries ore, and cotton are MENA’s other important exports. were comparatively less affected, as credit growth was generally slower; banks were not overextended and were The countries in the MENA region are in a transitional not reliant on external funding. These countries, however, stage with limited integration into the world economy, large faced a slowdown because of lower exports as well as public sectors, and limited private investments. Economic reduced tourism revenues, foreign direct investment, and models differ significantly across the region. Some of the remittances. In non-GCC countries, GDP growth declined economies are well-endowed with natural resources, such from about 6 percent in 2008 to about 3.5 percent in as Algeria where hydrocarbon production accounts for 37 2009.3  As shown in Figure 2.1, the economy recovered in percent of Gross Domestic Product (GDP). In some other 2010 because of the rebound of oil prices, stabilization of countries the service sector is more important, such as in Lebanon which has a large financial sector in terms of Figure 2.1: GDP Growth (Annual %) GDP, or Tunisia and Morocco where tourism represents a 8 key revenue source.2 6 The global situation from 2008 to 2009 was characterized 4 by multiple economic crises: food, fuel, and finance. The Percentage impacts on GCC and non-GCC countries varied. The 2 increase in food prices had a profound effect in MENA, 0 the world’s largest importer of grains and foodstuffs. The 2008 2009 2010 2011 2012 rise in fuel prices brought huge windfall revenues to the oil -2 exporting economies in MENA. In contrast, MENA’s non- -4 oil exporting countries saw their current account deficits World MENA Region increase because of high expenditure due to subsidies.  Source: data.worldbank.org 5 s s s 2. Overview of Credit Access in MENA the financial sector, and government stimulus packages in 2.2 CREDIT MARKET oil exporting countries.4 Banks dominate the financial landscape of MENA countries. 2011 witnessed the beginning of uprisings across the On average, bank assets account for 130 percent of GDP; region. Young and educated populations reacted to the lack the GCC average is about 145 percent, reflecting much of economic opportunities; an unequal share in the benefits higher income levels, and the non-GCC average is about of growth led to social frustration, widespread protests, 120 percent. However, there are significant differences and political unrest in Egypt, Libya, Syria, Tunisia, and between the two non-GCC sub-regions. Bank assets Yemen.5 amount to 140 percent of GDP in emerging economies where private banks are dominant (Egypt, Lebanon, Jordan There has been a significant economic toll from prolonged Morocco, Tunisia, and Yemen). In the countries where state political transitions. MENA’s growth rate slowed to about banks lead financial markets (Algeria, Iraq, Libya, and 2.8 percent in 2013 because of weak tourism, lower foreign Syria), bank assets amount only to 65 percent of GDP.10 direct investment (FDI) inflow, and the Europian Union’s recession.6 As shown in Figure 2.3, the non-banking financial institution (NBFI) sector is less developed due to gaps in Ample oil and gas resources, a young workforce, and a legislation or weak supervision and enforcement. In relation growing momentum to diversify economies suggest that to GDP, insurance companies and mutual funds account for MENA’s growth potential is high. At the same time, the less than 5 percent; leasing and factoring account for less region will continue to face long-term challenges, such than 1 percent; outstanding microcredit accounts for just as high unemployment, delays in policy reforms, weak 0.2 percent. regulatory systems for corporate governance, and lack of access to finance.7 MENA has the highest average loan concentration ratio in the world, as measured by the ratio of top 20 exposures to As of 2012, the population of MENA was over 340 million. total equity. This reflects deep connections between large The female to male ratio was around 50 percent— except banks and large enterprises.  Small and medium enterprises in Bahrain, Oman, UAE, and Qatar, where the ratio ranges remain deprived of bank credit, with only 20 percent of from 25 to 38 percent.8 The GDP per capita was $8,409 as them enjoying a loan or line of credit. This concentration of 2011.9 Figure 2.2 shows the population and GDP per ratio is somewhat lower in the GCC, indicating the region’s capita for MENA countries. Figure 2.2: Population (2012) 90 120 80 100 70 US$ (Thousands) 60 80 Million 50 60 40 30 40 20 20 10 0 0 an e a ria co n ia ria en an a q ar ya on t AE t n yp in ai bi ai ni Ira da s at m oc Sy ge m rd b n st w ra ni hr ita Eg U Li ba Q O Su Ye Ku Jo le or Tu iA Ba Al r au Pa Le M ud M Sa Population in Million 2012 GDP per Capita 2012 ($) Note: UAE data as of 2011. Source: World Bank & Global Finance Data. 6 s s s Arab Credit Reporting Guide Figure 2.3: Assets of Financial Institutions as a Percentage of GDP 150 Presentage of GDP 100 50 0 et s ce ds n io ds g g ce n io s ss ra n un ns un sin o rin an ns und A su al F P e F Ba ct of in e P F n k In tu te Fa icr lic Ba u iva M b M Pr Pu Middle East and North Africa Gulf Cooperation Council Non-Gulf Cooperation Council Note: Data are from 2009 or latest year available. Source: World Bank staff compilation based on data from Axco, Euromoney, Factors Chain International (FCI), International Monetary Fund (IMF), Investment Company Institute (ICI), Micro Finance Infornation Exchange (MIX), World Bank, and national sources. Financial Access and Stability - A Road Map for the Middle East and North Africa – The World Bank Roberto and Zsofia Arvai - 2011 progress in developing consumer lending and the larger and many of these banks remain small. They confine their equity base. Alternatives to bank finance are limited, even operations to specific niches and may not yet be able to for larger enterprises, as the region’s nonbanking institutions challenge domestic banks in their main markets.12 are less developed. The reach of the microfinance industry is restricted, and housing finance is at a nascent stage.11 Bank lending is traditionally concentrated with large, corporate customers. Banks in some countries use a BANKING SECTOR substantial amount of their available liquidity for public sector enterprises and also to fund government debt. As of 2011, more than half of the total financial assets in the Private sector credit as a percentage of GDP for MENA region were banking assets (57 percent), with state banks is 41 percent; several countries have lower than average representing a large range—from 13 percent (Kuwait) to percentages, such as Algeria (14.5 percent), Egypt 90 percent (Algeria). State banks dominate the banking (29.1 percent ), Libya (10.6 percent ), Qatar (36.5 percent), system in three countries: Algeria, Libya and Syria. Saudi Arabia (36.4 percent), Sudan (12 percent), and Yemen There is a second group of countries (Egypt, Qatar, the (5.1 percent).13 At the same time, some countries exhibit UAE, Morocco, and Tunisia) where state banks no longer low loan-to-deposit ratios, including Lebanon (38 percent), dominate but still hold a significant shares varying from where less than half of the banking sector’s large deposit 25 to 50 percent of total assets. base is used to extend loans to the economy. In contrast, Morocco and Tunisia have loan-to-deposit ratios in excess Credit supplied by banks is about 60 percent of GDP. of 100 percent as shown in Table 2.1. In both these countries, Banks are thus the main source of external financing for the banking sectors have difficulties matching rapid loan households and corporations. growth with adequate deposit growth, which leaves them in a difficult position in terms of liquidity. This leads banks Foreign banks have increased their market share in both to look for a diversification of their funding sources, such the GCC and non-GCC countries. The increase was modest as bond markets, as observed to some extent in Morocco.14 in the GCC but more significant in non-GCC countries. As seen in Figure 2.4, domestic credit by banking sector, In most countries the expansion of foreign banks (both as a percentage of GDP, has reduced considerably in the regional and international banks) has been relatively recent, MENA region in 2012. 7 s s s 2. Overview of Credit Access in MENA Table 2.1: Banking Soundness Indicators (%) — 2013 As in other regions of the world, bank credit in MENA Tier 1 NPLs to Provisions Loans to has experienced a marked turnaround. After accelerating Capital Total Loans to NPLs Deposits to peak real annual growth rates ranging from about 20 Egypt 15.2 9.5 95 50 percent (Lebanon) to almost 100 percent (Sudan) before Jordan 15.8 7.7 69 71 the global crisis, credit has decelerated sharply. As shown Lebanon 11.8 3.8 70 36 in Figure 2.6, the decrease averaged at about 30 percent, Morocco 13.2 5.4 70 103 and several countries are experiencing declines of more Saudi Arabia 17.1 2.9 140 80 than 40 percent. For many of the MENA countries, the Tunisia 10.3 14 60 111 loan-to-deposit ratio also fell from mid-2008 to 2011, with UAE 20.2 8.4 94 90 declines ranging from 2 to 13 percent.16 Source: IIF Regional Overview on Middle East and North Africa - “Arab Spring” Countries Struggle, GCC Prospects Favorable The banking sector overall has remained sound, with significant capital and liquidity buffers and improvements Figure 2.4: Domestic Credit Provided by Banking Sector in regulation and supervision. Despite the difficult domestic (% of GDP) and international economic environment of recent years, 180 banks in the GCC, Lebanon, Jordan, and Morocco have 160 166.9 164 163 168.9 continued to perform well.17 The economic downturn in 140 154.4 Percentage 120 some countries, however, is affecting the performance of 100 banks, especially the quality of loan portfolios. The most 80 affected banking sectors are in Egypt and Tunisia because 60 46.8 40.6 40 37.3 41.2 of economic and political struggles resulting from each 24.5 20 country’s political uprising. In Egypt one of the major 0 issues was a significant drop in foreign exchange reserves; 2008 2009 2010 2011 2012 in Tunisia, banks’ exposure to the weakened tourism World MENA Region industry led to the crisis of increasing non-performing Source: data.worldbank.org (NPLs) loans. In MENA, the average share of small and medium enterprise In most of the countries in the region, regulators have (SME) lending by banks is low, less than 8 percent of total implemented different measures to support banks. In some lending. But there are significant differences between the countries, further measures to strengthen the banking two main sub-regions and individual countries as shown sector will be necessary to support the development of the in Figure 2.5. The average share of SME lending in the private sector.18 GCC is only 2 percent, as it reflects to a large extent the structure of oil-based economies, which are less diversified Islamic Banking and dominated by very large enterprises. The share of SME lending in the non-GCC region is 13 percent. In the case of The Middle East region is one of the largest Islamic non-GCC countries, the share varies significantly: below banking markets in the world. It has evolved in the past 10 percent in Syria, Egypt, and West Bank and Gaza; about decade from a niche market to an important segment of 10 percent in Jordan; 15-24 percent in Tunisia, Lebanon, the local banking industry, and has now reached a critical Yemen, and Morocco. State banks play an important role mass. Islamic banking assets in MENA increased to $416 in SME lending in several MENA countries, as indicated billion in 2010, representing a five-year annual growth of 20 by an average share of SME loans of 9 percent of total percent (compared to less than 9 percent for conventional lending. This number is very close to the average share of banks). The main reasons for the growth of Islamic private banks.15 banking in the region are strong government involvement, increasing demand, the wide range of Islamic products, and the entrance of numerous new players.19 8 s s s Arab Credit Reporting Guide Figure 2.5: SME Loans/Total Loans (%)*: MENA Countries 24 25 20 20 16 15 Percentage 15 13 10 10 6 4 4 5 5 2 2 2 2 0.5 1 0 n ria n an ia co ia en e n ar C C t AE t ai ai no yp in a b ris C C at Sy oc m m rd w hr ra st U Eg G -G ba Q Tu Ku O Ye Jo Ba or le iA on Le Pa M ud N Sa *Reported numbers are weighted averages and Non-GCC average includes Iraqi banks that were not reported in the graph as the coverage Iraq is not more than 30%. Source: The status of bank lending to SMEs in the Middle East and North Africa region: the results of a joint survey of the union of Arab Banks and The World Bank, Roberto Rocha, Subika Farazi, Rania Khouri and Douglas Pearce, 2011 Figure 2.6: Declines in Real Credit Growth (year-on-year-growth) 100 80 Percentage 60 40 20 0 -20 en n . a a ria n an ti n a an co n ar A t q t .E ai ria yp bi si ou Ira da by no Ira EN at m ge m oc .A rd w ni ra Eg Sy jib Li Su ba Q Ye Ku O Tu Jo U iA or M Al D Le M ud Sa Note: High point of the arrow is the largest year-on-year growth rate of credit to the private sector since 2006Q1. Low point is the last available data in IF$ (2009Q1, Q2 or Q3 for most countries. 2008Q4 for Kuwait, Syria, Algeria). Regional average is unweighted. Source: IFS and staff calculation. “Recent Credit Stagnation in the MENA Region: What to Expect? What Can Be Done?” International Monetary Fund, 2010. The conventional form of banking is not a suitable model Against the backdrop of the financial crisis, the Islamic for financial intermediation under Islamic rules as religious banking sector has demonstrated more resilience than jurisprudence prohibits the payment of interest. Therefore, conventional banks, due to the former’s avoidance of Shariah-compliant banking is based on different types interest. The impact of the crisis hit Islamic banks late and of incentive structures, such as profit sharing or leasing indirectly through the slowdown in the real economy. Some arrangements.20 banks were affected because of their asset concentration in the real estate sector. However, there was no case of failure In MENA, the majority of Islamic banks are in the private for Islamic banks in the region.22 sector, and they exist along with the conventional banking and financial institutions. Among the MENA countries, the Following the uprisings and regime changes, many most developed Islamic banking sectors are in Bahrain, countries are increasingly keen on expanding their Islamic Kuwait, Qatar, Saudi Arabia, and the United Arab financial sectors. So far, the institutions account for only Emirates.21 a small share of the total banking sector. Jordan has the Note: Data on financia leasing is as of 2009, unless mentioned otherwise.n “Middle East and North Africa Regional Snapshot,” MIX and Sanabel Analysis, 2012. 9 s s s 2. Overview of Credit Access in MENA largest share of Islamic banking assets at 12 percent of for microenterprise activities, such as loans given to the total size of its banking sector (as of 2010). In Egypt individuals for starting small scale business activities. and Syria, the share is about 4 percent of total assets, and in Tunisia at about 2 percent. In Algeria and Lebanon The total loan portfolio in MENA remained concentrated in the share is even less significant with about 1 percent of two countries as seen in Figure2.7: Egypt (47 percent) and banking sector assets, and in Morocco Islamic banking Morocco (33 percent). Morocco topped the list in terms products have yet to be introduced. of microfinance institutions’ branch network, comprising 83 percent of the region’s reported total. Jordan had the A reason for the increasing importance of this sector is highest microcredit coverage of its poor population in the that it caters to the financial needs of individuals unwilling region. The top five microfinance institutions represented to use conventional banking services which conflict 43 percent of total outreach, and three of these were in with religious practice. Consequently, Islamic banking Morocco. Growth rates for individual Arab countries can contribute to increased banking penetration and varied, with the highest rates in 2009 recorded in Iraq intermediation. Most governments in the region are now (42 percent) and Yemen (31 percent). Microcredit in moving toward opening up their local financial sectors to MENA reached relatively poor clients compared to other Islamic financial institutions and products.23 regions (with the exception of Asia), and a reasonably high proportion of women, who accounted for 63 percent of NON-BANKING FINANCIAL INSTITUTIONS total microcredit borrowers. Microfinance The majority of microloans are also made through solidarity groups (65 percent of all microfinance borrowers). State The microfinance business model is designed to fit the banks are significant providers of financial services for financing preferences of low-income consumers and low-income people and microenterprises in some MENA entrepreneurs who do not have easy access to formal countries, and the involvement of commercial banks is institutions. very limited.25 From 2006 to 2008, the growth rate of microfinance sector Banks prefer to provide wholesale financing through in MENA was almost in line with the global growth rate: specialized microcredit providers. One of the big three Worldwide growth rates were 21 percent for borrowers and Lebanese microfinance institutions, Ameen, provides 35 percent for SMEs; for the MENA region the rates were financial services in partnership with four Lebanese banks. 19 percent and 30 percent respectively. The microfinance Moroccan banks have set up microcredit associations sector in the region was fairly well insulated from the global rather than providing microloans directly. In Egypt, two financial crisis, as the funding was available throughout the crisis and the microcredit non-governmental organizations Figure 2.7: Microfinance Outreach in MENA (2010) did not have direct exposure to investment portfolios or Tunisia complex financial instruments. At the end of 2008, there Saudi 8% Yemen Arabia Sudan Syria 2% Bahrain were 2.81 million microcredit borrowers, with a total loan 0% 2% 1% 0% portfolio of $1.5 billion.24 Palestine 1% Egypt 47% While most microfinance institutions in MENA are Morocco credit-only (and thus unable to offer a broad range 25% of financial services), there has been some product innovation, particularly in more mature markets like Mauritania 3% Egypt. Loan products are offered for housing, agriculture, Lebanon Jordan Iraq and consumption. The vast majority (94 percent) of 2% 6% 3% microloans made by microfinance institutions are intended Source: Ranya Abdel-Baki. “Challenges to the Development of Microfinance in the Arab World,” Sanabel, 2012. 10 s s s Arab Credit Reporting Guide private sector banks offer microcredit in cooperation with Financial Leasing microfinance service companies; while several public sector banks (Banque Misr, Banque du Caire, and others) The leasing industry has long existed in MENA. Leasing, offer microfinance directly to customers. In Yemen, Al as an alternative source of finance, has great potential Amal microfinance bank was established under the Yemen because of its two main characteristics: microfinance banks law, which offers deposit and lending n Leasing can complement, and even replace, bank services to low-income clients, including micro and small financing, especially for SMEs which frequently lack enterprises. Similarly, a money exchange company in sufficient credit history and collateral; Yemen, Alkumari, has converted to a microfinance bank. n Leasing is fully compliant with Islamic Shariah law. Tunisia’s Banque Tunisienne de Solidarite was also set up with a focus on microcredit. Microfinance banks, As shown in Figure 2.8, the dominant lessors in MENA or specialized microfinance institutions, are considered are banks and bank-related institutions because of their as an alternative model. The Arab Gulf Program for realtively easy access to funding (and given the regulatory Development (AGFUND) and the Aga Khan Agency for constraints of leasing companies). Banks and bank-related Microfinance have committed to establishing specialized institutions constitute 70 percent of the total number financial institutions that provide a broad range of financial of lessors (80 lessors), while 30 percent (34 lessors) are services to low-income people and microenterprises, on captive and standalone leasing companies. In some MENA a sustainable basis. AGFUND has set-up microfinance countries, such as Lebanon and Tunisia, leasing is only institutions in Bahrain, Egypt, Jordan, Syria, and Yemen.26 allowed to banks and bank affiliates. In other countries, banks have begun to offer leasing activities as a result of The rapid expansion of microcredit in Morocco (2009) and fierce competition in conventional banking products. Egypt (2011) resulted in a crisis of over-indebtedness and NPLs in the microfinance sector. Factors contributing to The average size of the leasing market in MENA is small, this crisis included lack of credit information sharing as but there is a significant differentiation across the countries. well as poor governance structures. IFC along with credit Both conventional and Islamic leasing is present in 13 out bureaus played a vital role in addressing the problem by of 18 MENA countries. In five other MENA countries integrating microfinance institution data in the credit (Iraq, Syria, Libya, Yemen, and the West Bank and Gaza) information sharing scheme in several countries. leasing is still in a very early stage of development. Microfinance is one of the sectors that suffered the most The top three leasing markets in the region are the UAE, from the uprisings in Egypt, Syria, Tunisia, and Yemen. Kuwait and Saudi Arabia. These three countries constitute It impacted microfinance institutions as some customers more than 61 percent of the total leasing market in MENA. faced closure of their microenterprises due to loss of business activity and higher NPLs. Over the past year, Figure 2.8: Leasing Activity – Lessor's Distribution by Type Egypt witnessed the greatest decline in the actual number of borrowers compared to other markets in the region; Bank Related Company Banks 39% Tunisia witnessed the highest increase in portfolios at risk. 31% Governments in these countries have taken various measures such as modifying credit policies, offering emergency loans, and rescheduling loans. Governments have supported the microfinance sector through the provision of legal measures and facilitating new credit Stand Alone Company Captive Company information systems through credit bureaus.27 21% 9% Source: Bilal Al-Sugheyer and Murat Sultanov. “Leasing in the Middle East and Northern Africa (MENA) Region: A Preliminary Assessment,” MENA Financial Flagship, The World Bank, 2010. 11 s s s 2. Overview of Credit Access in MENA Each of these markets has annual leasing volumes that Despite the current and future need for affordable dwellings, exceed $1 billion. Leasing markets are also growing fast housing finance is relatively new in MENA. Except for in Egypt, Jordan, and Morocco, which suggests strong housing loans directly extended by government agencies, demand for the product and potential for further growth. such lending in most countries remains nascent. As shown in Figure 2.9, regional averages for housing finance to Leasing of movable assets is the most common in MENA. GDP are lower than in all other regions except in Africa Leasing of immovable assets is very limited in Tunisia and South Asia. The region, however, is not homogenous and Egypt, mainly due to legislative constraints. In some as a few markets have been growing rapidly. Markets in countries like Jordan and the UAE, however, real estate Morocco, Tunisia, Kuwait, and the UAE (until the 2008 leasing is common and has replaced the mortgage business. Dubai real estate crisis) have reached a noticeably higher Real estate leases, as a percentage of total leasing market, degree of maturity than other markets in the region.32 constitute 66 percent in Jordan and 80 percent in UAE. Figure 2.9: Housing Loans/GDP–Regional Despite its long presence in MENA and potential 60 advantages, the leasing industry remains generally under- 50 developed. The policymakers in the MENA countries will have to address the regulatory and institutional constraints 40 hindering the growth of this industry.28 30 20 Housing Finance 10 With a young and fast growing population both in GCC 0 South Sub-Saharan Middle East Europe & Latin East Asia & High and non-GCC countries, the MENA region is becoming Asia Africa & North Africa Central America & Asia Caribbean Pacific Income: OECD highly urbanized, with an urbanization rate of 80 percent or Source: Hassler, 2011. higher. Most MENA countries face large housing shortages because of dynamic demographics.29 In GCC countries, the Structure of MENA’s Housing Finance Market home ownership rates were low as a result of government restrictions on non-nationals’ ownership of property. Besides private lending, the government’s role in providing The dominance of expatriates as residents made housing housing finance is significant. ownership levels low. In the past few years, governments n Direct lending by governments using budgetary have relaxed such measures. A significant market segment resources to fund housing loans. This is mostly the in the housing sector has been created, which eventually case in GCC countries; the Real Estate Housing Fund in opened up to housing finance as well.30 Saudi Arabia, for instance, extends about 80 percent of the housing loans originating in the country. The Public Demand for housing is far outstripping supply, and there Authority for Housing Welfare in Kuwait takes on a is a combined shortage of more than 3.5 million affordable similar role. Both provide interest free loans. dwellings across the major markets, which means a significant market segment seeks finance for housing. n Participation of governments through state The extent of this shortfall varies from more than 1.5 controlled specialized banks. This is particularly million units in MENA’s most populous market (Egypt), widespread in Algeria, Egypt, Iran, Lebanon, Morocco, to just 15,000 units in Oman.31 Commercial real-estate Syria, and Tunisia. financing is a significant banking sector activity in MENA. n Private sector specialized entities. This is the case in In Algeria, Lebanon, and Kuwait, commercial real estate Egypt, (where legal reforms to the housing financial finance represents a larger share of total bank lending than market created a framework for such institutions), Saudi retail housing finance. Arabia, and Bahrain. In the UAE, as a result of the initial reluctance of the commercial banks to provide housing 12 s s s Arab Credit Reporting Guide finance, two housing finance companies were created foreclosure laws to manage mortgage delinquencies; the by private developers in Dubai—Amlak by Emaar availability of clear property rights and robustness of properties and Tamweel jointly by Nakheel and Dubai property titling system; and the growth of capital markets Islamic Bank to enable funding options.35 n UAE, Kuwait and Saudi banks extend housing Postal Network loans mostly through Islamic products, but also offer conventional loans. The contribution of postal networks in the Arab world is noteworthy for their unique outreach to the low- With increase in the property prices followed by the income population, particularly in rural areas through an credit growth in MENA, housing finance loans in the extensive branch network, as shown in Figure 2.10. Arab UAE extended by commercial banks increased from 31 postal networks provide financial services to 30 million billion Emirati dirham at the end of 2006 to 141.7 billion clients, against 70 million for banks and 2.9 million for dirham at the end of 2009. In other GCC countries, with microfinance instiutions.36 the exception of Oman and Saudi Arabia, mortgage lending increased from 30 to 100 percent faster than overall credit Today the financial services offered by banks, microfinance from 2005 to 2007.33 institutions, and postal networks to low-income populations in MENA look fragmented, as they operate in different In 2009, the global financial crisis coupled with increase in regulatory spaces and offer distinct services to different oil prices reversed the trend dramatically, as the investors market segments. However, this situation is beginning to lost confidence in real estate investments. Dubai was change; as in many developing countries, policymakers particularly vulnerable since the boom had largely involved are interested in leveraging postal networks to promote foreign capital inflows. The result was a sharp decline in financial inclusion. Financial services are considered an the real estate market and decelerated growth in housing important source of revenue to compensate for the decline finance. At the regional level, the impact was limited. in mail activity and preserve the sustainability of postal Egypt and Jordan experienced a mild downturn in their services. Several postal networks in the Arab world are real estate sectors in 2008–2009. The MENA mortgage scaling up their financial services through wider range of industry has started picking up thereafter and has grown products and services, such as insurance and credit services. to approximately $100 billion, as of 2011, and has huge potential for housing and housing finance. Figure 2.10: MFI, Postal, and Commercial Bank Branches in Select Arab Countries For the past decade there has been an effort to develop 3754 market-based financial mechanisms to address growing housing needs in MENA. Governments have undertaken 3198 measures to create a supportive environment through the introduction of various schemes such as mortgage insurance, guarantee schemes, and subsidy schemes. Additionly, new public policies without state controlled 1755 mechanisms have been designed and implemented to help 1030 lower-income groups access housing finance.34 330 350 Recommendations for the viable development of the mortgage industry, including: a national housing policy; Yemen Jordan Tunisia Morocco Algeria Egypt dedicated regulations for the mortgage industry; an Commercial Branches Postal Branches MFIs increased role of public-private partnership for housing Source: “Can Postal Networks Advance Financial Inclusion in the Arab World?” Consultative finance; efficient credit bureau systems; sound underwriting Group to Assist the Poor, 2012. norms and lending regulations; the enhancement of 13 s s s 2. Overview of Credit Access in MENA Algeria, Jordan, Morocco, Tunisia, and Yemen have All guarantee schemes cover start-ups, except for West established postal networks as separate legal entities from Bank and Gaza. Eligibility criteria differs significantly their respective ministries. In particular, Morocco and across the region with respect to firm size, maximum Jordan have created dedicated subsidiaries to manage loan size, and qualified sectors, although there is some financial services. In Morocco, the postal network Poste uniformity regarding maximum loan maturity.38 Maroc (Barid Al Maghrib) has set up Al Barid Bank, which partners with experienced lending institutions to develop The average size of guarantee schemes in MENA is in line and underwrite their credit products (notably, consumer with the international average (outstanding guarantees and housing loans). In 2011, the Algerian government amount to about 0.3 percent of GDP). However, as seen announced the creation of a postal bank that would work as in Figure 2.11 there are wide differences across countries, an agent and partner with an experienced lender based on and some schemes are too small to make any significant commission fee for the distribution and collection services. impact on SME lending. More importantly, the number of guarantees issued per year is very low by international The most critical challenges for the transformation of comparison, while the average value of guarantees seems postal financial services units into financial institutions relatively large. This suggests that guarantees are still concern governance and management, marketing and concentrated in a relatively limited segment of firms, and product development, and the efficient management human do not yet reach a significant number of smaller firms. resource and information systems.37 The outreach of MENA guarantees schemes, especially the Credit Guarantee Schemes for Small and smaller schemes, is expanding quickly, with annual growth Medium Enterprises rates ranging from 20 percent to more than 100 percent. This reflects the growing demand for SME finance as well Credit guarantee schemes are considered important tools to as increasing government support for such activities.39 provide access to finance by creditworthy firms when such access is constrained by insufficient credit information and CREDIT GROWTH IN THE MENA REGION collateral. During the pre-crisis years, MENA countries experienced Countries like Iraq, Jordan, Morocco, Saudi Arabia, Syria, rapid credit growth, peaking at an annual rate of 40 percent. and the UAE have established partial credit guarantee Eight MENA countries were in the midst of a credit boom schemes to offer finance to SMEs. Kafalat, the main around 2008, in the sense that the ratio of credit to GDP had provider of credit guarantees in Lebanon, was initially surpassed the historical trend by an extraordinary margin. started by the government and is now privately run. However, with the global chain of events unleashed by Figure 2.11: Outstanding Guarantees (US$ Million, 2009) 400 350 374 300 US$ Million 292 250 251 200 213 200 150 162 100 121 104 50 69 0.4 8 12 16 4 18 0 25 Iraq Jordan Palestine Saudi Arabia Egypt Tunisia Lebanon Morocco 2007 2009 Source: Roberto Rocha et al. “A Review of Credit Guarantee Schemes in the Middle East and North Africa Region,” The World Bank, 2010. Note: Data on Credit Guarantee schemes for SMEs is as of 2009 unless mentioned otherwise 14 s s s Arab Credit Reporting Guide the Lehman Brothers failure in September 2008, the is more subdued in non-GCC countries, growing by less available funds dried up. Both domestic and foreign trends than 3 percent annually.42 contributed to equally spectacular declines in the growth of credit, as seen in Figure 2.12. The average real credit 2.3 NONPERFORMING LOANS growth in MENA declined by about 17 percent. The rend MANAGEMENT was more pronounced among oil exporters (20 percent) and in the high-income GCC countries in particular (22%). Four MENA’s banking systems are generally well capitalized, countries offered an exception—Djibouti, Iraq, Lebanon, allowing them to weather the effects of global financial and Libya—as credit actually accelerated significantly.40 crisis. The recent political turmoil, however, is putting pressure on several non-GCC countries, especially those Figure 2.12: Credit Cliff directly affected by political uprisings. The banking 25 systems dominated by state banks were under greater pressure than other systems, given their larger volumes of 20 nonperforming loans and weaker financial conditions.43 15 Some of the GCC countries that witnessed high growth 10 prior to 2008 crisis were unable to escape the global downturn, which had a profound impact on local financial 5 markets. The UAE was hit the hardest by the crisis, largely due to a severe property crash and debt restructurings in the 0 MENA Average Non-GCC GCC commercial hub of Dubai. Saudi Arabian banks were shaken Pre-Lehman Post-Lehman Most Recent by the default of two major family-owned conglomerates (Sept 2004-Sept 2008) (Sept 2008-Most Recent) 12-Month and a rise in nonperforming loans.44 As shown in Figure Source: Adolfo Barajas and Ralph Chami, “As a Matter of Finance,” Finance and 2.13, the NPLs in MENA have since reduced except in Development, March 2013, Vol. 50, No. 1. https://www.imf.org/external/pubs/ft/fandd/ 2013/03/barajas.htm. Jordan, the UAE, and Yemen, where there is a steep rise between 2008 and 2012.45 There was a marked slowdown of funding sources, particularly deposits, which severely constrained banks’ In Egypt, the asset quality of some banks has deteriorated, ability to lend. For many MENA countries, the loan- and there may be further deterioration because of to-deposit ratio also fell from mid-2008 to early 2010, deferred installments and the Central Bank of Egypt’s with declines ranging from 2 to 13 percent. In addition debt rescheduling to support key sectors of the economy. to deteriorating macroeconomic conditions, declining However, the overall structure of portfolios is well domestic economic activity and falling oil prices also diversified without excessive concentration in specific played a role in reducing demand for credit.41 sectors.46 In other non-GCC countries like Algeria, Iraq, Libya, Tunisia, and Yemen, the NPL levels have been very More recently, credit growth has been picking up. high ranging from 10 to 27 percent, despite high rejection Nonetheless, it would take at least three years to return rates at preliminary scrutiny level. The NPL problem is to normal growth rates, in the range of 5 percent a year. concentrated in housing and commercial loan sectors. In Indeed, as of 2011 and early 2012, which is when the Jordan, the NPL ratio moved up from 4.1 percent in 2007 latest observations are available for various countries, to 6.7 percent in 2009 and 8.5 percent in 2011, as a result average credit growth in the region had declined by some of the global financial crisis affecting the activity of most 10 percent compared with the four-year period before 2008. economic sectors and, consequently, borrowers’ repayment The latest observed 12-month growth rate is approaching performance. The downturn has affected small banks to a 4 percent on an average. Partly owing to heightened greater extent than large banks. Small and medium banks uncertainty and disruptions in economic activity from the record NPLs above 10 percent, compared to NPL ratios 2011 uprisings and subsequent political transitions, credit between 6 percent and 9 percent among the top three banks.47 15 s s s 2. Overview of Credit Access in MENA Figure 2.13: NPLs in Some MENA Countries 30 25 20 Percentage 15 10 5 0 en n n n e t AE ria t ai da a no yp in m rd w ge st U Su Eg ba Ye Ku Jo le Al Le Pa 2008 2012 Source: “Credit Information Sharing Survey,” Arab Credit Reporting Initiative, 2013. There are pockets of weakness, such as the UAE, where borrowers but also for individual consumer loans and NPLs are still high. In Bahrain, a number of Islamic banks micro, small, and medium enterprises. have concentrated exposures to local and regional real estate markets.48 Insufficient suitable collateral is among the top reasons for difficulty in accessing finance. A common trend Regulators in most countries in the region have indicates that credit applications are mostly rejected due implemented diverse measures to support banks in difficult to insufficient collateral, either for being unacceptable or operating environments. In Lebanon, for instance, the unsuitable collateral. As illustrated by Table 2.2 below, 100 central bank has urged banks to make adequate provisions percent of individual loans and 90 to 95 percent of SME for their risk exposure to Syria and to run regular stress loans granted in MENA by financial institutions require tests. The Tunisian regulator implemented some measures some type of collateral with 110 to 300 percent collateral concerning the classification of doubtful loans. The value for individual loans.50 central bank introduced a moratorium on reclassification requirements for loans with late repayments by preventing In MENA, collateral-based lending is more often based banks from placing loans in the doubtful or nonperforming on the real estate than on movable collateral. The lending loan category even if repayments fell behind by more than based on movable collateral is limited to a few financing three months. The main effects of this measure were the mechanisms, such as vehicle finance, enterprise pledge, sector’s artificially low NPL ratio, which resulted in lower security interests in bank accounts and salaries, and, in provisioning and individual banks’ ability to tap larger some countries, company shares and natural resource amounts of liquidity injections by the central bank, using Table 2.2: Loans Requiring Collateral in MENA the non-reclassified loans as collateral.49 Applicants for Which Collateral/ Country Collateral is Required 2.4 COLLATERAL REQUIREMENTS (%) Loan Value (%) Jordan 95 – 100 110 – 120 Credit information and collateral are critical elements of Morocco 90 – 100 80 – 100 an effective credit system. Prevailing lending practices Libya 100 125 reveal that, while the primary focus is on the capacity to Oman 100 112 repay the loan, availability of collateral is also a crucial Qatar 100 250 to 300 condition of lending. MENA follows the global trend in Yemen - 130 this case. Collateral is required not only for large corporate Source: “Credit Information Sharing Survey,” Arab Credit Reporting Initiative, 2013. 16 s s s Arab Credit Reporting Guide extraction licenses. Vehicle financing is widely used in most rights in collateral and bankruptcy laws.54 Similarly, as MENA countries because, generally, vehicle registration is shown in Figure 2.14, 18 out of 19 economies score low well developed. Pledges for an entire enterprise are also (4 or less, out of 10) on the Legal Rights Index. Saudi possible in many countries, including Algeria, Morocco, Arabia scores the highest; Libya, Syria, and the West Bank the UAE, and the West Bank and Gaza. and Gaza have the lowest scores. Most of the countries in MENA have not introduced It is recommended that reforms be undertaken in MENA to secured transactions legal reforms and modern movable improve the secured transactions system, including: collateral registries. Egypt, Jordan, Lebanon, Morocco, n Improving the legal and regulatory frameworks based and the West Bank and Gaza, among others, are in the on standard international accepted practices; process of such reforms. Many countries have obsolete and fragmented secured transactions provisions governed by n Developing modern electronic collateral registries; different laws that have not been reformed in many years. n Promoting awareness about the concept of modern Although the majority of the banks take movable property secured transactions among the main public and private as collateral, loans secured only with movable collateral sector stakeholders. are not widely used because of the difficulty in enforcing security interests in movable property. Immovable property A reform of secured transactions systems in the region is therefore still used as the prevalent form of collateral, would help SMEs to expand their options for accessing and movable property is usually accepted as a secondary credit, using movable property as collateral. It would type of collateral to complement the immovable assets.51 incentivize banks and nonbanking financial companies to provide additional lending to SMEs. Regulators and The ineffective collateral system thus prevents banks the governments would also see potential benefits in from lending to the SMEs that have major investments implementing reforms in this area, which would contribute in movable assets. The microfinance sector faces similar to a more robust and transparent financial system.55 constraints insofar as it often does not make sense economically to execute collateral on a very small Figure 2.14: Number of Economies in Region with Each outstanding amount, especially if the costs of doing so are Score on Strength of Legal Rights Index (0-10) relatively high. Microfinance providers are also forced to 8 rely on the lending of solidarity groups against collaterals 7 to individual borrowers; this is not feasible due to higher 7 pricing, paperwork and delays.52 6 6 Number of Economies 5 The problem of collateral based lending does not only lie in the inavailability of collateral, but it is also the inability 4 to translate valuable assets into productive use. As a result, 3 low income customers, SMEs, microenterprise clients, and 3 many otherwise creditworthy individuals and entrepreneurs 2 2 are excluded from access to finance. 53 1 1 The World Bank’s 2013 (and 2014) Doing Business Report 0 1 2 3 4 5 illustrates that MENA lags behind the rest of the world in Index Score terms of firms’ access to private credit and in the robustness Source: “Doing Business 2013: MENA Region,” The World Bank, 2013. of secured transactions systems. MENA scores lowest (3.1) as against the average score of other regions (6). One important criterion is the lack of borrowers and lenders’ 17 s s s 2. Overview of Credit Access in MENA 2.5 OVER-INDEBTEDNESS associations and banks to address and control the problem of over-indebtedness. In Morocco, the setting up of the The problem of over-indebtedness in MENA is most credit bureau Experian Maroc Services, in October 2009, apparent in the microfinance sector. During the years of integrated microfinance institution borrowers’ information rapid growth, from early 2000 to 2008, the microfinance into the credit bureau; likewise the inclusion of MFI data sector enjoyed a reputation for strong asset quality by I-Score in Egypt suggested the benefits of information and low delinquency rates. Over the past three to four sharing.56 years, however, the quality of microfinance portfolios deteriorated worldwide, with increasing portfolios at risk values. Several factors contributed to this deterioration, 2.6 ACCESS TO FINANCE such as inadequate risk-management systems and controls, Access to finance is an essential component to economic internal organization weaknesses, excessive growth in development and employment creation in any country. narrow geographies, and unhealthy lending practices that Despite tremendous needs, a large proportion of the world’s affected borrower repayment behavior. All these factors population does not have access to finance. In developed resulted in over-indebtedness, as witnessed in countries economies, approximately 90 percent of adults have access like Egypt and Morocco. to formal financial services, compared with 41 percent in emerging markets. Most people in emerging markets Morocco’s microfinance sector was the regional leader with are employed in the informal sector. As a result, they do the total loan portfolio multiplying 11-fold between 2004 not have sufficient income documentation or acceptable and 2007. However, in 2007, some signs of stress, such collateral to secure credit. Access to finance is also hindered as clients’ over-indebtedness and loan delinquency, started by the dearth of sufficient information to assess repayment to emerge. As a result of the concentration of microcredit capacity of potential borrowers or the lack of financial loans and multiple lending in urban areas, NPLs started infastructure that would make such information available. to rise significantly from one of the lowest levels of the As of 2012, the total unmet need for credit globally by all world, 0.42 percent in 2003 to 1.9 percent in 2007. The formal and informal micro, small, and medium enterprises sharp rise in NPLs took place in 2008 and, in turn, affected in emerging markets was $2.1 trillion to $2.5 trillion.57 all microfinance institutions. Portfolios at risk (for 30 days or more) increased significantly to 5 percent in December Large segments of household and enterprise sectors remain 2008 and reached an alarming level of 10 percent in June deprived of credit because MENA’s financial systems are 2009. A study conducted by the central bank estimated that not inclusive. Banking systems may be large and generally 40 percent of microcredit beneficiaries had more than one well capitalized, but the region also has the highest loan loan. The problem was particularly acute in urban areas. concentration ratios in the world, reflecting the focus of banks on large and well-connected enterprises. A large The Egyptian microfinance market started facing a similar share of the population does not have access to financial situation with rising portfolios. A cross tabulation analysis services, especially in remote areas. Most of the people in of portfolios of the three largest microfinance institutions, the MENA region resort to informal sources of financing, conducted by the IFC and the Egyptian credit bureau such as family and friends. The small and medium - I-Score revealed, that 14 percent (or nearly 50,000) enterprises sector also relies on internal resources or higher microfinance institution clients were granted multiple loans priced informal sources to finance their requirements; their by the banks; around 13,000 clients had opened multiple growth has been affected by the lack of alternatives, such credit lines from different microfinance institutions. Thus, as equity, leasing, and factoring.58 multiple lending to the same clients was an aggravating factor that led to a problem over-indebtedness in Egypt. As seen in Figure 2.15, outstanding loan as percentage of GDP is the highest in Lebanon and the lowest in Sudan. Various measures undertaken by regulatory authorities indicated steps forward that helped microcredit 18 s s s Arab Credit Reporting Guide Figure 2.15: Outstanding Loans as % of GDP in Select Globally the Islamic financial industry is growing rapidly MENA Countries because it caters to the financial needs of individuals who 120 are not willing to use conventional banking services as they 100 conflict with their religious values. Consequently, Islamic banking can contribute to increase banking penetration and Percentage 80 60 intermediation to some extent. In addition, the development 40 of Islamic banking can facilitate access to funding sources for corporates and sovereigns in the region, as it can help 20 the local economies to mobilize long-term savings and 0 n t an it on r n investments from Islamic investors.61 ria ai yp e a da E ge hr rd wa an lest in at UA Al Ba Eg Jo Ku b Q Su Le P a HOUSING FINANCE BANKING SECTOR MENA lags behind other regions in providing available The majority of external financing is provided by banks. market resources for housing. The lack of access to housing While asset-to-GDP ratios are high, financial inclusion is finance is reflected in the low share of mortgage loans still relatively low in MENA; only 18 percent of adults (10 percent, as of 2010) in loan portfolios and shortage of report having a formal account, as seen in Figure 2.16. The dwelling units.62 countries in the region have fairly good coverage of bank branches. Local populations in rural areas, however, still Residential housing finance has started to develop only face problems with access to financial services as bank recently in MENA. As seen in Figure 2.17, Kuwait, branches are mainly clustered in urban areas.59 Morocco, Tunisia, and the UAE have made progress; Lebanese and Jordanian markets have potential for The banking sector is highly concentrated geographically growth. Several countries in the region are at an earlier and competitively. A significant share of bank lending stage of market development because of direct financing is used to finance public sector activity, limiting the by the government and the industry’s over reliance on availability of debt financing for private enterprises. non-residential real estate lending. GCC countries have Moreover, high collateral requirements are imposed on met housing needs to a large extent through subsidized private sector bank loans and lines of credit, which, in turn, government loans to nationals. However, these programs have a negative impact on enterprise development. As a frequently involve waiting lists or rationing and often result, the MENA region has the lowest percentage of firms using banks to finance their investments.60 Figure 2.17: Housing Loans as % GDP End 2009 Figures (2008 for Egypt, Oman) 18 Figure 2.16: Account Penetration 16 Adults with an Account at a Formal Financial Institution (%) 14 12 Percentage 89 Global 10 Average 50% 8 55 45 6 39 33 4 24 18 2 0 High-Income East Asia Europe & Latin South Sub- Middle East t ia * A Economies & Pacific Central Asia America & Asia Saharan & North yp er an a KS n co an BG t M ** ai Eg si no g Al AE Africa rd Caribbean Africa oc m ni w ba W Jo Ku O Tu ar U Le Source: Asli Demirguc-Kunt Leora Klapper. “Measuring Financial Inclusion”. The Global Findex Database, 2012 *World Bank estimation for West Bank & Gaza **All mortgage lending Source: Hassler, 2011. 19 s s s 2. Overview of Credit Access in MENA poorly target those in need of housing. Non-residential real Figure 2.18: The Sate of Microfinance in the Arab Region– estate lending is significant in some countries, however, Outreach and Scale (2010) this mode of real estate lending meets the needs of only 9,000,000 45,000 large enterprises and households. The affordable housing 8,000,000 40,000 shortage in MENA affects the living conditions of a large 7,000,000 35,000 portion of the lower- and middle-income population and, in 6,000,000 30,000 turn, impacts access of this segment to housing finance. In 5,000,000 25,000 Saudi Arabi, there is a shortage of about 150,000 units, and 4,000,000 20,000 in Egypt approximately 280,000. 3,000,000 15,000 2,000,000 10,000 A well-functioning mortgage finance system would 1,000,000 5,000 improve access and mitigate the risks associated with real 0 0 estate lending. Weaknesses in the mortgage system have ... a d n E fic a d ica a ia tra pe th nd Ea e P nd ric si ric As e i en ro ac or a lA an er th a a Th Af Af C u N st Am h hindered housing finance growth in the region. With the si ut Ea tA So tin an ter e s dl La exception of countries like Algeria, Egypt, and Saudi Ea s id M Arabia—which have designed strategies to establish Gross Loan Portfolio Number of Active Borrowers secure mortgage systems and improve access for lower- Source: Ranya Abdel-Baki, “Challenges to the Development of Microfinance in the Arab income groups—reforming the mortage finance system is a World,” AGFUND/OFID Symposium, Vienna, Austria. June 2012. challenging task for other countries in the region.63 Figure 2.19: Leasing Volumes as a Percentage of GDP in Selected World Regions MICROFINANCE 4 The microfinance landscape in MENA is changing with Percentage of GDP 3 continued growth in outreach, portfolio, and product 2 diversification. Penetration is quite low in most countries, however, and the region only meets a fraction of potential 1 borrowers. As of 2009, the coverage ratio of specialized MENA microfinance providers was only 1.8 percent. In terms 0 of median outreach and scale, the MENA region remains lA e pe an h- ica Am un e ia th eric ies pe a e C tion a dl Cou on ut il N st l ul rth and f C arib nd tra op Ea nci tin Co com oo fric op si So nc As oo be ti r tr G eC aa en r f ra ou ra ur average compared to its global peers as seen in Figure 2.18. A C Eu A h in lE d rn tra o ig an ste e Measured by the ratios of microcredit loans to GDP and fC H en Ea id C ul M G La especially to total bank credit, microcredit in MENA is small and undeveloped compared with other regions.64 Note: Data are from 2008 or latest year available. Source: World Bank staff compliation based on data from Euromoney. Rocha et al, 2011. Most microfinance institutions in MENA are unable regions. Although the dominant lessors are banks and bank- to leverage local debt due to the restrictive regulatory related institutions, less than 30 percent of MENA banks frameworks, as they are registered as nongovernmental offer leasing products to their clients. The leasing market organizations, reliant on grants for funding. The problem is penetration rates are low by international comparison. As more with tier two and three microfinance institutions. The of 2009, the average penetration rate of the MENA region lack of effective internal policies and weak governance was about 3.6 percent, while the equivalent ratio was are also responsible for the microfinance sector’s arrested about 12 percent in Central Europe, 6 percent in developed growth in MENA.65 countries, and 5 percent in Latin America.66 The absence of specific leasing legislation frequently leads LEASING to ambiguous roles and responsibilities of the parties to As seen in Figure 2.19, the percentage of financial leasing a lease; many legal issues remain unaddressed. A sound to total credit in MENA is very low in relation to other legal framework for leasing requires a specialized leasing 20 s s s Arab Credit Reporting Guide law and appropriate provisions in other laws addressing MENA enterprises seem to face more restricted access to a number of critical elements that would affect leasing all external sources of finance. They generally make less activity in the region.67 use of banks or other formal sources of finance and rely more on internal sources, which account for 85 percent of LENDING TO SMALL AND MEDIUM investment finance among small and medium enterprises ENTERPRISES and 75 percent among large enterprises.70 The role of small and medium enterprises is widely The financial and economic crisis has reinforced the recognized as they account for large shares of total output difficulties of supporting enterprise development through and employment of a country; thus SMEs play a key role in bank loans. A 2010 IMF study notes a credit deceleration a given country’s economic development. in MENA by nearly 30 percentage points since mid-2008.71 In the World Bank’s 2011 Enterprise Surveys, the MENA Small and medium enterprises are often hit particularly region had the lowest percentage of firms with credit hard by weak banking intermediation levels. This is lines or loans from financial institutions (25.07 percent), because bank lending, by and large, is restricted to large compared to Eastern Europe and Central Asia (56.92 corporate customers or government debts. In Egypt, percent) and South Asia (45.02 percent), as shown in Jordan, and Lebanon, the exposure of the local banking Figure 2.20. Based on the same study, only 16.4 percent of sectors to their respective governments is particularly firms in MENA were using banks to finance investments, high. According to the World Bank Enterprise Surveys, the lowest compared to other regions. About 34 percent of small firms consider access to finance a major obstacle firms identified access to finance as a major constraint to in the business environment—25 percent in Jordan, more economic activities.68 than 40 percent in Morocco and Egypt, and more than 50 percent in Algeria. The major constraining factors are less As of 2010, the majority of enterprises in MENA were transparency on the part of SMEs, higher transaction costs micro, small, and medium enterprises, constituting 19 for banks, and collateral requirements (see Table 2.3). million to 23 million (formal and informal) enterprises and Underdeveloped credit registries as well as the lack of well- comprising 80 percent to 90 percent of total businesses in functioning collateral registries aggravate the problem. most countries. Access to finance was one of the greatest In some countries, notably Tunisia, bank financing of challenges of MSMEs across the globe, and particularly for the private sector is additionally constrained by caps on the MENA region where nearly 63 percent of the MSMEs lending rates.72 did not have access to finance. The total financing gap for MSMEs was estimated from $210 billion to $240 billion Microfinancial institutions are not a strong enough option (of which formal MSME finance gap is estimated at $160 for small and medium enterprises to access finance. The billion to $180 billion).69 microfinance sector in MENA is less developed, and its Figure 2.20: Access to a Line of Credit or Loans from Table 2.3: Loans to Firms Requiring Collateral Financial Institutions (% of Firms) Loans to Firms Requiring 60 Country Collateral (%) 50 56.9 55 Algeria 79 40 45 Percentage Egypt 84.4 30 37.5 Jordan 97.6 20 25.1 Lebanon 67.5 10 Morocco 90 0 Oman 73.8 Eastern Europe Latin America South Asia Sub-Saharan Middle East & & Central Asia & Caribbean Africa North Africa West Bank/Gaza 84.5 Source: Hafid Oubrik, “Importance of Financial Infrastructure to Increase Access to Finance,” Source: Hafid Oubrik, “Importance of Financial Infrastructure to Increase Access to Finance,” Arab Monetary Fund, 2013. Arab Monetary Fund, 2013. 21 s s s 2. Overview of Credit Access in MENA lending is more conservative than in other areas of the and bank accounts can be a gateway to the use of additional world. As a consequence, the percentage of MFI-financed financial services. Women entrepreneurs and employers, micro enterprises is 34.1 percent, compared to 56.5 percent however, face significantly greater challenges than men in in the rest of the world. Also considering the small amounts gaining access to financial services.75 of MFI loans, SMEs may still need to look for additional financing elsewhere.73 A World Bank survey in 2009 found that the gender barrier is not an obstacle for accessing in MENA countries, Relative to other regions, the financial infrastructure with the exception of Yemen. This is good news for well and regulatory framework in the Arab countries is weak. established firms. The situation is different in small or As shown in Table 2.4 the MENA region scored lowest start-up firms where female entrepreneurs face gender- strength on the legal rights index, although the depth of specific difficulties in seeking finance to start and expand credit information is ahead of other developing regions their businesses. such as Sub-Saharan Africa or South Asia. A survey conducted by IFC in 2010 revealed that: The following recommendations are made to enhance n Women entrepreneurs in the five MENA countries access to finance by small and medium enterprises: (Bahrain, Jordan, Lebanon, Tunisia, and the UAE) n Develop country specific strategies; reported that access to finance is a major constraint; n Develop a supporting legal and regulatory framework; n About 50 percent to 75 percent women surveyed had sought loans but did not receive them (Bahrain, n Strengthen financial infrastructure; 56 percent; Lebanon, 51 percent; Tunisia, 76 percent; n Advance effective government support mechanisms; the UAE, 62 percent); n Promote female entrepreneurship.74 n Significant number of women who did seek external financing over the past 12 months reported that they ACCESS TO FINANCE FOR WOMEN encountered difficulties (about 50 percent in Tunisia, Jordan and the UAE; 29 percent in Bahrain and More than one-third of small and medium enterprises in the Lebanon); developing world are owned or partly-owned by women; 40 percent of the global workforce is female. Access to n Less than one-third of the women surveyed had bank finance can open up economic opportunities for women, credit; 44 percent of women are financing the growth Table 2.4: Regional Comparison for Getting Credit indicators, Doing Business — 2013 Strength of Legal Depth of Credit Public Registry Private Bureau Region Rights Index Information Index Coverage Coverage (0-10) (0-6) (% of Adults) (% of Adults) East Asia and the Pacific 7 2 9.1 19.2 Eastern Europe and 7 5 17.3 29.8 Central Asia Latin America and 6 3 11.1 33.8 the Caribbean OECD High Income 7 5 10.2 67.4 South Asia 6 3 2.7 6.4 Sub-Saharan Africa 6 2 4.2 5.6 Middle East and 3 4 8.6 9.7 North Africa Source: Jose Antonio Pedrosa-Garcia, “Access to Finance by SMEs in Arab Region: Policy Considerations,” Economic and Social Commission for Western Asia (ESCWA), E/ESCWA/ EDGD/2013/WP.1, August 6, 2013. 22 s s s Arab Credit Reporting Guide of their businesses through personal savings, investment 2.7 CONCLUSIONS from private sources such as family and friends, and the retained earnings in business. The difficulties in n The process of political change and transition in MENA seeking finance include high interest rates, insistence on has continued into 2013 and 2014. The success of collateral, lack of track record, and the lack of products transitions will depend largely on the ability of new or services tailored for women.76 governments to deliver significant improvements in the lives of their citizens. As shown in Figure 2.21, the percentage of unserved n Access to finance is limited as the banking sector women entrepreneurs in MENA is 18–35 percent. accounts for the bulk share in the financial system. Financing is concentrated and lacks competition from Microfinance has increased women’s access to finance. capital markets and nonbanking finance companies. The number of women reached by microfinance has grown exponentially from 10.3 million in 1999 to nearly n The lack of access to finance has been one of the reasons 69 million in 2005, an increase of 520 percent. However, for the minor contribution of SMEs to the economy, the problem of access to finance is particularly acute for including job creation, as such enterprises’ growth has women when the growth and start-up needs of business been hindered by dearth of alternatives, such as equity, go beyond microloans—for those who want to start new leasing, and factoring institutions because of their micro, small, or medium enterprises.77 slower growth and insignificant contributions. n Effective use of credit information systems will help A targeted approach is needed to improve the financing various players in the credit industry across the region to for women entrepreneurs. Recommendations to increase increase access to finance as well as reduce the problem women’s access to finance include: the provision of tailored of nonperforming loans. financial services and products by banks; the creation of credit guarantee schemes for target groups; and programs to n Among the major constraints preventing faster growth improve women’s financial and entrepreneurial literacy.78 of financial markets in MENA are the absence or gaps in legislation along with weak supervision and enforcement. Figure 2.21: Credit Needs and Access for Formal SMEs with at Least One Female Owner by Region (Percent) Very Small Small Medium 6-7 7-8 Sub-Saharon Africa 55-67 18-22 12-14 49-59 17-21 18-22 24-30 33-40 15-18 19-22 8-10 East Asia 53-65 23-29 27-33 25-28 12-15 28-34 21-25 31-38 17-21 21-25 5-6 South Asia 21-25 11-1413-16 45-55 17-21 13-16 14-18 46-56 27-32 21-25 10-13 32-39 Middle East and 10-12 18-22 36-44 26-31 29-35 27-33 7-9 27-33 19-24 46-56 9-11 16-20 North Africa Central Asia and 17-21 35-43 13-16 24-30 24-30 31-37 13-15 23-28 11-13 43-53 19-23 17-20 Eastern Europe 10-12 Latin America 14-17 43-53 15-18 18-22 11-13 55-68 14-17 4 52-75 14-17 11-13 Unserved Underserved Well-served Do Not Need Credit Source: “Strengthening Access to Finance for Women-Owned SMEs in Developing Countries,” IFC, 2011. 23 s s s RISK MANAGEMENT IN MENA 3 Well-functioning financial systems offer multiple products institutions. It is important for the financial institutions to and services such as savings, credit, payment, and risk- manage their credit risks in different business cycles and management tools to people with a wide range of needs. environments, as it would help them to alleviate crisis and They are important in achieving sustained economic maintain sustainability and stability. growth and stability. Risk-management tools are designed to improve the Financial infrastructure (including institutions, information, speed and efficiency of credit decision making. Such tools technologies, rules, laws, and standards) is the underlying become extremely vital with growing business volumes. foundation of a financial system, as it enables financial Raw information alone is insufficient unless backed up by intermediation. With efficient and reliable financial other modular strategies and new tools, like the introduction infrastructure, the cost of intermediation falls, the financial of statistical models for consumer credit underwriting products and services become accessible to a greater purposes, advanced techniques of portfolio monitoring, number of citizens and the lenders; investors have greater and collection strategies, in a fully automated environment. confidence in their ability to evaluate and guard against credit risk.79 Despite considerable progress, most banks in the region still lack the sophisticated risk-management functions that One of the important criteria of a sound financial system are appropriate for rapidly evolving risk profiles. Basic is inclusion, which is becoming an important priority for tools, such as application scoring, are almost absent in governments around the world. Although most MENA MENA; behavioral scoring, small business scoring, and countries have taken steps to improve financial inclusion portfolio monitoring have yet to be implemented. Although in the past few years, inclusion is still weak due to the low some countries such as Egypt, Oman, Qatar, Saudi Arabia, level of commitments across the region. Expanding access and West Bank and Gaza have introduced some forms to finance is still a costly and risky affair for the banks, of credit scoring, these are basic models, few in number, as there are deficiencies in the financial infrastructure and sporadically used. regulatory frameworks. Lending is still based on physical collateral that is expensive to register and may not be Many regulators in the region have revised or introduced readily enforceable (let alone readily available). As a result, more rigorous management of risk and internal controls, financial institutions rely on outdated credit assessment partly as a consequence of the Basel II Framework. and risk-management techniques.80 Several banks have recently established risk-management functions and are in the process of building systems and Prudent lending and effective credit risk management monitoring processes. But the degree of integration and is essential to optimize the performance of financial pace of development varies considerably. Generally, larger 25 s s s 3. Risk Management in MENA and privately-owned banks have progressed more than turnaround time. The decision-making process is generally the smaller and publicly-owned banks, which remain at long, manual, and subjective; it requires excessive early stages of development. Through their know-how participation of human resources, notably officers and of advanced processing techniques and risk-management credit committees.85 tools, foreign banks play an important role in upgrading MENA’s credit industry 81 As part of the Arab Credit Reporting Initiative (ACRI), an assessment was done by ACRI team of selected SMALL AND MEDIUM ENTERPRISE MENA countries between 2009 and 2012 to promote the LENDING development of credit information systems in the MENA region. The key findings were: Considering the different types of banks in the region, the role of both state-owned and private banks is crucial. n Credit underwriting procedures are generally marked Importantly, state-owned banks in MENA provide finance by long decisional chains, centralized decision making, to small and medium enterprises, with an average share of paper storages, high operational costs, inefficiencies, SME lending similar to that of private banks. Nevertheless, conventional credit-granting techniques, crowded there are differences in state bank practices; in spite of credit decision committees, and lack of reliable credit less developed lending technologies and risk-management information. systems, state banks take greater risks than private banks in n Credit scoring is not systematically in use. Banks still their SME lending business. They are less selective in their do not have a thorough understanding of this tool and its strategies; they have a lower ratio of collateralized loans benefits. and a higher share of investment lending to SMEs. Very n Scoring models, when used, are mainly internally few state banks have dedicated SME units that utilize credit developed with the utilization of the lenders’ own data; scoring or conduct stress tests.82 This, at times, has resulted models by international scoring consultancy companies in poor financial results, including higher nonperforming have not yet been systematically introduced. In the UAE, loans, higher levels of loan loss provisioning, and, for example, application scoring is used by most of the ultimately, lower profitability.83 financial institutions, though generally built internally There is a need to build the capacity of financial and not by international specialists. intermediaries in MENA, especially banks, which are n Unexplored areas include portfolio monitoring, portfolio the dominant financial institutions. This will include management strategies, and advanced collection developing market segmentation strategies and tailoring strategies. lending products. Equally important is marketing, screening SMEs, and developing growth strategies and n All banks receive information from a CR but often portfolio risk management. The banks need help to turn through manually triggered inquiries. A fair, standard around SME loans, develop risk-management tools, and level of centralization and automation still needs to be improve governance and credit information systems.84 achieved particularly forging the automated link with external databases. INDIVIDUAL LENDING n Interest rates are not personalized and not based on the risk profile of individuals; only large businesses or V.I.P. Fully Automated Application Processing Systems, individual customers are able to negotiate rates. operating automated scorecards and online real-time inquiry to CBs or CRs, are generally not present or not n The credit system in all the MENA countries relies on fully implemented, even by major banks in the region. collateral, which is considered an unfailing, general This situation, coupled with the sporadic presence of prerequisite for the disbursement of loans by all banks credit scoring models, limits the possibility of offering (and even microfinance institutions). instant credit; it leads to increasing the load of manual n Unsecured credit is rare, even in the case of personal work, the rising cost of credit transactions, and a slow and consumer loans. Underwriting processes seem to 26 s s s Arab Credit Reporting Guide focus more on the correct evaluation of collateral rather provided full documentation. In Yemen, for instance, than of customers’ risk. Countries that insist on heavy lenders may take between one to one-hundred and collaterals are Jordan, Libya, Morocco, Oman, Qatar, eighty days to approve or reject a loan; in Lebanon, one and Yemen (as shown in Table 2.2, Chapter 2). to forty-five days; in Syria two to fifteen days; in Jordan, one to fifteen days; in Libya one to thirty days; in the Behavioral scoring models and automated account n West Bank and Gaza, one to twenty-one days. Instant management systems have yet to be introduced. credit is not available in any MENA country.87 In Morocco, small ticket lending is generally delegated n to the nonbanking financial institutions, which belong In order to ensure effective credit risk management, to the same banking group, and seem better equipped MENA’s financial institutions, especially banks, will have to manage consumer credit risk. NBFIs also have better to undertake the following measures: appreciation of scoring. In case of consumer finance, n Review underwriting procedures, strategies, and their approvals and rejections are generally faster than systems; those of the banks. In Morocco, the lenders make an inquiry with the credit bureau for each new applicant n Introduce more sophisticated risk-management or loan request. The number of credit reports sometimes techniques in all the phases of credit cycle, from pre- reaches 120 percent over the received applications; acquisition to collection; credit reports are also requested for guarantors, line n Revise strategies, procedures, credit policies, and renewals, collections, etc. commercial policies; In countries like Algeria, Iraq, Libya, Mauritania, n n Train staff and familiarize them with policy changes; Morocco, Syria, Tunisia, the UAE, and Yemen, the overall rejection rate is likely much higher than officially n Launch new products; registered. This is because many applicants do not reach n Switch gradually from lending secured by immovable the application stage, but are rejected by the branch assets to lending secured by movable assets and to before underwriting procedures even begin.86 unsecured lending. Credit underwriting is generally a long process,it can n Regulators should ensure effective implementation of vary from two to thirty days, depending on the products, these measures in order to modernize the credit industry in markets, and lenders. This lag time even occurs in MENA, and the lending industry should invest in internal leading banks. At times, there is an inordinate delay in training programs. The above issues can be addressed by the loan processing, as the documentation required is very combined initiative of central banks, lenders associations cumbersome, which puts a burden on the borrower. (including banking associations and microfinance Similarly, in exceptional cases, lenders take much longer institutions), credit registries, and credit bureaus. to approve or reject a loan, even after the applicant has 27 s s s INTRODUCTION TO CREDIT REPORTING 4 A strong and sustainable framework for risk management effectively judge borrowers’ credit worthiness—the is vital because of the increasing complexities in financial capacity or the probability of repaying loans. The problem infrastructure and dynamism of markets. The financial can be described as asymmetric information insofar as crisis in 2008, which had a direct impact on a large number borrowers know the odds of repaying debts much better of countries, has heightened the need for effective risk than lenders.89 Thus, lenders are unable to effectively assess mitigation. This is especially the case for ever-expanding the risk profile of potential borrowers; in many countries, credit and lending markets that span across regions. this leads to high rejection rates, high interest rates, and Simple, objective, and effective risk assessment practices requirements for collateral. Also, once a loan is obtained, are needed. In developed countries, established and borrowers have a greater incentive to default when the mature credit markets ensure stability and sustainability. anticipated consequences are low.90 This explains the high The nascent and growing credit markets in developing default rates, which result in risk-averse lenders and strict countries must learn from past errors. Developing countries policy guidelines regarding the profile of borrowers. This must incorporate best practices for lending by building into hinders access to credit, as lenders only cater to a segment their systems effective tools and techniques for assessing of the population. borrowers’ risk. By making available detailed information about the Credit reporting has developed worldwide because it indebtedness of credit applicants and their payment history, is a necessary form of underwriting and risk assessment a well established credit reporting system can address practice; it benefits both lenders and borrowers. Studies the aforementioned problems. This reduces information have shown that information sharing leads to efficient asymmetry, allowing banks to price risk properly and allocation of credit through better risk evaluation. Thus, reward conscientious borrowers with cheaper credit.91 the foundation of modern risk management is information Access to information is critical for financial markets to sharing among lenders regarding borrowers’ past credit function smoothly, enabling lenders to evaluate risk and experience.88 price financial products accordingly.92 4.1 ACCESS TO INFORMATION AND WHAT IS CREDIT REPORTING?93 CREDIT REPORTING The term credit reporting is defined as the process of Only borrowers have complete information about credit gathering, sharing, and distributing information about the facilities across institutions. Lenders, for the purpose performance of financial relationships. These relationships of assessing credit applications, lack information about are typically between lenders and customers; in the case of borrowers’ outstanding debts. Therefore, lenders cannot business finance, such relationships may also incorporate 29 s s s 4. Introduction to Credit Reporting the provision of trade credit. Credit reporting enables almost entirely of information provided by banks (agreed lenders to make informed decisions about potential facility, current exposure, repayment status, etc.); access borrowers based on their total outstanding debts in the to this data is usually restricted. Some credit registries credit market and their payment history. have evolved and now distribute information to banks via simple credit reports. The principal objective of most credit Credit reporting systems (CRS) are a critical element registries is to monitor and supervise the risk exposure of of a country’s financial infrastructure and are essential the lenders themselves (systemic risk). As a result, a credit to facilitating access to financial services. CRS ensure registry tends to collect very detailed information on large financial stability by enabling responsible access to finance; corporate transactions, but less information (if any) on they can also play an instrumental role in expanding access smaller corporate and consumer loans. to credit to the underserved and unbanked. Credit bureaus are sometimes called credit reference CRS comprise of the institutions, individuals, procedures, agencies; they are either commercial businesses operating rules, standards, and technologies that enable information in the private sector or industry associations owned by flows relevant to credit and loan decision making. members (for example banks, which collate and manage An effective system provides lenders with objective data about individuals and/or businesses). These databases information that allows them to reduce portfolio risk, are then accessed by subscribers to the credit bureau lower transaction costs, and expand lending portfolios. using a data sharing methodology called the principle of Consequently, CRS enable lenders to expand access to reciprocity. creditworthy borrowers, including individuals with thin credit files, microentrepreneurs, and small and medium Contributing information and accessing data from a credit enterprises. bureau is normally conducted on a voluntary basis. Credit bureaus are typically administered by rules agreed upon by The credit information cycle begins with collecting, all members (documented as either a subscriber agreement storing, and processing data; then, the information is and/or a code of conduct). Members pay an annual dissiminated to support credit-granting decisions and membership fee and then transaction fees as and when they financial supervision. This process involves a number of use the various services provided. actors, including: individuals, micro, small and medium enterprises, credit reporting service providers, data Credit bureaus feature a mix of credit performance providers, users, authorities, regulators, and overseers. information (both positive and negative data) provided Active participation by each of these stakeholders is by the members, including banks, financial companies, critical to ensuring the effectiveness of the credit reporting and microfinance institutions, as well as retailers, utility system, especially the credit reporting service providers companies, and other commercial credit providers. Data (CRSPs), which are the enabling mechanisms for credit from other public sources, such as the courts, may also be information exchange. collected and distributed. Generally speaking CRSPs fall into three broad categories: Credit bureaus have the capacity and technical know- how to provide a range of value-added services, such as n Credit registries; credit scores, portfolio monitoring services, systems for n Credit bureaus; fraud alerts, and more. These are tools for advanced risk n Public-private credit reporting service providers. management that enable lenders to undertake objective and informed decisions about credit applicants. Credit registries are usually public sector institutions, typically managed by central banks. Credit registries are Both credit registries and credit bureaus are important usually created for supervisory purposes rather than for aspects of CRS. Since both CRs and CBs collect payment information sharing. The databases themselves consist history data, sometimes they are viewed as substitutes for 30 s s s Arab Credit Reporting Guide one another. In fact, they play complementary roles in n Improving access to credit for individuals and small supporting the credit industry. Research has shown that businesses; there are important differences between the two, that CRs can supplement the role of CBs. Table 4.1 below gives an n Helping to quantify risk; overview of the characteristics and functions of the two n Improving the quality and fairness of lending decisions; entities.94 n Improving the efficiency of decision-making processes; The third category of CRSPs is the public-private credit n Encouraging competition in the marketplace; reporting service provider, a hybrid model based on a n Preventing over-indebtedness; partnership between the public and private sectors. The public sector plays a significant role in developing the n Preventing delinquencies and defaults.95 infrastructure and process for credit information collection and sharing. Central banks, in their capacity as regulatory There is a variety of ways to build an appropriate credit- and monitoring bodies for financial institutions, are well reporting infrastructure that is customized to local market placed to steer required legal reforms, building awareness conditions. The key question is whether this role should about the benefits of information sharing among financial be undertaken within the public sector (CR) or within the institutions. private sector (CB).96 In an ideal situation, both systems would be sufficiently developed and supported in order to NEEDS, BENEFITS, AND QUALITY OF function effectively. Finding the right balance and support CREDIT REPORTING infrastructure is key to ensuring the effectiveness and efficiency of credit markets systems. Credit reporting, either in the form of CRs or CBs, has evolved worldwide in recent decades. The exchange of To realize the benefits of a CRS, it is important to ensure credit histories has been formalized, which reduces the that information shared is within a defined framework that cost of assessing borrower risk. Credit reporting systems ensures quality data and adequate protections. Full-file, generate benefits to lenders and consumers and increase comprehensive credit reporting significantly improves economic activity. Broadly, the development of a credit the effectiveness of risk evaluation in consumer lending. reporting infrastructure is seen as an important means of: Fragmented information, on the other hand, can invalidate n Decreasing information irregularities between borrowers credit reporting; without a complete view of the risk and lenders; and probability of default, lenders are not able to make informed decisions. Table 4.1: Key Characteristics and Functions Public Credit Registry Private Credit Bureau Ownership Central bank/supervisory authority Private enterprises Data Objective System supervision, monetary policy Pure information services Type of Data Commercial, corporate, SME loans Consumer credit, SMF, microcredit Contributors Banks and other regulated credit and Banks, retailers, credit cards, utilities, telcos, MFIs, financial entities regulated and not Contribution Compulsory, regulated by bank’s law Voluntary (but can be mandatory) Ticket Size Large (thres holds on low amounts) Micro, small, medium Access Restricted (aggregated data only) Open on “reciprocity” principle End Users Regulated entities (no consumers) All contributors (yes consumers) Data Accuracy Controlled by supervisor Regulated by Code of conduct Consumers’ Low-borrowers not always are granted High-borrowers have access/rights and may challenge Protection rights on own data own wrong data Source: Madeddu, 2010. 31 s s s 4. Introduction to Credit Reporting A robust CRS has the following components: n Authorities: Promote credit reporting systems that are efficient and effective by satisfying the needs of various n An enabling legal and regulatory framework: Most participants, supporting consumer data rights, and importantly it should allow for sharing of credit data developing fair and competitive credit markets. between banks and nonbanks; give consumers the right to review their data; challenge erroneous entries; and settle complaints outside of the judicial system. GENERAL PRINCIPLES OF CREDIT REPORTING n A properly structured information sharing system, which strikes a balance between the functions of the Given the importance and need for building credit central bank and private service providers. Other reporting infrastructure, the World Bank has established essential elements are a committed technical provider, General Principles of Credit Reporting, March 2011, to the provision of positive and negative information, and systematically guide various stakeholders in addressing an active expansionary vision. the challenges associated with the development and day- to-day operation and improvement of these systems. To n Quality of data sharing: Complete, full-file, and fill this critical gap, the World Bank launched the Credit comprehensive sharing from traditional sources such as Reporting Standards Setting Task Force with the support of banks, nonbank institutions, microfinance institutions, the Bank for International Settlements, aiming to provide and nontraditional sources, such as retailers, utilities, a core set of general principles to steer these efforts in any etc. given jurisdiction. n An informed public: The relevant laws and regulations pertaining to the credit bureau’s operation must be made The general principles are intended for credit reporting available so that individuals can understand their rights data providers, credit reporting service providers, financial and obligations. supervisors, policymakers, regulators, and users of these services. Data subjects—individuals and businesses whose n An effective credit risk management: Financial credit histories and identification data are stored in these institutions should incorporate the use of credit systems—are also important audiences. information, as well as derived Value Added Services in their credit approval and risk-management processes; The principles cover credit reporting mechanisms that this ensures effective data gathering and maximizes the seek to improve the quality of data for creditors in making value-added from available information.97 better informed decisions; the scope also includes those mechanisms intended to assist banking and overall financial To meet the above requirements, it is necessary for all supervision. stakeholders to play an active role in CRS: n Data Providers: Report accurate, timely, and sufficient The policy objectives and key considerations of the general data to service providers on a periodic basis; principles are shown in Figure 4.1 below. n Other Data Sources: Facilitate access to their databases Based on the objectives identified, a set of general to credit reporting service providers (e.g. public data); principles was established regarding cross-border data n CRSPs: Provide high quality and efficient services; flows, data processing, governance arrangements and risk management, legal and regulatory environment. These n Users: Make proper use of the information available principles cover the most important requirements for an from credit reporting service providers; effective credit-reporting infrastructure. Table 4.2 gives n Data Subjects: Provide accurate and truthful information on the broad topics and their contents. Details information to data providers and other data sources; are expounded upon in the report General Principles of Credit Reporting by the World Bank. 32 s s s Arab Credit Reporting Guide Figure 4.1: Public Policy Objectives and Key Considerations Credit reporting systems should be safe and efficient, and fully supportive of consumer rights and (i) effectively support the sound and fair extension of credit in an economy (ii) serve as the foundation for robust and competitive credit markets Governance Globalization Security, Arrangements Legal and and Information Reliability to Deal with Regulatory Access to Quality and Operational, Legal Framework Credit Across Effectiveness and Reputational Borders Risks Source: “Presentation on General Principles for Credit Reporting”, World Bank, 2011. Table 4.2: General Principles of Credit Reporting be traced to the early 1800s in London, modern providers began developing rapidly in the 1950s given the expansion Data Accuracy and quality of credit. In the United States, the introduction of credit Timeliness scoring in the 1950s played a key role in the rapid rise of Sufficiency (including positive) consumer lending. The earliest record of a credit registry Data collection dates to 1934, when the German credit registry was Data retention established. Latin America has some of the oldest credit Security and Efficiency Security measures bureaus in the world. Reliability of data Efficiency of data In the 1990s, the number of credit bureaus in the world Governance and Risk Accountability almost tripled. In Asia, many markets turned toward private Management Transparency credit reporting after the financial crisis in the late 1990s. Effectiveness The credit bureau market in this region has grown rapidly. Fair access There are many examples of established bureaus in the East Legal and Regulatory Clarity and predictability Asian and South Asia regions. According to the ranking of Environment Non-discrimination economies in Doing Business 2014, China, Hong Kong, Proportionality Malaysia, and Singapore rank high in terms of the ease of Consumer rights and data receiving credit rankings because of their established credit protection information services. In South Asia, India and Sri Lanka Dispute resolution are the two countries with established credit bureaus. Cross-border Data Pre-conditions A significant number of credit bureaus emerged in Eastern Flows Requirements Europe from early 1990s to the late 2000s.98 Source: General Principles of Credit Reporting, World Bank, 2011 In MENA, credit reporting remains at a nascent stage. Although Egypt, Morocco, Qatar, and Saudi Arabia offer 4.2 GLOBAL TRENDS examples of excellent credit reporting practices, most markets are in the development stage. Credit reporting in Credit reporting has become commonplace worldwide, but MENA is characterized by the existence of credit registries much of the reporting infrastructure has been established in or government-owned bureaus. the past three decades. Although the first credit bureau can 33 s s s 4. Introduction to Credit Reporting Credit bureaus that serve banks and other financial Credit registries have gained importance over the past intermediaries are the most prevalent and comprehensive 20 years in both developed and developing countries as sources of financial information. CBs have been established a result of changes in banking systems and advances in in more than 90 countries and their number is growing. technology.99 The trend can be seen in Figure 4.3. Figure 4.2 shows the growth of this trend across regions. Figure 4.2: Growth of Credit Bureaus 120 100 Number of Credit Bureaus 80 60 40 20 0 11 77 79 81 83 87 89 91 93 97 99 01 03 07 09 75 85 95 05 74 20 19 19 19 19 19 19 19 19 19 19 20 20 20 20 19 19 19 20 19 e- Pr OECD Sub-Saharan Africa East Asia & Pacific South Asia Europe & Central Asia Latin America & Caribbean Middle East & North Africa Source: IFC calculations based on Doing Business Indicators (database) 2004-2011. “Credit Reporting Knowledge Guide”, International Finance Corporation, 2012. Figure 4.3: Growth of Credit Registries 80 70 Number of credit registries 60 50 40 30 20 10 0 4 11 66 72 75 78 83 86 90 92 95 97 99 02 6 8 04 6 0 0 19 20 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 e- Pr Middle East & North Africa Latin America Europe & Central Asia Asia Africa OECD Source: IFC calculations based on Doing Business Indicators (database) 2004-2011. “Credit Reporting Knowledge Guide”, International Finance Corporation, 2012. 34 s s s Arab Credit Reporting Guide The establishment of infrastructure and framework for n As mentioned above, CRs and CBs have separate credit reporting has differed across regions and countries. but complementary roles. Thus, different ownership n Some countries (such as Canada, the United Kingdom, structures have evolved across regions. They can be and the United States) have credit reporting systems broadly classified as: characterized by comprehensive, full-file reporting that Credit bureaus in which banks and/or other creditors n yields a credit report for each consumer; their reports are either majority or minority shareholders; contain both positive and negative information about Credit bureaus owned and operated by a separate n a borrower’s credit experience across all types of loan entity with no ownership by creditors; products.100 In these developed credit-reporting markets, detailed information on credit facilities are available; Credit bureaus formed by an association or chamber n payment performance histories or behavior patterns are of commerce, operating on the basis of membership recorded and accessed by stakeholders. fees; n Some credit reporting systems produce consumer Credit bureaus that are partially owned by government n credit files containing only negative information entities; (delinquencies, charge-offs, bankruptcies, etc.). In Credit bureaus that are wholly owned by government n such a system, a consumer’s credit report comprises of entities (these are rare, but an increasing trend in damaging information or no information at all.101 MENA). Australia used a negative credit reporting system prior Generally, credit bureaus that are independent of to 2012. By law, only negative information, such as creditors are efficient structures; credit reporting is their defaults, bankruptcies and court judgments, would be core business, and the shareholders’ main objective is to held by the credit bureau. Credit providers used this maximize business value by expanding operations and information to deny borrowers access to finance. Banks providing new and innovative products and services. lacked information on customers’ other accounts or credit Conflicts of interest are minimal because the bureau’s limits. This was a risk for lenders; they were unable to relationships with members and users are driven by see the full picture, including whether customers were commercial interests. Examples of credit bureaus owned overcommitted. and operated by a separate entity include Kenya, New The Australian credit reporting system embarked on a Zealand, and the United States. massive overhaul starting in March 2012. The reforms In several countries, bureaus have included ownership were a result of changes to the Privacy Act. The new by creditors (such as Argentina, Brazil, Croatia, and revised provisions in the Act have allowed credit Germany, Kazakhstan, Mexico, Romania, Turkey, the providers to share a broader range of information about Russian Federation, and Ukraine). The advantage of customers’ credit history to credit reporting agencies, this ownership structure is that it allows for a faster including details of repayment history, both negative launch; there is agreement among the banks to become and positive. shareholders, which brings about a strong commitment n In several Latin American countries (Argentina, Brazil, to the principle of reciprocity in information sharing.103 and Mexico) as well as Japan, banks historically shared In India, the first credit bureau was established by information about their customer loan experience by two financial entities with majority shareholding and creating databases that captured bank loan experience. the technical partners holding minority shares. Over Nonbank creditors, often prohibited from accessing this the years, other banks joined; the founding members repository, pooled their own loan experience and formed reduced their shareholdings. a separate database.102 The development of credit bureaus entirely owned and There has been an increase in alternative or nontraditional established by the central bank or the government is a data inclusion, including information from utilities growing trend. Such entities are expected to perform the companies, telecommunications providers, retailers, etc. dual role of providing supervisory support to the central 35 s s s 4. Introduction to Credit Reporting bank while providing credit information services to Table 4.3: Credit Reporting System — MENA Region users. Credit Registry & Only Credit Registry Credit Bureau n In Sub-Saharan Africa, access to finance is extremely limited. To develop financial infrastructure, credit- Algeria Bahrain reporting frameworks have been established in Kenya, Iraq Egypt Rwanda, and a project to establish a Private Credit Jordan* Kuwait Bureau in the o countries of the Union Monétaire Ouest Lebanon Morocco Africaine (UMOA) is underway. Some of the credit Libya Saudi Arabia reporting trends in the SSA region include: Mauritania UAE Increasing development of credit bureaus, rather than n Oman credit registries, as tools for information sharing; West Bank and Gaza Qatar The sharing of positive and negative data (for instance n Sudan in Ghana, Rwanda, and Tanzania, as well as a pilot in Syria Kenya); Tunisia Inclusion of data from small and medium enterprises n Yemen and microfinance institutions; Source: ACRI Credit Information Sharing Survey 2013 *Credit Bureau is under development Capacity building for the supervision of credit n reporting.104 or formed in partnership with financial institutions. In MENA, five out of six CBs are fully or partially owned by 4.3 CREDIT REPORTING IN MENA the banking sector, generally with a majority participation The credit information system in the MENA region has in the capital. In Morocco the international provider improved significantly in the past few years. Some MENA (Experian) has the majority stake, and the banks have a countries have been successful in bridging gaps with the minority share. rest of the world, as they have evolved robust information systems with noteworthy projects (for instance, credit The growing volume of data collected, especially by CBs, registries in Libya, Oman, Qatar, and the West Bank and suggests that the depth of information is improving in Gaza; credit bureaus in Egypt, Morocco, and Saudi Arabia). MENA. The region has experienced the highest growth in There are new credit reporting systems (both public and/or the credit information index, increasing from 1.8 in 2005, private) under way or just started in Algeria, Iraq, Jordan, to 3 in 2009, and then to 4 in 2013, as shown in Figure UAE, and Yemen.105 4.4. This increase is largely due to the introduction of new CBs in Bahrain, Egypt, Morocco, and the UAE during this The establishment of CBs is quite a recent phenomenon in period. In addition, the improvement of the CRs in 2009 in the region. Thirteen MENA countries still rely entirely on Libya, Oman, Qatar, Tunisia, and the West Bank and Gaza CRs, a higher percentage than those in all other regions, has also contributed to the increase in the index.106 except for Sub-Saharan Africa. As shown in Table 4.3, there are only six countries that have CBs operating alongside As shown in Figures 4.5 and 4.6, the range of institutions CRs. A new CB is under development in Jordan, and the providing information to CRs and CBs has also increased first CB in Oman should soon be operational. In Morocco, since 2005. There remains room for improvement. In case the central bank is in the process of awarding a second CB of CRs, there is no change in the coverage of non-regulated license. entities such as retailers; but since 2010, credit corporations, credit card issuers, nonbanking financial companies, leasing Looking at examples across the globe, the owners of CBs and mortgage companies can be added.107 For CBs, data are usually leading international providers, local providers, providers such as microfinance institutions, retailers, and 36 s s s Arab Credit Reporting Guide Figure 4.4: Depth of Credit Information Sharing The coverage of adult population by CRs and CBs in 6 MENA remains weak. The population coverage ratio of 5 CRs was a low 7.9 percent in 2013 as most of the data is still contributed by a limited number of regulated 4 entities.109 According to the 2014 Doing Business Report, 3 this ratio has marginally increased to 8.3 percent. The CBs 2 in the respective countries are broadening their coverage 1 of the population by increasing the number of participating institutions. There has only been a marginal increase from 0 2009 2010 2011 2012 2013 9.3 percent to 9.9 percent, given the very few number of South Asia operating CBs, in just six out of nineteen countries. East Asia & Pacific Europe & Central Asia Sub-Saharan Africa Latin America & Caribbean Middle East & North Africa As seen in Figure 4.8, these CB coverage ratios are Source: http://www.doingbusiness.org/data very low when compared to other regions, such as the OECD (66.7 percent), Latin America and the Caribbean utility providers have significantly increased, in addition (37.5 percent), and Europe & Central Asia (33.4 percent). to the regulated, traditional data providers. These changes are noteworthy considering the crisis faced by some of the As indicated by the 2014 Doing Business Report, the countries in the region.108 number of borrowers listed in six credit bureaus in MENA was 25.8 million, increasing from 21.5 million in 2013; In MENA, the share of data providers to CBs is in line 96 percent were individual borrowers and the remainder with (or better than) others across the world, with regard to were business firms. With the participation of utility the percentage of banks, microfinance institutions, finance providers and microfinance institutions, the number of corporations, retailers, and credit card issuers participating, records is expected to multiply in the next few years.110 as shown in Figure 4.7. There are only six CBs in the region, Table 4.4 shows the coverage ratio of adults in MENA however, and actual participation levels differ significantly. countries as of 2013.111 Figure 4.5: Data Providers to PCRs 20 18 16 14 12 10 8 6 4 2 0 s Com ance Com inance ies) s Com sing ves nts s ers titu e I Ba nt rati / s s Issu rd s Mer ilers/ NBF ope ns panie tion panie nk nk nk Ins nanc me a cha Co t Unio Ba Ba pan it C Lea lop Fin Reta i rof te c (F d bli ve iva Cre gage di Mic Pu De Cre Pr Mort 2010 2012 Source: Madeddu, 2010. “ACRI Credit Information Sharing Survey,” 2013. 37 s s s 4. Introduction to Credit Reporting Figure 4.6: Data Providers to PCBs 6 5 4 3 2 1 0 Tribun cies, Com hone dit s viders ks s es it e n ts) rs Instit nce nks Merc and ks . sing s Lea s/ / als,etc hant panie Coo Unions sinesing Cred ution sue n Ban an s Gra rade Cre ativ atio Ba fina Agen B ilers lep s Cli Is per s Pro te nt blic por Micro ard ile Te va me dit Reta nt Pu C or Pri Public Cre dit C T Utilitie elop Mob nce to Bu Dev Cre (Firm Fina 2008 2012 Source: “ACRI Credit Information Sharing Survey,” 2013. Figure 4.7: Data Providers to PCBs – World vs MENA 100 90 80 70 Percentage 60 50 40 30 20 10 0 Me lers & s Pro tility s Is ks rs Loa g ns rpo nce rs s s P itors/ s Ba nt era s/ es Iss rd ion ant nk idin nk MF ue vide an me op ion a tiv Ba it c Co Fina U rat rch cB rov Co t Un lop Firm cred tai te ed bli iva ve Re i Cr ed Pu De de Pr Cr Tra World MENA Source: Moyo Violet Ndonde et al, 2013. “ACRI Credit Information Sharing Survey,” 2013. Key features of credit information system in n Central banks may also play a major role in facilitating the MENA region data collection from the lenders. In Morocco, this occurs in a “delegation model”, as data from lenders is n Central banks serve a supervisory role for both provided to the CB through the CR. lenders and CBs across the region. Central banks have undertaken a new, vital responsibility of overseeing the n In other countries, central banks are playing the role whole credit system, including both financial institutions of a CB by enabling a credit information-sharing and information providers for CBs. They are recognized environment where private credit reporting systems as the neutral, independent authority for protecting have not yet been established. consumers and individual privacy rights. 38 s s s Arab Credit Reporting Guide Figure 4.8: Credit Reporting System Coverage n The data collected by CBs and CRs generally includes (% of Population) demographic, loan account, and payment performance 80 70 data. 60 Most of the registries and bureaus have positive data Percentage n 50 40 sharing system, which has improved the quality of loan 30 portfolios in the region. 20 10 0 In terms of technology and functionality, the services & ia & ific ia n a A offered by CRs vary across the region. The Palestine CD LA C e s siaPac As ra ric EN OE ro p r al A A t h a h a Af M Eu ent st u b- S Monetary Authority has pioneered modern credit reporting Ea So C Su PCB PCR by establishing one of the first effective CRs in the Source: IFC calculation based on Doing Business Indicators (database) 2014. region. It was fully designed, developed and implemented internally with modern technology, including detailed Table 4.4: Adult Population Coverage Ratio — MENA credit reports and web-based functionality; it features the Credit Registry Ratio % Credit Bureau Ratio % first experiment with credit bureau scores in the region. Egypt 4.3 Egypt 16.4 Subsequently, countries such as Libya, Oman, Qatar, Jordan 1.9 Bahrain 23.5 and the UAE have established or undertaken projects to establish more sophisticated CRs. Lebanon 18.6 Kuwait 31 Oman 37.3 Morocco 17.2 The Moroccan CR has delegated its services to the West Bank 5.6 Saudi Arabia 33.3 private sector, pioneering a model quite popular in and Gaza Latin America. Central banks in the African and Arab Qatar 25.2 UAE 31.7 countries are now studying this approach and reiterating it Syria 4.9 (e.g. UEMOA, CEMAC, Tanzania). Tunisia 27.8 UAE 5.9 CRs in Algeria, Iraq, Tunisia, the UAE, and Yemen are in Yemen 0.9 the process of upgrading. Syria’s CR seeks to implement Source: Access to Finance by SMEs in Arab region: Policy Considerations – Jose Antonio paperless online technology. Lebanon has started a fully Pedrosa-Garcia – 2013, Doing Business Country Reports 2013 online system in 2009 and is undergoing improvements. However, not all the CRs in MENA show the same n A best practice in most of the CRs and CBs is the right level of sophistication. Some of them still feature an old to check or challenge the information contained in technological infrastructure and offer conventional services credit reports, though it is not necessarily a legislative with limitations, such as: requirement. The CRs tend to grant consumers a comparatively lower level of protection than CBs. New n Data collection is limited to regulated entities or larger regulations approved, planned, or under discussion, in loans; many MENA countries do consider ad-hoc provisions n At times, inaccurate or incomplete data for risk to protect consumers’ privacy (examples include Egypt, assessment; Jordan, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the UAE). n Lack of historical information related to the payment performance; n The mandatory data sharing and inquiries with CBs, as well as CRs, enables regulators to more effectively n Data obsolescence (60 to 90 days before the whole data monitor systemic credit risk and prevent financial crises. consolidation process is ended and data is available for Regulators in MENA countries (such as Egypt, Jordan, inquiries); Kuwait, Morocco, Saudi Arabia, and the UAE) have n Automated checks and controls on data quality are often therefore mandated their use by lenders. insufficient or absent; 39 s s s 4. Introduction to Credit Reporting n Online inquiry facilities are often unavailable; VALUE-ADDED SERVICES n Credit reports are basic with aggregated data only; Value-Added Services (VAS) are being offered by sophisticated credit bureaus worldwide. Such services n Historical payment performance pattern is unreported; include the processing and analysis of credit and financial n Penalties for violation on quality or quantity of data are data to develop advanced risk management tools. The rarely imposed; range of potential VAS is extensive and includes, but is not n Consumers’ rights are not enforced; limited to: n High turnaround time and low hit ratio; n Credit scoring, including application or behavioral scoring; n Lack of Value Added Services offer. n Automated application processing; A variety of challenges prevent the fast development of n Portfolio monitoring; credit reporting systems, including: n Fraud detection; n Nonspecific or absent legal frameworks; n Debt collection, tracing, and alerts; n Limited availability of positive credit data from non-regulated entities; n Marketing services, such as profiling and lists.113 n Reluctance of lenders to share data as a result of the low Raw credit data can be useful in each of these areas. awareness about information sharing benefits; However, significant amounts of expertise, resources, and n Technological divide among different lending sectors time are required for proper analysis and interpretation. (for instance banks and microfinance institutions); A variety of techniques, ranging from simple data aggregation and cross-referencing to complex statistical nLimitations concerning data quality/quantity algorithms, can be employed to provide the lender with a (such as thresholds) in many of the CRs; simple interpretation of information. These services (such n Limited availability of public data and national as credit bureau scores) strongly enhance lenders capacity identification numbers; to make more reliable decisions concerning new credit applicants, and also expand the lenders’ domains where Limited presence of CBs, often as a result of the lack information can play a determinant role in decreasing the n of support from regulators in eradicating obstacles to risk of existing customers (such as an anti fraud system).114 the establishment of CBs. Credit scoring and bureau scores appear to be the most Regulators in MENA seem to be more focused on prevalent ancillary service, distributed by over 40 percent refurbishing the old CR system, and broadening the of CBs worldwide. Scoring is an effective technique to service range with more sophisticated offers and value- reliably predict credit risk and can be used during the life added services. Lenders are starting to see the value of cycle of a loan for: better risk management and credit information sharing methodologies, as these systems help to reduce lenders’ n Making automated, non-subjective decisions; uncertainty about borrowers’ exposure, increase lending n Granting instant credit; volumes over time (due to automation of credit granting decisions), and promote responsible borrower behavior.112 n Setting individual interest rates (risk based); Advanced risk management, however, has yet to become n Changing credit limits based on risk quality (credit card popular in MENA. The region lacks many of these authorizations, floor limits); practices, which, in turn, offers great opportunity. n Applying different collections actions and strategies based on individual risk; n Determining risk and revenue opportunities; 40 s s s Arab Credit Reporting Guide n Decreasing attrition; n Regulators in the MENA region see value in credit reporting systems, which help to reduce lenders’ n Supporting marketing campaigns, etc.115 uncertainty about borrowers’ exposure and promote responsible borrower behavior. MENA countries have In MENA, VAS are provided in some countries by CBs come a long way in developing these systems. or CBs, as shown in Table 4.5. However, they are not as common and popular as in other countries or regions. n Nevertheless, the number of CBs in the region is still There are plans for expansion, but there is still a long way very low: only six CBs in the region and one under to go; it is up to the lenders to push the industry to develop, development. implement, and promote more sophisticated services. n Modern credit risk-management tools are extremely critical to handling the rise in business volumes and 4.4 CONCLUSIONS complexity. MENA countries are still not primed to effectively use these tools; they mostly continue to use n An efficient and comprehensive credit reporting system traditional lending methods. is an integral part of sound lending practices and an effective risk-management system. The benefits of a n There is very low utilization of sophisticated risk non-fragmented, full-file credit reporting system are management tools in parallel to information inside the supported by an abundance of empirical evidence, such banks. Though recently increasing, the introduction as the mitigation of moral hazard and adverse selection of advanced risk management methodologies in the of borrowers, reduction in the number of NPLs, and, in credit industry remains either rare or sporadic in most particular, increased access to credit. Full credit reporting countries. can reduce collateral needs by providing reputational n In most countries, credit reporting services are still basic collateral and interest rates can be tailored to individual and mostly limited to credit reports. Developing VAS risk profiles. Overall, the results can be beneficial for can benefit both the bureaus and their customers; it will borrowers, credit markets, and supervisory bodies. ultimately improve access to finance for all borrowers. Table 4.5: Initiatives and Value-Added Services in MENA Country CB/CR Services offered Future plans Bahrain CR Identify the exposures that Corporate bureau exceeded the limit and send a report to the banks. Egypt CB Credit score based on the bureau’s Fraud detections, SME rating, data. Debt collection, tracing, alert, application scoring, inquiry through portfolio monitoring. tablets and telecommunications Kuwait CB Credit bureau score Morocco CB Companies’ group reports MFI reports Credit bureau score, debt collection Oman CR Rating and bureau score West Bank and Gaza CR Rating and bureau score Qatar CR Credit score, portfolio monitoring reports, account follow-up service  UAE CR Rating Saudi Arabia CB Commercial credit reports, SME Fraud detection services/bouncing scoring, solutions for credit operation check system management Source: “ACRI Credit Information Sharing Survey, 2013.” Saudi Arabia: SIMAH website; Qatar: Qatar Credit bureau website. 41 s s s ARAB CREDIT REPORTING INITIATIVE 5 The Arab Credit Reporting Initiative (ACRI) is a THE NEED FOR A REGIONAL APPROACH joint project of the Arab Monetary Fund (AMF) and the International Finance Corporation (IFC). ACRI A regional approach offers many advantages. Building aims to foster the development and improvement of on legal, social, cultural, and structural commonalities the informational, technical and legal credit reporting results in the sharing of best practices to the benefit of infrastructure as well as the overall status of the industry all stakeholders. In MENA, populations cross borders in the Middle East and North Africa region. for economic and financial opportunities, which makes a regional initiative more relevant. Through this initiative, AMF and IFC engage regional and international authorities and experts to adapt international Additional benefits of a regional approach for MENA, best practices in credit reporting to the needs of MENA which prompted the establishment of ACRI were: with the intention of achieving a set of common objectives. n Many MENA countries faced similar difficulties with respect to credit reporting; The major elements of this initiative are: n Knowledge sharing and application of best practice; n Assessing, through a common methodology, the credit reporting systems of AMF member countries; n The possibility of a regional approach for data sharing, legal and regulatory requirements, economies of scale, n Developing consistent strategies, policies, and action and cost benefits, etc.; plans for improving credit reporting in the region, primarily aimed at supporting and encouraging the n Regional continuity beyond ACRI; development of CRs and CBs; n Success of peer countries will create healthy pressure to n Fostering sub-regional integration of credit reporting accelerate credit reporting. systems and specific legal and regulatory framework ACRI’s support and focus on credit reporting systems standardization in MENA; will, in turn, support the development agenda of MENA n Raising awareness about the importance of credit countries, including: information sharing among all stakeholders in the credit n Expanding access to credit and enhancing financial industry; inclusion; n Building on the success of this initiative’s first phase, n Supporting the growth and increased availability of IFC and AMF anticipate a second component of the credit to the micro, small, and medium enterprise sector; ACRI project, following up on country assessments and recommendations. 43 s s s 5. Arab Credit Rporting Initiative n Decreasing nonperforming loans and overall credit risk; The major benefits that ACRI brings to MENA are: n Reducing over-indebtedness; n Increased awareness of credit reporting issues, which will create momentum for reforming the credit industry; n Reducing the need for collateral, especially for small loans; n Diagnostic tools and cost-effective access to international expertise through workshops, etc.; n Mitigating reckless lending practices; n Country reports, which develop specific action plans for n Improving lending behavior; each country; n Reducing the cost of credit and encouraging risk-based n A more informed debate on regional cooperation, pricing; leading to deeper integration of the region’s financial n Assisting regulators (notably, central banks) in being sector; more effective supervisors through the availability n Coordinated legal and other reporting frameworks of data; across the region; n Contributing to the compliance with Basel standards. n Increased supervision capabilities for regulators; ACRI’s organizational structure includes a core team, a n Developing a framework to extend regional cooperation project coordination team, and a field team, each with clear beyond ACRI; roles and responsibilities. Additionally, AMF is in charge n Overall improvement of the credit reporting system in of the secretariat for the project, which is the focal point for the region. all ACRI-related activities. Over the past six years, ACRI has significantly influenced The target beneficiaries of the project are: and supported the development of the credit information n Credit bureaus in MENA countries; system in the region. To date, ACRI conducted 13 country assessments and developed country reports that identified n Central banks; areas of improvements in national credit reporting systems n Creditors, such as commercial banks, leasing companies, in MENA, which were shared with countries’ authorities microfinance institutions, telecommunications operators, and were disseminated to the public. A number of credit and mortgage lenders; reporting awareness raising and capacity building events n Small and medium enterprises, which will have more were organized in many countries in MENA with over opportunities to secure financing for projects; when 1000 participants attending. ACRI also was a catalyst in banks have access to detailed credit histories, they will several countries adopting its detailed recommendations to assume less risk in lending to SMEs; reform their credit reporting systems. n Members of the public, whose detailed credit histories in Stakeholders appreciate the need to develop a the credit bureau will substitute for physical collateral, comprehensive credit reporting system. Regional actors and will a) enable consumers with limited collateral to increasingly recognize the important role that such a system obtain credit, b) ease the process of obtaining credit, and plays in the development of the financial infrastructure of c) enable reliable borrowers with limited or no credit any country. histories to start building a credit reputation and, thus, access more credit; 44 s s s ARAB CREDIT REPORTING INFORMATION SHARING INDEX 6 6.1 BACKGROUND 6.2 PURPOSE AND INTENT As a part of the initiative to produce this guide, the Arab The credit information reporting industry in MENA is Credit Reporting Information Sharing Index (ACRISI) evolving. There have been developments in the past has been developed. The index is a quantitative product decade; there is still, however, a long path ahead. derived from a set of defined parameters. These parameters are assigned a number (score), which enables the reader In addition, MENA countries exhibit significant diversity assess the quantification. It was important to create this in the development of this industry. Legal and regulatory measure in a transparent and objective manner; therefore, frameworks range across countries, from complete absence data provided by a trustworthy source that would lend to fairly advanced laws. Consumer rights and privacy, data credibility to the exercise. In January 2013, the ACRI team protection, and dispute resolution rights are often absent; circulated the Credit Information Sharing Survey to the and data quality is also a concern. region’s central banks, and to CBs. There are six CBs in the region: The Benefit Company (Bahrain), Ci-Net (Kuwait), IFC and AMF are making significant efforts to develop Em-credit (UAE), Experian Services Morocco (Morocco), comprehensive credit information sharing systems. The Simah (Saudi Arabia) and I-Score (Egypt). goals include: wider financial inclusion; greater awareness; a better framework for consumer rights, privacy and data Credit information in the MENA region is heterogeneous. protection; and other necessary components of a robust The team has recognized the characteristics of the credit information sharing system. Over the past six years, environment specific to the region and the need for a the two organizations under the ACRI umbrella have standardized measure. Therefore, the index has been jointly and independently spearheaded this effort. developed based on a detailed study that encompasses all aspects of a sound credit information system. ACRISI is As MENA countries and their financial systems merge comprehensive, taking into consideration best practices with global markets, it was decided that developing an and effectively indicating the level of efficiency of credit index would be the best way to measure progress (or lack information sharing in the region. thereof). The ACRI team identified objective parameters and developed an index that quantifies the current status of credit information sharing in each country. Broadly, the purposes of developing the index are: n To measure the status of credit information industry across various parameters in each MENA country; 45 s s s 6. Arab Credit Reporting Information Sharing Index n To measure the possibility and ease of access to It was difficult to obtain definitive answers in many cases. credit through the credit information system in each In some cases 2008 data was not available; in others, no country, including the legal and regulatory frameworks, public or private registry existed at that time. When data participation, data sharing frameworks, consumer rights, was incomplete, we did not determine an index for a privacy and protection of data, etc.; country for a particular year. To track progress on the various parameters from 2008 An important criterion was the trustworthiness of the n and 2012; information. Each country’s central bank (and CBs, when n To develop plans to advance information sharing in relevant) responded to the ACRI Credit Information each country based on its current status; Sharing Survey questionnaire in January 2013. The index’s parameters are further complemented by ACRI n To track the progress of initiatives taken across countries assessments conducted across the region and, in certain through a maintenance model; cases, by the 2013 Doing Business Report. n To provide action plans or course corrections, as needed and based on the progress over time. Since ACRI was launched in 2008, it was thought best to develop the index for each country for 2008 and repeat it in 6.3 PARAMETERS AND 2012, in order to evaluate developments over time. METHODOLOGY 1 & 2. Does the country have a CR? The selection of the parameters and the defining of the Does the country have a CB? methodology were critical. The team considered all aspects The core criteria for the index had to be the existence of a sound credit information system’s development. A final or absence of CRs and CBs. As both CRs and CBs have set of 10 parameters was defined, taking into consideration singular roles in credit information sharing systems, the the entire framework of a credit reporting system. Some presence of each entity represents a separate parameter and of these parameters have been divided into sub-parameters scores an individual point. resulting in a total of 21 indicators scored for the index. 3. Legal environment in the country for The index, through these parameters, measures rules credit information systems (CIS) and practices affecting the accessibility, coverage, legal environment, and scope of credit information available A robust and comprehensive regulatory framework is the through either a CR or a CB in each country. A score is key to a complete credit information sharing industry. assigned for each of the parameters based on the responses The legal framework must address several issues that received (for each of them, the score zero indicates a include, but are not limited to, regulation and supervision, negative reply; the score one indicates a positive reply). participation (data providers and users), and data sharing This was done for each country for 2008 as well as 2012. (collection and dissemination, usage, confidentiality, When information was not available for a particular privacy and protection of data and consumer rights). parameter, that parameter was not scored. These aspects may be addressed by way of a specific law, regulation or even a code of conduct, which is recognized Based on the 21 parameters, the index ranges from a by the central bank for credit information sharing in the lowest value of zero (0) to a highest value of twenty-one country. Also, the legal framework should include the (21). Within this range, higher scores signify countries establishment of private information sharing, such as CBs with more comprehensive and advanced credit information to enable an effective and comprehensive credit reporting sharing systems. In the interest of simplicity, we did not system. assign weightages to the parameters. 46 s s s Arab Credit Reporting Guide 4 & 5. Information on consumers and firms ACRISI Parameters In order to create a database of complete and comprehensive 1. Does the country have a CR? information, it is important for CRs or CBs to collect and share information on consumers as well as firms—to 2. Does the country have a CB? efficiently perform their function of providing information services to lending institutions for risk assessment. In 3. Legal environment in the country for credit information developing markets, information about consumers and systems (CIS) firms, especially small and medium enterprises plays an - Is there a specific law or regulation governing the credit important role in supporting access to finance. reporting system? - Is there a legal framework for privacy and protection of 6. Consumer rights environment in the data? country A sensitive and yet often ignored component of a credit 4. Is information on consumers included? information system is the framework for consumer rights. A good credit information system provides individuals 5. Is information on firms included? access to one’s own report, consent for sharing, data inquiry, dispute resolution processes, and limitations on 6. Consumer rights environment in the country using such information. These can be incorporated in the - Are consumers allowed to access their reports? system by way of laws or regulations, or by establishing procedures and practices that ensure necessary rights. - Do consumers have access to at least one free report in a year? 7. Entities in the country participating in CIS - Are consumers allowed to raise disputes? - Do entities collect consumer consent before making Comprehensive and complete information from all inquiries? constituents of the credit-granting community ensures that information is shared and used for credit decisions by 7. Entities in the country participating in CIS the grantors of credit—and is not based on limited data. - Are regulated entities participating? Either by law or through voluntary participation, all credit - Are nonregulated entities participating? grantors (regulated or otherwise) should be able to use the system for their own benefit, the benefit of the economy, - Are utility entities participating? and, importantly, the benefit of the individual. - Are MFIs participating? 8. Depth of data sharing and reporting 8. Depth of data sharing and reporting in the country in the country - Are entities mandated to share data? When not all available information is shared with the - Are entities mandated to make inquiries? registry or bureau, it is key to ensure maximum participation (see 5 above) while also ensuring that both positive and - Are both positive and negative information reported? negative data is shared. All loans should be reported - Are all loans reported without any limits? irrespective of size or type in order for credit grantors to - Does the principle of reciprocity apply? use the information effectively. 9. Are credit bureau scores provided to the users? 9. Credit scores provided to users Value-added services provided to users of CRs or CBs are 10. Is cross border data sharing allowed? an additional indicator of the sophistication of systems in providing modern tools for risk management. Credit 47 s s s 6. Arab Credit Reporting Information Sharing Index bureau scores, the most common typology of such services, Given Syria’s current situation, we were unable to get n are one of the most effective tools for risk assessment of any response to the ACRI questionnaire 2013; therefore borrowers. it was not possible to create an index for the country for either 2008 or 2012; 10. Cross-border data sharing For Libya and Sudan, there are no indices for 2008; at n The world has become a global village. MENA, as a result that time, neither country had a CR nor a CB; of many environmental, political and economic factors, has For Qatar, no data or incomplete data was available for n a large transitory population, with high mobility that brings 2008. Therefore we have not developed an index for that together people from countries in the region and across year; the globe for work and business. Economic stability, can be increased if credit behavior information is available The highest score is 21; most countries are clustering at n across political borders, and data shared across the region. around 10 or 11, a score that seem to be static even after This is a serious challenge. The first step toward achieving the passage of four years, between 2008 and 2012; it is to enable regulatory environments in each country. There is a strong need to focus on specific areas in each n of the countries to progress further; These 21 parameters were identified to create a The six countries in the region with an operational n meaningful index, representing key elements of a CB (namely Bahrain, Egypt, Kuwait, Morocco, Saudi credit reporting system and mirroring the World Arabia and the UAE) have the highest scores in the Bank’s General Principles of Credit Reporting. region. Additionally, the relatively new or revised CRs in the n region (Oman, Qatar, Sudan, and the West Bank and 6.4 RESULTS Gaza) show ACRISI scores in the same range; As said, information provided to the questionnaire was A country might score high on data sharing and reporting n not always complete; sometimes contradictions in the and low on consumer rights; another country may be responses were present. In such cases, the ACRI team used exactly the opposite, yet both might have the same studies and assessments conducted in the region to arrive at score; an answer. In addition, the following observations, should be considered: Figure 6.1: ACRISI Score 20 19 19 18 18 18 15 16 16 16 16 16 15 15 15 14 14 14 12 12 10 11 11 11 11 10 10 10 10 10 10 10 10 5 6 6 6 0 0 0 co ia an en n ia ia ya ne ria ain n an r ria q E t it ta yp no da Ira wa ab nis an UA oc Om Lib m sti Sy rd ge Qa hr Eg ba Su Ar rit Ye Ku or Tu Jo le Ba Al au Le Pa M di M u Sa 2008 2012 Source: “ACRI Credit Information Sharing Survey,” 2013. 48 s s s Arab Credit Reporting Guide n Each individual country index has been analyzed in 6. The questionnaire, which is the core of the information dedicated sections in Chapter 8, and recommendations used to develop the index, needs to be redeveloped to based on lessons emerging from this exercise are streamline responses; included in Chapter 9; 7. The quality of responses will improve over time, as n While each country index by itself seems fairly high, these efforts bring in results; central banks and others much work is required to maintain and improve upon (CBs) will participate more pro-actively in this process. the index. In fact, the index might offer more granular information as weightings are assigned to more important parameters 6.5 RECOMMENDATIONS ON of the index. MAINTENANCE The following sections (7.1 to 7.19) give an overview of The development of this index is a major initiative the 19 countries in MENA separately, discuss the status undertaken by IFC and AMF, under the ACRI umbrella. It of credit reporting in these countries and elaborate on the has a significant role to play in the development of credit countries’ individual ACRISI index as per the methodology information sharing systems in the region. It is important to described above. recognize that this is not a one-time exercise. The index intends to: n Measure the credit information sharing industry development in the MENA countries; n Focus on those parameters (for each country) that require attention and effort to progressing toward a more efficient credit information sharing system. Thus, it is extremely important that this index be maintained on a regular and ongoing basis. Suggestions to maintain the index are: 1. Work with each country to improve the overall index and also specific areas (as detailed in Chapter 8, under each country’s subsection); 2. Reevaluate the index every couple of years, to get an objective reading of progress in improving the credit information sharing industry for each country; 3. IFC and AMF are best positioned to monitor and maintain the index; 4. Over the next two years, before the next review of the index is due (2016), IFC and AMF should continue the efforts launched in 2008, which will probably move country indices to higher levels; 5. There is a need to improve and refine the process of collecting information for the index; 49 s s s CREDIT REPORTING IN MENA – 8.1DETAILED ALGERIA OVERVIEW 7 ALGIERS Annaba Bouira Béjaïa Constantine ALGERIA Mostaganem Medi Oran Médéa Sétif ter ra ne AT L ANT I C Tiaret Tébessa a Saïda Biskra n Djelfa OCEAN Tlemcen Se a Laghouat Ghardaïa Ouargla Béchar Tindouf Adrar In Salah Capital Algiers Currency Algerian Tamanrasset Dinar (DZD) USD/DZD 78.79 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41502, March 2015. 7.1 ALGERIA The hydrocarbon industry has been the backbone of the Algerian economy for the past 20 years; it roughly accounts 7.1.1 ECONOMIC OVERVIEW for 60 percent of revenue, 95 percent of export revenues, and contributes to 30 percent of GDP. Algeria has struggled The Algerian economy is heavily reliant on petroleum to diversify its economy and develop the non-hydrocarbon and natural gas. Algeria is the second largest natural gas industries due to high regulations. The strength of the exporter in the world and has the fifth largest reserves of hydrocarbon industry has resulted in Algeria having $190.7 gas worldwide. It also has the fourteenth largest reserves of billion in foreign currency reserves by the end of December oil in the world. The European Union is the largest market 2012  and a large hydrocarbon stabilization fund.117 for Algerian natural gas.116 51 s s s 7. Credit Reporting in MENA – Detailed Overview Algeria is one of wealthier countries on the African From 2004 to 2010, inflation (at consumer prices) was continent with a GDP per capita of $7,541 in 2012. approximately 3.6 percent annually. As a result of the pressure exerted by rising food prices, the rate reached The collapse of oil prices in 2008, following the onset of the 4.9 percent in 2008 and 5.7 percent in 2009, before global economic and financial crisis and general instability declining to 3.9 percent in 2010. In 2012, inflation rose in the region, resulted in a decline of GDP growth by and peaked at 8.9 percent, up from 4.5 percent in 2011, as 2.4 percent in 2011; from 2002 to 2005, GDP growth shown in Figure 7.1.3.119 averaged 5.5 percent.118 As of 2012, Algeria’s total population was 38.48 million. Since 2006, growth has slowed to an average of 3.1 percent Women accounted for over 49 percent of the population. a year over the period of 2006 to 2011. With real GDP Figure 7.1.4 below shows the bifurcation of the total growth of 2.5 percent for 2012, Algeria’s economy population from 2009 to 2012. continues to perform well. Since the financial crisis, the hydrocarbon industry has registered a growth of 5.8 Figure 7.1.3: Inflation percent over the previous year. Figure 7.1.1 and 7.1.2 show 10 8.9 the GDP growth trends and the real GDP, respectively, 9 8 from 2004 to 2012. 7 5.7 4.9 Percentage 6 5 4 3.7 3.9 4.5 4 2.3 Figure 7.1.1: GDP Growth Rate (%) at Current Prices 3 1.4 2 6 5.2 5.1 1 0 5 2004 2005 2006 2007 2008 2009 2010 2011 2012 3.5 Source: “Inflation, consumer prices (annual %),” The World Bank, accessed September 14, 4 2014. http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG/countries/DZ?display=graph. 3 3 2.5 2 2.4 Figure 7.1.4: Population (Million) 2.4 2.4 2 1 40 0 35 30 17.99 18.32 18.67 19.02 2009 2010 2008 2011 2012 2006 2007 2004 2005 25 Source: Bank of Algeria 20 15 18.40 18.74 19.10 19.46 Figure 7.1.2: GDP (Current USD in Billion) 10 5 250 0 199 2009 2010 2011 2012 200 170 206 Women Men Source: data.worldbank.org 150 161.2 136 140.9 100 116 7.1.2 CREDIT MARKET 103 85 50 OVERVIEW 2008 2009 2010 2011 2012 2006 2007 2004 2005 Banque d’ Algérie (BA), the central bank of Algeria, acts as Source: data.worldbank.org the government’s agent in the financial system, regulating the money supply, directing the distribution of credit, supervising the management of financial commitments with regard to foreign countries; it also regulates the 52 s s s Arab Credit Reporting Guide foreign exchange market and creates conditions conducive Microfinance to orderly development of the economy. BA sets the terms Microfinance and microcredit sectors are not developed under which banks and financial institutions in Algeria and only finance very small enterprises, but may also are allowed to operate both in Algeria and internationally. include housing loans, consumer loans, and insurance. It also establishes the norms to which banks must conform. Government-sponsored programs are currently available, Banking administered through public institutions such as the Social Development Agency, Agence Nationale de Soutien de As of 2012, Algeria’s banking system comprised 20 l’Emploi des Jeunes, and Fonds National de Régulation licensed commercial banks, six of which are publicly- et de Développement Agricole. These programs differ owned; the remaining 14 private banks are foreign banks.120 from typical microfinance models in a number of ways; The banking sector is dominated by the six state-owned for instance, the government subsidizes interest rates. banks. Total assets of the banking sector account for about Consequently these programs have enjoyed limited success, 62 percent of GDP. The state-owned banks account for and they have significantly lower rates of repayment (about 88 percent of total assets of the banking sector.121 56 percent), much higher rejection rates (nearly 96 percent of all applications), and much longer approval periods The sector’s exposure to global financial markets has (one to three months). been rather limited as Algerian banks receive relatively little external financing and rely heavily on domestically Nonbanking Financial Institutions mobilized assets. Commercial banks in Algeria, both domestic and foreign-owned, fund themselves mainly Apart from banks, there are other financial institutions in through domestic deposits. Privately-owned banks have leasing, mortgage finance, and consumer credit. These seen more sustained deposit growth than public banks; include the Arab Leasing Corporation and the Maghreb in 2011, private bank deposits grew by 29 percent as Leasing Algerie (MLA), which are the market leaders.124 compared to 15 percent growth in public bank deposits. On They offer medium-term lease financing mainly to small the loans side, private banks’ share of total loans increased and medium enterprises in various sectors, including from 12 percent in 2009 to 14.5 percent in 2012. Overall, construction and transport. The customers are mostly loans account for a mere 41 percent of total assets in the private firms involved in public works. MLA has expanded banking sector.122 into sectors like medical equipment and real estate as well. One of the most useful tools to promote mortgage lending Private sector credit remains limited, underlining the was the development of a mortgage security facility, the difficulties in accessing finance for both businesses Société de Refinancement Hypothécaire, or the Mortgage and households. In particular, credit to households Refinancing Company, in 1997, to improve banking was low and accounted for only 8 percent of credit to intermediation for housing finance. In 2011, the SRH the economy, hindered by the 2009 ban on consumer facility received approval to operate directly in real estate. credit. Two other financial institutions specialized in leasing services, including real estate, were authorized in 2012: Through the midterm contemporary finance law for 2009, Ijar Leasing Algérie and El Djazaïr Ijar.125 government has enforced a ban on consumer credit. This put a sudden halt to the consumer credit market at a time Nonperforming Loans when this market was beginning to emerge. Banks were Banks are burdened by sizable nonperforming loans to barred from issuing new consumer loans. Only mortgage public enterprises. The level of NPLs continues to decline, lending was allowed, while consumer and auto credit reflecting better management of new risk and the increase practices were virtually prohibited. The rule did not apply in outstanding credit. The level of NPLs remained high at to existing consumer loans.123 more than 14 percent in 2011, but a clear improvement can 53 s s s 7. Credit Reporting in MENA – Detailed Overview be observed as NPLs stood at more than 20 percent two According to the World Bank data of 2012, domestic credit years before.126 The level of NPLs is much higher in the provided by the financial sector as a percentage of GDP in country’s publicly-owned banks, with a NPL ratio barely Algeria was measured at -2.11 percent, as shown in Figure exceeding 4 percent in the privately held banks. 7.1.7. Private markets are the engine of productivity growth, creating productive jobs and higher incomes. Credit to CREDIT PENETRATION AND ACCESS the private sector finances production, consumption, and capital formation, which in turn affects economic activity. The World Bank’s Doing Business Report 2013—which However, as seen in Figure 7.1.8, credit to the private measures the ease of getting credit and indicates how well sector in Algeria has been the lowest as compared to the the credit information system and legal framework provide many other countries in MENA. access to credit—ranked Algeria 129 out of 185 countries, which is just below the regional average, as shown in Table 7.1.1 shows the financial access indicators in terms Figure 7.1.5.127 (DB14, ranked148) of formal financial institutions’ accounts and loans. The percentage of adults with an account was 33 percent Figure 7.1.5: Getting Credit Rank – 2013 in 2011, which is relatively low in the region. Twenty 100 percent of women have an account with a formal financial 110 institution. However, the percentage of adults who have taken a loan in 2011 was only 1.5 percent. This percentage 120 MENA 128 129 Average for women corresponds to 24 percent. 130 140 Figure 7.1.7: Domestic Credit by Financial Sector (% of GDP) 150 MENA Region Algeria 2008 2009 2010 2011 2012 Source: Doing Business Report 2013 0 -3 -2.1 Access to financial services remains an issue. By 2012, only -6 -4.5 383 out of every 1,000 adults were depositors in commercial -9 -6.5 banks; banking networks offered of 5.06 commercial bank -9.1 -12 branches and 5.8 ATMs for every 100,000 adults. As seen -12.6 in Figure 7.1.6, there has not been a significant change -15 since 2008. Source: data.worlbank.org Figure 7.1.6: Commercial Bank Network per 100,000 Adults Figure 7.1.8: Domestic Credit to Private Sector (% of GDP) for Selected MENA Countries – 2012 8 80 70 73.3 6 6.13 60 5.74 5.8 Percentage 50 5.07 5.04 5.16 4.87 5.02 5.06 4 40 4.07 30 29.12 2 20 10 12.8 14.5 0 0 Sundan Egypt Morocco Algeria 2008 2009 2010 2011 2012 Source: data.worldbank.org Commercial bank branches per 10,000 adults ATMs per 100,000 adults Source: IMF Financial Access Survey 54 s s s Arab Credit Reporting Guide Table 7.1.1: Penetratration in Formal Financial Figure 7.1.9: Number of Firms and Consumers Listed Institutions (% of Adults) — 2011 in the CdR Accounts 33 800000 705680 700000 600932 Men 46 600000 522562 486013 500000 388924 Women 20 400000 Loans in the past year 1.5 300000 200000 Men 3 100000 28924 30521 37257 42058 46410 0 Women 1 2008 2009 2010 2011 2012 Source: http://datatopics.worldbank.org/financialinclusion/country/algeria Firms Individuals Source: “ACRI Credit Information Sharing Survey,” 2013. 7.1.3 STATUS OF CREDIT database in the CdR. The total number of about 433,000 REPORTING loans listed in CdR, as of 2012, and total value of these OVERVIEW loans is 4.29 trillion Algerian dinars. The Centrale des Risques (CdR) of BA is the only source of The CR electronic system does not indicate the number credit information available to the lenders in Algeria. The of inquiries received annually. The number of online CdR, is a credit registry, originally set up in 1964 by BA to consultations by banks and other financial institutions is supervise all institutions that are part of the financial system, not indicated yearly. by overseeing the risk exposure of the large credit contracts between consumers and financial institutions.128 To support PARTICIPATION AND DATA SHARING the banking system, the banks were subsequently allowed to consult and request information, including borrowers’ Private and public banks, nonbanking financial institutions credit records, contained in the CdR. In 1992, an electronic (such as finance companies), and leasing companies form of the CR was launched, a major milestone for the provide data to the CR and also request information from country’s credit information infrastructure. it. All these financial institutions are regulated by the central bank. Currently, financial institutions are mandated The upgrade of the CR system, however, has not resulted in to supply credit information to the CdR bimonthly. The a significant increase in participation, coverage, or depth of frequency for sharing data is expected to be made monthly. data sharing. The coverage had only reached 2.4 percent of the adult population based on Doing Business Report 2013 CR data includes demographic information, inquiries by (same results for DB14). In 2012, 388,924 individuals and other lenders, loan account data, and payment performance 46,410 firms were listed in the CdR. data for individuals and firms. Positive and negative credit information is available for distribution to the financial The number of individuals listed has decreased since institutions. The positive records are retained for five years 2009, as seen in Figure 7.1.9. This could be a result of that in the CdR database once the account is closed. Negative year’s ban on consumer credit. Since 2009, only mortgage data is also retained for five years from the date of payment. lending has been allowed, thereby significantly reducing the data on individuals’ credit facilities shared by banks. LEGAL FRAMEWORK AND CONSUMER Also, Regulation No. 12-01 (February 20, 2012) stipulates RIGHTS the period of retention for data in the CdR as five years The existing legislation Loi 90-10/1990, Décrets after the elimination of debt for positive data and five years Pres.1504/90 and 14/05/90, 01/07/1991, Ordinance 2003- from the date of payment incident for negative data. 11/2003, empowers BA to create an internal Centrale des Risque. This law also entitles BA to define and implement Thus, the limited data being shared combined with data monetary and credit policies to support a the economy’s deletion after five years has reduced the size of individuals’ 55 s s s 7. Credit Reporting in MENA – Detailed Overview development. BA is the supervisory entity of the credit The regulatory framework of BA allows borrowers to system and establishes the regulations that must be inspect their own data contained in the CR through their followed by the banking system and by the other financial bank. They can check the data on their credit information intermediaries. free of charge; if the borrower believes that his or her data is inaccurate, one can send a letter of dispute to the CR. New regulations or directives can be issued through the On receiving the letter of dispute, the CR then contacts the Conseil de la Monnaie to monitor functions and operations bank in question. The bank checks the data and corrects it, of the CdR, and to lay out the responsibilities and duties as appropriate. of the regulated entities. On March 9, 2008, Instruction No. 01-08/2008 was issued to the lenders to share full ARAB CREDIT REPORTING INFORMATION consumer credit data to the new CdR. Article 5 (Règlement SHARING INDEX 92-01/1992) establishes that BA can communicate the total risk exposure.129 Based on the parameters and subparameters discussed in Chapter 6, the ACRISI score has been determined for The order No. 10-90 (April 14, 1990) on money and credit Algeria, as shown in Table 7.1.2. The index provides a is the legislation that established a CR for firms. Provision snapshot and quantification of the assessment of the credit No. 98 of the Order No. 10-04 (August 26, 2010) amends information sharing system in the country. and supplements Order No. 03-11 (August 26, 2003) on money and credit, which allows the Bank of Algeria to CONCLUSIONS establish and operate a CR for firms and households. n The credit penetration ratio in Algeria scores far below The council of the money and credit (monetary authority) the regional average on each of the parameters indicated has issued new regulation No. 12-01 (February 20, 2012) by the World Bank Doing Business Report for getting on the organization and operation of the CR of firms and of credit; these marks unmistakably show that credit households. This regulation replaces regulation No. 92-01 information sharing still has a long way to go. Results (March 22, 1992) on the organization and functioning of of credit information absence, coupled by outdated risk- the CR that existed in electronic form since 1992. management practice for credit, are quite apparent; n The new initiative undertaken by BA to refurbish its CR The new regulation stipulates that banks and financial represents the first step toward the creation of a full-file institutions (only organizations defined in the banking act information sharing system in the country, an essential as a part of the banking sector) must report monthly to the tool for in-depth and reliable supervision of the credit CR all the data on loans they provide to their customers. system; This regulation cancels the reporting threshold in previous regulations. In addition, this regulation stipulates the right n Based on responses to the survey, there is no specific for borrowers to access, free of charge, their own data. law or regulation governing the credit reporting system. However, the existing laws and the regulations by the Before 2012, only outstanding loans concerning customers central bank provide for the establishment and operation with exposures higher than 2 million Algerian dinars of the CR; were included in CdR. The 2012 regulation removed the n Despite the absence of a specific legal framework, minimum threshold for loans to be reported. Regulated the central bank has ensured that consumer rights are financial entities are required by law to inquire the CR protected through its regulations; before granting a loan. Consumer consent is collected for sharing data with the CR, but consent is not required for n However, collecting consumer consent before contacting inquiry. the CR is not a prevalent practice/obligation; 56 s s s Arab Credit Reporting Guide Information on both consumers and firms is shared. The n BA should also consider that nonfinancial and n minimum threshold limit of 2 million Algerian dinars commercial lenders (such as retailers, supermarkets, for reporting data was removed in 2012, which allows mobile telephone companies, etc.) are important players for sharing information on all loans with the CR. This in consumer credit lending. Therefore, in the medium has led to the increase in the ACRISI score; to long term, the establishment of a CB would be the perfect solution for information sharing across regulated Currently, only regulated entities are participating in the n and nonregulated entities. CR. These institutions are mandated by the regulations to share and inquire with the CR. The CR and CB can then complement each other with n the respective objectives of supervision and credit RECOMMENDATIONS information sharing for risk assessment; For an effective credit reporting system that enables n Diminishing dominance of collateral for retail loans n information sharing across sectors, the central bank is paramount. New credit products and small ticket should move toward setting up the framework for portfolios cannot be managed with the conventional private bureaus in the country. approach—hence the need for different, technological and informational infrastructure as well as for state- The first step in this process would be the creation of n of-the-art risk-management techniques and skills a specific legal and regulatory framework. CBs play an not commonly employed by the Algerian banking essential role in facilitating credit information sharing system. The introduction of credit scoring and related across regulated as well as non-regulated entities and technologies (monitoring, account management, are proven to increase access to credit; collection strategies, etc.) should become paramount New norms regulating data privacy may be necessary n for managing the risk of retail and small and medium in the future as a consequence of the evolution of credit enterprises’ portfolios. and privacy in Algeria; 57 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.1.2: Arab Credit Reporting Information Sharing Index — Algeria ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? NO NO Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? NO NO Entities in the country participating in CIS Are regulated entities participating? YES YES Are non-regulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? NO YES Does the principle of reciprocity apply? YES YES Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 11 12 58 s s s Arab Credit Reporting Guide Al Muharraq Al Budayyi' MANAMA BAHRAIN 'Ali Marquban Umm an Na'san Ar Rifa' Al Malikiyah ash Sharqi Az Zallaq SAUDI ARABIA Capital Manama G u lf o f B a h r a in Q ATA R Currency Bahraini Jazirat Al Dawakhil Dinar (BHD) Hawar Islands USD/BHD 0.377 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41503, March 2015. 7.2 BAHRAIN The population of the country was 1.19 million in 2011. The number of expatriates in the country was over 7.2.1 ECONOMIC OVERVIEW 0.6 million in 2011, comprising 51 percent of the total population. Women accounted for about 38 percent of the Bahrain is one of the most diversified economies in the total population. Figure 7.2.2 indicates the male and female Persian Gulf. With highly-developed communication population from 2008 to 2011. GDP per capita in 2011 was and transport facilities, Bahrain is home to numerous 9,174 Bahraini dinars. This has increased at an average of multinational firms that conduct business in the Gulf. 7 percent annually from 2008 to 2012—from 7,527 Bahrain’s economy, however, continues to depend heavily Bahraini dinars in 2008 to 9,311 Bahraini dinars in 2012. on oil. Petroleum production and refining account for more than 60 percent of Bahrain’s export receipts, 70 percent of Inflation rates for consumer prices have decreased from government revenues, and 11 percent of GDP (exclusive of 7 percent in 2008 and have remained low in the past few allied industries). Other major economic activities include the production of aluminium – (Bahrain’s second biggest Figure 7.2.1: GDP Performance export after oil), finance, and construction. Despite the 12 25 Bahraini Dinars Billions uncertain global economic situation, the Bahraini economy 10 20 Percentage remained stable due to steady progress across the non-oil 8 15 6 sectors of the economy.130 10 4 2 5 In 2012, Bahrain’s GDP stood at 11.41 billion Bahraini 0 0 2008 2009 2010 2011 2012 dinars, increasing 4.11 percent from 10.96 billion Bahraini GDP at Current Prices GDP per Capita dinars in 2011. However, the rate of growth has declined GDP Growth Rate over the past few years, as seen in Figure 7.2.1. Source: Central Bank of Bahrain Economic Indicators - March 2013 and December 2011 59 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.2.2: Population for maintaining monetary and financial stability in the 1,400,000 country.131 Figure 7.2.4 below gives an overview of the 1,200,000 country’s credit market. 1,000,000 800,000 600,000 In recent years, Bahrain has rapidly become a global leader 400,000 in Islamic finance, hosting the largest concentration of 200,000 0 Islamic financial institutions in the Middle East. There 2008 2009 2010 2011 are seven Islamic insurance companies (takaful) and Total Male Female two reinsurance (re-takaful) companies operating in the Source: Central Bank of Bahrain Economic Indicators, June 2013. http://www.indexmundi.com/g/g.aspx?c=ba&v=71. kingdom. In addition, Bahrain is at the forefront of the market for Islamic securities (sukuk), including short-term Figure 7.2.3: Inflation (CPI) government sukuk well as leasing securities. The central 8 7 bank has played a leading role in the introduction of these innovative products.132  6 Percentage 3.3 3 4 2.8 Figure 7.2.4: Credit Market 2 -0.4 Number of Institutions 60 0 50 53 2008 2009 2010 2011 2012 40 -2 30 Source: Central Bank of Bahrain Economic Indicators, June 2013. http://www.indexmundi.com/g/g.aspx?c=ba&v=71. 20 22 18 10 6 8 0 2 years. As per the Bahrain Economic Quarterly bulletin, Conventional Conventional Retail Wholesale Islamic Retail Islamic Finance Wholesale Companies Microfinance Banks consumer price index (CPI) inflation was estimated at Banks Banks Banks Banks 3 percent in 2012. Figure 7.2.3 shows the CPI trend from Source: CBB Register, Central Bank of Bahrain, October 31, 2013. 2008 to 2012. Banking 7.2.2 CREDIT MARKET Bahrain’s banking system, the largest component of the country’s financial system, consists of both conventional OVERVIEW and Islamic banks. With assets worth $193.5 billion, Bahrain’s financial sector is developed and diversified, and this sector accounts for over 85 percent of total financial therefore well-positioned to offer a wide range of financial assets.133 Retail banks have strongly supported the rebound products and services. in economic activity with a significant increase in lending. In general, these banks are in healthy shape; after a period This sector consists of a wide range of conventional and of elevated risk aversion, they have remobilized their Islamic financial institutions and markets, including liquidity. Although the year-on-year increase in bank retail and wholesale banks, specialized banks, insurance lending has slowed, it remains comfortable.134 companies, finance companies, investment advisers, money changers, insurance brokers, securities brokers, Islamic finance activities has gained popularity in Bahrain. and mutual funds. There are also two licensed exchanges, In paricular, the growth of Islamic banking has been a licensed clearing, settlement and central depository, four remarkable, with total assets jumping from $1.9 billion stock brokers, a licensed securities dealer, fifteen licensed in 2000 to $25.4 billion in August 2012, an increase of securities broker dealers, and six licensed securities clearing more than 12-fold. The market share of Islamic banks members. The Central Bank of Bahrain is the single correspondingly increased from 1.8 percent of total banking integrated regulator of the financial system, responsible assets in 2000 to 13.3 percent in August 2012. Islamic 60 s s s Arab Credit Reporting Guide banks provide a variety of products, including murabaha, Figure 7.2.6: Bank Lending by Sector (%) – 2012 ijara, mudaraba, musharaka, al-salam and istitsna’a, as Personal 2.88 well as restricted and unrestricted investment accounts, syndications, and other structures used in conventional finance, which have been appropriately modified to comply Government with Shariah principles.135 Business 34.57 62.53 The banking sector comprises 22 conventional retail banks that operate through a network of 102 branches and 53 conventional wholesale banks. These include domestic Source: Annual Reports, Central Bank of Bahrain, 2008–2012. and foreign banks. Six retail banks, operating through a network of 44 branches and 18 wholesale banks, follow Figure 7.2.7: Microfinance Lending Islamic principles. 1800 Bahraini Dinars in Thousand 1600 1400 At the end of 2012, retail banks’ outstanding loans to 1200 residents totalled 6.84 billion Bahraini dinars, marking a 1000 800 growth of 6.27 percent, from 6.44 billion Bahraini dinars 600 in 2011 (as shown in Figure 7.2.5). Lending to the business 400 200 sector constituted 62.53 percent of total bank lending in 0 2012, with an exposure of 4.28 billion Bahraini dinars.136 2010 2011 2012 Personal credit, including loans to individuals, averaged Family Bank Ebdaa Bank for Microfinance 34.57 percent of total bank lending in 2012, as shown in Source: Annual Reports, Al Ebdaa Bank, 2008–2012. Annual reports, Family Bank, 2010–2012. Figure 7.2.6; this is the single largest sector for bank loans. In 2012, bank exposure to this sector was 2.36 billion Bahraini dinars. the Al Ebdaa Bank has served about 3,150 clients with 4.87 million Bahraini dinars; from its managed portfolio, Figure 7.2.5: Outstanding Loans and Credit Facilities it served about 1,900 clients with 6.4 million Bahraini dinars.138 8 The Family Bank provides support to microentrepreneurs 6 through two programs; in the past three years, it has BD Billion 4 reached more than 1,100 customers. The bank has played a significant role in providing women entrepreneurs with 2 access to finance. From 2010 to 2012, the number of women borrowers has been higher than men, representing 0 2008 2009 2010 2011 2012 almost 64 percent of the total borrowers in that period, as seen in the Figure 7.2.8.139 Source: Annual Reports, Central Bank of Bahrain, 2008–2012. CREDIT PENETRATION AND ACCESS Specialized Institutions The World Bank’s 2013 Doing Business Report, which There are two specialized banks catering to the needs of the measures the ease of getting credit as well as the credit microfinance sector, Family Bank and Al Ebdaa Bank for information system and legal framework, ranked Bahrain Microfinance. They granted 2.36 million Bahraini dinars of 129 out of 185 countries. Bahrain falls just below the credit facilities to borrowers in 2012, an increase of 26.88 regional average of 128, as shown in Figure 7.2.9. (DB14, percent from 2011’s level of 1.86 million Bahraini dinars, ranked 130) as seen in Figure 7.2.7.137 Through its various products, 61 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.2.8: Family Bank – Borrower Portfolio Figure 7.2.11: Domestic Credit to Private Sector (% of GDP) for Selected MENA Countries – 2012 400 80 300 70 60 200 59.1 40 100 41.2 37.6 36.1 20 0 2010 2011 2012 0 Male Female Oman Qatar Saudi UAE Bahrain Source: Annual Reports, Al Ebdaa Bank, 2008–2012. Annual reports, Family Bank, Arabia 2010–2012. Source: data.worldbank.org. “Financial Inclusion: Bahrain,” The World Bank, accessed September 14, 2014. http://datatopics.worldbank.org/financialinclusion/country/bahrain. Figure 7.2.9: Getting Credit Rank – 2013 Table 7.2.1: Penetratration in Formal Financial 120 Institutions (% of Adults) — 2011 Accounts 65 125 MENA 128 129 Average Men 79 130 Women 49 135 Loans in the past year 22 Men 36 140 MENA Region Bahrain Women 6 Source: Doing Business Report, The World Bank, 2013. Source: data.worldbank.org. “Financial Inclusion: Bahrain,” The World Bank, accessed September 14, 2014. http://datatopics.worldbank.org/financialinclusion/country/bahrain. Domestic credit to the private indicates that access to credit percent of women have an account with a formal financial was 70 percent, sector as a percentage of GDP, in 2012. institution. The percentage of adults that took a loan in As seen in Figure 7.2.10, this ratio decreased from a high 2011, however, was only 22 percent; just six percent of 84.8 percent in 2009 to 67.7 percent in 2010; the trend has women took a loan. slowly increased since. In terms of access to credit, these ratios suggest that Bahrain is one of the better performing 7.2.3 CREDIT REPORTING SYSTEM countries in MENA. Figure 7.2.11 shows a comparative chart for selected MENA countries. OVERVIEW Table 7.2.1 shows the financial access indicators in terms Bahrain’s credit reporting system relies entirely on the formal financial institutions’ accounts and loans . The presence of a CB, according to the World Bank report, percentage of adults with an account was 65 percent in The Status of Information Sharing and Credit Reporting 2011, which is relatively high in the region. Forty-nine Infrastructure in the MENA Region.140 However, the Central Bank of Bahrain maintains a repository of credit information supplied by regulated financial and other Figure 7.2.10: Domestic Credit to Private Sector (% of GDP) entities. Thus, the CR is mainly used for supervisory 100 75.4 84.8 purposes. 67.7 68.9 70 80 60 The Benefit Company is the first and only Bahraini company 40 to undertake credit bureau operations in the country. 20 Established in 1997 as the National ATM and Point of Sale 0 switch of Bahrain, the Benefit Company provides a range 2008 2009 2010 2011 2012 of services for the banking and financial system.141 In 2004, Source: data.worldbank.org the company established a credit bureau service, or the 62 s s s Arab Credit Reporting Guide Credit Reference Bureau (CRB), which started operations PARTICIPATION AND DATA SHARING144 in 2005. It is licensed and supervised by the Central Bank of Bahrain. It was intended to ease consumer lending by The credit reporting system in Bahrain mandates financial gathering relevant information from records submitted by institutions’ sharing and inquiry of credit information to the lenders and standardizing the data, thus making the process CR, as instructed by the central bank and to the CB, as per more efficient.142 the Code of Conduct. The bureau initially started its operations with individuals’ The institutions that provide data to the central bank’s credit information. In March 2013, The Benefit Company CR include regulated entities, such as the private, public, began working with the Central Bank of Bahrain to launch and specialized banks as well as credit unions. Data on a corporate credit reference bureau. This is a major step individuals and firms is shared. All loans (irrespective of toward enhancing bank’s efficiency and decision-making amount) and all information (negative and positive) are capabilities by drastically reducing the risk of corporations’ included in the CR. unknown credit history. The CRB now has complete The aforementioned financial institutions can access data information on individuals and corporates in its database. from the CR. In addition to these institutions, the CB With the increase in operations of the bureau and expansion can also access the CR database. In 2012, the number of in data size, the company has also upgraded its CRB inquiries received by the CR increased 50 percent, from hardware infrastructure and platform. With new hardware 7,200 in 2008 to 14,400 in 2012, as shown in Figure 7.2.13. technology, the platform has enabled CRB to increase its performance and capacity, which serve as the basis for Figure 7.2.13: Number of Inquiries to the PCR upgrading CRB application and adding new services and 15000 features.143 10000 The bureau has made progress in achieving stability and proficiency in its operations and services. Over the past 5000 five years, the number of individuals in the CB increased 0 39 percent, from 296,339 in 2008 to 411,965 in 2012, as 2008 2012 shown in Figure 7.2.12. Source: ACRI Credit Information Sharing Survey, January 2013. The CB also offers value-added services for its members. Traditional data providers also share information with the Credit bureau scores are derived from available data for CB, including commercial banks, development banks, each consumer. It also provides portfolio monitoring finance and leasing corporations, credit card issuers, and services. microfinance institutions. Loan repayment details are also shared by retailers to the CB. Figure 7.2.12: Number of Individuals in the PCB 500000 As mentioned in the previous section, only data on individuals is currently shared. The corporate credit bureau 400000 was not yet operational in 2012. Data on individuals 300000 includes information on demographics, loans, and payment 200000 performance. Detailed monthly payment histories are also collected for up to 60 months. There is no minimum loan 100000 amount requirement for sharing data; negative and positive 0 data is shared. 2008 2009 2010 2011 2012 Source: ACRI Credit Information Sharing Survey, January 2013. 63 s s s 7. Credit Reporting in MENA – Detailed Overview The CB issues credit reports to participating members. Access to data from the CR is free of cost. The CR is The number of reports increased from 199,785 in 2011 to mainly for supervisory purposes, however, and consumers 217,935 in 2012; Figure 7.2.14 shows the numbers from primarily use the CB for access to credit reports. 2008 to 2012. For inquiring about a consumer from the CB, the lending Figure 7.2.14: Number of Credit Reports by the PCB institution must obtain written consent from the borrower. The code clearly states: 250000 200000 “Only after the customer has given an approval for 150000 the information to be shared with a Contributing 100000 Member can the release of such information be 50000 given.” 0 2008 2009 2010 2011 2012 Consumers can also raise disputes to correct data. The Source: ACRI Credit Information Sharing Survey, January 2013. CB has established a procedure for raising disputes and information, which is easily available to consumers. LEGAL FRAMEWORK AND CONSUMER RIGHTS ARAB CREDIT REPORTING INFORMATION There is no specific law or regulation for credit information SHARING INDEX sharing. The Benefit Company, which is supervised by Based on the parameters and subparameters discussed the central bank, established a code of practice for all in Chapter 6, the ACRISI score has been determined for participants to the Bahrain Credit Reference Bureau. The Bahrain, as shown in Table 7.2.2. The index provides Central Bank of Bahrain recognizes this code, which can a snapshot and quantification of the credit information be considered to be the official guidelines for information sharing system in the country. sharing with the CB. The code details the objectives and guidelines for the bureau’s operations and ensures that all CONCLUSIONS contributing members are treated fairly and identically; and that all information is secure and accurate. The code n Bahrain has a strong financial system and high access to describes permissible usage of consumer data, rules banking and credit. This is supported by a comprehensive for access, type of data to be reported, etc. It also notes and developed credit reporting framework, indicated by consumer’s rights with respect to the bureau. a high ACRISI score; n Although no specific credit information law has “The information to be provided to authorised Users been enacted in Bahrain, a detailed code of practice is for reference only and should only be used as part encompasses all requirements for a good regulatory of the credit decision process and does not constitute framework. a decision.” n Consumer rights are protected and ensured through the The credit reporting framework provides essential code of conduct. Consumer consent is collected before consumer rights. Bahrain scores high in the consumer the first inquiry by the CB; rights section of ACRISI. The code of practice clearly n Usage of the credit information system has been defines a consumer’s right to obtain his or her credit report, increasing. The corporate bureau will lead to a complete and raise disputes with the bureau to correct information. and comprehensive database for credit information Borrowers can also inspect their own data in the CR and regarding individuals and firms. It will strengthen the also raise disputes if such data is incorrect (according to credit reporting framework and the banking system; ACRI Credit Information Sharing Survey, January 2013). 64 s s s Arab Credit Reporting Guide All institutions, except for utility companies, share data n RECOMMENDATIONS with the CR or CB; The CB should include data from utility service n All parameters are satisfied under depth of data sharing n providers to complete its database; and reporting, indicating a comprehensive database; A specific, modern credit reporting law would further n The CB has started providing a credit score to users n strengthen the credit reporting system and enable the since 2008. establishment of other CBs; The central bank and the CB should undertake awareness n and education drives for lenders and borrowers on all aspects of information sharing, such as purpose, benefits, usage, rights, obligations, etc. 65 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.2.2: Arab Credit Reporting Information Sharing Index — Bahrain ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? YES YES   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? YES YES   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? YES YES Are utility entities participating? NO NO Are MFIs participating? YES YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO YES Is cross border data sharing allowed? YES YES ACRISI score 18 19 66 s s s Arab Credit Reporting Guide Mediterranean Sea Marsa Matruh Alexandria Damietta Port Said ISRAEL EGYPT JORDAN Suez CAIRO El Faiyum El Tur SAUDI El Minya ARABIA Ni L I B YA Al Ghurdaqah le Assuit Qena Re El-Kharga Luxor d Aswan Capital Cairo Se Currency Egyptian a Lake Pounds (EGP) Nasser SUDAN USD/EGP 6.96 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41504, March 2015. 7.3 EGYPT In fiscal year 2008–2009, the Egyptian economy was affected by the global financial crisis. As a result, the real 7.3.1 ECONOMIC OVERVIEW GDP growth rate declined to 4.7 percent, from 7.2 percent during the previous year. In FY10-11, the rate declined The Egyptian economy was one of the Middle East’s most further to 1.8 percent, as a result of the weak performance versatile economies. The economy depends primarily on of all economic sectors in the wake of the January 2011 agriculture, Suez Canal revenues, tourism, and remittances uprising, as shown in Figure 7.3.1. In FY11-12, there was a from more than 3 million Egyptians abroad (mostly in relative recovery as the real GDP rate marginally increased Australia, Europe, the Gulf States, and the United States). to 2.2 percent; it remained at that level in FY12-13.147 Egypt’s economy was adversely affected by the global financial crisis of 2008 and soaring food prices, especially Figure 7.3.1: GDP Performance of grain. Egypt’s gains from economic growth benefited 500 30 the rich and increased the poverty level to approximately 400 25 EGP Billion Percentage 50 percent in 2011, leading to socioeconomic and political 20 300 instability, culminating in the popular uprising of January 15 200 10 2011.145 100 5 0 Revenues from tourism and foreign investments—the 0 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 major sources of foreign exchange—reduced due to GDP Annual Growth Rate (%) domestic instability and continued political uncertainty. Real GDP Growth Rate (%) Despite efforts to make the economy more market-oriented, Source: Annual Reports, Central Bank of Egypt 2008–2012. Economic Review, Central Bank of Egypt, Vol. 53 No. 3, 2012–2013. the socialist policies still continue; the government heavily subsidizes food, energy, and other key commodities.146 67 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.3.2: Population and Per Capita Income 100 20,000 90 17,500 80 15,000 70 60 12,500 Million EGP 50 10,000 40 7,500 30 5,000 20 10 2,500 0 0 2008 2009 2010 2011 2012 2013 Total 74.43 76.09 77.84 79.61 81.56 83.66 Males 38.03 38.9 39.79 40.7 41.67 42.72 Females 36.4 37.19 38.04 38.91 39.89 40.94 Per Capita Income 11,862 13,575 15,454 17,269 19,106 Source: Central Agency for Public Mobilization and Statistic, Egypt. data.worldbank.org. *Population data is as of January 1 for each year. As of 2013 the population of the country was over 83.66 the Capital Market Authority, and the Mortgage Finance million, growing from 81.56 million in 2013 As shown in Authority. EFSA is responsible for the supervision of Figure 7.3.2, the female and male population was 40.94 nonbank financial markets and instruments; it is tasked million and 42.72 million, respectively, in 2013. The GDP with ensuring market stability, regulating activities, and per capita was $3187 or 19,281 Egyptian pounds in 2012.148 maximizing competitiveness to attract more local and foreign investments.150 7.3.2 CREDIT MARKET The financial sector in Egypt suffered over the years from OVERVIEW public sector dominance. Public banks did not adhere to international best practice and accumulated nonperforming The Central Bank of Egypt (CBE) is the overseeing loans. Private banks also operated in a non-competitive bank governed by the Banking Law 88 of 2003. It was environment that led to inefficient banking practices and established to supervise the banking system, undertaking limited access to financial services. Nonbanking institutions any measures required for implementing monetary, credit, lacked a regulatory environment and effective monitoring and banking policies. of the financial market.151 The Egyptian banking sector comprises three state-owned In order to overcome these challenges, the Egyptian commercial banks, two specialized public sector banks, government launched a financial sector reform program in and one bank owned by the CBE. It also includes 32 banks two phases (phase I, 2004–2008; phase II, 2009–2011), comprising of private banks, joint venture banks, and which aimed to: branches of foreign banks, in addition to 21 representative n Reform the banking sector through consolidation, offices of foreign banks operating in the country.149 The divestment, privatization, and restructure of state-owned financial sector also features microfinance institutions, banks; mortgage finance companies, and financial leasing companies. n Restructure and redevelop the nonbanking sector, notably the capital market and the mortgage and In order to provide a more conducive regulatory framework insurance sector; to oversee financial services, the Egyptian Financial n Implement Basel II accord; Supervisory Authority (EFSA) was established in 2009; it replaced the Egyptian Insurance Supervisory Authority, n Strengthen governance of the Central Bank of Egypt and commercial banks.152 68 s s s Arab Credit Reporting Guide The Egyptian financial sector could withstand the global Figure 7.3.3: Number of Loans (Million) financial crisis due to low level of financial integration with 3 the international financial system. Also the financial reforms 2.5 that were undertaken over the past few years enabled it to 2 absorb the shock of the revolution and political instability 1.5 in 2011.153 1 0.5 With a major thrust on the privatization program, banks 0 have started exploring new investment areas to diversify 2008 2012 Outstanding Loans Loans to New Clients their portfolios and lower their financial risks. Most banks Source: ACRI Credit Information Sharing Survey, 2013. have expanded by providing non traditional services such as brokerage, investment consultations, asset valuation Figure 7.3.4: Value of Loans and sales and mutual fund operations which also helped 1000 improve capital market services.154 800 EGP Billion 600 The country’s three largest banks are state-owned, 400 commercial banks (National Bank of Egypt, Banque Misr, 200 and Banque du Caire), accounting for more than half of 0 2008 2012 bank assets.155 Outstanding Loans Outstanding Loans to New Clients Loans with Collateral Loans Without Collateral Credit to the private sector averaged at 93 percent of the Source: Central Bank of Egypt. ACRI Credit Information Sharing Survey, 2013. total credit during FY10-11 and FY11-12. As shown in Table 7.3.1, the total credit facilities to the private sector Islamic Finance grew 36 percent, increasing from 336.4 billion Egyptian Egypt has 39 banks operating in the country. Fourteen pounds in 2008 to 459 billion Egyptian pounds in 2013. banks have Islamic banking licences, but only three are As of June 2012, the loan-to-deposit ratio stood at 49.5 full-developed Islamic banks. The central bank has not percent.156 granted new Islamic banking licences to banks or new As seen in Figures 7.3.3 and 7.3.4, the number of entrants.158 However, there could be a new trend toward outstanding loans increased significantly, from 1.38 million more Islamic and Shariah-compliant financial products.159 in 2008 to 2.52 million in 2012; their value increased from Microfinance Institutions 605 billion to 806 billion Egyptian pounds, or 83 percent and 30 percent respectively. Similarly, there has been a The microfinance industry is a key player in the credit 54 percent increase in the number of loans granted to new market, providing credit services to the poor as well as small clients. The value of outstanding loans in the same category, and medium enterprises unable to access to formal credit however, has reduced by 17 percent. As a percentage of institutions. There are two types of lending: individual GDP, outstanding loans have fallen from 69.2 percent in and group lending. In addition to credit services, saving 2008 to 52.2 percent in 2012.157 and deposit services are also offered by National Postal Table 7.3.1: Credit Industry Performance and Access to Credit (In EGP Millions) Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Lending and discount to private businesses 258,086 267,885 287,148 284,755 304,386 331,153 Household sector 78,332 84,588 92,792 99,207 112,427 127,968 Total credit to private sector 336,418 352,473 379,940 383,962 416,813 459,121 Source: ACRI Credit Information Sharing Survey, 2013. 69 s s s 7. Credit Reporting in MENA – Detailed Overview Authority. State-owned insurance companies are the main Figure 7.3.5: Value of Mortgage Finance Loans (EGP Million) providers of insurance to cover microfinance institutions’ 6000 risk of default in the case of a borrower’s death, but not as 5000 stand-alone products.160 4000 2170 1778 3000 1314 1882 Presently, there are two microfinance institutions, four 831 2000 banks, and the Egyptian Microfinance Network (including 2429 2089 2466 2623 2623 1000 16 214 355 1804 23 NGOs that are the primary microfinance providers in 90 500 1014 0 the country, contributing to approximately 70 percent 05 06 07 08 09 10 1 2 /20 /20 /20 /20 /20 /20 r-1 r-1 of businesses). In addition, there are number of NGOs 4 5 6 7 8 9 Ma Ma 200 200 2 00 200 200 200 or community development associations that are not Mortgage Finance Companies Banking members in the microfinance institution network but offer Source: http://www.investment.gov.eg/en/Investment/Documents/Financial.pdf microfinance programs.161 Prior to 2008, Egypt progressed significantly in the area Financial Leasing Companies of microfinance; it was ranked first among Arab countries Bank subsidiaries and specialized companies lease real in terms of the number of microfinance clients. By end of estate, equipment, production lines, aircrafts, and more. As 2008, microlending portfolios reached 2.2 billion Egyptian of 2009, there were 10 major market players, accounting pounds, second only to Morocco among Arab countries.162 for more than 90 percent of the newly booked contracts in As seen in Table 7.3.2, the numbers continued to grow the market. Financial leasing in Egypt has made a great leap until 2010, but then showed a decline in 2011 because of forward, with a growth rate of 44 percent, from 2.5 billion the uprising’s influence on microfinance sector. The loan Egyptian pounds in 2004 to 3.6 EGP billion in 2009, as portfolio, however, remained the same. shown in Figure 7.3.6. There was volatility in the following years until the 2009 financial crisis hit. Since 2010, major Table 7.3.2: Microfinance Lending investment has been in the real estate sector.164 Gross loan Number of % of Year borrowers portfolio women Nonperforming loans (EGP Billion) 2008 1,148,621 2.2 66 As a result of skewed lending practices and insufficient 2009 1,422,409 2.6 58 loan screening procedures, nonperforming loans were a 2010 1,493,371 2.6 48 major concern for the banking sector. In its first phase of 2011 1,389,139 2.6 48 financial reforms (2004–2008), the central bank attempted Source: Sanabel, The Microfinance Network of Arab Countries, 2008-2011. to address this issue. The central bank and Egypt’s credit Figure 7.3.6: Development of Leasing Market Mortgage Finance Companies 4,500 Value of Contracts (EGP mn) There are 13 mortgage finance companies in addition to 4,000 3,500 the Egyptian Mortgage Refinance Company (EMRC) Number of Contracts 3,000 and 19 banks that offer mortgage finance. In 2012, the 2,500 mortgage finance provided by companies grew about 24 2,000 1,500 percent to 2.1 billion Egyptian pounds, compared to 1.7 1,000 billion Egyptian pounds during 2011, as shown in Figure 500 7.3.5. In 2012, the total value of mortgage loans extended 0 2004 2005 2006 2007 2008 2009 by banks and mortgage finance companies was about 4.7 Value of Contacts Number of Contracts billion Egyptian pounds, compared to 4.2 billion Egyptian Source: “Market Review,” Egyptian Leasing Association, acessed September 14, 2014. pounds in 2011.163 http://ela-egypt.com/publications.html. 70 s s s Arab Credit Reporting Guide bureau I-Score created an effective credit information write-offs, and offering emergency loans) will likely system, which reduced NPLs to a large extent. As a result, address rising NPLs.167 the NPL ratio which was at peak of over 25 percent in 2004, dropped to 14.8 percent in 2008 and 10.7 percent in CREDIT PENETRATION AND ACCESS 2012, as shown in Figure 7.3.7.165 The 2013 Doing Business Report by the World Bank After the uprising of 2011, economic activities slowed ranked Egypt 82 out of 185 countries in the Getting Credit down. Key sectors such as tourism, construction, mining, Indicator, as shown in Figure 7.3.8. This is higher than the and manufacturing have suffered greatly. Takeovers regional average of 128. (DB14, ranked 86) of assets, transfers of properties, and falling value of collaterals are expected to lead to higher levels of NPLs.166 Figure 7.3.8: Getting Credit Rank – 2013 60 82 Figure 7.3.7: Bank Nonperforming Loans to 80 Total Gross Loans (%) 100 16 MENA 14 128 Average 120 12 14.8 13.4 13.6 10 140 10.9 10.7 8 MENA Region Egypt 6 4 Source: Doing Business Report, Egypt 2013. 2 0 2008 2009 2010 2011 2012 As a result of reforms, banking moved from a state- Source: data.worldbank.org dominated sector to a more effective, private banking system. These reforms strengthened the banking sector Nonperforming Loans in the and increased access to finance substantially in terms Microfinance sector of lending, deposit-taking, and physical access through Over the past three to four years, the quality of microfinance banks and ATMs. From 2006 to 2012, the number of portfolios has deteriorated significantly. Several factors branches increased from 1,795 to 2,626, growing by 46 contributed to this deterioration, such as inadequate percent, and the number of ATMs increased from 1,288 risk-management systems and internal organization to 6,115, growing by 375 percent.168 Thus, the amount of weaknesses, combined with unhealthy lending practices commercial bank branches per 100,000 adults increased by microfinance institutions. This has led to multilending from 4.48 in 2008 to 4.69 in 2012, according to the IMF or cross-lending (lending by other sectors, such as banks), Financial Access Survey. Likewise, ATMs increased from which has caused over-indebtedness and high NPLs. 6.51 per 100,000 adults in 2008 to 10.58 in 2012, as shown in Figure 7.3.9. Microfinance is one of the sectors that suffered most as a result of 2011 uprising. Handicrafts, manufacturing Figure 7.3.9: Commercial Bank Network per 100,000 Adults activities, and tourism have been adversely affected, which 15 has resulted in the loss of business activity and higher NPLs. 10 The 2012 initiative undertaken by I-Score and the 5 Egyptian Microfinance Network to integrate microfinance institutions data into the I-Score database will likely reduce 0 over-indebtedness. Similarly, the measures undertaken 2008 2009 2010 2011 2012 by the microfinance institutions (such as deferring or Bank Branches ATMs rescheduling loan repayments, complete or partial loan Source: Financial Access Survey, IMF. 71 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.3.3 shows the financial access indicators in terms on commercial banks for funding. Banks are not keen on of formal financial institutions’ accounts and loans. In extending microfinance due to limited branch networks, 2011, only 10 percent of of adults had an account, which is lack of infrastructure, and the perceived risk in lending. The relatively low for the region. The percentage of adults who penetration rate was about 33 percent, leaving a potential have taken a loan in the last year was lower, at 4 percent. client base of about 4.8 billion customers, according to Egypt has a long way to go to in increasing access to Sanabel’s 2009 country report.170 finance; measures need to be undertaken at various levels to reach new customers. Major factors for the microfinance institutions’ restricted Table 7.3.3: Penetration in Formal Financial access to finance are the lack of a uniform regulatory Institutions (% of Adults) — 2011 authority, competition among microfinance entities, limited access to funding, constraints that limit products, and Accounts 10 nonperforming loans.171 To increase the financial inclusion, Men 13 Egypt needs a conducive regulatory environment, Women 7 institutional and operational linkages between banks, Loans in the past year 4 formal financial services providers, informal microfinance Men 5 institutions, and greater participation by the credit bureau.172 Women 3 Source: http://datatopics.worldbank.org/financialinclusion/Country/Egypt Although financial leasing has been undertaken since 1995, there has not been much success due to legislative With a loan-to-deposit ratio of 47.5 percent in December and logistic obstacles along with limited awareness. It does 2012, the banking sector is enjoying ample liquidity. not significantly contribute to the GDP, as bank loans are Major banks prefer to offer credit to bigger companies still considered the most attractive funding tool. Given the and the government rather than to small and medium change in regulation (notablly, the launch of EFSA) and enterprises. Access to finance remains a problem for small increasing demand for credit, this market may rebound.173 and microenterprises, which account for about 90 percent of businesses. Credit to the private sector is rising, but 7.3.3 STATUS OF CREDIT it is showing a declining trend as a percentage of GDP (see Figure 7.3.10). Penetration of bank credit has decreased REPORTING to low levels. OVERVIEW Figure 7.3.10: Domestic Credit to Private Sector The Central Bank’s Credit Registry (CR) was established (% of GDP) in 1957 to assist public and private banks. Banks were 50 42.8 required to report borrowers’ negative data related to 36.1 40 33.1 31.2 29.1 credit facilities provided, with a threshold of over 40,000 30 Egyptian pounds. In 2002, the registry was automated 20 10 but had limited use as combined exposures, multiple 0 lending, and loans below the threshold were not reported. 2008 2009 2010 2011 2012 Nonbanking institutions lacked access to the CR. Source: data.worldbank.org In 2004, the Central Bank of Egypt considered two options: The financial system, and especially the banking sector, Upgrade operations of CR; needs to be more inclusive and continue to strengthen n regulatory and supervisory frameworks.169 n Encourage the establishment of a private credit bureau. Microfinance is mainly provided by non government As a first step, CBE expanded credit data by reducing the organizations, which are solely funded by grants. Large threshold limit, sharing positive data as well as delinquent NGOs have major market shares as they are dependent 72 s s s Arab Credit Reporting Guide credit card data, and including leasing and mortgage Figure 7.3.11: Individuals and Firms in the PCR companies. 3000000 2500000 However, in 2005, law 93 of 2005 authorized CBE to issue 2000000 the license for a credit bureau.174 The first credit bureau 1500000 was established in 2005 as the Egyptian Credit Bureau 1000000 I-Score (formerly Estealam) and became fully operational 500000 in 2008. The founders and shareholders consist of 25 banks 0 and the Social Fund for Development. 2008 2009 2010 2011 2012 Individuals Firms I-Score successfully established a transparent and advanced Source: Credit Information Sharing Survey, ACRI, 2013. credit reporting service that offers services in both Arabic and English by working closely with the Central Bank of national identification checks, bankruptcy inquiry through Egypt, IFC, the financial community, and an experienced peer-to-peer systems, bulk inquiries, etc. technical partner, Dun & Bradstreet South Asia Middle East Limited. Since its inception, I-Score’s data center has I-Score seeks to introduce the following new products to its vastly expanded to include 8.8 million data records, nearly members in 2013 to 2014: a tenfold increase from its baseline of 0.9 million borrower n Link between Egyptian Civil Authority and banks records initially held by the Central Bank of Egypt’s credit through I-Score, which is currently operational with registry.175 10 Banks; I-Score listed about 10 million borrowers as of December n Application scoring for new credit customers, which is 2012, as seen in Table 7.3.4. Individuals constituted currently operational with one bank; 99 percent of customers, an increase of 156 percent as n Self inquiry via web, using digital signature; compared to 2008. The CR had 2,524,927 borrowers listed n Self inquiry via bank portals; as of 2012, an increase of 82.6 percent as compared to 2008 (see Figure 7.3.11).176 n Self inquiry via ATM machines; Negative list development; Value-Added Services n n Basel II compliance; I-Score provides accurate information to finance providers that is relevant to the history and payment habits of existing n Collateral registry, which will require new legislation. and prospective clients, enabling finance providers to assess the creditworthiness of clients. Besides basic credit I-Score is also in the process of establishing the first reports and scores, I-Score provides risk-management small and medium enterprise rating company, Nile Rating tools to lenders such as management information system Company, in which I-Score will have 74.8 percent stake; reports, account-monitoring alerts, portfolio reviews, bank- the remaining holding will be by 22 Egyptian banks. authorized signature verifications, fraud suspect reports, Table 7.3.4: I-Score Database 2008 2009 2010 2011 2012 Consumers 3,853,643 5,735,771 7,254,378 8,621,686 9,893,264 SMEs 40,678 57,294 78,583 91,991 103,534 Total Number of Credit Customers 3,894,321 5,793,065 7,332,961 8,713,677 9,996,798 Source: Credit Information Sharing Survey, ACRI, 2013. 73 s s s 7. Credit Reporting in MENA – Detailed Overview Challenges Faced by the Credit Information PARTICIPATION AND DATA SHARING System Egypt’s credit reporting system is based on a direct sharing I-Score’s is playing a vital role in advancing Egypt’s credit model, as shown in Figure 7.3.12. The CIS does not require information system. However, there are few loopholes that the involvement of the central bank since information need to be addressed to increase effectiveness.177 is deliberately and directly exchanged between data providers, lenders, users, and the CB.179 Since 2008, CBE n Telecommunications data is not yet integrated into and I-Score collect data for individuals; it is distributed I-Score; including such data is essential for a more only via I-Score, whereas data for small and medium comprehensive view of data subjects; enterprises is collected and distributed by both. Both n Full integration of the microfinance sector in I-Score systems are currently operational but CBE primarily plays proved challenging. Further work must be done, a supervisory role. There is no threshold for data submitted including reforms on legal and regulatory levels; to I-Score. However, the central bank has a minimum n The credit market is very thin, as credit is mainly threshold of 30,000 Egyptian pounds for the inclusion provided by banks. There is huge opportunity for of loans. growth;178 I-Score collects data from 41 public and private n Egypt has a single credit bureau. Although it operates commercial banks, nine mortgage companies, 10 financial well, a second credit bureau may prove useful in order leasing companies, two microfinance companies, four to increase competition for the benefit of credit bureau microfinance institutions, and 19 retailers. The bureau has users; also started collecting data on utility service providers, n The number of inquiries remain low compared to the although currently only from gas connection providers adult population in Egypt. that are routed through the central bank. CBE has banks, Figure 7.3.12: Data Sharing Model Credit Applicants (information) 1 Regulated Entities Regulated Entities Regulated Entities Non-regulated Non-regulated Banks NBFI MFI Commercial Entities Financial Entities 2 Credit Bureau/s 3 Bank 1 Bank 2 Bank 3 NBFI MFI RETAILER TELCO Source: Madeddu, 2010. 74 s s s Arab Credit Reporting Guide leasing, and mortgage companies sharing their data with Table 7.3.5: Asset Performance (I-Score Database) minimum loan threshold of 30,000 Egyptian pounds.180   2009 2010 2011 2012 Asset % % % % According to CBE regulation, it is mandatory for banks, Classification mortgage finance companies, and leasing finance Performing 91 92.23 92.21 91.41 companies to share data; all these institutions must receive Sub Standard 3.6 2.72 2.66 2.91 updated credit reports for customers before approval, (30-90 DPD) review, renewal, or reschedule of any line of credit. In the Doubtful 1.2 0.89 0.75 0.76 case of CBE, banking supervisors and public and private (90+ DPD) institutions that share data are allowed to access and make BAD ** 4.2 4.17 4.38 4.92 inquiries to credit registry data. Access is permitted for all Source: ACRI Credit Information Sharing Survey 2013 ** Bad represent 150+ DPD (Days Past Due) for loans and 180+ for Credit Cards borrowers irrespective of whether they are customers of a financial institution. LEGAL FRAMEWORK AND CONSUMER The data shared is negative and positive. Individual and firm RIGHTS data includes full-file information, such as demographic As a regulator, the Central Bank of Egypt has played data, loan account data, and payment performance data. important role in encouraging the development of a legal In case of I-Score, details of each credit facility are given and regulatory framework that mandates information individually; in case of CBE, loans are consolidated across sharing with a privately-operated credit bureau which CBE the financial system, presenting one figure for total debt per licenses and supervises. The regulator maintains an internal consumer or firm.181 database from regulated lenders for prudential supervision As seen in Figure 7.3.13, the number of credit reports and risk-monitoring purposes, but it is not involved in the transmitted by I-Score to lenders significantly increased activities of the credit bureau. In this model, the role of from 1,008,000 in 2008 to 4,132,000 in 2012. There is still the regulator in the actual process of credit information potential to increase this number further. generation is limited. Instead, the regulator focuses its efforts on core functions, such as supervision, licensing, As shown in Table 7.3.5, positive information sharing and regulation.182 by I-Score has enabled lenders to maintain the ratio of performing loans and reduce the percentage of substandard Banking Law 88 of 2003 was amended and replaced by and doubtful accounts over time. Numbers fell marginally Law No. 93 of 2005, enabling the central bank: in 2012 due to the slowing down of Egyptian economy as n To license, regulate, and oversee the operations of a whole. private sector credit bureaus and issue directives to organize the exchange of information; Figure 7.3.13: Credit Reports by I-Score n To exchange information among CBE, banks, mortgage 5000 and leasing companies, and credit bureaus. 4000 Thousands 3000 Article 67 enables the CBE to prepare an aggregate 2000 position of finance and credit facilities extended by banks, which banks then review before offering any further credit 1000 facilities to their clients. Article 67-bis authorizes the 0 central bank to license companies to provide inquiry and 2008 2009 2010 2011 2012 credit scoring services related to the debts of clients of Source: Credit Information Sharing Survey, ACRI, January 2013. banks, mortgage companies, and financial companies. 75 s s s 7. Credit Reporting in MENA – Detailed Overview Information related to debt and credit facilities of CONCLUSIONS borrowers can be exchanged with banks, mortgage and leasing companies without the consent of their borrowers, The credit reporting system in Egypt is comprehensive n according to Article 99 in Section 4 (with exception to and operates through the CR and the CB; Secrecy Article 97 of the banking law). Other members The Central Bank of Egypt was instrumental in creating n must obtain consent to access the data or make inquiries on a legislative framework that established a functioning customers requesting loans. credit reporting system in the country, laying the foundation for the success of the credit bureau, I-Score; Article 99 “The Central Bank will exchange with Although there is no specific law for credit reporting, n other banks information and data on customer debts the banking law was amended; related regulations were and their credit facilities. They will also exchange developed to enable the central bank to oversee credit these information and data with real estate finance reporting activities and also the establishment of the companies, funding lease companies and credit CB, allowing data sharing among lending institutions information and scoring bureaus. The Board of and providing basic consumer rights; Directors of the Central bank will set the rules of I-Score has played an important role in changing the n this exchange guaranteeing their confidentiality and behavior and culture of borrowers in the Egyptian ensuring the availability of the data required for credit market. It has undertaken initiatives that create sound bank lending”. awareness across the lending community to improve data quality, internal lending policies, and use advanced skill sets. I-Score has been the catalyst for active credit The central bank, in line with international practices, growth by providing a robust database of borrowers; supports the protection of consumer rights.183 Consumers can inspect their own data and raise disputes regarding The ACRISI score increased by 3 points, from 15 in 2008 n wrong information. There is no restriction on the number to 18 in 2012; this is because of the I-Score’s inclusion of inquiries. Access, however, is not free. There is also a of microfinance institutions and utility services data as penalty for reporting inaccurate data to the CR.184 well as the launch of credit scoring services; The inclusion of microfinance institutions and utility n In August 2005, CBE issued regulations for the licensing data has led to increased participation in the information of credit bureaus in Egypt and consequently licensed sharing system. Although only gas data is collected, I-Score, the first credit bureau in Egypt. In January 2006, other utilities are expected to participate in the near CBE issued regulations to organize the operations of credit future; bureaus in Egypt. The regulations tackled several topics including membership in the bureau, mandatory submission All entities are required to share data and inquire before n of data and inquiring for regulated entities, consumers right granting credit. All loans are reported to the CB without to view their own report, supervision of the credit bureau any threshold limits. Positive and negative information by CBE and penalties in case of breach, among others. is collected and distributed. This indicates a repository of complete credit information; ARAB CREDIT REPORTING INFORMATION I-Score provides a credit bureau score to users based on n SHARING INDEX the details of a consumer’s credit report. Based on the parameters and sub-parameters discussed in Chapter 6, the ACRISI score has been determined for Egypt as shown in Table 7.3.6. The index provides a snapshot and quantification of the credit information sharing system in the country. 76 s s s Arab Credit Reporting Guide RECOMMENDATIONS The Egyptian model would be effective if more than n one private bureau were licensed, which would trigger Access to finance is a major area of concern for the n healthy competition based on pricing, quality of service, Egyptian credit market. A strong supervisory and and value-added services—resulting in advantages to regulatory framework is required to enhance the lenders and consumers; financial inclusion; To increase data coverage, I-Score should integrate n I-Score, in order to increase its effectiveness, should n group loans from the microfinance sector; expedite facilitating borrowers’ self-inquiry through The central bank and I-Score should undertake financial n web or bank portals as well as ATMs; literacy campaigns to increase financial awareness and understanding of credit reporting system. 77 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.3.6: Arab Credit Reporting Information Sharing Index — Egypt ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? YES YES   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? NO NO Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? YES YES Are utility entities participating? NO YES Are MFIs participating? NO YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO YES Is cross border data sharing allowed? NO NO ACRISI score 15 18 78 s s s Arab Credit Reporting Guide Caspian TURKEY Sea IRAQ Mosul As Sulaymaniyah Kirkuk SYRIAN ARAB Tigri REPUBLIC ISLAMIC s Euphra t REPUBLIC OF IRAN es BAGHDAD Karbala' Al-Kut JORDAN Capital Baghdad Currency Iraqi Dinars As-Samawah Al Basrah (IQD) SAUDI ARABIA KUWAIT Persian USD/IQD 1163.99 Gulf Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41505, March 2015. Figure 7.4.1: GDP Performance 300 10 7.4 IRAQ 250 8 Percentage 200 IQD Trillion 6 7.4.1 ECONOMIC OVERVIEW 150 4 100 Despite decades of war and instability, Iraq’s abundant 50 2 natural resources, strategic geographic location, and 0 0 2008 2009 2010 2011 2012 cultural history endow the country with tremendous GDP at Current Prices GDP Growth (%) potential for growth and economic development. Driven Source: Economic Reports and Annual Statistical Bulletin, Central Bank of Iraq Annual, by windfall oil revenues in recent years, the government 2008–2012 of Iraq has invested heavily in rebuilding the infrastructure of the country, and its rich oil reserves ensure that progress Figure 7.4.2: Average per Capita GDP can continue steadily.185 8 6 The performance of the economy is largely dependent on IQD Million the oil sector, which accounts for two-thirds of Iraq’s GDP 4 and almost all export and fiscal revenues. In 2012, the GDP 2 was 245.2 trillion Iraqi dinars as compared to 211.3 trillion 0 2008 2009 2010 2011 2012 Iraqi dinars in 2011. With 8.4 percent GDP growth in 2012, Source: Economic Reports and Annual Statistical Bulletin, Central Bank of Iraq Annual, the annual GDP growth rate, on an average, was around 2008–2012 7 percent from 2008 to 2012. This GDP and growth rate trend is shown in Figure 7.4.1. In 2012, the average per capita GDP was 7.16 million Iraqi dinars, increasing from 6.35 million Iraqi dinars in 2011. Figure 7.4.2 shows the average per capita GDP over the past five years. 79 s s s 7. Credit Reporting in MENA – Detailed Overview Inflation rates have fluctuated over the past few years, as In addition, other companies form the financial sector, shown in Figure 7.4.3. In 2010, core inflation was stabilized including exchange companies, financial transfer companies, to 2.9 percent, from 13 percent in 2008; it has increased financial investment companies, the Postal Saving Fund, to 5.6 percent in 2012. Annual inflation rates had also and companies providing small and medium loans.189 stabilized from 2008 to 2010, but showed an increasing Also, a number of microfinance institutions are forming an trend in 2011 and 2012.186 increasingly important role in informal lending. Figure 7.4.3: Inflation (%) The Central Bank of Iraq (CBI) is the banking supervisory 15 authority that has been granted powers to regulate and supervise lending companies, microfinance companies, 10 and any other nonbanking financial institutions otherwise 5 unregulated by Iraqi law.190 0 -5 The credit industry it is still small and dominated by banks, 2008 2009 2010 2011 2012 which primarily compete for scores of small depositors. Core Inflation Annual Inflation Rate Banks selectively grant credit to an exclusive, restricted Source: Annual Bulletin, Central Bank of Iraq, 2009–2012. number of borrowers, typically medium and large firms. The population in Iraq has been growing at a rate Banking of about 2.5 percent. In 2012, the total population The banking system comprises seven state-owned banks; stood at 32.57 million, increasing from 29.42 million the three largest banks (Rafidain Bank, Rasheed Bank and in 2008, as shown in Table 7.4.1. Women constitute Trade Bank of Iraq) represent the bulk of the industry. nearly half the population, with an average 49.41 There are 47 private banks that comprise nine Islamic percent of the total population from 2008 to 2012.187 banks, 15 foreign banks, and 23 private commercial banks. As of 2012, there were 16.1 million women. Despite the large number of private banks, public banks Table 7.4.1 Population grant the bulk of loans. Out of the total 72.6 trillion Iraqi Year Total Population Women Men dinars of cash credit and pledged credit facilities, 78.64 2008 29,429,829 14,532,450 14,897,379 percent has been granted by the public sector, as seen in 2009 30,163,199 14,900,620 15,262,579 Figure 7.4.4. In both private and public sectors, pledged 2010 30,962,380 15,298,512 15,663,868 facilities have precedence over cash credit or unsecured 2011 31,760,020 15,695,802 16,064,218 facilities. 2012 32,578,209 16,106,667 16,471,542 The banking sector in Iraq imposes limitations on private Source: data.worldbank.org banks in acquiring clients among public enterprises. The 7.4.2 CREDIT MARKET Figure 7.4.4: Bank Credit – 2012 OVERVIEW 60 50 57.1 IQD Trillion 40 The Iraqi financial system is dominated by public banks 30 with portfolios that constitute the majority of financial 20 33.7 23.3 assets. There are 54 banks currently operating in Iraq.188 10 5.09 10.4 15.5 The other dominant players in the financial system are 0 Public Banks Private Banks stock markets and the insurance sector, but the size of these Cash Credit Pledged Credit Total sectors is very small compared to the banking sector. Source: Annual Statistical Bulletin, Central Bank of Iraq, 2012. 80 s s s Arab Credit Reporting Guide list of restrictions is long; it is a serious deterrent to the Nonperforming Loans expansion of the private banking sector and to the creation Reliable, exhaustive, official statistics and figures of a free, competitive market. Private banks must succumb concerning the quality of banks’ portfolios are not to an excruciating bureaucracy and a rather unfriendly available. However, and in spite of the extremely legal framework, which limits business opportunities and high selectivity that characterizes bank underwriting, patently favors public banks’ unfair advantage.191 nonperforming loan ratios can be extremely high, in the Microfinance range of 10 percent to 15 percent among private banks.194 In 2012, overdue debts for cash credit extended by The other key players in the credit market are the 12 commercial banks were 497 billion Iraqi dinars, which microfinance institutions that have become the point of represents 1.75 percent of the total cash credit extended.195 reference for the vast number of nonbankable, underserved micro, small, and medium entrepreneurs, most of whom CREDIT PENETRATION AND ACCESS belong to the informal sector. These microfinanciers operate in the most opaque area of the economy, a vast sector The World Bank’s Doing Business Report 2013 ranks Iraq a of the nonbankable population. This informal economy low 176 of 185 countries. It is much lower than the regional constitutes the largest segment of Iraq’s socioeconomic rank of 128, as seen in Figure 7.4.5. (DB14, ranked 180) fabric. Microfinanciers represent an undeniable success in the Iraqi credit panorama despite the still unregulated Figure 7.4.5: Getting Credit Rank – 2013 environment, infrastructural weakness overheads, and 100 operational taxing conditions.192 120 128 MENA Average The gross loan portfolio of the microfinance institutions 140 stood at $130.4 million in 2011, according to the Sanabel 160 Microfinance Network. The number of borrowers was 176 90,475, of which 21 percent (about 19,000) were women. 180 MENA Region Iraq Others Source: Doing Business Report, The World Bank, 2013. There are five financial institutions, 10 financial investment Domestic credit in the private sector was just 6.2 percent companies, and 33 financial companies licensed by the of GDP in 2012. This is an increase, however, from an Central Bank of Iraq. In 2009, CBI issued an ordinance extremely low 2.7 percent in 2008, as seen in Figure 7.4.6. to support the financing of small and medium enterprises, This percentage is very low as compared to some other mandating that these companies be licensed by CBI in countries in MENA, as seen in Figure 7.4.7. order to perform financing activities. Solid, structured nonbanking financial institutions specialized and fully Figure 7.4.6: Domestic Credit to Private Sector (% of GDP) focused on consumer credit remain absent. 7 6 6.2 Informal lending has played a big role in the life of the 5 Percentage 5.5 5.6 4 Iraqi people. Traditional lending channels have never 3 3.8 represented the most accessible source of access to finance 2 2.7 for the Iraqi population.193 1 0 2008 2009 2010 2011 2012 Source: data.worldbank.org 81 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.4.7: Domestic Credit to Private Sector Table 7.4.2: Penetratration in Formal Financial (as % of GDP) for Some MENA Countries Institutions (% of Adults) — 2011 80 Accounts 11 70 70 72.4 60 Men 13 Percentage 50 59.1 40 Women 8 30 36.1 37.6 Loans in the past year 8 20 10 Men 11 0 6.2 Bahrain Jordan Qatar Saudi Arabia UAE Iraq Women 5 Source: data.worldbank.org Source: Iraq: Financial Inclusion. The World Bank, accessed September 14, 2014. http://datatopics.worldbank.org/financialinclusion/country/iraq The banking sector operated through a network of 994 branches in 2012. Private sector banks have a wider reach companies. Underwriting credit policies rely on client through 515 branches. There has been a considerable relationships rather than credit risk criteria.197 increase in bank branches, especially by the private banks. The penetration of microfinance institutions is still As seen in Figure 7.4.8, the number has more than doubled, very low, even though they operate in all of Iraq’s 18 from 212 branches in 2008. Public bank branches have provinces. Less than 1 percent of the population accesses increased from 348 in 2008 to 479 in 2012. Even with the microfinance. As mentioned in the previous section, these increasing number, the reach in terms of commercial bank institutions reached out to 90,475 borrowers. Access to branches per 100,000 adults was only 5.38, as of 2012.196 finance for women is low, however, and is probably the most important area of improvement for microfinance Figure 7.4.8: Commercial Bank Network institutions in Iraq.198 600 6 500 5 Outdated, traditional appraisal techniques are an obstacle 400 4 to increasing access to credit. Credit application procedures 300 3 are cumbersome, long, and manual; hence, the costs are high 200 2 for customers and lenders. Credit decision and underwriting 100 1 processes take from 30 to 60 days, or more, due to the 0 0 2008 2009 2010 2011 2012 outdated techniques and the bureaucratic procedures. This Private Bank Branches Public Bank Branches is further exacerbated by the lack of automated processing Bank Branches per 100,000 Adults or complete, reliable information. Credit decisions are Source: Annual Statistical Bulletin, CBI, 2008–2012. Financial Access Survey, IMF always subjective; they involve more than one department, including crowded credit committees even for small loans. Credit penetration is scarce in Iraq. In 2011, the percentage Also, risk-control techniques and strategies employed by of adults with an account from a formal financial institution Iraqi lenders tend to be underdeveloped and characterized was only 11 percent, as shown in Table 7.4.2. Only 8 by high transaction costs. They are based on the existence percent of women had a bank account. The percentage of of asset-based collateral (mainly real estate).199 loan account holders in the last year was only 8 percent and a mere 5 percent for women. 7.4.3 STATUS OF CREDIT In Iraq, loans are habitually and customarily granted only to REPORTING corporate, business firms, “A” segment, or VIP individual customers. Moreover, loans appear to be concentrated in a OVERVIEW few borrowing hands, often directly financing companies The credit system in Iraq uses traditional risk-management belonging to the same banking group in the case of some tools, based on a client’s collateral, guarantees, levels of private banks. State bank loans are mostly granted to public trust, and reputation. Though not a new concept in Iraq, 82 s s s Arab Credit Reporting Guide credit information sharing and the usage of positive and Figure 7.4.9: PCR Database – February 2013 full credit information remains at a nascent stage. CBI has 15000 begun preparatory work in developing and operating the Iraqi CR, which is the only source of credit information 12000 13,541 in the country. The CBI established the CR with two 9000 fundamental goals: 6000 a. Collecting information from regulated entities to support 3000 4,478 CBI’s supervision of credit systems; 0 Individuals Firms b. Supplying lenders with consolidated information for Source: Credit Information Sharing Survey, ACRI, January 2013 credit underwriting purposes.200 The CR was first established in 1994 and then revamped PARTICIPATION AND DATA SHARING in 2010; the Central Bank is currently working on The public and private banks regulated by the central implementing a new CR system. Although in 2010 there bank and are the sole providers of data to the CR. Basic were no infrastructural changes, the database system was demographic and loan data on individuals and firms is upgraded, resulting in the availability of more information. collected by the central bank for supervising the credit Currently, it is being used by the CBI as well as regulated market and supplying lenders with consolidated information public and private banks. for credit underwriting purposes. All loan information is collected, without any threshold limit, including negative Credit reporting in Iraq is in its early stages. There are a and positive data. number of outstanding issues and limitations. The data— which banks manually share with the CBI monthly on an This limited data from the public and private banks is aggregated basis—is insufficient for supervisory purposes, shared by way of inquiries made to the CR. In 2012, the let alone credit risk assessment. Data from institutions is CR received 11,000 inquiries.203 incomplete or not provided at all. The CBI and the Iraqi Private Banks League rightly consider the lack of credit LEGAL FRAMEWORK AND CONSUMER information for existing and potential borrowers a major RIGHTS worry; it is one of the primary impediments to the expansion of a broader and healthier credit industry.201 There is no specific law or regulation that governs credit reporting in Iraq. However, the banking law issued in As of February 2013, the number of individuals listed in 2003 and the Central Bank of Iraq law issued in 2004 give the CR was 13,541, with 881 women borrowers and 4,478 CBI and other banks the right to share credit borrowers’ firms, as shown in Figure 7.4.9.202 Given the issues in data information. sharing and limited participation of institutions, this does not indicate the depth or volume of the credit industry, The Central Bank of Iraq law gives the CBI powers to which is also characterized by microfinanciers and informal supervise and regulate the financial system. Therefore, sources of lending. it has sufficient and independent powers to collect information for supervisory and statistical purposes as From 2008 to 2012, Iraq’s overall ACRISI score remains well as to disseminate information to lenders for risk- unchanged. Changes are expected to be implemented in underwriting purposes.204 phases over the next few years, based on an ACRI’s 2012 study and subsequent recommendations. Banking Law The banking law is explicit about the CBI’s power to create a credit registry (without borrowers’ consent) and banks’s 83 s s s 7. Credit Reporting in MENA – Detailed Overview capacity to establish a credit bureau.205 Article 41 of the law gives powers to the CBI to collect information, as required The banking law, thus, provides for the establishment and necessary, including information about banking of credit reporting agencies and bureaus along with facilities, credit plans, or credit and contingent liabilities the sharing of credit information about borrowers in granted to borrowers. a regulated environment. The purpose for disclosure of such information, without the need for borrowers Article 27 of this law clearly specifies that licensed banks consent, is also provided in its articles. are permitted to provide financial information and credit reference services. This lays down the foundation of credit information sharing in the banking system. For supporting There are no explicit rules on the borrowers’ access to this framework, Article 39 specifically states the following: data that is shared among banks. Thus a framework for borrowers to directly see their own credit reports is not prevalent. In the case of incorrect data, however, they Article 39 “Banks may establish credit reporting are allowed to raise disputes and ask that information be agencies or credit bureaus to collect and to corrected. disseminate to other banks such information concerning the financial affairs of existing and Data confidentiality procedures are not in place, even prospective customers as the banks may need in order though there is a broad framework for credit information to make prudent banking decisions...” sharing and clearly defined rules and regulations with respect to the CR’s operations. As mentioned above, consumer rights are not explicitly mentioned in the laws. It also states that information shared in this system will Iraq does not have a score in the legal framework section only be provided to banks that have an actual or prospective of ACRISI because there is no specific law on credit banking relationship with the person in question—rules and information or on data privacy. restrictions to protect the confidentiality and unauthorized use of such information. These provisions are stated in ARAB CREDIT REPORTING INFORMATION Article 49 and 50 of the law and restrict disclosure of SHARING INDEX information without a customer’s written approval. Based on the parameters and subparameters discussed in Chapter 6, the ACRISI score has been determined for Iraq, Article 51 states the exception to disclosure of as shown in Table 7.4.3. The Index provides a snapshot and information with written approval if the information quantification of the credit information sharing system in is on: the country. “(i) customers’ indebtedness to provide the necessary data for determining the soundness of granting CONCLUSIONS credit; n Iraq has a selective, expensive, traditional banking (ii) bad checks; or industry with extremely low credit penetration. Limitations apply not only to retail credit customers but (iii) any other transaction deemed necessary by the also to the informal sector and to the innumerable micro, CBI because of its pertinence to the soundness of small and medium enterprises; the banking sector to banks, the CBI or any other agencies approved by the CBI to facilitate the n The only source of credit information to lenders is the exchange of such information pursuant to rules and CR, but banks manually share this data with the CBI, procedures specified in regulation of the CBI;” monthly, on an aggregated basis. This is insufficient for supervisory purposes, let alone credit risk assessment; 84 s s s Arab Credit Reporting Guide n The credit reporting system in Iraq is in its early stages. RECOMMENDATIONS The CBI established a very basic framework with tremendous scope for improvement. The low ACRISI Since the CR is the only source of credit information n score of 10 indicates its issues and limitations;206 sharing, the CBI should move towards introducing a fully-automated system with higher capacities, instead n Initiatives need to be taken to strengthen the system in of the current manual and paper based system;207 terms of infrastructure, technology, specific regulations, participation from financial institutions, and consumer Participation is very limited and should be extended to n access and rights; other credit granting institutions, such as microfinance institutions, which form an integral part of the lending n Although the basic legal framework is in place, allowing system in Iraq; for credit information sharing, a specific, full-fledged credit information law is absent; Consumer rights need to be strengthened by allowing n access to consumers’ own reports and allowing them n Consumer rights are not clearly or legally defined; to raise disputes. This can be achieved through a full- however consumers can raise disputes regarding fledged, specific credit reporting law or regulation in the incorrect data and have access to free reports; country which would cover credit reporting aspects in a Sharing of data is limited to the regulated banks. No comprehensive manner. other entities are currently participating in the system; n Lenders are not mandated to inquire before granting a loan, which indicates that appraisal processes are still very traditional. All other parameters in ACRISI’s depth of data sharing and reporting are satisfied, but given the low participation, this may not indicate the completeness or the depth of the database. 85 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.4.3: Arab Credit Reporting Information Sharing Index — Iraq ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? NO NO   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? NO NO Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO NO Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 10 10 86 s s s Arab Credit Reporting Guide JORDAN Mediter ranean Irbid Sea Ajlun Jarash Al Mafrak Az Zarka As Salt AMMAN Azraq ash - - Shishan Madaba Al Karak At Tafilah Petra Capital Amman Ma'an Currency Jordanian Dinar (JOD) Aqaba Al Mudawwarah USD/JOD 0.7067 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41506, March 2015. 7.5 JORDAN Jordan faces a number of challenges, which include: vulnerability to fluctuations in the oil market because 7.5.1 ECONOMIC OVERVIEW208 of its energy-import dependency and the disruption of gas supplies from Egypt; high unemployment and The Hashemite Kingdom of Jordan, which emerged out of a dependency on remittances from Gulf economies; the post-World War I division of the Middle East by Britain increasing pressure on natural resources, especially water; and France, is located northwest of Saudi Arabia and and escalating spillover from the Syrian conflict. Other south of Syria. It is a small Arab country, with inadequate economic challenges for the government include chronicly supplies of water and other natural resources. Jordan has high rates of poverty, inflation, and a large budget deficit. played a pivotal role in the struggle for power in the Middle East. Jordan’s significance results partly from its strategic Over the past 10 years, significant economic reforms have location, at the crossroads of what Christians, Jews, and been implemented, such as a new trade regime, privatization Muslims call the Holy Land. It is a key ally of the U.S. and, of state-owned companies, and the elimination of some together with Egypt, one of only two Arab nations to have fuel subsidies, which in the last decade spurred economic a peace treaty with Israel. growth by attracting foreign investment and job creation. Unlike Arab states to its south and east, Jordan has no Many features of Jordan’s economy are unexpected and oil of its own. Its resources are limited to phosphates and remarkable. Jordan has achieved some of the highest agricultural produce. The economy depends largely on educational levels in the region and has leveraged this services, tourism and foreign aid, of which the U.S. is the human capital in sectors such as pharmaceuticals and main provider. Jordan prides itself on its health services, business-process outsourcing. Other economic activity which are among the region’s best. ranges from phosphate mining to tourism and textiles. The 87 s s s 7. Credit Reporting in MENA – Detailed Overview state has managed its international relationships shrewdly, The population of the country as of 2012 was 6.32 million. securing substantial grant assistance and developing Women constitute nearly half the total population. The a strong network of free trade agreements. The global GDP per capita has been rising over the past few years, economic slowdown and regional turmoil, however, had as seen in Figure 7.5.3; it was $4,909 as of 2012, or about depressed Jordan’s GDP growth, impacting export-oriented 6,913 Jordanian dinars.210 , 211 sectors, construction, and tourism. Figure 7.5.3: Population and GDP per Capita The diversified, open, and service-oriented economy, 7 6000 which had moved in line with global trends, is now slowly 6 5000 recovering from the negative impacts of the global and 5 4000 Million USD 4 regional crisis. The economic performance is yet to reach 3 3000 2000 the precrisis levels. In 2012, the economy registered a 2 1 1000 real GDP growth of 2.7 percent corresponding to a GDP 0 0 of 21.97 billion Jordanian dinars. As seen in Figure 7.5.1, 2008 2009 2010 2011 2012 Total Female GDP per capita (current USD) the growth rate has increased since 2010, but has reduced Source: data.worldbank.org significantly from the 7.2 percent real GDP growth rate in 2008. Figure 7.5.1: GDP Performance 7.5.2 CREDIT MARKET 25 35 30 OVERVIEW 20 25 JOD Billion Percentage 15 20 The Jordanian financial system comprises the banking 10 15 system (commercial banks, Islamic banks, and specialized 10 5 5 credit institutions), money changers, insurance companies, 0 0 the Amman stock exchange, and other financial institutions 2008 2009 2010 2011 2012 GDP (current market prices) Real GDP growth rate that carry out nonbanking financial activities, such as GDP growth rate (current market prices) deposit insurance, extending loan guarantees, export credit, Source: Annual Report, Central Bank of Jordan, 2012. and refinance of mortgage loans. The financial system also includes other lending entities, such as leasing companies Inflation rates (percentage changes in CPI) have and microfinance institutions.212 experienced volatility over the past few years, as seen in Figure 7.5.2. CPI increased from 4.4 percent in 2011 to The Central Bank of Jordan (CBJ) is the regulatory and to 4.8 percent in 2012. This slight rise is attributed to the supervisory authority of the banking system and money hike in the international oil prices and the rise of imported changers. It was established with the objectives of commodities prices, along with the liberalization of maintaining monetary stability in the kingdom, ensuring domestic prices of oil derivatives.209 the convertibility of the Jordanian dinar, and promoting the sustained growth of the country’s economy in accordance Figure 7.5.2: Inflation (CPI) with the government’s economic policy.213 16 13.9 14 12 The credit market comprises the banking sector, which is 10 the dominant player, the expanding microfinance sector, 8 5 4.8 and leasing companies. Microfinance institutions are 6 4.4 4 not regulated by CBJ. Other lending companies are not 2 -0.7 supervised by any authority but the Ministry of Industry 0 and Trade, which is responsible for registering such -2 2008 2009 2010 2011 2012 companies.214 Source: Annual Report, Central Bank of Jordan, 2012. 88 s s s Arab Credit Reporting Guide Commercial and Islamic banks215 Figure 7.5.5: Credit Facilities by Banks 20000 The banking sector in Jordan, as in many countries, is JOD Million considered a main pillar of the economy. In spite of the 15000 events that have followed the 2011 uprisings, the well- 10000 capitalized and highly regulated banking sector proved 5000 resilient, maintaining its expansion and growth.216 0 2009 2010 2011 2012 2013 As of 2012, the banking system comprised 26 licensed Total Private Sector - Residents banks, as shown in Figure 7.5.4. There were 16 national Source: Annual Report, Central Bank of Jordan, 2012. banks, of which 13 were commercial banks and three were Islamic banks. The remaining 10 banks were foreign (nine this has constituted the largest portion of bank credit, commercial and one Islamic bank). The commercial banks increasing from 3.83 billion Jordanian dinars in 2012 to and Islamic banks are referred to as the licensed banks. 4.14 billion Jordanian dinars in 2013. Figure 7.5.4: Number of Banks and Branches in the Private sector credit, as shown in Figure 7.5.5, constituted Banking System nearly 88 percent of total credit facilities in 2013, following 3 1 52 the similar pattern over the past few years. This mainly 9 comprises loans and advances, forming the major share, 546 113 as seen in Figure 7.5.7, as well as overdraft facilities and 3 13 bills discounted. Loans and advances have increased from 10.2 billion Jordanian dinars in 2009 to over 14 billion Commercial Islamic Commercial Bank Islamic Bank Banks Banks Branches Branches Jordanian dinars in 2013. These mostly include retail and National Foreign small-ticket credit. Source: “Jordan Banking System,” Annual Report, Central Bank of Jordan, 2012. Lending to (medium and large) business firms has been the The commercial banks operated through a network of banks’ favorite customer target. More recently, individual 598 branches (546 national and 52 foreign) and also salaried consumers have become an interesting segment to had 69 minibranches within Jordan. Islamic banks had a prospect, increasingly targeted by the banks. The lending network of 116 branches (113 national and three foreign). market, however, has remained virtually unaltered for The Jordan Islamic Bank also had 15 minibranches. years. But recent transformations are contributing to the Domestic credit provided by these banks has been reshaping of lenders’ activities. Nonsalaried applicants increasing over the past few years. Total credit facilities provided to the five broad categories of borrowers (central Figure 7.5.6: Credit Facilities by Economic Activity government, public entities, financial institutions, private Agriculture 1% Mining 1% sector, and residents and non-residents) has been increasing Others 22% Industry 14% annually, as seen in Figure 7.5.5. It increased 42 percent, Financial from 13.3 billion Jordanian dinars in 2009 to 18.9 billion Services Jordanian dinars in 2013. 3% General Trade Public Services 21% and Utilities Credit facilities by banks are spread across various 11% segments and economic activities, as shown in Figure Tourism, Hotels 7.5.6. The “others” segment primarily represents loans and Restaurants Transportation Construction 3% Services 21% and advances extended to individuals for consumption 3% purposes, which has been the driver in the expansion of Source: Annual Report, Central Bank of Jordan, 2012. credit facilities. Along with public services and utilities, 89 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.5.7: Private Sector Credit sectors of intervention for Islamic finance, and all types of Islamic products are available. 16 14 14 13 12 11 12 For leasing companies, credit underwriting is very 10 JOD Billion 10 subjective and manual; it must be backed up by collateral 8 6 and extensive documentation. Generally, unsecured credit 4 is not allowed. Postdated checks and irrevocable direct 1.5 1.6 1.9 2.0 2.2 2 0.3 0.26 0.29 0.27 0.28 debit of monthly installments serve as the basic guarantees 0 2009 2010 2011 2012 2013 for every transaction or loan. Higher down payment is Loans and advances Bills discounted Overdraft another variable considered during the risk evaluation Source: Annual Report, Central Bank of Jordan, 2012 process. and the informal economy are broadly excluded from Microfinance Institutions221 traditional lending channels.217 The microfinance industry in Jordan is developed, highly competitive, and profitable. It is the fourth largest MFI Risk-management techniques adopted by the banks, market in MENA.222 There are five registered not-for-profit particularly for granting small-ticket loans, are still institutions and three commercial companies microfinance traditional. Credit underwriting is generally marked by institutions that solely offer microcredit. In addition, one subjective manual decisions, low decentralization, high commercial bank, one donor agency, and one governmental utilization of paper and supporting documents, lack of full agency disburse micro and small loans. Several smaller automation, conventional appraising techniques, and lack NGOs and informal institutions grant microloans. of risk-management tools. There is a heavy reliance on collateral, which is considered a general prerequisite for Microfinance institutions are organized at a national level the disbursement of loans by all banks. Unsecured credit in a microfinance association called Tanmeyah, which is rare, even in the case of personal and consumer loans.218 has an official legal arrangement, employees, and offices. Its objective is advocacy, collaboration, and sharing of Specialized Credit Institutions219 experience and data, in order to provide a more convenient Three specialized banks (Agricultural Credit Corporation, environment for the development of new microfinance Housing and Urban Development Corporation, and Cities products. and Villages Development Bank) all publicly-owned; they cater to the financial needs of their respective sectors. As Average annual growth rate in outreach was 28 percent of 2012, the specialized banks operated through a network from 2006 to 2010, translating into an increase in active of 36 branches. Credit facilities granted by the Agricultural borrowers from 76,830 to 203,579 and a total gross loan Credit Corporation and Cities and Villages Development portfolio of 111.6 million Jordanian dinars. Bank stood at 114 million Jordanian dinars and 83.2 million Nonperforming Loans Jordanian dinars respectively. Nonperforming loans were a concern for the banking Leasing Companies220 sector. NPLs had increased sharply during the recent years There are 11 operational leasing companies, mainly owned of weaker economic growth, rising from up from 4.2 by banks. Individuals and firms are served. Though the main percent of total loans in 2008 to 8.5 percent in June 2011. lines of business are represented by cars and real estate, However, NPLs reduced to 7.7 percent in 2012, as shown these lenders reach other sectors, including equipment, in Figure 7.5.8. This trend is expected to continue.223 earth-moving vehicles, medical and manufacturing tools, office automation, and trucks. Leasing is one of the primary 90 s s s Arab Credit Reporting Guide Figure 7.5.8: NPLs in the Banking Sector Figure 7.5.11: Domestic Credit to Private Sector (% of GDP) 8.5 in Some MENA Countries – 2012 9 8.2 7.7 8 6.7 80 7 Percentage 70 72.9 6 70 5 4.2 60 4 50 55.8 3 2 40 1 30 37.6 0 20 29.1 2008 2009 2010 2011 2012 10 Source: “Jordan Economic Insight,” QNB, 2014. 0 Saudi Arabia Bahrain Kuwait Egypt Jordan Source: data.worldbank.org CREDIT PENETRATION AND ACCESS The World Bank’s Doing Business Report ranked Jordan As per the IMF Financial Access Survey, the commercial 167 out of 185 countries in the Getting Credit Indicator, bank branch network is 19.8 branches per 100,000 adults, in 2013. As seen in Figure 7.5.9, this is lower than the as of 2012. As seen in Figure 7.5.12, there has been an regional average of 128. (DB14, ranked 170) increasing trend. The ATM network has also expanded, resulting in an outreach of 30.37 ATMs per 100,000 adults, in 2012. Figure 7.5.9: Getting Credit Rank, 2013 100 Table 7.5.1 shows the financial access indicators in terms 120 128 MENA Average formal financial institutions’ accounts and loans. The percentage of adults with an account was only 25 percent 140 in 2011. Only 17 percent of women have an account with 160 167 a formal financial institution. The percentage of adults 180 who have taken a loan in 2011 was a low 4 percent. This MENA Region Jordan percentage for women corresponds to nearly 4 percent. Source: Doing Business Report, The World Bank, 2013. Figure 7.5.12: Commercial Bank Network per 100,000 Adults For a country the size of Jordan, the number of players 35 in the credit market is relatively large. Credit penetration 30 (indicated by domestic credit to private sector as a 25 percentage of GDP) is still relatively higher than most 20 15 countries in the region, as shown in Figure 7.5.10. 10 Nevertheless, it has declined from 80.9 percent in 2008 to 5 72.9 percent in 2012; this can be seen in Figure 7.5.11. 0 2008 2009 2010 2011 2012 Commercial bank branches ATMs Figure 7.5.10: Domestic Credit to Private Sector (% of GDP) Source: Financial Access Survey, IMF, 2012 82 80.9 80 Table 7.5.1: Penetratration in Formal Financial 78 Institutions (% of Adults) — 2011 75.5 76 73.2 73.5 72.9 Accounts 25 74 72 Men 34 70 Women 17 68 Loans in the past year 4 2008 2009 2010 2011 2012 Source: data.worldbank.org Men 5 Women 4 Source: http://datatopics.worldbank.org/financialinclusion/topic/gender#divMap 91 s s s 7. Credit Reporting in MENA – Detailed Overview 7.5.3 STATUS OF CREDIT inquiring to the CR, unless they are part of a banking group REPORTING (and therefore providing consolidated data with the bank itself). A threshold limit is applied: only those loans above OVERVIEW224 the limit are regularly updated in the CR. The sharing and usage of positive and full credit Table 7.5.2 indicates that, as of 2012, over 83 percent of information in Jordan is an established concept. The CBJ outstanding loans data (direct facilities) was submitted to deserves credit for its preparatory work in developing and the CR, which has since increased. operating the Jordan Credit Registry. With the CR, the CBJ has pioneered credit reporting and started educating Detailed credit information and full-file payment histories lenders on the necessity of sharing credit information. The on borrowers were not available in Jordan. This led to original, paper-based CR was established in 1965 with two a consensus from lenders that a credit bureau should be fundamental goals: established. Prepared with the support of IFC, the Credit Information Law (No.15 of the year 2010) has given way i) To collect information from regulated entities to to the establishment of credit information companies in support CBJ’s supervision of credit systems; the country. The bylaws have also been established, along ii) To supply lenders with consolidated information for with all the necessary basic regulations and requirements. credit underwriting purposes. The first credit bureau received a provisional license in November 2014. Once licensed, the bureau will begin In 1995, the CBJ revamped the CR. The system was system development and is expected to commence internally redeveloped, and the CR is now a fully online operations in 2015. The bureau will collect, store, and registry—the only operational source of information disseminate information within a wide-ranging, centralized available to regulated lenders in Jordan. Although partly data bank structure, which will serve as a record of business automated, the system is now paperless. The CBJ has plans dealings and verification of creditworthiness.225 to further develop the system to collect and distribute data that was not previously available, like maturities, credit The CB will significantly improve the credit reporting facilities, interest rates, etc. system in Jordan with a full-fledged, comprehensive credit bureau, providing information services to regulated entities Regulated entities are the primary data providers and users as well as other data sources. of the CR. No other financial entities are providing data or Table 7.5.2: Outstanding Balances of Direct Facilities in the System Total Value of Outstanding Total Value of Outstanding Year 1/2 Balance of Direct Facilities 1 Balance of Declared in PCR 2 2002 5,130,000,000 3,921,200,000 76.4% 2003 5,262,400,000 4,006,100,000 76.1% 2004 6,189,200,000 4,773,700,000 77.1% 2005 7,744,300,000 5,923,600.000 76.5% 2006 9,761,900,000 7,669,700,000 78.6% 2007 11,295,600,000 9,080,040,000 80.4% 2008 13,044,100,000 10,733,700,000 82.3% 2009 13,316,200,000 10,847,800,000 81.5% 2010 14,451,400,000 11,688,500,000 80.9% 2011 15,851,200,000 13,052,400,000 82.3% 2012 17,817,002,000 14,899,869,600 83.6% 92 s s s Arab Credit Reporting Guide The Microfinance Institution Database226 from these institutions, two governmental institutions (the Postal Saving Fund and the Orphans Fund) are allowed The Jordanian microcredit network had been discussing the to inquire data from the CR. These institutions, however, establishment of a proper information sharing system. It is do not share data.228 likely to be limited to the microfinance sector—mainly to the major, private MFIs for the immediate future. In 2007, From 2008 to 2012, the total number of individuals six private MFIs joined efforts to share information and set and firms listed in the CR doubled to 79,916, as seen in up the first shared database and registry for microfinance Table 7.5.3. As per the Doing Business Report 2013, this institutions. This was Jordan’s first private information corresponds to merely 1.9 percent of the adult population. provider and the only alternative to the CBJ’s existing CR. Table 7.5.3: Number of Individuals and Firms The sharing scheme is simple, cheap, and limited to the microfinance institutions, but it is efficient. As of 2011, Year Number of Individuals and Firms Listed in 11 MFIs were providing data and searching the database. the Registry’s Database During the Year It is necessary for the MFIs to collect borrowers’ consent 2002 16,136 for sharing data. Loan inquiry is mandatory as per the 2003 16,784 agreement among MFIs before providing a credit facility. 2004 18,862 Based on ACRI’s assessment, it is noteworthy that, in 2010, 2005 22,506 inquiries to the MFI database were three times higher than 2006 28,775 banks’ inquiries to the CR. 2007 35,044 2008 39,571 The system is tailored for a basic sharing of data among 2010 62,116 MFIs, and it serves the purpose, particularly in the absence 2011 68,618 of any other provider or information repository. Given that 2012 79,916 the participation is limited to MFIs, complete profiles of Source: Presentation on the Credit Registry of the Central Bank of Jordan borrowers that have also taken loans from banks are not available within the database. Lenders are not mandated to inquire with the CR before granting credit facilities. However, the number of inquiries PARTICIPATION AND DATA SHARING made to the CR has been increasing over the years. As of All licensed and regulated banks are required to provide 2012, this number stood at 95,480, increasing 72 percent, the CR with credit information on both individuals and from 54,026 in 2008, as shown in Table 7.5.4. firms; updates are sent to the CR system on a monthly basis. Negative and positive information is shared. There Table 7.5.4: Number of Inquiries made by Bank to PCR is a threshold limit of 20,000 Jordanian dinars for reporting Year Number of Inquiries made by Banks to PCR loans to the CR. However, the CR system also stores 2006 28,300 information on loans that are lower than the threshold, but 2007 42,883 these are not updated by the banks and are not part of the 2008 54,026 information disseminated.227 2009 69,134 Apart from licensed banks, other institutions that are 2010 80,396 subsidiaries of banks are required to provide data to the 2011 92,401 CR. Currently, there is one microfinance institution, a bank 2012 95,480 subsidiary, that provides data to the CR. The same goes for Source: Presentation on the Credit Registry of the Central Bank of Jordan leasing companies: if they are a bank subsidiary (which is the case for some), they are required to share data. Apart 93 s s s 7. Credit Reporting in MENA – Detailed Overview Not all information collected by the CR is disseminated to However, the number of individual customers represented banks. Loans are consolidated across the financial system would be lower, as an individual could be registered with so that only one figure for total debt per individual or more than one lender. Also, of the 8.3 million records, firm is presented.229 Also, the threshold limit has resulted 1.9 million would contain full credit histories, while the in data disseminated to banks being limited to mainly remaining 6.4 million would only show demographic business loans. Though consumer loans data is provided, records and prepaid contracts. If public information and the information on these lines of credit is neither part of the utilities data were also included, the database would be information returned to the banks in the credit reports nor further enriched. In the assessment, however, it was clearly updated monthly. stated that no records would be contributed and no historical data will be part of the initial database unless consumer The start of operations of the new CB will result in consent was collected immediately and homogeneously information sharing by regulated as well as nonregulated by the entire gamut of potential users and data providers. entities. Full-file payment histories and detailed Unless this is systematically conducted, there would be no information on credit facilities will be available to lenders historical information available, and the database would and borrowers. have to be created slowly and gradually.230 Through ACRI’s 2011 assessment, the team undertook a LEGAL FRAMEWORK AND CONSUMER study that estimated the CB’s initial, theoretical database size RIGHTS at the start of its operations, if all lenders (including banks, credit card companies, leasing companies, microfinance The CR is governed according to the provisions of Banking institutions and telecommunications companies) were Law No. 28 of 2000. There was no other relevant law for to contribute to the database. The study concluded that credit information sharing until the Provisional Credit if all these sectors were to contribute information on all Information Law No. 82 of 2003. This was the first law borrowers, the CB can start operations with a database for the establishment of credit information companies in of over 8.3 million records, as shown in Figure 7.5.13. Jordan. Figure 7.5.13: Theoretical Number of Accounts/Records to Form the PCB Initial Database (all mobiles post and pre-paid are considered) 9 8 Number of Accounts/Records in Million 7 6 5 4 3 2 1 0 Mobiles Mobiles Fixed tel. Credit Banks MFI Leasing Utilities Retailes Total Pre-paid Post Paid lines cards Number of Accounts 6,090,000 708,987 530,000 485,000 314,830 209,039 30,000 8,367,856 Source: “Assessment and Observations on the Credit Reporting System of the Hashemite Kingdom of Jordan.”, 2011 94 s s s Arab Credit Reporting Guide In 2010, Credit Information Law No. 15 was passed, which replaced the provisional law and allows the licensing of B. Credit provider should keep the access CBs in the country. According to the law, the CBJ will be authorization throughout credit period the regulatory authority for CBs. C. When Credit provider rejects the client’s credit request because of the negative points in his credit The law details the establishment and operation of CBs. report; the provider should provide the client with Articles 9 and 11 of the law state the possible information a copy of his credit report providers and the activities of the CB respectively. The bylaws of the credit information law (or the credit Article 9 “The Company may obtain credit information bureau regulations) were also issued in 2011, and discussed mainly from: any other credit bureau company, Banks the specifics on licensing process for credit bureaus. and financial leasing companies, any company that sells on credit, financial institutions.” ARAB CREDIT REPORTING INFORMATION SHARING INDEX Article 11: Based on the parameters and subparameters discussed a. Collection, storing, and handling the credit in Chapter 6, the ACRISI score has been determined information in accordance with the provisions of for Jordan, as shown in Table 7.5.5. The index provides this law a snapshot and quantification of the credit information sharing system in the country. b. Preparing a database regarding customers c. Preparing credit reports according to forms CONCLUSIONS approved by CBJ n The credit reporting system is limited to information d. Identify customer’s credit status according to the sharing with the CR by the regulated entities and the approved credit point program microfinance institutions’ database. n The two databases are separate, and there is no The law also states that all data providers should provide sharing between them. Their respective limitations in credit information on any customer or any changes that information sharing have resulted in a low ACRISI may occur throughout the duration of the agreement. The score of 10; law also requires that all lenders must collect borrowers’ n A new credit information law, passed in 2010, has consent (referred to as access authorization) in writing strengthened the credit reporting system and allows for before providing data or inquiring the CB. Consumers also the establishment of private credit information providers. have the right to obtain their own credit reports, free of Prior to this law, the Temporary Credit Information Law charge, once a year. No. 82 of 2003 was applicable; Also, Article 19 of the Law states the following: n The introduction of specific and tailored legislation on CBs represents the most appropriate approach to A. Credit provider who wishes to obtain service from establish a solid information sharing system, enhancing the company should inform the customer with the consumer rights as well as the private credit reporting following: system;231 1. The purpose of obtaining credit information n Consumer rights within the CR are limited. Although consumers can raise disputes through lenders and their 2. The right to access his own credit information, to consent is collected before inquiry, they do not have correct any error, and to object on that information 95 s s s 7. Credit Reporting in MENA – Detailed Overview access to their own reports. However, a new law allows RECOMMENDATIONS for complete access, including one free report a year, The new CB should collect detailed credit information n and dispute resolution, which will be applicable once from regulated and non-regulated entities concerning the CB is established; individuals and firms. All users of the database should n Only the regulated institutions share and inquire also be data providers (the principle of reciprocity data with the CR. Thus, participation is limited, and should apply); no complete risk profile is available. Microfinance To avoid fragmentation in the case of the microfinance n institutions and leasing companies that are subsidiaries institutions’ database, all information should be of a bank can also share/inquire from the CR; collected by a single system; possibly MFIs should be n Depth of data sharing, as indicated by ACRISI, is low: mandated to share data with the CR and the CB. A legal there is no mandate for inquiry to the CR, threshold framework that allows the CBJ to regulate MFIs might limits are applicable, and the principle of reciprocity be considered, in order to avoid the creation of vertical does not always apply; information silos that do not communicate with one n The new CB, once operational, will be a modern credit other and fragment borrowers’ credit histories; information company, which will allow information The CB should, as quickly as possible, provide credit n sharing across sectors and play an effective role in the scoring and other value-added services to its users; development of the credit market; it will improve risk- The CBJ can allow for more than one CB license to n assessment methods in the country. ensure a healthy, competitive market subject to sufficient business volumes that might justify an industry-driven structure; The central bank and the new CB should undertake n awareness and education campaigns for lenders and borrowers on all aspects of information sharing such as benefits, purpose, obligations, rights, usage, etc. 96 s s s Arab Credit Reporting Guide Table 7.5.5: Arab Credit Reporting Information Sharing Index — Jordan ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? NO NO   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? NO NO Do consumers have access to at least one free report in a year? NO NO Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? YES YES   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? YES YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO NO Are both positive and negative information reported? YES YES Are all loans reported without any limits? NO NO Does the principle of reciprocity apply? NO NO   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 10 10 97 s s s Arab Credit Reporting Guide ISLAMIC - 'Abdalı REP. OF IRAN Ar Rawdatayn KUWAIT IRAQ - - Bubiyan K u wa i t Bay Az Zawr Faylakah KUWAIT tin Doha Ba Al Jahrah - Hawalli l - - i a Al Farwanıyah - Mubarak - al-Kakbır ad W - Al Maqwa' Persian Salemy Gulf Al Ahmadi Capital Kuwait City - - 'Abd Allah Mina' Currency Kuwaiti - - Su'ud Dinar (KWD) Mina' SAUDI ARABIA Al Wafrah - Al Khıran USD/KWD 0.2824 Qasr Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41507, March 2015. 7.6 KUWAIT Kuwait is highly dependent on expatriates, which account for over 68 percent of population. The total population, 7.6.1 ECONOMIC OVERVIEW as of 2012, was 3.8 million. Women accounted for nearly 40 percent.235 Figure 7.6.2, below, shows the bifurcation of Kuwait is a small country nestled at the top of the Gulf, the Kuwaiti and non-Kuwaiti population, as of 2012. flanked by large neighbors: Saudi Arabia to the south, Iraq to the north, and Iran to the east.232 Kuwait has substantial Kuwait is a high-income economy and the second oil resources (about 102 billion barrels), which represent 7 wealthiest economy in the GCC, with a per capita GDP of percent of the world’s oil supply. This accounts for nearly approximately $47,600, as of 2012.236 Figure 7.6.3 below half of its GDP and 95 percent of exports. Despite large shows the GDP trend from 2008 to 2012. oil revenues, the economy has been affected by the global financial crisis.233 Figure 7.6.1: GDP Performance 60 Over the past few years, Kuwait has had strong GDP 50 growth boosted by oil sector revenues and investments 40 30 in the nonoil sector of the economy. The nominal GDP 20 of the economy increased 14.7 percent, from 44.4 billion 10 0 Kuwaiti dinars in 2011 to 50.9 billion Kuwaiti dinars -10 2008 2009 2010 2011 2012 -20 in 2012.234 The real GDP growth rate also increased -30 from 6.3 percent in 2011 to 6.8 percent in 2012. Nominal GDP (KD billion) Nominal GDP Growth (%) The GDP performance and growth rates from 2008 to 2012 Real GDP Growth (%) are shown in Figure 7.6.1. Source: “Kuwait Economic Insight,” QNB, 2013. 99 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.6.2: Population – 2012 (Million) Figure 7.6.4: Financial System of Kuwait 5 60 4 50 50 52 54 40 3 42 30 39 2 20 1 10 5 5 1 10 1 0 0 Local Foreign Investment Investment Exchange Kuwaiti Non-Kuwaiti Total Commercial Commercial Companies Funds Companies Banks Banks Male Female Conventional Islamic Specialised Source: The Public Authority for Civil Information, Kuwait. Source: “Banking and Financial System Structure,” Central Bank of Kuwait, June 2013. Figure 7.6.3: GDP per Capita (USD) 60,000 Banking 50,000 The banking sector is dominant, with a network of 364 local 40,000 USD 30,000 bank branches; it accounts for about 96 percent of the total 20,000 credit granted by the system. The National Bank of Kuwait 10,000 and Kuwait Finance House, the largest conventional 0 and Islamic banks respectively, have the most expansive 2008 2009 2010 2011 2012 network of branches in the country; the two account for 55 Source: data.worlbank.org. “Kuwait Economic Insight.” percent of total banking assets.237 7.6.2 CREDIT MARKET As of December 2012, outstanding loans, as a percentage of GDP, were 59.9 percent. The number of outstanding OVERVIEW loans among individuals and firms was 162,517 and 7,296 The financial system of Kuwait consists of the banking respectively. This corresponded to a value of 10.82 billion system (conventional commercial banks, Islamic banks, Kuwaiti dinars for individuals and 18.69 billion Kuwaiti and specialized banks) investment funds (Islamic and dinars for firms.238 conventional), exchange companies, and investment companies (Islamic and conventional). The Central Bank The growth of total credit granted by local banks to of Kuwait (CBK) leads the banking and financial system residents in Kuwait peaked in fiscal year 2009 at a rate of and is the supervisory authority. From September 2011, 13.2 percent; it fell to a low of 0.5 percent in FY11 and the Capital Markets Authority was given responsibility for then a gradually increased to 5.2 percent in FY13. The total regulating the investment companies and funds. value of credit (utilized cash portion of credit facilities) increased from 24.18 billion Kuwaiti dinars in FY09 to There are a total of 22 commercial banks in the country (10 27.33 billion Kuwaiti dinars in FY13. local, 11 foreign, and one specialized bank). There are five local commercial banks that operate according to Islamic The share of credit by local banks to non-resident accounts law. Islamic banks, along with Islamic finance companies, for 4.2 percent of the total credit granted by the banking are popular and a growing source of finance. As shown in system and 3.05 percent of overall credit. Customer Figure 7.6.4, they constitute a large portion of the financial financing by investment companies was 9.52 billion system in Kuwait. The specialized bank, the Industrial Kuwaiti dinars in FY12 to FY13. This accounts for 3.26 Bank of Kuwait, is dedicated to industrial development and percent of the total credit granted by the financial system. also provides industrial Islamic finance. Some investment Figure 7.6.5 shows the trend of credit facilities in the companies are also engaged in providing consumer finance economy and the credit growth from FY09 to FY13.239 facilities for personal and business purposes. Figure 7.6.4 gives an overview of the financial system of Kuwait. 100 s s s Arab Credit Reporting Guide Figure 7.6.5: Total Credit (KD Billion) Figure 7.6.7: Getting Credit Rank – 2013 30 14 100 29 12 104 28 10 KD Billion Percentage 27 8 26 6 110 25 4 24 2 23 0 MENA 120 2008/09 2009/10 2010/11 2011/12 2012/13 128 Average Total Credit by banks Credit Growth (%) Customer financing by investment companies 130 Source: Annual Reports, Central Bank of Kuwait, 2009–2013. MENA Region Kuwait Source: Doing Business Report, The World Bank, 2013. data.worldbank.org. The personal facilities sector showed the highest increase—12.4 percent — over the previous fiscal year; Total credit volumes granted by the financial system it also accounted for the largest share of bank credit in and more specifically, the banking sector, have steadily 2012, as shown in Figure 7.6.6, with credit facilities worth increased since FY09. An indicator of credit penetration, 10.3 billion Kuwaiti dinars. Real estate and construction domestic credit to private sector as a percentage of GDP, held the second largest share, accounting for 9.01 billion has declined since 2009, as seen in Figure 7.6.8. Kuwaiti dinars in credit facilities, followed by trade and industry.240 The banking sector operates through a network of 364 branches. In addition, there are 11 foreign bank branches Figure 7.6.6: Bank Credit by Sector – FY 2012/13 (KD Billion) operating in the country. This translated to 18.61 0.14 commercial bank branches per 100,000 adults in 2012. The ATM network has been increasing over the past five 4.2 years, as seen in Figure 7.6.9; there were 69.19 ATMs per 10.3 100,000 adults in 2012.242 9.01 1.8 Figure 7.6.8: Domestic Credit to Private Sector (% of GDP) 100 85.2 Trade & Industry NBFIs Oil and gas 76.3 80 66.1 63.5 61.7 Real estate & Construction Personal facilities 60 Source: Annual Reports, Central Bank of Kuwait, 2009–2013 40 20 A part of a development plan, the CBK has undertaken 0 several measures to strengthen the banking sector. CBK 2007 2008 2009 2010 2011 and local banks made persistent efforts to accurately Source: Doing Business Report, The World Bank, 2013. data.worldbank.org. analyze and evaluate the quality of loan portfolios. This has led to a significant improvement in the quality of credit by Figure 7.6.9: Commercial Bank Network per 100,000 Adults the banking system. Nonperforming loans have decreased 80 from 7.06 percent in December 2011 to 4.95 percent in 70 December 2012.241 60 69.19 57.29 57.43 59.99 50 54.28 40 CREDIT PENETRATION AND ACCESS 30 20 16.5 17.5 18 18.85 18.61 The World Bank’s 2013 Doing Business Report ranked 10 0 Kuwait 104 out of 185 countries in the Getting Credit 2008 2009 2010 2011 2012 Indicator. As seen in Figure 7.6.7, it is higher than the Bank Branches ATMs regional average of 128. (DB14, ranked 130) Source: Financial Access Survey, IMF, 2012 101 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.6.1 shows the financial access indicators in terms Figure 7.6.10: PCR Coverage – Number of Loans of formal financial institutions’ accounts and loans. The Registered percentage of adults with an account was 87 percent 1,200,000 1,000,000 1,169,813 in 2011, which is relatively high for the region. Eighty 800,000 percent of women have an account with a formal financial 600,000 institution. However, the percentage of adults who have 400,000 117,237 200,000 taken a loan in 2011 was only 21 percent. This percentage 0 for women corresponds to 17 percent. 2008 2012 Source: ACRI Credit Information Sharing Survey – January 2013 Table 7.6.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011 As of December 2012, 1.16 million loan records were Accounts 87 registered in the CR, increasing from 0.12 million in 2008, Men 92 as shown in Figure 7.6.10. Women 80 The Credit Information Network (Ci-Net), the credit Loans in the past year 21 bureau of Kuwait, established by Law No. 2 of 2001, Men 24 started its operations in October 2002. Sixteen banks and Women 17 finance companies own the network. This is the primary Source: http://datatopics.worldbank.org/financialinclusion/country/kuwait source of credit information sharing in Kuwait and was established to assist lenders in their credit granting process and borrowers risk assessment. 7.6.3 STATUS OF CREDIT REPORTING Ci-Net uses an advanced system to provide information to members that offer credit facilities to their customers. OVERVIEW The bureau uses data provided by the Public Authority for Kuwait was the first MENA country to establish a CB in Civil Information; the civil ID is used as the key search 2002. (It is one of the six MENA countries with a CB, the criteria.244 others being Bahrain, Egypt, Morocco, Saudi Arabia, and the UAE). Although a credit registry has been set up by the As per the Doing Business Report 2013, the CB’s coverage CBK in the form of a centralized risk system, the country in terms of percentage of adults is 31 percent, increasing is primarily dependent on the CB for its credit information from 29 percent in the previous year. According to the sharing. report, 617,539 individuals and 73 firms were listed in the CB. The CR or the Centre of Risk Information was set up in 1982 as per the provisions of the CBK Law 32/1968. Currently, there are no value-added services, such as It is a centralized risk system for collecting information bureau scores, provided by the private bureau. However, on bank credit on a periodic basis. The purpose was plans for introducing risk-management solutions—such as also to assist banks in evaluating the creditworthiness of scorecards, application processing, warnings of account, customers, applying for loans, and enabling the CBK to etc.—are under review. Also, Ci-Net started a consultation be constantly aware of banking credit trends.243 The CR process to appoint an international credit bureau service collects information on loans, including demographic provider to develop and implement a new credit bureau data and details on loans granted by banks to individual system based on international standards.245 borrowers and business firms. 102 s s s Arab Credit Reporting Guide PARTICIPATION AND DATA SHARING Article 83 lays down the provision for the central bank to establish a Centralised Risk System to share information All banks are mandated by law to provide data on loans and evaluate borrowers’ credit worthiness. Through this to the CR. However, the required minimum loan size article, there is a clear provision that allows for sharing of for reporting is 15,000 Kuwaiti dinars. Banks are also credit information from all banks. mandated to inquire with the center before granting a loan. The law also takes into consideration the confidentiality of All banks, investment companies, and commercial information shared with the CBK and the Centralised Risk establishments that offer credit facilities are mandated System. Confidentiality of information has been specifically to provide data to Ci-Net. In addition to traditional addressed in Articles 82 and 83. Article 82 states, “All these participants, commercial banks, credit card issuers, finance information shall remain confidential, except statistical corporations, and retailers provide data to the bureau. The data in an aggregate form, data and information exchanged principle of reciprocity is applicable: only institutions that between the Central Bank of Kuwait and other central provide data can access the bureau. banks and other banking supervisory authorities…” ‘This refers to all data, information, and statistics requested by Full data on credit facilities granted to individuals are the CBK. reported to Ci-Net, including demographics, loan data and payment performance history (whether payments are on time), defaults or debts on the credit facility; this Article 83 “Data and information acquired through information is distributed through credit reports. Detailed the Centralized Risks System shall only be disclosed monthly payment histories are not collected or reported. All to persons who should be advised thereof under loans (irrespective of amount) and negative and positive the rules laid down for the implementation of the data are shared through the system. System.” LEGAL FRAMEWORK AND CONSUMER RIGHTS In 2001, the National Assembly passed Law No. 2 of 2001, which established a system to collect information and data The CBK Law 32/1968 introduced the system of credit on consumer credit loans associated with the installment information sharing in the country. Through Article 82 of sales. This law provided for the establishment of CBs in the the Law, the central bank was given the authority to collect country, under the purview of the CBK and the Ministry of information as required from banks. It clearly states the Commerce and Industry. authority of the central bank to collect statistics on banking credit and the requirement for banks to submit data as This law applies to all banks and finance institutions that requested. offer credit facilities. These regulations govern the sharing of information between the bureau and financial institutions. All institutions are mandated to provide full data on loans Article 82 “The Central Bank may ask the banks to granted, which ensures complete credit information submit such statements, information and statistical in the system. The law also states that the information data as the Bank considers necessary to carry out shared through this system will not be disclosed except as its functions. The Central Bank may also establish permitted by the relevant laws. a system for the collection of statistics on banking credit on periodic basis.” Consumers and their data are well protected in the credit information system. Consumer consent is necessary for a CB inquiry. Although not guaranteed by law, consumers are allowed to access their own credit reports from the CB at a cost. They can also raise disputes on incorrect data and request corrections. 103 s s s 7. Credit Reporting in MENA – Detailed Overview ARAB CREDIT REPORTING INFORMATION All parameters in the depth of data sharing and n SHARING INDEX reporting of ACRISI have been fulfilled, indicating a comprehensive database of all loans in the reporting Based on the parameters and subparameters discussed system; in Chapter 6, the ACRISI score has been determined for Kuwait, as shown in Table 7.6.2. The index provides a There is no system in place for providing credit scores to n snapshot of the assessment of the credit information shar- the users, but the bureau has plans to introduce a scoring ing system in the country. system and other value-added services; Cross-border data sharing is not allowed in the country. n CONCLUSIONS n Kuwait has a strong financial and banking system RECOMMENDATIONS supported by a relatively robust credit reporting The CB should implement a system for sharing data with n framework; it is the first country in the region to set up a other nonregulated entities, such as utility providers; it CB; should also provide value-added services, including n The presence of the CB has led to a relatively high credit scores; ACRISI score of 16 for Kuwait; this indicates the Since its passing in 2001, the law has not been amended. n establishment of a basic framework for credit reporting, Given the recent changes in the credit-reporting but there is room for improvement; framework of other MENA countries (for example, n The reporting framework addresses all basic Saudi Arabia and the UAE have implemented more requirements in terms of legal framework, consumer advanced credit information laws), the Central Bank rights, and data sharing; of Kuwait can upgrade the law according best practice. Reforms might include indicating specific definitions n There is a legal framework in place that establishes the for relevant terms, clear provisions for data sharing essential regulations for credit information sharing and and formats, further defining the role of the supervisory also for the privacy and protection of such data; authority, impact of violations and penalties, etc. n Consumer rights have been established; entities are The Central Bank of Kuwait and Ci-Net should undertake n required to collect consent before inquiry. The CR offers a common program of awareness and education drives free reports, but the CB does not; for lenders and borrowers on all aspects of information n Regulated entities share data with the CR and CB. The sharing such as benefits, purpose, obligations, rights, CB also collects information from retailers; usage, etc. 104 s s s Arab Credit Reporting Guide Table 7.6.2: Arab Credit Reporting Information Sharing Index — Kuwait ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? YES YES   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? NO NO Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? YES YES   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? YES YES Are utility entities participating? NO NO Are MFIs participating? NO NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 16 16 105 s s s Arab Credit Reporting Guide Tripoli Hermel LEBANON Chekka Jbeil M edi t erranea n Baalbeck Jounie Sea BEIRUT Baabda Zahleh Saida Capital Beirut Jezzine Currency Lebanese Pound (LBP) Nabatiyeh Tyre Naqoura USD/LBP 1504.49 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41508, March 2015. 7.7 LEBANON realms of investment, trade, and tourism. There are few factors that continue to support the economy, including: the 7.7.1 ECONOMIC OVERVIEW Central Bank of Lebanon’s stimulus package and subsidies of loan interest in vital economic sectors. The Lebanese economy follows a laissez-faire model, providing an economic environment where government Despite the global recession, the Lebanese economy grew restrictions do not apply to transactions between private 9.3 percent in 2008 and 8.5 percent in 2009. Real GDP parties. Following a free-market regime, there is practically growth slowed from 7.0 percent in 2010 to 2 percent in no government intervention on foreign exchange or capital 2012.247 The IMF forecasted a positive though relatively movement. The economy is service-oriented, and 65 low real GDP growth of 1.5 percent for 2013. Figure percent of the Lebanese workforce attains employment 7.7.1 shows the trend from 2008 to 2012, including 2013 in this sector. Banking and tourism have been the main growth sectors in the past years, contributing roughly 67.3 Figure 7.7.1: Real GDP Growth (%) percent to GDP annually.246 Lebanese banks have high liquidity and are reputed for their security. In 2008, the 10 9 value of Lebanon’s stock market increased, one of the only 8 seven countries in the world to experience growth amid 8.5 5.2 that year’s crisis. 6 7 4 Since the beginning of 2013, the Lebanese economy has 2 1.5 been characterized by slowness during political bickering 2 and regional turmoil. Major investment decisions continue 0 to be delayed due to investors’ wait-and-see attitude. Such 2008 2009 2010 2011 2012 2013 a situation is a result of regional spillover effects in the Source: Annual Reports, Bank Audi Sal 107 s s s 7. Credit Reporting in MENA – Detailed Overview estimates. GDP has grown from $28.83 billion in 2008 to Figure 7.7.4: Population (Million) $43.20 billion in 2012, as shown in Figure 7.7.2.248 4.5 4 In 2012, the inflation rate was 6.5 percent, as compared to 3.5 2.17 2.05 2.08 2.13 2.15 5 percent in 2011. Figure 7.7.3 shows the trend from 2009 3 to 2012. The price increases from 2010 and 2012 mainly 2.5 affected basic needs, such as food, fuel, and shelter. 2 1.5 2.21 2.23 2.25 2.14 2.17 1 Lebanon is one of the most densely populated countries in 0.5 the world, with an average of over 400 people per square 0 kilometer. The total population, as of 2012, was 4.42 2008 2009 2010 2011 2012 million. Women accounted for nearly 49.1 percent of the Women Men Source: data.worldbank.org total population. Figure 7.7.4 shows the bifurcation of the total population from 2009 to 2012. in the foreign exchange market by buying and selling Figure 7.7.2: GDP (Current U.S. Dollars, in Billions) foreign currencies. 50 The Lebanese financial system comprises the banking 40.09 sector, exchange institutions, financial institutions, and 40 43.20 leasing companies supervised by BDL. Apart from these 28.83 37.12 supervised entities, the microfinance sector has been a 30 34.65 growing source of finance. At the end of 2012, the credit market consisted of 54 commercial banks (of which 20 2008 2009 2010 2011 2012 11 were foreign banks), 53 financial institutions, one Source: data.worldbank.org leasing company250 and over 20 microfinance institutions (of which four were financial institutions). The credit Figure 7.7.3: CPI Inflation market structure is shown in Figure 7.7.5.251 12 10.75 10 Figure 7.7.5: Credit Market Percentage 8 6.5 60 6 4.5 5 50 54 53 4 40 1.2 2 30 0 20 2008 2009 2010 2011 2012 > 20 10 1 Source: IMF, 2013. data.worldbank.org 0 Commercial Financial Leasing MFIs Banks Institutions Companies Source: “Banking and Financing,” Banque du Liban, accessed September 15, 2014. 7.7.2 CREDIT MARKET http://www.bdl.gov.lb/downloads/index/4/248/Banks.html. OVERVIEW In 2012, the total volume of credit granted by the lending The Banque Du Liban is tasked with safeguarding system reached 73,506.51 billion Lebanese pounds, the national currency as the basis for sustained social which is 74.64 percent higher than 2008. Outstanding and economic growth.249 BDL grants licenses for the loans contribute 117.24 percent of the total GDP. The establishment of banks and financial institutions in nonperforming loans ratio has gone down to 3.50 percent, Lebanon. It can use all measures deemed appropriate to from 6.85 percent in 2008.252 ensure exchange rate stability, and specifically intervenes 108 s s s Arab Credit Reporting Guide Loan assessment procedures continue to be conventional deposits in the public sector increased from $115.7 billion and not fully automated; decisions are manual and in December 2011 to a new high of $127.7 billion in subjective. Collateral is a requirement, especially for larger December 2012.254 loan amounts. In 2012, the total number of loans with collateral, in the case of individuals, was larger than loans The resident private sector alone contributes to 65 percent without collateral (despite the value of those loans being of the total increase in the deposits, constituting 79 percent lower), as seen in Table 7.7.1. of the total value of deposits. Of the remaining share, 18.9 percent is from the non-resident private sector and Banking 2.1 percent is from the public sector.255 With regard to currency, foreign currencies represent 63.5 percent and The banking sector is the dominant player in the credit remaining 36.5 percent of deposits are in Lebanese pounds. market. The total assets and liabilities of commercial banks The majority of bank deposits are saving accounts (over operating in Lebanon was the equivalent of $151.9 billion, 80 percent) and short-term accounts (less than 90 days). as of December 2012. Lebanese banks managed to pull The bifurcation of commercial banks’ deposits by sector is off an 8.0 percent year-on-year growth of total assets and given in Figure 7.7.6 below. liabilities throughout 2012, compared to an increase of 9 percent in 2011.253 Lebanese banks saw a 10.9 percent increase in lending activity in 2013, after 13.5 percent growth in 2011. Total Deposits with commercial banks, a traditional driver credit increased from 66.2 trillion Lebanese pounds of growth for the sector, increased 8.5 percent in 2012 in December 2011 to 73.5 trillion Lebanese pounds in as compared to 12.2 percent in 2011. The total value of December 2012. The largest concentration of credit is in Table 7.7.1: Collateral Environment 2008 2012 Number of Value of loans Number of Value of loans loans (LBP million) loans (LBP million) Loans with collateral Individuals 132,248 10,104,004 230,354 20,234,128 Firms 21,481 6,289,275 30,428 19,493,707 Loans without collateral Individuals 131,989 10,817,458 328,824 10,694,200 Firms 16,449 14,881,665 23,130 23,084,476 Source: Credit Information Sharing Survey, ACRI, January 2013. Figure 7.7.6: Commercial Banks Deposits (Billion LBP) by Sector 160000 140000 120000 100000 8000 6000 4000 2000 0 2010 2011 2012 Resident Private Sector Public Sector Non-resident Private Sector Non-resident Financial Sector Capital Accounts Other Liabilities Source: Banque du Liban. 109 s s s 7. Credit Reporting in MENA – Detailed Overview the trade and services sector, as seen in Table 7.7.2, which percent; and the share of advances against cash collateral shows sectoral distribution. Despite a decreasing trend in or bank guarantees that reached 13.8 percent. its share since 2010, this sector constituted over 34 percent of total credit as of December 2012. The share of personal Financial Institutions loans has increased and constitutes the second largest share There are 71 finance and investment companies, including of total credit facilities—26 percent, as of December 2012. one leasing company and four microfinance institutions. Personal loans total 19.4 trillion Lebanese pounds, of which With total assets worth 1.89 trillion Lebanese pounds housing loans constitute over 56 percent or 10.96 trillion. as of December 2012, the financial sector has grown significantly in the last 10 years, as seen in Figure 7.7.8. The majority of bank loans, or 72 percent, consists of From 2009 to 2012, total assets increased by 30 percent, limited-term loans; the remainder (28 percent) is in the from 1.45 trillion Lebanese pounds in 2009. The largest form of overdrafts. It is noteworthy that the overdrafts five institutions constitute nearly half of total assets and 77 are usually granted to major clients or to clients with high percent of total credit by the financial sector. credit worthiness, where most loans are concentrated. At the end of 2012, as seen in Figure 7.7.7, the share of The sector’s total credit has increased from 530.4 billion advances against real estate reached 30.6 percent; the share Lebanese pounds in 2008 to 844.9 billion Lebanese pounds of advances against personal guarantees reached 18.0 in 2012. From 2008, however, there was a declining trend in the growth rate; it increased in 2012, with a growth of Figure 7.7.7: Utilized Loans by Type – End of 2012 (%) 14.65 percent, as seen in Figure 7.7.9. Credit to individuals Advances Against constitutes the single major component with 39 percent Advances Against Other Real Guarantees 6.1 Financial Values directed towards this sector. As shown in Figure 7.7.10, the 3.6 Advances Against services and commerce, and industry sector constitute the Cash Collateral/ Overdrafts Bk Guarantees 28.0 second and third largest components, with 25 percent and 13.8 14 percent respectively. Microfinance Advances Against Personal Guarantees Microfinance institutions in Lebanon are primarily Advances Against 18.0 Real Estate registered as non governmental organizations, financial 30.6 institutions, or commercial companies.256 Currently, over 20 Source: Ibid. microcredit providers operate in the country; the publicly- Table 7.7.2: Sectoral Distribution of Utilised Credit December 2010 December 2011 December 2012 Value Share Value Share Value Share (billion LBP) (%) (billion LBP) (%) (billion LBP) (%) Trade & Services 21046 36.07 23257 35.11 25414 34.57 Construction & Building 9494 16.27 10751 16.23 12267 16.69 Industry 6564 11.25 7445 11.24 8439 11.48 Personal Loans 13723 23.52 1688 25.46 19368 26.35 o/w: Housing Loans 6800 11.66 9018 13.60 10957 14.91 Financial Intermediation 4927 8.45 5226 7.89 5127 6.97 Agriculture 554 0.95 644 0.97 683 0.93 Other Sectors 2036 3.49 2055 3.10 2209 3.01 Total 58344 100.0 66246 100.0 73507 100.0 Source: Banque du Liban. 110 s s s Arab Credit Reporting Guide Figure 7.7.8: Financial Institutions Performance 900 2,000 End of Year Balance Sheet Agregate Items 1,750 750 1,500 600 LBP in Million 1,250 1,000 450 750 300 500 150 250 0 0 00 11 12 98 08 10 97 99 01 02 03 05 07 09 96 04 06 c- c- c- c- c- c- c- c- c- c- c- c- c- c- c- c- c- De De De De De De De De De De De De De De De De De Tier I Capital Total Assets Total Credit Source: Financial Markets Handbook, Lebanese Financial Institutions, Central Bank of Lebanon, December 2012. Figure 7.7.9: Total Credit by Financial Institutions available audited loan portfolios of the top five MFIs have a combined worth of $62 million. The cumulative portfolio 900000 25 800000 of all providers is estimated at between $120 million and 700000 20 $150 million.257 The market is primarily served by three LBP in Million Percentage 600000 15 500000 400000 large microfinance programs: Al Majmoua, Access to 10 300000 Microfinance and Enhanced Enterprise Niches (Ameen), 200000 5 100000 and Al Qard Al Hassan. Ameen was the first program to 0 0 2008 2009 2010 2011 2012 be regulated as a financial institution by the Central Bank Total Credit Growth in September 2007. Microcredit, in the form of business Source: Ibid. loans, has dominated the landscape in Lebanon. Individual and group lending are offered to both men and women.258 Figure 7.7.10: Sectoral Distribution of Credit (%) – 2012 1 Retailers Together with microfinance institutions, retailers are the 8 14 1 other source of credit available to the lower end of the population. Generally, commercial agreements are signed 39 25 between retailers and banks, with the former selling the loan at the point of sale or retail outlet; the bank is directly 12 responsible for underwriting, financing, and taking the credit risk. It is a win-win situation: the bank acquires new Agriculture Industry Building Services and Commerce Financial Institutions Individuals Others customers at a lower cost, and the retailer increases its sales Source: Ibid. as a consequence of the loans granted. By extending credit to the unbanked population, such retailers improve access to finance.259 111 s s s 7. Credit Reporting in MENA – Detailed Overview CREDIT PENETRATION AND ACCESS In 2012, banks continued to launch new cards for customers; a total of 1.9 million banks cards were in The World Bank’s Doing Business Report 2013 ranked circulation. Fifty-one percent were debit cards, lower than Lebanon 104 out of 185 countries. As seen in Figure 7.7.11, the previous year. Twenty-four percent were credit cards. it is higher than the regional average of 128. (DB14, ranked Other cards, such as prepaid cards and term payment cards 109) make up the remaining 25 percent. 261 In the past four years, Figure 7.7.11: Getting Credit Rank – 2013 total credit provided by the banking sector has increased by 10 percent, and credit to the private sector increased by 20 100 104 percent, as seen in Figure 7.7.13. At 92.2 percent of GDP (as of 2012), the penetration of credit is high in Lebanon as 110 compared to many emerging countries in MENA, as shown MENA in Figure 7.7.14. 120 128 Average Figure 7.7.13: Domestic Credit to Private Sector (% of GDP) 130 MENA Region Lebanon 1000 Source: Doing Business Report, The World Bank, 2013. data.worldbank.org. 922 896 855 In 2012, the country’s 71 banks had 984 branches— 962 commercial bank branches, and 22 investment bank 800 738 736 branches and mid to long-term credit bank branches. According to the IMF Financial Access Survey, there were, on average, 29.30 commercial bank branches per 100,000 600 adults, from 2008 to 2012. With the expansion of branch 2008 2009 2010 2011 2012 networks, Lebanese banks continued to develop their Source: data.worldbank.org systems and means of payment. Figure 7.7.14: Domestic Credit to Private Sector Banks have extended the use of ATMs, and the number (as % of GDP) for Selected MENA Countries – 2012 of machines in service amounted to 1,433 at the end of 100 2012.260 With an average number of 382 ATMs for every 80 92.2 one million person in 2012, Lebanese banks’ outreach is close to the level of major emerging countries. The outreach 60 79 72.4 59.1 of ATMs has been growing steadily in from 2008 to 2012, 40 but the number of commercial bank branches has remained 20 constant, with minor variations, as seen in Figure 7.7.12. 0 Bahrain Jordan UAE Lebanon Figure 7.7.12: Commercial Bank Network Source: data.worldbank.org 50 40 Table 7.7.3 shows the financial access indicators in terms 41.33 39.12 38.8 37.76 36.67 30 of formal financial institutions’ accounts and loans. The 29.56 29.35 29.17 29.4 29.3 20 percentage of adults with an account was 37 percent in 10 2011. Twenty-six percent of women have an account with a formal financial institution. However, the percentage of 0 2008 2009 2010 2011 2012 adults who took out a loan in 2011 was only 11 percent; Commercial bank branches per 100,000 adults this percentage corresponds to 8 percent for women. ATMs per 100,000 adults Source: Financial Access Survey, IMF, 2012. 112 s s s Arab Credit Reporting Guide Table 7.7.3: Penetration in Formal Financial individuals and 21,100 firms were listed in the CdR. The Institutions (% of Adults) — 2011 number of individuals listed has almost doubled since 2008 Accounts 37 and increased significantly since the system went online, as Men 49 shown in Figure 7.7.15. Women 26 Loans in the past year 11 Figure 7.7.15: Number of Individuals and Firms Listed in the CdR Men 14 600000 572,120 521,221 Women 8 500000 460,883 Source: Financial Inclusion Data: Lebanon, The World Bank, 2012. 400000 http://datatopics.worldbank.org/financialinclusion/country/lebanon. 304,257 http://datatopics.worldbank.org/financialinclusion/topic/gender#divMap. 300000 234,617 200000 100000 13,289 13,692 18,797 19,881 21,100 7.7.3 STATUS OF CREDIT 0 2008 2009 2010 2011 2012 REPORTING Individuals Firms Source: Credit Information Sharing Survey, ACRI, 2013 OVERVIEW A 2008 study undertaken by IFC, Building Private Credit The total value of loans registered in the CR increased Reporting Infrastructure in Lebanon, indicated that about of 139.30 percent, 247,906 million Lebanese pounds consumers’ complete credit information and payment in 2008 to 593,220 million Lebanese pounds in 2012. To histories for underwriting purposes were not yet available be included in the CR, the minimum loan size is 7 million in Lebanon. Positive credit information was not shared Lebanese pounds. Since its establishment, the registry has among lenders, and only timid experiments that provided been expanding its footprint; there were 249,012 inquiries negative information were in place. Thus, information for by end of 2012, with an estimated hit rate of 58.47 percent. credit assessment was scarce and often informal, such as the verbal references exchanged among different banks. Centrale des Impayées is a separate module within the CdR system, which contains only negative information For lenders, the only official sources of credit assessment regarding bounced cheques. Lenders always consult this were: database before granting credit or opening a new account. n Centrale des Risques, the central bank’s CR, which Other information providers262 was limited to large accounts and contained data on outstanding debt; Credit bureaus and positive information sharing are still absent in Lebanon. The mobile telephone companies’ black n Centrale des Impayées, a black list containing all unpaid list is the only other example of electronic data sharing; it checks. is a limited experiment restricted to negative information. Nonetheless, there are a few private firms that function The CR is the only available source of credit information as credit information providers. Two of them, Masri and for lenders. The CR is operated by the central bank and Paragon, are frequently utilized by lenders. Both firms’ only was established in 1962. It was originally launched to offer partial data coverage, and their services are quite basic. supervise the banking sector and monitor the risk exposure As a result of the lack of historical payment performance of large credit. In 1986, the CR was revamped and partially data contributed by lenders, the information provided automated. The system was brought online in 2009, a by both entities, with some service differentiations, is major milestone. limited to: CR’s coverage reached 19.2 percent of adult population n Public information; in 2013, based on Doing Business Report, up from n Court judgments; 6.8 percent during the previous year. In 2012, 572,120 113 s s s 7. Credit Reporting in MENA – Detailed Overview n Other negative information; Figure 7.7.16: Number of inquiries 300000 n Demographic information; 250000 249,012 n Immovable property; 200000 150000 n Data contained in the internal existing databases. 100000 146,284 50000 0 In recent years, both firms have widened their focus, 2008 2012 resulting in significant coverage overlaps. Still, the services Source: Credit Information Sharing Survey, ACRI, January 2013. are based on the same negative, public data. PARTICIPATION AND DATA SHARING LEGAL FRAMEWORK AND CONSUMER RIGHTS All banks, financial institutions, and leasing companies provide data to the CR, but only banks and financial On August 1, 1963, the Code of Money and Credit institutions are allowed to retrieve data from the registry. established the BDL through Decree No. 1351.263 The BDL is a legal public entity with financial and administrative There are two types of microfinance institutions in the autonomy. It is not subject to the public sector’s country. On the one hand, there are microfinance institutions administrative and management rules.  regulated by the central bank; these institutions provide data to the CR and can inquire and retrieve data from the The Banking Secrecy Law of September 3, 1956 is a major registry. Microfinance institutions that are not regulated by law that forms the regulatory framework for governing the the Central Bank, on the other hand, can neither provide CR’s operations. The Lebanese Secrecy Law permits the data nor inquire from the CR. If unregulated MFIs have creation of a credit information database and the sharing of credit facilities from banks, which are exempted from legal credit information with borrower consent. reserve requirement, they can, through the banks, send data to CR as well as access data from the registry. Article 1 establishes that: “…Banks established in Leasing companies can only provide data to the CR; they Lebanon and foreign banks that are branches of cannot retrieve information because they are not subject foreign companies are subjected to professional to the Bank Secrecy Law. All finance and microfinance secrecy…” Albeit the entities regulated by BDL are institutions report data to the CR on a monthly basis. The all those belonging to the financial sector, except database maintains positive and negative data pertaining insurance companies, not all of them are bound to individuals and firms. There is no time limit for the by the Bank Secrecy Law, since only the financial preservation of data, which is never erased from the CR. institutions (as defined in Article 178 of the Law The registry’s data includes demographic information, of Money and Credit) and banks are subject to the inquiries by other lenders, loan account data, and payment Bank Secrecy law. performance data (for loans to individuals and firms). However, monthly payment histories are still not available Article 2 establishes that “...Employees and to lenders for assessment purposes. managers of the banks… may not disclose any information known to them about the clients’ Figure 7.7.16 shows the number of inquiries made to the names, funds, or personal matters to any party, CR in 2008 and 2012. There has been a 70 percent increase be it an individual or a public authority, whether in number of inquiries to the CR over the four-year period. administrative, military or judicial…”. 114 s s s Arab Credit Reporting Guide shock; a near doubling of per capita GDP in the last Article 6 restricts sharing of positive data amongst decade; and a highly resilient balance of payments lenders “In order to safeguard their invested position, as reserve accumulation remarkably averages funds, banks mentioned in Article 1 may exchange high over one year of import cover; confidentially, and only between themselves, any information related to their clients’ debit accounts.” Credit information sharing system is basic, comprising a n CR; there is significant room for improvement. Banks and financial institutions must inquire with the n The ACRISI score is low, but has increased by one point CR before granting loans to customers. The Leasing from 2008 to 2012; Operations and Financial Intermediaries Law exempts Lebanon improved its credit information system by n leasing companies and other financial groups from the Bank allowing banks online access to CR reports; Secrecy Law, allowing them to share client information without consent. Participation is limited to regulated entities, this is a n hindrance to effective credit-reporting practices; Amendment 7705, from October 26, 2000, entitled Structure There is no specific law on credit information, but relevant n of Centrale des Risques, which regulates banks and financial laws and other regulations adequately provide for the institutions’ access to the online credit registry. structure and operations of the CR. Basic consumer rights have also been established by the Central Bank; Individuals are allowed to access their own data. Borrowers can inspect their own data in the online CR as many times There is a minimum threshold for reporting loans to the n as they want, but must pay for each request. If consumers CR; only banks and financial institutions are allowed inquire the CR through the bank, the cost is $.20; if they access to the CR data. The CR has moved from collecting request the report directly from CR, the cost is $12. only negative data to also collecting positive data, which has resulted in the increase of the country’s ACRISI score; Borrowers can dispute data in their credit reports with their Other value-added services, such as credit scores, are n banks or financial institutions, which in turn must send not provided to lenders for risk assessment purposes, or corrected data back to the CR. In some cases, the client can to the borrowers. submit a letter of protest to the BDL, objecting erroneous data in the credit report; the central bank then contacts RECOMMENDATIONS the source of the information to validate or correct the information as necessary. The establishment of a credit bureau could advance the n credit industry as well as broaden and expand the access ARAB CREDIT REPORTING INFORMATION to credit in Lebanon. The central bank should create a SHARING INDEX new framework and remove all obstacles impeding the development of credit bureaus; Based on the parameters and subparameters discussed in Chapter 6, the ACRISI score has been determined for Credit information from all creditors should be taken into n Lebanon, as shown in Table 7.7.4. The index provides account—not just the banks and financial institutions; a snapshot of the assessment of the credit information All credit facilities provided by lenders should be n sharing system in the country. included; n Online collateral registry for movable assets integrated CONCLUSIONS with other asset registries should be established; n Lebanon’s consistent economic performance highlights The central bank should undertake a common program n the strengths of its credit system, including: durable of awareness and education drives for lenders and economic growth averaging more than 5 percent over borrowers on all aspects of information sharing such as the last decade, despite a range of political and economic benefits, purpose, obligations, rights, usage, etc. 115 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.7.4: Arab Credit Reporting Information Sharing Index — Lebanon ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? YES YES Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? NO NO Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? YES YES Entities in the country participating in CIS Are regulated entities participating? YES YES Are non-regulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? NO YES Are all loans reported without any limits? NO NO Does the principle of reciprocity apply? NO NO Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 10 11 116 s s s Arab Credit Reporting Guide TUNISIA TRIPOLI M e di t erranean Susah Al Bayda Darnah AzZuwarah Zawiyah Al Hums S ea Zlitan LIBYA Tubruq Tarhunah Misratah Al Marj Yafran Banghazi Bardiyah Bani Mizdah Walid Surt Ajdabiya As Sidrah Ghadamis Al Qaryah Marsa al ash Sharqiyah Burayqah Waddan Jalu Adiri Birak ALGERIA ARAB REP. Sabha Awbari OF EGYPT Tmassah Al Murzuq Zawilah Al Jazirah ’Uwaynat Ghat Al Qatrun Rabyanah Al Jawf Capital Tripoli Currency Libyan Dinar Ma’tan Ayn Zuwayyah Ayn Al Ghazal (LYD) as Sara NIGER CHAD SUDAN USD/LYD 1.25 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41509, March 2015. 7.8 LIBYA Figure 7.8.1: GDP Performance 150 7.8.1 ECONOMIC OVERVIEW 100 The  economy of  Libya  depends primarily upon USD Billion 50 revenues from the  petroleum sector, which accounts for approximately 95 percent of export earnings, 80 percent 0 2008 2009 2010 2011 2012 of government receipts, and 65 percent of gross domestic -50 product.264 Libya holds the largest proven oil reserves in Africa and accounts for 3.2 percent of total world reserves. 100 GDP (US Billion) GDP Annual Growth Rate (%) In 2011, due to civil war, the country’s economy Source: data.worldbank.org experienced a severe contraction, a plunge of 60% percent. Libya’s economic activity began to recover in 2012 as a result of the rapid resumption of hydrocarbon production Libya has one of the highest per capita GDPs in Africa and exports; real GDP grew by 95.5 percent.265 because of high oil revenues and a small population. The previous government’s handling of the economy, however, The 344 percent increase in hydrocarbon production was led to high inflation and increasing import prices. As the the main driver of the high GDP growth in 2012. Although GDP has stabilized, inflation decelerated from 15.9 percent non-hydrocarbon economic activity was growing quickly 2011 to 6.9 percent in 2012; it was expected to decline before the conflict, it still accounts for no more than 22 further, to 4.7 percent in 2013 and 3.4 percent in 2014.266 percent of GDP and a negligible part of total exports.2  Figure Figure 7.8.2 shows the trend from 2008 to 2012. 7.8.1 shows the performance of the economy with respect to GDP at current market prices, from 2008 to 2012. 117 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.8.2: CPI Inflation partially state-owned; five insurance companies; and a 20 recently established stock market. There are five privately 15.9 owned banks in Libya, and they account for about 15 15 12.1 percent of the banking assets. Percentage 10 6.9 3.9 The availability of financing in the local market is limited. 5 3.2 Few financial products are offered by Libyan banks. When 0 it comes to granting loans, the approach to risk assessment 2008 2009 2010 2011 2012 is often lenient and inadequate. Lack of financing has Source: data.worldbank.org stifled Libya’s development, hampering the completion of existing projects and the start of new ones. The total population of Libya, as of 2012, was 6.15 million. Women accounted for 49.6 percent of the total population. The Libyan Foreign Bank (LFB) was established in 1972 Figure 7.8.3 below shows the bifurcation of the total as the country’s first offshore banking institution licensed population for 2008 to 2012. to operate internationally.267 The LFB is fully-owned by the central bank and is its subsidy. LBF is not subject to Figure 7.8.3: Population (Million) the central bank’s legislation, regulations, or exchange control. It is the only Libyan bank with offshore status; 7 LBF engages in financial and banking operations outside 6 the country and acts as the government’s agent. Its main 5 mandate is to encourage regional development, particularly 2.91 2.96 3.01 3.06 4 in countries which are friendly to Libya, to become active in international financial markets, and to serve as a vehicle 3 for Libyan aid to other countries. 2 3.05 3.07 3.10 3.09 1 Specialized Banks 0 2009 2010 2011 2012 In addition to the state-owned commercial banks, there are four specialized banks owned by the General People’s Women Men Source: data.worldbank.org Committee for Finance: The National Agricultural Bank (NAB), Savings and Real Estate Bank of Libya, Development Bank and Reefi Bank.268 The NAB was 7.8.2 CREDIT MARKET originally established in 1957 to support the agricultural sector by providing interest-free production loans to OVERVIEW farmers. Additionally, it made medium-term loans (up The Central Bank of Libya, an independent and autonomous to five years) for machinery and materials acquisitions, body, is the country’s monetary authority. The Central and long-term loans (up to 15 years) for agricultural Bank has broad control over the banking sector with an construction, irrigation, and land reclamation projects. ownership stake in a large number of the state-owned NAB purchased produce from farmers at a guaranteed banks, which make up to 90 percent of Libya’s banking profit and sold the supplies at subsidized prizes. The Real assets. These banks have capital of at least 10 million Estate Bank of Libya makes loans for home purchases. Libyan dinar. Banks continue to face competition from specialized credit Banking institutions (SCIs) with lending rising in a state-directed attempt to address socioeconomic pressures.269 The SCIs Libya’s financial system comprises: a network of 16 are development banks focused on providing subsidized commercial banks, the majority of which are state- or credit to agriculture, residential real estate, and small 118 s s s Arab Credit Reporting Guide enterprises. Their share in total outstanding credit has been Figure 7.8.4: Getting Credit Rank, 2013 growing substantially, and they have been crowding out 100 commercial banks’ credit. MENA 128 Average 120 Islamic Banking Libya will transform its banking and economic system to 140 comply fully with Islamic law that bans interest payments. Libya is joining a growing international trend, as more 160 and more states turn to Islamic law following the banking crises in the United States and Europe.270 180 182 Nonperforming Loans 200 Banks have been unwilling to lend because of high MENA Region Libya nonperforming loans on their books. The bad debt ratio Source: Doing Business Report, The World Bank, 2013. accumulated by the Libyan credit industry remains the highest in MENA. Data provided by ACRI’s survey shows Figure 7.8.5: Commercial Bank Network that the nonperforming loans ratio was 22.8 percent in 12 2008 and 21 percent in 2010, remaining at an average of 11.26 11.57 11.51 11.11 10 11.7 20 percent,271 while provisions remain among the lowest 8 in the region. 6 4 CREDIT PENETRATION AND ACCESS 3.58 3.66 3.59 3.96 2 3.6 The World Bank’s Doing Business Report ranked Libya 0 2008 2009 2010 2011 2012 182 out of 185 countries in 2013. As seen in Figure 7.8.4, Commercial bank branches per 100,000 adults it is much lower than the regional average of 128. (DB14, ATMs per 100,000 adults ranked 186) Source: Financial Access Survey, IMF, 2012 As per the IMF Financial Access Survey, there were 11.7 information on current and prospective borrowers that bank branches per 100,000 adults in 2012, as shown in inform credit-granting decisions. Figure 7.8.5; there were 3.96 ATMs per 100,000 adults. 7.8.3 STATUS OF CREDIT It is interesting to note that the LCIC has commenced REPORTING operations with only commercial credit information. This is common in transitional markets, where credit to OVERVIEW individuals and consumers is rare; thus, information sharing usually starts with firms. Otherwise, credit The Libyan Credit Information Center (LCIC) is the information sharing is more focused on consumer country’s first credit registry. The governor of the Central information, which has a visible impact on credit Bank of Libya established LCIC with Decision Number 48 assessment. LCIC’s development of consumer credit on March 23, 2009.272 operations is underway. LCIC’s objective is to ensure a responsible increase in lending. At the same time, the center seeks to reduce credit losses by providing timely and accurate credit-related 119 s s s 7. Credit Reporting in MENA – Detailed Overview The LCIC only collects information on firms and has trend, from a high of 1,457 in 2010 to a low of 251 in not started collecting data for individuals, according to 2011, as shown in Figure 7.8.7. In 2012, 755 credit reports the ACRI Credit Information Sharing Survey of January were issued to lenders, which accounts for 65 percent of 2013. As seen in Figure 7.8.6, only 19,659 firms are listed inquiries received. This drastic change in 2011 may be a in the LCIC, as of 2012, resulting in a low population consequence of the revolution, which affected the economy coverage of 0.5 percent by the CR. From 2009, however, as a whole, thereby significantly limiting the banking and there is a growing trend in the number of firms under the financial sectors’ growth and participation. CR. Lenders only provide data on business customers, so the LCIC can only offer its members commercial credit Figure 7.8.7: Number of Credit Reports Issued by LCIC information reports. The LCIC does not collect or maintain 1500 credit information related to individuals. 1457 1200 900 Figure 7.8.6: Number of Firms Listed in the LCIC 600 755 20,000 513 19,659 300 15,000 17,507 17,559 251 0 14,039 2009 2010 2011 2012 10,000 Source: Credit Information Sharing Survey, ACRI, 2013. 5,000 0 2009 2010 2011 2012 PARTICIPATION AND DATA SHARING Source: Credit Information Sharing Survey, ACRI, 2013. The LCIC collects and distributes both positive and negative information pertaining to firms. The positive Libya’s credit system relies on collateral evaluation rather information is erased from the database after two years, than on a borrower’s individual risk. Collateral guarantees and negative information is retained for up to five years. and/or guarantors are a pre-requisite by all the banks in Public and private banks are required to report the credit Libya for the disbursement of loans.273 Collateral averages information to the LCIC monthly, according to the law. to 125 percent of the loan value. This limits potential credit clients, such as micro and small business owners Regulated financial institutions are required to inquire that cannot provide collateral or financial returns, even with the LCIC prior to lending. As of the publiction of this though they are likely to repay the loan. The LCIC, if guide, borrowers’ written consent is not necessary for their provided with complete and qualitative information by information to be shared through the CR, but the central all banks, can foster progress among the credit industry bank has requested that banks receive consumers’ consent by calculating individual risk through the analysis of past to share data. The borrowers’ consent contains a clause that credit information. The credit center can play a major role limits sharing and inquiry to the LCIC. in creating reputational collateral for small and medium enterprises and individuals, decreasing the necessity of The LCIC’s credit reports for corporate entities contain collateral. information about commercial borrowers or potential clients, which helps banks to gauge and manage credit risk. All loans, regardless of size, are included in the LCIC. The report is generated from the information submitted by The total number of loans listed with LCIC has grown 46 members; it summarizes a borrower’s outstanding credit percent, from 24,927 loans listed in 2009 to 36,468 loans in in a given credit reporting period. The LCIC’s credit 2012. The number of inquiries received by the CR has only reports comprise a given firm’s geographical data, details increased marginally, from 1,557 in 2009 to 1,561 in 2012, of related parties, clients’ current liabilities, and details of despite being active for three years. The total number of the liabilities (amount granted, outstanding balance, and credit reports transmitted to the lenders shows a fluctuating history of payment). 120 s s s Arab Credit Reporting Guide LEGAL FRAMEWORK AND CONSUMER Banking Law Article 94 deals with the confidentially RIGHTS and secrecy aspects of credit information sharing, setting limits while allowing data to flow freely. Banks are The laws and regulations that affect credit reporting in required to maintain the confidentiality of clients’ account Libya are the following: details, such as balances and transaction history. With a client’s consent, these limits can be exempted, which then n Banking Law N. (1) of 1373 P.D. 2005 (BL) allows the bank to fully share complete data (positive and negative). n Resolution No. 48 issued by the Governor of the Central Bank of Libya on 29/03/1377 A.P. 2009 establishing and organizing the Libyan Credit BL Article 94 recites “Banks must maintain the Information Center and the approval of the duties confidentiality of their customers’ accounts and and responsibilities of the Center divisions and balances and all of their banking transactions. units (hereinafter CBLR).274 Banks may not permit the examination, disclosure, or provision of information on such accounts balances, and transactions, to a third party without the written The banking law establishes the central bank’s authority to permission of the account holder…” request credit information from members, who are required to contribute data monthly. The law also outlines the duties and key tasks of the CBL as well as the supervised Article 95 of the Banking Law further strengthens the participants in the CR. CBLR is the founding regulation protection of client information, holding bank staff for LCIC operation. Similar to the banking law, the CBLR responsible for any leaks. The staff is prohibited from establishes duties and responsibilities for the divisions and providing or disclosing data; outside entities cannot units of the LCIC. examine any data pertaining to clients. This is applicable to anyone that directly or indirectly has access to such Member banks are obligated to share data with the CBL. information by virtue of his/her job function or role. Article Article 80 of the BL and Article 8 of the CBLR require 110 further strengthens Article 95 by enforcing a penalty of member banks to provide statements for each client that up to 10,000 Libyan dinars for violations. obtains loans; banks must update the CBL on changes that occur on such loans within the period, as determined by Article 113 of the Banking Law also ensures discipline on the LCIC. the client end by punishing customers and applicants that provide false or forged documents; the fine is 10,000 Libyan dinars. According to the Banking Law, there is penalty of BL Article 80 recites “Each bank must establish a 10,000 Libyan dinars for banks that report inaccurate data system for the immediate, ongoing recording of the to the CR. positions of its customers who obtain from it loans and credit facilities. This system must be linked to the The LCIC is legally equipped to protect borrowers’ rights; consolidated database in the Central Bank of Libya. consumers have the right to see their own information, Each bank must convey to the CBL within ten days of challenge it, and have it corrected. However, since the end of each month a statement of the position of consumer credit information is not being collected, this each customer who obtains loans or credit facilities only applies to firms in practice. Once consumer credit and of any changes that occur regarding such loans operations commence, all borrowers will have the rights and facilities”. mentioned above. Further relevant articles are, as follows: n Article 8 of CBLR ensures that banks keep credit information confidential and do not publish information; banks must also comply with dispute-resolving procedures; 121 s s s 7. Credit Reporting in MENA – Detailed Overview n Article 9 of CBLR states that clients may obtain a copy n The LCIC’s database is limited to information on of their own credit report. Clients can object to any firms; no consumers’ information is yet included in the erroneous information in the report; that will, in turn, database be submitted to the member bank responsible for the Although the framework is solid, the low ACRISI score information; n is due to the absence of consumer information in the n Objections raised by the client need to be resolved CR; therefore, consumer rights and participation are within the period stipulated under Article 10 of CBLR. limited to regulated entities credit activity; CBLR encompasses the necessary norms, mentioned n Resolutions passed by the central bank as well as the below, for a smooth and regulated functioning of the LCIC: Banking Law regulate the environment n Article 11: The Use of the LCIC Services; n Currently, only firms’ data is shared with the CR and only regulated entities participate in the CR; n Article 12: Data, Information Management and Security; n The ACRISI is influenced by the scarce depth of data n Article 13: Technical Procedures; sharing and by the thinness of the database, given that, n Article 14: The Authority of Central Bank of Libya in as of 2012, the CR database did not include individuals’ Auditing and Inspection; data. n Article 15: Violations and Penalties. RECOMMENDATIONS ARAB CREDIT REPORTING INFORMATION n The LCIC should move quickly toward implementing SHARING INDEX a system to enable the sharing of consumers’ credit information; Based on the parameters and subparameters discussed in Chapter 6, the ACRISI score has been determined for Libya, n Product line extensions should include individual credit as shown in Table 7.8.1. The index provides a snapshot and information reports as well as advanced products, like quantification of the credit information sharing system in credit scoring, which will significantly improve credit the country. coverage and quality; n The credit information pertaining to borrowers of the CONCLUSIONS four development banks is not yet included in the CR’s database. The contribution of this data will further n The Libyan banking system developed from an Islamic improve the credit system risk assessment capacity; banking system to a national banking system. To some underwriting credit would be more reliable and the extent, private banking exists, though it is still highly Central Bank of Libya’s supervisory capacity would be regulated. Such changes in policies have had a dramatic greatly improved; impact on the functions of finance; n The period of data deletion should be reviewed; there n LCIC was developed to improve the Libyan credit should be longer positive histories in the database along environment by helping lenders to assess credit risk by with shorter durations for negative data; providing information on customers’ credit exposure and payment performance with other institutions. This n Training and awareness raising within the credit industry has reduced credit risk and expanded access to credit will prove to be a critical element; such outreach would for low-risk clients and various small and medium bring positive results and support the expansion of segments of the market. Established in 2009, LCIC is access to finance for new clients. the only source of credit information in the country; 122 s s s Arab Credit Reporting Guide Table 7.8.1: Arab Credit Reporting Information Sharing Index — Libya ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? NO YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? – NO Is there a legal framework for privacy and protection of data? – YES   Is information on consumers included? – NO Is information on firms included? – YES Consumer rights environment in the country Are consumers allowed to access their reports? – NO Do consumers have access to at least one free report in a year? – NO Are consumers allowed to raise disputes? – NO Do entities collect consumer consent before making inquiries? – NO   Entities in the country participating in CIS Are regulated entities participating? – YES Are nonregulated entities participating? – NO Are utility entities participating? – NO Are MFIs participating? – NO   Depth of data sharing and reporting in the country Are entities mandated to share data? – YES Are entities mandated to make inquiries? – YES Are both positive and negative information reported? – YES Are all loans reported without any limits? – YES Does the principle of reciprocity apply? – YES   Are credit scores provided to the users? – NO Is cross border data sharing allowed? – NO ACRISI score 0 10 123 s s s Arab Credit Reporting Guide MAURITANIA ALGERIA We s t e r n ATLANTI C Sahara OCEAN Fderik Nouadhibou Atar Akjoujt MALI Capital Nouakchott NOUAKCHOTT Aleg Ayoun Currency Mauritanian Ouguiya (MRO) Rosso Kiffa El Atrous Nema Kaedi Selibabi SENEGAL USD/MRO 290.89 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41510, March 2015. 7.9 MAURITANIA With a GDP of 1.2 trillion Mauritanian ouguiyas, the real GDP growth rate increased from 3.6 percent in 2011 to 6.9 7.9.1 ECONOMIC OVERVIEW percent in 2012, as indicated in the Figure 7.9.1. The main drivers of growth in the economy are the agriculture sector Mauritania is a small, lower-middle income economy of (with real growth rate of 53.3 percent over the previous 3.7 million people, situated in sub-Saharan Africa with year) and the construction and public works sector (with a three quarters of territory covered by desert or semi-desert real growth of 15.6 percent). areas. It has a dual economy: on the one side, the modern economy is based on mining, extractive industries, and The year-on-year inflation rate decreased from 5.5 industrial fishing—an engine of growth heavily dependent percent in 2011 to 3.4 percent in 2012; the annual average on exports; on the other side is a subsistence economy based mainly on rain-fed agriculture, livestock, and small-scale Figure 7.9.1: GDP Performance fishing, where the informal sector plays a major role.275 1400 30 1200 25 The Mauritanian economy was hit hard by international 20 1000 MRO Billion financial crisis and economic recession in 2008 along 15 Percentage 800 10 with a domestic political crisis. But the economy bounced 600 5 400 back and has shown considerable growth since 2010. 0 200 -5 This has been brought about by strong fiscal management 0 -10 and prudent monetary policy. However, a productive and 2008 2009 2010 2011 2012 Nominal GDP Real GDP Growth Rate inclusive economy is a concern that is yet to be addressed; Nominal GDP Growth Rate social indicators are still weak and the economy has yet to Source: Annual Report, Central Bank of Mauritania, 2012. be diversified.276 125 s s s 7. Credit Reporting in MENA – Detailed Overview inflation rate over the last five years, however, has varied security organizations, and 31 foreign exchange offices.277 from 7.3 percent in 2008 to 4.9 percent in 2012. The The Central Bank of Mauritania, or Banque Centrale de government has taken initiatives to mitigate the effects of Mauritanie (BCM), is the supervisory authority with ample rising prices by following a prudent monetary policy and regulatory and oversight powers over the system.278 implementing the Emel (or “hope” in Arabic) emergency program. Figure 7.9.2 shows the year-on-year and the The financial system is still cash-oriented and focused on annual average inflation trends from 2008 to 2012. traditional payments systems and financial services. The banks, microfinance institutions, and financial institutions As of 2012, the total population of the country was 3.79 represent the only channels of credit. Although the credit million, with an increase of 2.5 percent annually. Women market is highly liquid, financial and credit penetration is a constituted 49.64 percent of the population in 2012, or 1.88 concern. Borrowing can be an extremely challenging task million, a general trend over the past few years. Figure for potential consumers. 7.9.3 shows population evolution from 2008 to 2012. Loans are mainly granted to corporate, business firms Figure 7.9.2: Inflation (%) or “A” segment/VIP individual customers. This results in the concentration of credit in a few borrowing hands, 8 notably finance companies that belong to the same group 6 or industrial conglomerate. Collateral guarantees are 4 a key precondition to obtain credit, though collateral 2 enforceability, registration, and reliability are extremely 0 weak; the legal framework protecting creditors’ rights is 2008 2009 2010 2011 2012 inadequate. Thus, the size of the credit market remains Annual average Year-on-year relatively tiny. Consumer credit is still in its infancy, and Source: Annual Report, Central Bank of Mauritania, 2012. Mauritania: Population, credit to individuals on a large scale is not yet popular.279 countryeconomy.com, accessed September 15, 2014. http://countryeconomy.com/demography/population/mauritania To improving access to financial services and credit, Figure 7.9.3: Population preserve stability and strengthen the domestic financial 4,000,000 sector, the central bank has undertaken a financial sector 3,500,000 development strategy for 2012–2017. This strategy 3,000,000 2,500,000 primarily aims at: i) increasing the sector’s stability and 2,000,000 transparency; ii) expanding access to financial services at 1,500,000 a reasonable cost for all stakeholders; iii) improving the 1,000,000 500,000 legal and judicial framework; and iv) developing a credit 0 2008 2009 2010 2011 2012 and savings culture.280 Male Female Total Source: Annual Report, Central Bank of Mauritania, 2012. Mauritania: Population, Banking countryeconomy.com, accessed September 15, 2014. http://countryeconomy.com/demography/population/mauritania The banking sector dominates the country’s financial system. Commercial banks include five private foreign 7.9.2 CREDIT MARKET banks. As of December 2012, there was a network of 98 branches across the country; the 12 banks had assets OVERVIEW totalling 487 billion Mauritanian ouguiyas, deposits of 315 billion Mauritanian ouguiyas, and loan portfolios of As of 2012, the financial system of Mauritania consisted of 244 billion Mauritanian ouguiyas. The three largest banks 12 commercial banks, 99 microfinance institutions (which account for 50 percent of the total assets and 50 percent of operate through MFI networks), a financial institution, a outstanding loans. leasing company, eight insurance companies, two social 126 s s s Arab Credit Reporting Guide As shown in Figure 7.9.4, bank deposits and credit Microfinance increased from 2008 to 2012. However, the ratio of credit The microfinance sector in Mauritania plays an important to deposits decreased from 92 percent in 2008 to 77 percent role in the credit market. Even though the sectors’ in 2012. Also, banks’ portfolios are highly concentrated: outstanding lending is only 6.1 percent of the net credit of twenty customers account for 80 percent of deposits. the banking system, this industry plays an important role In 2012, Banks granted 244 billion Mauritanian ouguiyas for customers that have limited access to banking services, of credit, an increase of 18 percent from 206 billion especially in rural areas. Mauritanian ouguiyas in 2011. This trend can be seen over Nearly 100 microfinanciers operate in the most opaque area the past few years, as shown in Figure 7.9.4. The system, of the economy, catering to a vast sector of the nonbankable as shown in Figure 7.9.5, is dominated by short-term loans, active population. This informal economy constitutes a which account for 76 percent banks’ total credit; long-term large segment of Mauritania’s economic social fabric.283 credit accounts are a meagre 3 percent of the total. As for sectoral distribution, credit to consumer services (primarily Microfinance institutions mostly operate through central general trade) accounted for 79 percent of the total credit associations and networks regulated by the BCM. There in 2012.281 are other institutions operating as public companies or not- for-profit organizations or nongovernmental organizations. Figure 7.9.4: Bank Deposits and Credit The three main networks are: 350 300 n CAPEC (Savings and Loans Association); 250 UNCACEM (National Union of Agricultural Savings MRO Billion 200 n 150 and Loan Associations); 100 50 n UNCECEL (National Union of Livestock Savings and 0 2008 2009 2010 2011 2012 Loan Associations). Total Deposits Total Credit Source: Annual Report, Central Bank of Mauritania, 2012 The CAPEC and UNCACEM are the largest in terms of the number of clients, and the volume of loans disbursed Figure 7.9.5: Credit by Type (% of Total) – 2012 and deposits collected. UNCECEL is more specialized and composed of rural savings cooperatives of farmers and 3.23 breeders. 20.69 In 2012, net loans disbursed by the sector was 14.8 billion Mauritanian ouguiyas, a 5.3 percent increase from 14.08 billion Mauritanian ouguiyas in 2011, as seen in 76.07 Figure 7.9.6.284 With an 89 percent share, UNCACEM Short-term Medium-term Long-term Figure 7.9.6: Net Loans by the MFI Sector Source: Annual Report, Central Bank of Mauritania, 2012 20 15 The banking sector also includes one Islamic bank, which MRO Billions has operated since 2011. A few other banks offer Islamic 10 products; some have branches dedicated to these products. 5 However, it should be noted that Islamic finance accounts 0 for a very small proportion of products offered.282 2008 2009 2010 2011 2012 Source: Annual Report, Central Bank of Mauritania, 2012. 127 s s s 7. Credit Reporting in MENA – Detailed Overview has the largest microfinance loan portfolio. Beit El Maal below the regional average of 128, as seen in Figure 7.9.7. (or “Money House” in Arabic) is the leading microfinance (DB14, ranked 170) The low ranking indicates a weak institution in the country with regard to the number of active framework for credit access. borrowers, with 23,000 out of a total of about 40,000.285 Domestic credit to the private sector was 36.8 percent The range of loan products offered mainly includes of the GDP in 2012; the decreasing trend, since 2009, is individual, Islamic and Murabaha lending. Solidarity- displayed in Figure 7.9.8. Penetration of bank credit in the group loans are less popular. As for deposits, there has been economy was low. Although the situation is better than a slight decrease year on year from 5.2 billion Mauritanian Algeria’s, Mauritania is far behind other neighboring and ouguiyas in 2010 to 5 billion Mauritanian ouguiyas in 2011. MENA countries, such as Morocco (115.4 percent) and Interestingly, microfinance institutions contribute only to Tunisia (82.2 percent), as shown in Figure 7.9.9. 2 percent of the total volumes of deposits in Mauritania; banks contribute the remaining 98 percent.286 Figure 7.9.7: Getting Credit Rank – 2013 100 Other institutions 128 MENA Average 120 There is one leasing company, Mauritania Leasing, and one Investment Fund, Finance Conseil Investissement, both 140 which grant credit (roughly 7 billion Mauritanian ouguiyas, 160 167 together in 2011).287 The only other financial institution in operation is International Finance Corporation, with a 180 MENA Region Mauritania total volume of credits at the end of December 2012 of 525 Source: Doing Business Report, The World Bank, 2013. million Mauritanian ouguiyas, an increase of 98 percent compared to the previous year.288  Figure 7.9.8: Domestic Credit to Private Sector (% of GDP) Nonperforming loans 60 52.9 46 50 42.1 41.9 Despite the extremely high selectivity of banking 36.8 40 underwriting and the omnipresent collateral requested to 30 borrowers, nonperforming loans are extremely severe. 20 10 The level is among one of the highest in the region 0 (16 percent of NPLs of 180+ days, as of June 2013).289 2008 2009 2010 2011 2012 As per the 2012 Annual Report of the central bank, the Source: data.worldbank.org volume of NPLs in 2012 was 79 billion Mauritanian ouguiyas, a slight decrease from 80 billion Mauritanian Figure 7.9.9: Domestic Credit to Private Sector (% of GDP) ouguiyas in the previous year. for Some MENA Countries – 2012 120 CREDIT PENETRATION AND ACCESS 100 115.4 80 Access to financial services in Mauritania is extremely low. 82.2 60 For the banking sector, only 4 percent of the population has 40 access. At 10 percent, the microfinance sector’s penetration 20 36.8 -2.1 rate is comparatively better.290 0 -20 Algeria Morocco Tunisia Mauritania The World Bank’s 2013 Doing Business Report ranked Source: data.worldbank.org Source: Financial Inclusion: Mauritania, The World Bank, accessed September 14, 2014. Mauritania 167 out of 185 countries. It is significantly http://datatopics.worldbank.org/financialinclusion/country/mauritania 128 s s s Arab Credit Reporting Guide According to the IMF’s financial access survey, there lenders in the country. However, the system is still not were 4.87 commercial bank branches per 100,000 adults automated and is manually updated by participants on in 2012, a marginal increase from previous years. The Microsoft Excel files. Full-file credit account information network is concentrated in two main cities, Nouakchott on borrowers and detailed payments histories are still not and Nouadhibou, where 48 percent of the total branches available, and data quality is a major concern. Thus, usage are located.291 of the system for risk assessment purposes and participation levels remains limited. No other institutions, such as private Table 7.9.1 shows financial access indicators in terms or other public providers, offer credit information services. of formal financial institutions’ accounts and loans. The percentage of adults with an account was only 17 percent As of 2012, 317.78 million Mauritanian ouguiyas of credit in 2011. Twelve percent of women hold an account with a were registered in the CR, as compared to 210.67 million formal financial institution. The percentage of adults who Mauritanian ouguiyas in 2008, according to the ACRI took out a loan in 2011 was about 8 percent; for women, Credit Information Sharing Survey of January 2013, as this percentage corresponds to 7 percent. shown in Figure 7.9.10. Table 7.9.1: Penetratration in Formal Financial Figure 7.9.10: Credit Volumes in the PCR Institutions (% of Adults) — 2011 350 Accounts 17 300 Men 23 250 MRO Million Women 12 200 150 Loans in the past year 8 100 Men 8 50 Women 7 0 Source: data.worldbank.org 2008 2012 Source: Financial Inclusion: Mauritania, The World Bank, accessed September 14, 2014. Source: Credit Information Sharing Survey, ACRI, January 2013. http://datatopics.worldbank.org/financialinclusion/country/mauritania The central bank has recently undertaken a project to revamp the CR, which has been sponsored by the World 7.9.3 CREDIT REPORTING SYSTEM Bank. This revamp is mainly focused on automating OVERVIEW functions that are currently performed manually. It will result in automated, online data upload as well as online Sharing and using credit information is not a new concept in inquiries. Mauritania. The CR was established under the supervision of the BCM in 1974. The central bank has pioneered credit The services offered and data distributed to lenders will reporting and started educating lenders on the necessity of remain the same with no additions. Based on ACRI’s sharing credit information. The credit reporting system was assessment of the credit reporting system, in June 2013, set up by the BCM with two fundamental goals: this new system could be further improved with important features, such as: n To collect information from regulated entities to support BCM’s responsibility (such as supervising the credit n Detailed credit histories on borrowers; system); n Historical data, borrowers payment performance, n To supply lenders with consolidated information for arrears, and unpaid checks; credit underwriting purposes.292 n Elimination of the existing thresholds adopted by the CR which limit the possibility to assess the risk and The CR system underwent a slight upgrade in 2004, and underwrite small-ticket loans or clients; it is the only source of information available to regulated 129 s s s 7. Credit Reporting in MENA – Detailed Overview n Inclusion of microfinance institutions in the CR Lenders are not mandated to inquire with the CR before mandating them to share data or inquire the CR; granting a credit but this is customarily done since the CR is the only information available on borrowers. The CR n Demographic data available through national does not generate credit reports, but rather a simple list identification numbers to be used for searching, of the credit lines and financial exposures that a borrower matching, or normalization purposes. (individual or company) holds toward the credit system. Credit exposures are classified in five categories: i) short PARTICIPATION AND DATA SHARING293 term; ii) medium term; iii) long term; iv) direct credits; and Although all supervised entities (including banks and v) collateral/guarantees. Thus, the information displayed, microfinance institutions) are mandated to supply the as the result of an inquiry, consists of only one aggregated CR with loan information, MFIs are still not equipped to figure, by category and in total. comply with the regulation. In practice, only banks are providing periodic data updates to the CR. Apart from LEGAL FRAMEWORK AND CONSUMER these institutions, no other regulated or nonregulated RIGHTS294 lenders share data. Although there is no specific law for the establishment or the As of June 2013, the CR database stored about 29,700 operations of the CR, the current regulatory framework gives the names of clients. This figure appears extraordinarily low, BCM sufficient and independent powers to collect information even in a very selective credit environment like Mauritania. for supervisory, statistical and risk-control purposes, as well There are issues regarding the incompleteness of the as for the dissemination of information to lenders for risk- data provided to the CR by the lenders (and vice versa). underwriting purposes. However, there is no law or regulation Furthermore, some of the banks may not be providing full in place that allows for private credit reporting. data or do not provide data on some clients. There are five legislations that have a direct or indirect The system is not fully and regularly updated, though impact on information sharing, as follows: complete information should be provided by all entities 1. Ordonnance 004/2007 (Portant Statut de la Banque in a consistent, timely fashion. The current system cannot Centrale de Mauritanie)—This regulation is explicitly apply logic checks to determine the quality and the quantity clear about BCM’s powers to create a credit registry of information provided. Thus the CR cannot determine if with contributions by any regulated entity (without banks are providing all of their clients’ information. borrowers’ consent). Data on both individuals and firms are shared with the CR. Ordonnance 020/2007 (Portant Réglementations 2. As per the Doing Business Report 2013, only negative des Établissements de Crédit)—This regulation information is shared among participants. There is a unambiguously corroborates BCM’s powers and minimum threshold for sharing data based on the type of functions: loans and loans exposures. Below the following thresholds and loans that are not included in the database: Art. 47: reiterating BCM’s power to:”… ask any n Short-term loans (less than 24 months), 1,000,000 person for any data that BCM requires… to fulfill Mauritanian ouguiyas and above; its responsibility of banking Supervisor…and the n Medium-term and long-term loans (more than 24 person has the obligation to satisfy such requests…” months), from 500,000 Mauritanian ouguiyas and Art. 74: for establishing confidentiality of above; information:“…a bank and its personnel shall n Guarantees, from 500,000 Mauritanian ouguiyas and maintain confidentiality regarding all accounts/data above. they came into possession of… and sanctions can be applied in case of violations…” 130 s s s Arab Credit Reporting Guide 3. Instruction 004/GR/98 (Déclarations des crédits à 5. Instruction 009/GR/07 (Portant Normes de la Centrale des Risques)—This regulates the periodic Transparence Financière applicable aux IMF)— sharing of loan data between banks and BCM; this Among the numerous pieces of legislation passed piece of legislation has the strongest impact on credit with the aim of regulating the microfinance sector, reporting. In fact, it establishes the following essential this regulation notes the responsibilities of both the principles: BCM and MFIs with respect to credit reporting. This legislation establishes: n Monthly updates transmitted by the banks (déclarations) must include all loans; n Updates must be transmitted to the BCM by lenders Art 27: “… BCM’s permanent Supervision of MFIs…” within the twentieth day of each month; and “…in the framework of Supervision, MFIs are mandated to transmit any documents or any data that n Credit is split into four categories: i) short term; BCM may require…” ii) medium term; iii) long term; and iv) signature credit (including guarantees and collateral); The legal framework, however, does not provide n Thresholds are set for data sharing depending on sufficient rights to borrowers to access their own data; types of loans (tenure as indicated above); it does not protect data privacy. However, a new law n Every month BCM must send, to each lender, a on data privacy, as part of a framework concerning consolidated, updated situation of all credit lines that information flows, is under preparation and will have a have been shared and updated; significant impact on credit information sharing. n Reports do not include the names of the lenders; ARAB CREDIT REPORTING INFORMATION When a new applicant, unknown to the bank, files SHARING INDEX n a loan application, lenders are enabled to inquire the CR. Based on the parameters and subparameters discussed 4. Instruction 005/GR/98 (unpaid checks)—This in Chapter 6, the ACRISI score has been determined for is the final component of the legislation regulating Mauritania, as shown in Table 7.9.2. The index provides information sharing, focusing on all types of unpaid a snapshot and quantification of the credit information financial instruments (checks, credit, receivables, bills, sharing system in the country. etc.). This creates a black list of bad payers. This data: CONCLUSIONS n Must be provided every six months (by January 20 and July 20); n The credit market in Mauritania is selective and traditional; credit penetration is low. Thus, credit n BCM provides the lenders with a complete report of information sharing is at a very nascent stage. A basic the information contained in the database; framework has been established, but there is a long n Confidentiality is established; way to go in terms of the development of a complete n Banks must always check the database before a new and effective credit information sharing system. This is account is opened and a new client registered; indicated by a low ACRISI score of 6; n Thresholds are applied (from 0.5 million Mauritanian n The existing legal framework provides for sharing ouguiyas to 1 million Mauritanian ouguiyas, information among supervised entities through the depending on loan typology). central bank. However, there is no framework that allows for the establishment of best practice information sharing; 131 s s s 7. Credit Reporting in MENA – Detailed Overview n Participation is extremely limited, and there are RECOMMENDATIONS threshold limits on loans. The central bank should work toward developing an n n Only banks share data with the CR, in a limited effective framework for credit information sharing, aggregated format. including the establishment of laws and regulations to enable effective credit reporting. n Neither detailed full-file credit accounts information nor payments histories (positive and negative) are shared; Also, all obstacles for the development of a private n credit reporting environment should be removed; n There is no mandate to inquire with the CR before granting a loan. Thus, the information sharing system is In its subsequent upgrades, the CR should consider n not fully utilized for risk-assessment purposes; the inclusion of all loans, all microfinance institutions, removing thresholds, collecting positive and negative n No specific regulations or rules have been laid down data and all detailed information on credit facilities and for credit reporting or data confidentiality. However, a payment histories; draft law for data privacy is under way as part of a new framework concerning information flows; this will have Lenders should be required to inquire with the CR n an impact on credit information sharing; before extending any credit facility. n Basic consumer rights, such as access to one’s own The central bank should undertake a common program n report and consent for inquiry, are absent. of awareness and education drives for lenders and borrowers on all aspects of information sharing such as benefits, purpose, obligations, rights, usage, etc. 132 s s s Arab Credit Reporting Guide Table 7.9.2: Arab Credit Reporting Information Sharing Index — Mauritania ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? NO NO   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? NO NO Do consumers have access to at least one free report in a year? NO NO Are consumers allowed to raise disputes? YES NO Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO NO Are both positive and negative information reported? NO NO Are all loans reported without any limits? NO NO Does the principle of reciprocity apply? NO NO   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 6 6 133 s s s Arab Credit Reporting Guide Tanger Me di t e r r a n e a n Sea Al Hoceima Oujda MOROCCO Kénitra Fès RABAT AT LANTI C Meknès Casablanca OCEAN Settat Béni Mellal Safi Marrakech Agadir Capital Rabat Currency Moroccan Dirham (MAD) Guelmim USD/MAD 8.30 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41511, March 2015. 7.10 MOROCCO social landscape have coincided with the Eurozone crisis and instability in MENA, creating new challenges and 7.10.1 ECONOMIC OVERVIEW opportunities for Morocco.295 Given its proximity to Europe, Morocco has been able With an economic development model which combines to build a diverse, open and market-oriented economy. liberalization, openness, and structural reform, Morocco Morocco has a large tourism industry and a growing has shown resilience in difficult national and international manufacturing sector. The agricultural sector, which contexts. Some industries have been given a boost by accounts for about 20 percent of GDP and employs roughly the implementation of the 2009-2015 National Pact for 40 percent of the labor force, continues to drive economic Industrial Emergence (PNEI), which was planned in performance. Other key sectors of the economy include 2000 to encourage the emergence of new growth centers, phosphates mining and textiles. As the world’s biggest competitiveness, and job creation. Morocco has focused on producer and exporter of phosphates, the industry plays encouraging niche industries for export that contribute to a key role as a source of growth for other sectors of the growth; the kingdom has also emphasized the promotion of economy. emerging services to international businesses. In response to popular demands for more democratic The country suffers from high unemployment at around 9 governance amid protests against corruption, the Moroccan percent, with urban youth unemployment at 35.4 percent. government initiated important political and social changes In addition to poverty, illiteracy is a major problem, in 2011. King Mohamed VI spearheaded the drafting of a particularly in rural areas. Key economic challenges for new constitution and reforms. Under the new constitution, Morocco include: fighting corruption; reforming the a coalition government formed in January 2012 began to education system; the judiciary; and, most importantly, the address governance, economic and social reforms to move government’s costly subsidy program.296 the country forward. Efforts to transform the political and 135 s s s 7. Credit Reporting in MENA – Detailed Overview As seen in Figure 7.10.1, the Moroccan economy witnessed Figure 7.10.3: GDP per Capita a lot of volatility in GDP growth rates between 2008 3100 and 2012. With the instability of international financial markets, coupled with the slowdown in the Eurozone, the 3000 Moroccan economy was affected—especially in terms of USD 2900 exports, foreign direct investment, and tourist revenues. 2800 The real GDP growth rate declined to 4.9 percent in 2009 and to 3.7 percent in 2010. The year 2011 witnessed 2700 2008 2009 2010 2011 2012 higher GDP growth, reaching 4.3 percent, as the industrial Source: data.worldbank.org. “Morocco Economic Indicators,” Quandl, accessed sector rebounded. A distinct slowdown in economic September 15, 2014. http://www.quandl.com/economics/morocco-all-economic-indicators. growth in 2012, was spurred low agricultural production in the country and the slowdown of economic activity in Europe.297 7.10.2 CREDIT MARKET As seen in Figures 7.10.2 and 7.10.3, the population of the OVERVIEW country, as of 2012, was over 32.52 million, with female to Bank Al-Maghrib (BAM), the Central Bank of Morocco, male ratio of approximately 50.7 percent.298 The GDP per was set up with the objective of supervising the banking capita was $2956. This equals 24,357 Moroccan dirham at system, running the money market, and implementing the 2014 rate.299 monetary policies. The new Banking Act of 2006 made the central bank financially autonomous and strengthened its Figure 7.10.1: GDP Performance role with respect to banking supervision, exchange policy, 850 6 and monetary policy.300 800 5 MAD Billion The 1993 Banking Act introduced the generic concept Percentage 4 750 3 700 of the “credit institution,” which is defined as either 2 650 1 credit institutions approved as banks or those approved 600 0 as financing companies. The act also created a unified 2008 2009 2010 2011 2012 legal framework for governing the activities of all credit GDP Real GDP Growth institutions.301 Source: http://www.africaneconomicoutlook.org/en/statistics/ http://www.indexmundi.com/facts/morocco/gdp, data.worldbank.org The banking system comprises 19 banks and six offshore banks. The 36 nonbanking finance companies include 18 Figure 7.10.2: Population consumer credit companies, two mortgage companies, 33,000,000 six leasing finance companies, and 10 other companies. 32,500,000 32,000,000 Furthermore, there are 13 microfinance institutions, 10 fund 31,500,000 transfer companies, and two other institutions operating in 31,000,000 Morocco.302 30,500,000 30,000,000 Over the years, the financial sector witnessed important 2008 2009 2010 2011 2012 reforms that brought about more effective regulations and Source: data.worldbank.org. “Morocco Economic Indicators,” Quandl, accessed September 15, 2014. http://www.quandl.com/economics/morocco-all-economic-indicators. financial management. Along with increased transparency, these reforms created a more efficient financial infrastructure. Initiatives encouraged banks’ investment and fostered the growth of the lending industry. Among the steps taken were: 136 s s s Arab Credit Reporting Guide n The establishment of the first Credit Bureau of Morocco, Table 7.10.1 breaks down loans taken by individuals and Experian Services Maroc (ESM), in 2009 and the firms with and without collaterals. The percentage of loans delegation of the credit registry services; (in numbers) with collaterals is 29 percent for individuals and 39 percent for firms; the value of both categories is n The revision of the legal and regulatory framework about 35 percent. (such as the revision of the banking law as well as the data privacy law and the consumer protection law); Banking n The launch of the Postal Bank (Al-Barid Bank), the The banking sector in Morocco is one of the largest banking most important vehicle to increase financial inclusion sectors in MENA and represents 87 percent of GDP. The among the underserved and the informal segment of the banking sector is stable and profitable because of financial economy; sector liberalization and reform programs undertaken since n Stricter credit lending regulations and more rigorous 1990 aimed at being in line with international standards. prudential norms, with more punctual and efficient It has great resilience to external shocks due to its solidity supervision. and limited exposure to external financial markets. Banks are now able to offer, execute, and sell a complete range of In 2012, the banks contributed with 87 percent of credit financial products and services.304 volumes, followed by nonbanking finance companies (12 percent) and microfinance institutions (1 percent), as As a result of consolidation, the bulk of assets, deposits, shown in Figure 7.10.4. The increase in credit is mainly and loans are concentrated in the balance sheets of three to because of housing loans by banks, and personal and car five banks. The top three banks held 64.5 percent of loans; loans by nonbanking finance companies. The leasing the top five banks held an 80.7 percent share of outstanding industry also represents an important lending sector among loans. Loan-to-deposit ratio was 104 percent as of 2012. nonbanking finance companies in Morocco.303 Figure 7.10.4: Total Credit Volumes by Sector 900 800 700 MAB Billion 600 500 400 300 200 100 0 Banks NBFCs MFIs Total 2009 577 53 4.9 635 2010 621 85 4.7 711 2011 686 90 4.5 781 2012 722 98 4.6 825 Source: Assessment of the Credit Reporting System in Morocco, ACRI, 2012. Table 7.10.1: Loans Granted with and without Collaterals — 2012 Category Numbers Value (In MAD millions) With Without With Without Total Total Collaterals Collaterals Collaterals Collaterals Individuals 4,226,829 1,225,924 3,000,905 206,980 71,030 135,950 Firms 353,094 137,245 215,849 522,416 180,956 341,460 Total 4,579,923 1,363,169 3,216,754 729,396 251,986 477,410 Source: Credit Information Sharing Survey, ACRI, January 2013. 137 s s s 7. Credit Reporting in MENA – Detailed Overview As seen in Figure 7.10.5, the majority of the credit market financing, leasing and mortgage finance, and providing is held by the local Moroccan private banks as of 2012: small loans to small and medium enterprises. NBFCs are 51 percent of the branch network; 66 percent of deposits; normally considered as the consumer-financing arms of 65 percent of loans. banks; though not exclusively, banks’ lending is mainly targeted to corporate and commercial businesses. The However, foreign banks have historically played a key market is heavily concentrated with five major NBFCs role despite their lower share of deposits, loans, and holding 73 percent of total assets. In the case of leasing assets.305 They are instrumental in introducing advanced companies, this proportion soars to 97 percent.307 credit processes, new techniques, know-how, and risk- management tools.306 The credit extended by NBFCs has increased at a faster pace, from 53 billion Moroccan dirham in 2009 to 98 billion The banking sector’s domestic credit has steadily increased, Moroccan dirham in 2012, reflecting growth of 85 percent. from 97.9 percent of GDP in 2008 to 115.4 percent in Consumer credit, however, has accounted for 41 billion 2012, as shown in Figure 7.10.6. This is much higher than Moroccan dirham, with a negligible increase of 1.2 percent the average credit of 38.8 percent provided by the entire year on year. The most popular products are personal MENA region, where the trend is declining and is as low as loans which represent two-thirds of consumer credit; the 24.5 percent in 2012. remainder is mainly car loans. Leasing companies represent the other important lending sector among the 36 supervised Figure 7.10.5: Ownership Concentration (in %) NBFCs. 100 80 Microfinance 51.2 66.0 65.6 64.7 60 With more than 800,000 active clients and a volume of 40 19.3 outstanding loans of 4.6 billion Moroccan dirham in 2012, 18.5 19.4 21.6 20 29.5 the Moroccan microfinance sector is the largest in the 15.5 15.0 13.7 0 region. Like banks and NBFCs, the microcredit market Branches Assets Deposits Loans is overly concentrated, with the top four microfinance Majority Moroccan private-owned banks Majority foreign-owned banks Majority state-owned banks institutions accounting for more than 95 percent of the total Source: Annual Report on the Control, Activity and Results of Credit Institutions, gross portfolio, less than half of which (44 percent) is in Bank Al-Maghrib, 2012. rural areas.308 Figure 7.10.6: Domestic Credit by Banking Sector (% of GDP) After the crisis of over-indebtedness, the microfinance 120 sector has been in an upgrading phase. It has started to 100 tighten credit by adopting prudent policies in granting 80 loans and is refocusing on income-generating activities. As 60 a result, lending activity has remained stagnant in terms of 40 outstanding loans since the past two years.309 20 0 2008 2009 2010 2011 2012 The Specialized Al Barid Bank Morocco MENA region Source: data.worldbank.org Al Barid Bank (ABB), a subsidiary of Post Morocco, is fully owned by the government. ABB was launched Nonbanking Financial Companies in June 2010 with the goal of increasing inclusion and access to financial services, notably through small and There are 36 nonbanking financial companies in the medium loans. The sheer size of the postal network (1,800 market, and most of them belong to banks. BAM regulates postal branches of which 943 were already operating as these financial companies, which are engaged in consumer bank branches, as of 2012) will allow ABB to penetrate 138 s s s Arab Credit Reporting Guide geographies and segments of rural populations that were cross-lending and over-indebtedness still persists, causing generally untouched by the commercial banks.310 higher nonperforming loans. Nonperforming Loans Drawing lessons from the past, microfinance institutions have continued to upgrade their structures and credit Over the past few years, improved risk controls and effective policies, with a view to strengthen microcredit associations’ credit information sharing through BAM and ESM have systems of governance. MFIs have focused on portfolio helped to improve nonperforming loan levels. As a result, quality and bad debt reduction, bringing a tangible banks’ average nonperforming loan ratio reduced from 6 improvement of their portfolios.312 percent in 2008 to 4.8 percent in 2011, as shown in Figure 7.10.7. There was a slight increase (5 percent) in 2012 CREDIT PENETRATION AND ACCESS because of difficulties faced by companies operating in the sectors most exposed to international competition as well As shown in Figure 7.10.8, the World Bank’s Doing as the impacts of lower external demand. The quality of Business Report 2013 ranked Morocco 104 out of 185 exposure to households, however, has improved.311 countries. It is higher than the regional average of 128. (DB14, ranked 109) Unlike banks, nonbanking financial companies (NBFCs) have higher nonperforming loan ratios; they had also Figure 7.10.8: Getting Credit Rank – 2013 registered a slight increase of bad debt in 2010 (10 percent 100 104 compared to 9.5 percent in 2009), as seen in Figure 7.10.7. The quality of the loan portfolio has shown a mixed trend 110 in 2011 and 2012, as there is a decline in the NPLs of consumer loans; the quality of loans by leasing companies 120 MENA 128 Average has deteriorated, reflecting a higher NPL rate. 130 In the microfinance sector, as shown in Figure 7.10.7, MENA Region Morocco the percentage of nonperforming loans slipped in 2009 Source: Doing Business Report, The World Bank, 2013. data.worldbank.org. as a result of the deteriorating quality of risk. This was because of the weaknesses observed in internal controls, In terms of the number of deposits, access to finance in information and collection systems along with the impact Morocco has grown in recent years. Deposit accounts of cross-indebtedness in the sector. with commercial banks per 1,000 adults increased, from 320 in 2004 to 786 in 2012. Mobile phone subscriptions Figure 7.10.7: NPLs by Sector dramatically increased from 30 (per 100 people) in 2004 12 to 100 in 2011, suggesting possibilities to further increase 10 access to finance through mobile-banking solutions.313 Percentage 8 6 Outstanding loans from commercial banks increased from 4 75.39 percent of GDP in 2008 to 86.51 percent in 2012, as 2 0 shown in Figure 7.10.9.314 2008 2009 2010 2011 2012 Banking 6 5.5 4.8 4.8 5 NBFCs 9.1 9.5 10.1 9.8 9.7 Figure 7.10.9: Outstanding Loans from Commercial Banks MFIs 5.3 6.4 6.2 4.3 6.7 (% of GDP) Source: “Annual Report on the Control, Activity and Results of Credit Institutions.” 90 85.39 86.51 85 80.63 77.54 Although microfinance institutions had started sharing data 80 75.39 75 with ESM, they only started making inquiries prior to loan 70 granting in 2012. A largest microfinance institution’s test 65 2008 2009 2010 2011 2012 batch of inquiries to ESM revealed that the problem of Source: Financial Access Survey, IMF, 2012. 139 s s s 7. Credit Reporting in MENA – Detailed Overview Since 2008, 370 bank branches have been added to the n Limited finance available through the banking sector for network on average. The total number of branches reached micro, small and medium enterprises, particularly for 5,447 as of 2012.315 As shown in Figure 7.10.10, the smaller and informal firms; outreach of commercial bank branches per 100,000 adults increased from 14 in 2008 to 23 in 2012; the same goes for n Low penetration of nonbanking financial services, ATMs, which increased from 18 in 2008 to 23 in 2012.316 especially insurance; n Difficulty for women to obtain credit from commercial Table 7.10.2 shows financial access indicators in terms banks; still Morocco remains one of the MENA countries of formal financial institutions’ accounts and loans. The with the highest ratio of credit granted to women percentage of adults with an account was relatively high in (31 percent, with 1.49 million women borrowers out of the country, at 39 percent in 2011. Twenty-seven percent of 4.89 million total borrowers), as shown in Table 7.10.3. women have an account with a formal financial institution. However, the percentage of adults who took a loan in 2011 n Over-reliance of lenders on collateral, even for personal was a negligible 4 percent, which shows potential for loans. Moroccan collateral requirements are about 150 growth of credit market. percent to 200 percent of the loan value, one of the levels in the region. Figure 7.10.10: Commercial Bank Branches and ATMs per 100,000 Adults Moroccan authorities are actively undertaking reforms 25 to further modernize public finance and increase access 20 to financial services, particularly for small and medium enterprises. Efforts to restructure the microfinance sector 15 and rationalize the national system of guarantees are also 10 underway.317 5 0 Table 7.10.3: Bifurcation of Credit Facilities 2008 2009 2010 2011 2012 Bank Branches ATMs Number Percentage Source: Financial Access Survey, IMF, 2012. Men 3,398,741 69 Women 1,492,289 31 Table 7.10.2: Penetratration in Formal Financial Total 4,891,047 100 Institutions (% of Adults) — 2011 Source: Bank Al-Maghrib. Accounts 39 Men 52 7.10.3 STATUS OF CREDIT Women 27 REPORTING Loans in the past year 4 Men 5 OVERVIEW Women 4 Source: Financial Access Survey, IMF, 2012. At the onset of 2005, Morocco was characterized by unfavorable credit market conditions, such as high In addition to banking, there are a number of relatively collateral lending, multiple lending, and wrong selections developed sectors that ensure access to credit by a wider of borrowers. This was an outcome of an inadequate credit pool of market participants; among these sectors are asset reporting system that led to rising nonperforming loans and management, consumer finance, leasing, factoring, and weakening the credit market. The country lacked a stable mutual funds. There are a few constraints, however, in regulatory framework for credit reporting, and there was accessing finance, such as: no cross sector information sharing by key lenders such as banks, nonbanking financial companies, and microfinance 140 s s s Arab Credit Reporting Guide institutions. In response to these shortcomings, lenders had As shown in Table 7.10.4, the total number of individuals planned to create a separate informational database for and firms listed in the CB has increased by 16 percent in their own sectors. This would have led to a fragmented, a year, with individuals constituting 96 percent of the total partial credit reporting system, not allowing lenders to database. The data shared is negative and positive. The data check the complete financial profile of potential and current on individuals and firms includes demographic data, loan borrowers. account data, and payment performance data. Initially Bank Al-Maghrib (BAM) decided to upgrade Table 7.10.4: Experian Services Morocco Database Morocco’s existing CR. However, it also considered other 2011 2012 % change viable credit reporting models, including the participation Consumers 3,582,496 4,148,066 16 of private sector partners. Given the limited capabilities of SMEs 122,709 151,665 24 the existing credit reporting system and results of market assessment study, IFC suggested to BAM a public-private Total Number of 3,705,205 4,299,731 16 Credit Customers partnership. In September 2007, the central bank issued the Source: Credit Information Sharing Survey, ACRI, 2013. first credit bureau (CB) license to Experian Morocco.318 With the participation and investment of the world’s largest credit bureau provider, Experian Plc, the Moroccan bureau PARTICIPATION AND DATA SHARING Experian Services Maroc (ESM) became operational in As shown in Figure 7.10.11, Morocco uses a mandatory October 2009. credit sharing model. Through the CB, BAM has delegated to the private sector all credit information services that ESM is owned by Experian, in joint venture with seven generally are performed by the CR; the central bank Moroccan financial institutions (six banks and one has closed the CR to further inquiries from the lenders. insurance company); Experian holds 78.67 percent shares, BAM plays a key role, not limiting itself to licensing and banks hold 17.33 percent, and insurance company hold 4 supervising CBs, but taking a proactive and intermediary percent.319 Figure 7.10.11: Morocco Sharing Model Credit Applicants (information) 1 Regulated Entities Regulated Entities Regulated Entities Non-regulated Non-regulated Banks NBFI MFI Commercial Entities Financial Entities 2 Credit Bureau/s Borrowers’ Consent (no borrowers’ consent required) is Requested 4 PCB 1 PCB 2 PCB 3 PCB 4 3 5 Bank 1 Bank 2 Bank 3 NBFI MFI RETAILER TELCO Source: Madeddu, 2012. 141 s s s 7. Credit Reporting in MENA – Detailed Overview function between the CBs and the lending industry users delegation of the service to one or more additional credit and data providers. bureau providers. The regulation mandates that regulated lenders (microfinance institutions, banks, and nonbanking Article 40: “Banks, financial and microfinance financial companies) periodically provide BAM with all institutions are required to supply BAM with all the credit information, which BAM then transmits to all CBs documents and information that are necessary to operating in the market. Nonregulated entities can also effectively manage the credit registry mentioned in the provide data directly to the CBs with consumer’s consent; article 120 below, in accordance with the conditions they can consult the bureau as well. Lenders are required to of the circular released by BAM”. consult at least one bureau before making a credit decision on the loan.320 As shown in Figure 7.10.12, the total number of monthly Article 120: “BAM is responsible for the management credit reports distributed by ESM has increased significantly of a credit registry. BAM can delegate the management since it became operational, from 5,376 in 2009 to 90,166 of this registry under specific self-defined conditions. in 2012. The Governor of BAM determines, through circulars, the conditions and procedures to access the Figure 7.10.12: Credit Reports Issued by the PCB information held by this credit registry”. 100000 80000 60000 BAM issued in 2007 and reviewed in 2010 (1G/2010 and 40000 2G/2010, respectively) a series of circulars to define the 20000 procedures and rules under which the sharing and inquiring 0 2009 2010 2011 2012 of the CB take place.321 Firms Individuals Total Source: Credit Information Sharing Survey, ACRI, 2013 n Circular 27/G/2007—Determines the information LEGAL FRAMEWORK AND CONSUMER that banks, nonbanking financial institutions, and RIGHTS microfinance institutions are required to provide to BAM. The legal framework of credit reporting in Morocco is based n Circular 28/G/2007—Elaborates on the basic on the powers bestowed on BAM by the Banking Law contents of the code of conduct, particularly (No. 34-03 of February 14, 2006), and on the subsequent mandating users to inquire ESM before a loan regulations issued by BAM in 2007 (2/G, 27/G, 28/G). is granted. It also defines the procedures and The banking law clearly establishes the authority of responsibilities for disputing wrong data and BAM to request credit information and reports from the amending errors contained in the borrowers’ credit supervised entities. The latter must periodically contribute histories. data to BAM’s credit registry. It also allows for BAM n Circular 2/G/2007—Determines penalties to be to delegate CR services to external private information applied to regulated entities in case of proven service providers. Based on this provision, BAM has given violation of the law and circulars. the license to ESM to operate the management of the CR on BAM’s behalf. BAM is also entitled to extend the 142 s s s Arab Credit Reporting Guide The delegation agreement signed between ESM and BAM ARAB CREDIT REPORTING INFORMATION contain provisions related to establishing and operating SHARING INDEX credit bureaus, including: Based on the parameters and subparameters discussed n Public service continuity—Guaranteed by the credit in Chapter 6, the ACRISI score has been determined for bureau, which is also obliged to respect the principle of Morocco, as shown in Table 7.10.5. The index provides users’ equal treatment; a snapshot and quantification of the credit information n Good governance obligation—The credit bureau is sharing system in the country. required to observe good governance rules, develop and improve the quality of its services in accordance with CONCLUSIONS international best practice in this field; n The establishment of the CB in Morocco has significantly n Confidentiality—The credit bureau is obliged to strictly improved the credit reporting system and is on par with observe professional secrecy and confidentiality of data; international best practice. This can be seen from the n Security—The credit bureau establishes procedures jump in the ACRISI score from six in 2008 to 16 in 2012. and control measures that ensure the availability, Within a span of three years, ESM has already made its confidentiality, integrity, and security of information; mark by increasing its credit information sharing index from two to five on the ease of getting credit parameters, n Consumers’ rights—Borrowers have the right to in the Doing Business survey. This success is the result obtain their own credit report and dispute the veracity of the creation of Morocco’s first credit bureau, a state- of information. The CB must examine consumers’ of-the-art system; complaints within a predefined timeline and provide a satisfactory reply. n Changes were made to existing laws and new specific regulations issued for credit reporting leading to the The Data Privacy Law 09-08 (DPL -0908) was enacted establishment of ESM. These regulations and circulars in 2008 but is no longer relevant, as nonregulated entities enable the central bank to oversee credit-reporting are not participating in data sharing. However, the impact activities and the sharing of data among lending will be significant once nonregulated entities become data institutions, while providing basic consumer rights; providers. n BAM’s innovative model of delegation introduced offers significant advantages: Article 4 is one of the pillars of the legislation and unambiguously establishes two fundamental principles: It has built a robust and complete national credit n reporting system that has established grounds for a No legitimate processing or exchange of personal competitive, dynamic information-sharing market in n data can occur without the consent of the subject of a short span of time; information, and only for the justifiable permissible purpose (such as credit granting); It supplies the central bank with a wealth of n information for credit supervision; n Consent is not necessary if the processing and exchange is the consequence of a legal obligation (such as the It has been successful in creating win-win situation n banking law obligation for regulated lenders to share for all: lenders, borrowers, and the financial sector as data with BAM and BAM/ESM’s delegation model). a whole. n The credit information database and depth of data With the circulars and the code of conduct, a sound legal sharing has significantly improved with information on and regulatory framework was created to govern the credit all loans and detailed payment histories (negative and information sharing system in Morocco.322 positive) being collected and distributed; 143 s s s 7. Credit Reporting in MENA – Detailed Overview n As of 2012, only the regulated entities and microfinance Increase data coverage with information from n institutions participated in the credit information sharing nonregulated entities and utility service providers; system; Offer of value-added services and sophisticated n n No value-added services of any type have been techniques, introduced by ESM in the market. Open the credit information industry to competition323 n RECOMMENDATIONS Since credit reporting has reached a mature stage n n Credit penetration remains insufficient in the Moroccan in Morocco, BAM might consider a revision of the market. Besides reviewing and changing credit delegation model. One option would be the introduction assessment policies, lending institutions should make of a direct-sharing model, with lenders and CB’s sharing effective use of services offered by the CB to increase data directly. This would free BAM from the technical access to credit; burden of collecting data from lenders and distributing it to the CB. n The National Credit Information System should be upgraded to: 144 s s s Arab Credit Reporting Guide Table 7.10.5: Arab Credit Reporting Information Sharing Index — Morocco ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO YES   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO YES Is there a legal framework for privacy and protection of data? NO YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? NO YES Do consumers have access to at least one free report in a year? NO YES Are consumers allowed to raise disputes? NO YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? NO YES Does the principle of reciprocity apply? NO YES   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 6 16 145 s s s Arab Credit Reporting Guide BAHRAIN Al Kasab ISLAMC REP. OF IRAN PA K I S TA N OMAN Pe rsia n G u lf Madha QATAR Shinas G u lf o f O ma n Sohar As Sahm UNITED ARAB MUSCAT Rustaq EMIRATES Ibri Qurayat Nizwa Al Khuwayr Sur Sanaw Jibal SAUDI Sharkh ARABIA Khalif Jazirat Haima Masirah Capital Muscat Duqm Arabian Dauka Sea Currency Omani Rial Sawqirah (OMR) Thamarit REPUBLIC OF YEMEN Salalah USD/MRO 0.3849 Mirbat Rakhyut Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41512, March 2015. 7.11 OMAN sector; developing infrastructure; and improving the investment climate.324 7.11.1 ECONOMIC OVERVIEW Despite the global economic slowdown, the average GDP Oman is a small, open economy that has been growing at growth rate from 2008 to 2012 was 15.4 percent. There was a steady, impressive pace over the past three years. With a a negative growth of 20.6 percent in 2009, but Oman has population of 3.6 million (including 1.5 million expatriates), been able to improve its economic conditions and achieve GDP growth was 11.6 percent in 2012. Primarily dominated a stable growth rate since. The major driver of growth by petroleum activities, oil and natural gas accounted for has been the recovery in the prices of crude oil in the 52.2 percent of GDP in 2012. Efforts are being made to international markets. Other drivers are sustained domestic diversify the economy by promoting and expanding other demand, mainly supported by large public expenditures, industries and service sectors. The contribution of other sectors—notably, agriculture and fishing, and industry and Figure 7.11.1: GDP Performance services—was 53.1 percent of GDP in 2012. Figure 7.11.1 70 70 shows the performance of the economy with respect to 60 60 50 50 GDP (at current market prices) from 2008 to 2012. The 40 40 OMR Billion Percentage GDP in 2012 stood at 30.03 billion Omani rials, increasing 30 30 20 20 from 26.9 billion Omani rials in 2011. 10 10 0 0 2008 2009 2010 2011 2012 To some extent, Oman has been successful in diversifying -10 -10 -20 -20 its economy through the sultanate’s long-term strategy, -30 -30 Vision for Oman 2020, which includes: increasing the role GDP (RO billion) GDP Annual Growth Rate (%) Oil and Gas (% of GDP) Other Sectors (% of GDP) of private sector through investments; the development of Source: Annual Report, Central Bank of Oman, 2012. small and medium enterprises; developing the financial 147 s s s 7. Credit Reporting in MENA – Detailed Overview and an accommodative monetary policy pursued by the insurance firms, brokerage firms, and the Muscat securities Central Bank of Oman (CBO).325 The inflation of consumer market. prices has stabilized and remained low over the past few years; this trend is expected to continue. The CPI rate has The Central Bank of Oman is responsible for maintaining decreased from 12.1 percent in 2008 to a low 2.9 percent the stability of the national currency and ensuring in 2012. Figure 7.11.2 shows the trend from 2008 to 2012. monetary and financial stability in a deregulated and open financial system. There are 16 commercial banks (local GDP per capita has been growing at a steady pace since and foreign) operating in Oman. In December 2012, the 2010, after a significant decline in 2009 due to that year’s regulatory framework for Islamic Banking was also set negative growth rate. Per capita income has increased from up. In addition, there are two specialized banks, the Oman 8,068 Omani rials in 2010 to 9.063 Omani rials in 2012. Housing Bank and the Oman Development Bank. These Figure 7.11.3 shows the population and GDP per capita provide soft financing mainly to low and middle-income from 2008 to 2012. The Omani economy follows a fixed Omanis to build or purchase residential property and to exchange rate system and the Omani rial is pegged at a rate private sector investors to finance small projects.327 of $2.60.326 Commercial Banks Figure 7.11.2: CPI Inflation The 16 commercial banks (seven local banks and nine 15 12.1 branches of foreign banks) dominate the Omani financial system. Local banks lead the banking sector, accounting Percentage 10 3.9 4.1 for 79 percent of banking sector assets in 2012. Also, the 5 3.2 2.9 three largest commercial banks account for 62 percent 0 of the total assets, 60 percent of total deposits, and 61.7 2008 2009 2010 2011 2012 percent of total credit. Source: Annual Report, Central Bank of Oman, 2012. data.worldbank.org As of December 2012, commercial banks operated through Figure 7.11.3: Population and GDP per Capita a network of 479 branches. They have been reasonably 4.00 10,000 profitable on a continuous basis. The size of the banking 3.00 9,000 system, in terms of branches and ATMs, has expanded in 8,000 recent years. The most significant achievement has been Million OMR 2.00 7,000 the increase in assets of these banks on a continuous basis. 1.00 6,000 Also the financial health of banks has improved in terms 0.00 5,000 of asset quality, provision coverage, capital adequacy, and 2008 2009 2010 2011 2012 profitability.328 Population GDP per Capita (Current LCU) Source: Annual Report, Central Bank of Oman, 2012. data.worldbank.org Total deposits with commercial banks increased 12.71 percent, from 12.57 billion Omani rials in 2011 to 14.17 billion Omani rials in 2012. There has been continuous 7.11.2. CREDIT MARKET credit growth over the last few years. Bank credit increased OVERVIEW 14.42 percent, from 12.51 billion Omani rials in 2011 to 14.32 billion Omani rials in 2012. The major factors that The financial system in Oman comprises the central bank, have contributed to this growth were rising economic the banking sector (commercial banks, specialized banks, growth, improvement in banks’ asset quality, moderation and Islamic banks/windows) and finance and leasing in inflation, decline in real interest rates, rising income of companies. The system features other institutions, such households, and increased competition with the entry of as the money exchange establishments, pension funds, new banks. 148 s s s Arab Credit Reporting Guide On average, credit extended to the economy, in the past Specialized Banks five years, has been over 100 percent of deposits held by commercial banks. Figure 7.11.4 shows this trend from The two specialized banks, the Oman Housing Bank and 2008 to 2012. the Oman Development Bank, also provide credit facilities to individuals and corporations. The Oman Housing Bank Credit to private sector was 12.41 billion Omani rials in provides finance by way of long-term soft housing loans. 2012. This constitutes over 86 percent of total bank credit. In 2012, mortgage loans increased 14.9 percent to 247.8 Also, as shown in Figure 7.11.5, personal loans constitute million Omani rials, from 215.6 million Omani rials in the single largest component of bank credit. With 5.02 2011. The other specialized bank, the Oman Development billion Omani rials disbursed to this sector, it accounts for Bank, mainly provides loans for development projects, over 40 percent of total bank credit. including activities related to agriculture and fisheries, health, tourism, professional activities, and traditional craftsmanship. In 2012, its total loans and advances Figure 7.11.4: Bank Deposits and Credit amounted to 102 million Omani rials. 16 14 12 Finance and Leasing Companies OMR Billion 10 8 In addition to commercial banks and Islamic banks, 6 4 there are six finance and leasing companies that provide 2 retail credit facilities, and small and medium enterprise 0 2008 2009 2010 2011 2012 financing. In 2012, they operated through a network Deposits Credit of 37 branches. Their loan and lease portfolio stood at Source: Annual Report, Central Bank of Oman, 2012. 711.7 million Omani rials at the end of 2012. This is an increase of 22 percent, from 582.2 million Omani rials in Figure 7.11.5: Sectoral Distribution of Bank Credit (%) 2011.330 The loan portfolio from 2008 to 2012 is shown in 0.26 1.77 2.38 Figure 7.11.6. 0.29 10.16 Figure 7.11.6: Credit Performance of FLCs 800 40.17 32.49 700 OMR Million 600 500 8.40 4.08 400 300 Trade Industry Financial Institutions 200 Services Personal loans Agriculture and allied services 100 Government Non-resident lending All others 0 2008 2009 2010 2011 2012 Source: Annual Report, Central Bank of Oman, 2012. Loans and Lease Portfolio Gross NPLs Source: Annual Report, Central Bank of Oman, 2012. Islamic banks With the introduction of the Islamic banking regulatory Nonperforming Loans framework, two banks (Bank Nizwa and Alizz Islamic Bank) have been granted licences. Two conventional banks The gross nonperforming loans of commercial banks (Bank Muscat and National Bank of Oman) have opened increased 4.2 percent, from 428 million Omani rials in 2011 Islamic windows. Other local commercial banks have also to 446 million Omani rials in 2012. However, the gross expressed interest in setting up Islamic banking operations. nonperforming loans ratio as a proportion to total loans and Islamic banking in Oman is expected to mobilize $2.5 advances declined to 2.2 percent at the end of December billion in terms of deposits and capture a market share of 2012, compared to 2.5 percent the previous year. about 6.5 percent by the end of 2013.329 149 s s s 7. Credit Reporting in MENA – Detailed Overview For financing and leasing companies, gross nonperforming SAOG commenced operations in January 2013 with two loans of 45.6 million Omani rials constituted 6.4 percent branches. Four local banks set up Islamic banking windows of net outstanding loans in 2012. The ratio of gross NPLs with nine branches in the first quarter of 2013. The to net outstanding loans and lease portfolios has been specialized banks operate with a network of 22 branches. fluctuating in the past five years, with the highest being The branch network is shown in Figure 7.11.10. 10.9 percent and the lowest 4.3 percent. Figure 7.11.6 illustrates the gross NPL levels against the loan and lease Figure 7.11.8: Domestic Credit (%of GDP) portfolio of the six FLCs.331 100 CREDIT PENETRATION AND ACCESS 50 The World Bank Doing Business Report ranked Oman 86 0 out of 185 countries in 2013. As seen in Figure 7.11.7, it 2008 2009 2010 2011 2012 is higher than the regional rank of 128. (DB14, ranked 86) Domestic credit provided by banking sector (% of GDP) Domestic credit to private sector (% of GDP) Bank credit to non-oil GDP (%) Figure 7.11.7: Getting Credit Rank – 2013 Source: data.worldbank.org 0 20 40 Figure 7.11.9: Domestic Credit to Private Sector (% of GDP) 60 for Some MENA Countries in 2012 80 86 MENA 80 100 128 Average 70 120 60 Percentage 140 59.1 MENA Region Oman 40 37.6 41.2 Source: Doing Business Report, The World Bank, 2013. 20 4.6 0 Saudi Arabia UAE Bahrain Yemen Oman The credit market is dominated by commercial banks. Total credit by the banking sector has been increasing over Source: data.worldbank.org the past five years, as shown in Figure 7.11.4. However, when the banking sector’s domestic credit is measured Figure 7.11.10: Credit Market Branch Network as a percentage of GDP, there seems to be a declining trend—except for the increase from 33.1 percent in 2011 37 11 22 to 35.4 percent 2012.332 Credit penetration, which can be measured by the ratio of domestic credit to private sector as a percentage of GDP, also follows a similar trend, as shown in Figure 7.11.8. There was an increase from 40 percent in 479 2011 to 41.2 percent in 2012.333 Bank credit to non-oil GDP was a high 89.9 percent in 2012.334 Commercial bank branches Specialised banks branches Finance companies branches Islamic bank branches/windows Figure 7.11.9 shows a comparison of domestic credit to the Source: Annual Report, Central Bank of Oman, 2012, private sector, as a percentage of GDP, to selected countries in the MENA region in 2012. Some of Oman’s neighboring As per the IMF Financial Access Survey, the branch countries have high ratios such as the UAE (59.1 percent) network for commercial banks offered an outreach of 19.70 and Bahrain (70 percent). bank branches per 100,000 adults in 2012. The trend, as seen in Figure 7.11.11, shows that access to banking for the As of December 2012, Oman’s commercial bank network adult population in Oman has declined since 2008. consisted of 479 branches and 1024 ATMs. Bank Nizwa 150 s s s Arab Credit Reporting Guide Nevertheless, the number of commercial banks branches to continuously develop and upgrade the CR and create a has been increasing, which may indicate the concentration more enabling environment for sharing information among of branches in certain areas. The outreach can be expected lenders. The first CR aimed at achieving two fundamental to increase with the introduction of Islamic banks and local goals: banks opening Islamic windows. n Collecting credit information from financial institutions to support the CBO’s responsibility of supervising the Table 7.11.1 shows the financial access indicators in credit business; terms of formal financial institutions’ accounts and loans. Compared to most countries in the region, the percentage n Supplying lenders with consolidated information for of adults with an account was a high 74 percent in 2011. credit underwriting purposes. Sixty-four percent of women have an account with a formal financial institution, which is also relatively high. The To achieve these objectives, the CBO set up the Bank percentage of adults who have taken a loan in 2011 was Credit and Statistical Bureau (BCSB) system to undertake only 9 percent. This percentage for women corresponds to the functions of a CR. In 1996, the CBO, always keen in 6 percent. maintaining high standards in its operations and systems, proceeded with a major revamp; the objective was to Figure 7.11.11: Commercial Banks Outreach automate the CR’s processes.335 23.04 23.66 22.66 21.27 600 19.7 25 Since then, the CBO has upgraded the registry in terms 500 20 400 of infrastructure and technology; it has also revised the 15 300 legal framework. In 2007, a contract was signed with an 10 200 5 international service provider to build a new state-of-the- 100 0 art reporting system.336 Thus, in 2010, the Oman credit 0 2008 2009 2010 2011 2012 registry has evolved from being a credit registry with Commercial bank branches monthly data update of classified and consolidated loans, Commercial bank branches per 100,000 adults to a full-fledged, state-of-the-art credit reporting system. Source: Financial Access Survey, IMF, 2012. Annual Report, Central Bank of Oman, 2012. The system is fully online and updates daily. It is also equipped with an internal scoring and rating mechanisms Table 7.11.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011 only used by the CBO for monitoring purposes; this data is not disclosed to lenders.337 The legal framework has been Accounts 74 improved with a comprehensive regulations in place for Men 84 credit-information sharing. Women 64 Loans in the past year 9 The CBO’s efforts are clearly reflected in the ACRISI score. Men 12 The overall scoring has increased from 10 in 2008 to 14 Women 6 in 2012. Although these changes are primarily in the legal Source: Financial Inclusion Data, The World Bank, accessed September 15, 2014. and consumer rights section, the score indicates a move http://datatopics.worldbank.org/financialinclusion/country/oman. http://datatopics.worldbank. org/financialinclusion/topic/gender#divMap. towards a stronger, more effective, and more transparent credit reporting system. 7.11.3 STATUS OF CREDIT The recent changes have significantly increased the REPORTING activities and participation of the registry in the credit OVERVIEW system. As per the 2013 Doing Business Report, coverage of the CR has increased from 12.4 percent of adults in 2008 The concept of credit information sharing in Oman has been to 18.9 percent in 2012. Coverage of 37.3 percent in 2013 in place since the establishment of the first CR in 1978. marks a significant increase. CBO has, at different stages, undertaken various initiatives 151 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.11.13: Number of Loans in the PCR In 2012, 507,854 individuals and firms were listed in the All records are maintained in the database for a period of 10 700,000 CR. This is an increase of 55 percent, from a total of 328,255 years, after which they are deleted. Only records on credit 600,000 in 2008. Figure 7.11.12 indicates the increasing trend of facilities that are not repaid are retained beyond this period. 500,000 these numbers in the period of 2008 to 2012. The number 400,000 of individuals registered in the CR database was 308,680 Information is300,000 collected on individuals and firms. Based on 200,000 in 2008. Although the number decreased from 429,859 in the response to the ACRI’s 2013 Credit Information Sharing 100,000 2009 to 332,411 in 2010, there were 472,241 individuals Survey, all information- is collected by the CR, including 2008 2012 registered as of 2012. The number of firms registered has demographics. Loan data and payment performance data Individuals Firms increased from 19,575 in 2008 to 35,613 in 2012.338 in the is distributedSource: Credit Central Information Bank of Oman. Report or the Self Inquiry Credit Information Report. Each loan/credit is Figure 7.11.12: Number of Individuals and Firms in the PCR described individually and full-file information is provided for both consumers and firms; the exception is the name of 500,000 the credit granting institution in the case of individual loans 400,000 (which is distributed only in case of nonperforming loans) 300,000 and the business activity code. 200,000 100,000 A total of 736,999 loan accounts were shared and registered 0 2008 2009 2010 2011 2012 with the CR in 2012, with a value of 18.98 billion Omani Number of Consumers Number of Corporates rials. Individual loan accounts constituted 634,219 of these Source: Central Bank of Oman accounts, a value of 7.15 billion Omani rials. The number of these loan accounts has more than doubled since 2008, In 2009, a credit bureau, National Bureau of Commercial growing from 376,441 accounts with a value of 4.93 billion Information (NBCI), was set up by local entrepreneurs Omani rials. The number of loans to individuals and firms with the participation of banks. According to the 2010 is shown in Figure 7.11.13; the value of these loans is ACRI report, Credit Reporting Infrastructure in Oman, shown in Figure 7.11.14. NBCI was granted a license to operate by the Capital Markets Authority but as a result of the misinterpretation Figure 7.11.13: Number of Loans in the PCR of the bank secrecy law impact, and other additional issues, 700,000 NBCI has not yet been able to start operations; it is still 600,000 500,000 unable to collect data and disseminate information services. 400,000 Local entrepreneurs have again taken up the project in 300,000 partnership with one of the major international providers 200,000 100,000 and are currently discussing the revitalization of NBCI. - 2008 2012 PARTICIPATION AND DATA SHARING 339 Individuals Firms Source: Central Bank of Oman. Currently, all regulated financial institutions (16 Figure 7.11.14: Volume of Loans in the PCR commercial banks, two specialized banks, and the six 14 nonbanking finance companies) provide data to the CR. 12 Before granting a loan, these institutions are mandated to OMR Billions 10 share data and make inquiries on borrowers or potential 8 borrowers. There is no minimum threshold for reporting 6 a credit facility. All information (positive and negative) 4 2 must be reported to the CR. 0 2008 2012 Individuals Firms Source: Central Bank of Oman. 152 s s s Arab Credit Reporting Guide Corporate loans in the CR have significantly increased in number. With a value of 11.81 billion Omani rials, Article 2 “iii) Provide credit information reports to 102,780 corporate loan accounts correspond to the 35,613 licensed banks, on need to know basis, in the formats corporations mentioned in the previous section, as of 2012. prescribed by Central Bank; In 2008 the number of these loans was only 29,014, with a iv) Provide credit information to any person to whom value of 8.03 billion Omani rials. such information relates in the formats and manner The number of individual credit reports accessed has prescribed by Central Bank.” increased significantly, especially in 2010 and 2011. New regulation requires banks to obtain a credit report before Through Article 4 and 5, CBO mandates that licensed banks granting a loan. As seen in Figure 7.11.15, the number of obtain a credit information report prior to sanctioning a credit reports increased from 72,199 in 2010 to 279,990 in loan. It is the responsibility of licensed banks to provide 2012. In the case of corporations, the number of reports has complete and accurate credit and financial information. increased more than doubled from 2010 and 2011, from The use of such information has also been clearly stated in 26,894 in 2010 to 48,696 in 2012.340 Article 7 of the regulation. Figure 7.11.15: Number of Credit Reports 300,000 Article 4 “Any licensed bank shall obtain a credit 250,000 information report from the BCSB system prior to: 200,000 150,000 a. sanctioning any loan or credit facility to any 100,000 prospective borrower, 50,000 b. sanctioning/topping-up/reviewing/ any loan or credit 0 facility to any existing borrower, 2010 2011 2012 Individuals Corporates c. opening a current account for any existing or Source: Based on response from Central Bank of Oman. prospective current account holder.” LEGAL FRAMEWORK AND CONSUMER RIGHTS Through the new regulation, the CBO has also strengthened consumer rights. Consumers are allowed to access their In 2007, the CBO passed the regulation BM/ data and raise disputes to resolve errors. Confidentiality REG/52/11/2007 to update the framework for the BCSB and the protection of borrowers’ credit information has also System, which covered the basic aspects of credit reporting. been reaffirmed. The regulation currently in place, BM/REG/53/9/2011, issued in December 2011, is more comprehensive as it As mentioned above, Article 2 of BM/REG/53/9/2011 details the functions and operations of the BCSB system. allows consumers to access their credit reports. A borrower can obtain a copy from a bank or financial institution free This regulation provides the framework for credit of charge, any time. He or she can make a complaint to the information sharing with the CR. Article 2 clearly BCSB system by using the online complaint management defines the functions of the BCSB system. These include system. maintaining a repository based on the collection and collation of credit information on borrowers, guarantors, Consumer consent is not required to share data with the related parties, counterparties, and licensed banks’ current system or make inquires. Article 70 (c) of the Banking account holders. The BCSB also provides credit reports, Law states, “Except as provided by Article 70 (a) of this prepares borrowers’ credit ratings and grades, and provides Law, disclosure of information relating to any customer of information to the Central Bank, as required. 153 s s s 7. Credit Reporting in MENA – Detailed Overview a licensed bank shall be made only with the consent of such a discrepancy between the NBCI’s and the CBO legal person…” Article 70 (b) states, “No licensed bank, nor department’s bank secrecy norms, notably concerning any director, officer, manager or employee of such bank, consent wording and frequency. As mentioned previously, shall disclose any information relating to any customer of discussions on the NBCI’s revitalization are currently in the bank except when such disclosure is required under progress. the laws of the Sultanate and as instructed by the Central Bank…” As per the new regulation, licensed banks are ARAB CREDIT REPORTING INFORMATION required to share and inquire data from BCSB as instructed SHARING INDEX by the central bank; consumer consent is not explicitly required. However, banks are required to inform customers Based on the parameters and subparameters discussed of any such disclosures. in Chapter 6, the ACRISI score has been determined for Oman, as shown in Table 7.11.2. The index provides Also, Article 6 of the new regulation requires licensed a snapshot and quantification of the credit information banks to maintain strict secrecy on credit and financial sharing system in the country. information provided to or by the BCSB system and follow the disclosure norms, as stipulated in Article 70 of the CONCLUSIONS Banking Act. n CBO’s continuous efforts to enhance the framework Capital Markets Authority Regulation on Credit for credit reporting is evident from the recent Rating Companies and Credit Bureaus341 changes, including: technological and infrastructural improvements to a state-of–the-art registry; use of an The other relevant regulation pertaining to credit international service provider; the new online system for information was issued by the Capital Markets Authority sharing of information between lending institutions and (CMA) which permits the establishment and operation the registry; and the implementation of a comprehensive of credit bureaus. The National Bureau of Commercial credit information and reporting regulation. These Information was licensed under this regulation. However, positive changes in various aspects of the credit reporting CMA regulation is quite lean: it does not indicate system are reflected in the increase of the ACRISI score procedures; processes deadlines (such as consumer’s from 10 in 2008 to 14 in 2012; rights); requirements (such as licensing); supervisory powers and the processes to carry them out; duties and n Many of these changes have been brought about with responsibilities of the users and lenders (such as consent the passing of a more comprehensive regulation on acquisition, validity and storage, or data quality). It does credit information sharing. The regulation has addressed not address the security or integrity of data; it does not consumer rights, allowing consumers to access their mandate that users share data. The CMA cannot mandate reports free of cost and raise disputes on incorrect data; regulated lenders to provide data to CBs, which would n Thus, the BCSB system appears to be gaining more be a sound measure. The regulation does not address relevance and importance given that lenders, (licensed reciprocity principles or other important topics, like banks and FLCs) are increasingly participating in the duration and deletion of historical data in the database, system and using it for risk assessment of borrowers; database location, development of value-added services n The new regulation is comprehensive and includes (such as bureau scores), or detailed sanctions and almost all necessary sections required in a credit violations. Most importantly, bank secrecy does not apply reporting law. This regulation has strengthened the legal to data collected and disseminated, which private credit and regulatory framework for credit information sharing reporting laws usually establish. as well as consumer rights. Thus, issues regarding borrowers’ consent have been n The new regulation has also mandated entities to inquire the major impediment for NBCI operations. Regulated to the CR for the assessment of every application for a lenders have not shared information with the CB, claiming credit facility; 154 s s s Arab Credit Reporting Guide As of 2012, Oman has fulfilled all ACRISI parameters n available for lenders to enable better risk assessment; for the “depth of data sharing and reporting in the borrowers should also have access to this information; country.” However, data is limited to regulated entities; Obstacles to the establishment of CBs should be data from other sources is not being collected. n removed. RECOMMENDATIONS Any regulatory hurdles, such as those faced by the NBCI, n should be addressed; the development of a complete The CBO should continuously upgrade the system to n credit reporting system will enable credit information accommodate increasing volumes and participation. It sharing across all sectors; should also ensure that data is always shared in full. New financial entities/sectors should also be required The central bank and CB (when established) should n to adhere to these requirements and develop necessary undertake a common program of awareness and systems; education drives for lenders and borrowers on all aspects of information sharing such as benefits, purpose, The credit score and rating, which has been developed n obligations, rights, usage, etc. for internal purposes, should also be developed and made 155 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.11.2: Arab Credit Reporting Information Sharing Index — Oman ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? NO YES Do consumers have access to at least one free report in a year? NO YES Are consumers allowed to raise disputes? NO YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 10 14 156 s s s BAHRAIN G ulf Al Khuwayr Madinat - ash Shamal QATAR of Bahr ai n - Al Ghuwayrıyah Al Khawr - Jumaylıyah Pers ian Umm Salal - ¸ - 'Alı Gulf - Dukhan - DOHA SAUDI Ar Rayyan ARABIA - Umm Bab Al Wakrah - Umm Sa'ıd Capital Doha Currency Qatari Riyal (QAR) USD/QAR 3.64 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41513, March 2015. 7.12 QATAR As of 2012, the population of the country was over 1.8 million, increasing from over 1.7 million in 2011. Women 7.12.1 ECONOMIC OVERVIEW constituted about 26 percent of the population in 2012. Table 7.12.1 shows the bifurcation of the population in Qatar is endowed with 25 billion barrels of proven oil from 2008 to 2012. reserves and the world’s third-largest natural gas reserves. Oil and gas account for about 85 percent of export revenues Qatar is a high-income economy, with a GDP per capita of and more than half of GDP. Qatar has permitted extensive $93,825 in 2012.343 At a fixed exchange rate of 3.64 Qatari foreign investment in its natural gas industry; in 2007, it riyals per U.S. dollar, this equals about equals 341,523 became the world’s largest exporter of liquefied natural Qatari riyals, in 2011. As seen in Figure 7.12.2, per capita gas. With one of the world’s highest per capita incomes income has shown an increasing trend after a declining and virtually no poverty, the country has largely avoided 26 percent in 2009. the political instability that other Middle Eastern countries suffered as a result of the 2011 uprisings.342 Figure 7.12.1: GDP Performance 800 50 As per the Central Bank of Qatar’s 2012 Annual Report, 700 40 the country has had a strong increase in its GDP (at current 600 30 Percentage QR Billion 500 prices), except in the year 2009 when it fell to -15.2 400 20 10 percent. GDP in 2012 stood at 700 billion Qatari riyal, 300 0 200 with a growth rate of 12.2 percent. This is a decrease from -10 100 the 37 percent growth witnessed in the year 2011. Figure 0 -20 2008 2009 2010 2011 2012 7.12.1 shows the trend from 2008 to 2012. GDP (current prices) GDP growth rate Real GDP growth rate Source: Annual Reports, Qatar Central Bank, 2011–2012. 157 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.12.1: Population The primary sources for credit in Qatar are the regulated Year Total Women Men institutions—banks in particular. The three nonbanking financial companies are focused on Islamic banking; they 2008 1,553,729 350,348 1,203,381 also provide credit facilities in the consumer financing 2009 2,631,728 377,636 1,254,092 segment (such as personal loans for cars, education, housing, 2010 1,637,443 408,808 1,228,635 and travel) along with small and medium enterprise loans. 2011 1,707,756 436,562 1,271,194 2012 1,836,676 472,613 1,364,063 Banking Source: Qatar Statistics Authority. Qatar’s banking sector is the fastest growing in the GCC, Figure 7.12.2: GDP per Capita (Current USD) with robust and rapid asset growth of 18.4 percent as of 100,000 June 2013. The banking sector comprises seven traditional national banks, seven traditional foreign banks, and four 93,825 90,805 80,000 Islamic banks. They operate through a network of 270 84,813 60,000 72,773 branches and 1,139 ATMs, as shown in Figure 7.12.3.346 62,528 40,000 20,000 Figure 7.12.3: Banking Network 0 800 2008 2009 2010 2011 2012 716 700 Source: data.worldbank.org. 600 500 356 400 7.12.2 CREDIT MARKET 300 191 200 67 61 OVERVIEW 100 7 7 18 4 0 Traditional National Traditional Foreign Islamic National The Qatari financial system mainly consists of institutions Banks Banks Banks regulated and supervised by the Central Bank of Qatar Banks Number of Branches ATMs (CBQ). It is dominated by the banking sector, which Source: Central Bank of Qatar (data as of September 2013). comprises 18 national and foreign banks. In addition, the financial system includes three nonbanking financial The banking sector is highly concentrated, with the top institutions, three investment companies, 20 exchange five banks accounting for 77.8 percent of total assets. houses, 12 investment funds, and nine insurance The Qatar National Bank is the largest bank in MENA, companies.344 with total assets of $118.5 billion, as of June 2013. QNB accounts for 45.2 percent of total banking assets in Qatar.347 In 2005, the government of Qatar set up the Qatar Foreign banks have played a key role in credit and financial Financial Centre (QFC) to attract international banking, markets, and their numbers has been increasing. This insurance business, and other financial services—in order phenomenon must not be underestimated and remains to grow and develop the financial services sector in Qatar of key importance. Lending processes in Qatar, though and the region. The QFC provides a favorable business technologically savvy, remain quite traditional in terms of environment for domestic and international firms to credit policies, procedures, and risk-management tools.348 establish a broad range of banking, asset management, and insurance businesses under a legal and regulatory regime Total credit facilities granted by the sector in 2012 amount that meets international best practice. The QFC Regulatory to over 508 billion Qatari riyals. Of this, domestic credit Authority was established to independently regulate and accounted for 476 billion Qatari riyals in 2012, increasing supervise the QFC. There are approximately 150 financial from 376 billion Qatari riyals in 2011, as shown in Figure services companies in the QFC.345 7.12.4. There has been an increase of about 116 percent in the credit provided to domestic sector from 2008 to 2012. 158 s s s Arab Credit Reporting Guide Figure 7.12.4: Total Credit by the Banking Sector helping them benefit from the availability of raw materials 500 in GCC countries. 476 400 Currently, the bank’s business activities include other QR Billion 376 300 251 293 258 sectors that are supportive of the development process, 200 220 227 160 177 190 such as education, industry, agriculture, tourism, and 100 0 housing, among others. Total credit facilities granted by 2008 2009 2010 2011 2012 QDB reached 1.4 billion Qatari riyals in 2012, increasing Total Domestic Credit Private Sector Credit from 1.2 billion Qatari riyals in 2011. This is an increase Source: Annual Reports, Central Bank of Qatar, 2010–2012 of 17.2 percent.350 Total credit to the private sector increased 13.66 percent, Finance Companies from 227 billion Qatari riyals in 2011 to 258 billion Qatari There are three finance companies operating in Qatar: Al riyals in 2012. As a percentage of total domestic credit, Jazeera Finance, First Finance, and Qatar Finance House. there has been a decrease in private sector credit, from 72.7 They operate according to the principles of Islamic financing percent in 2008 to 54.2 percent in 2012. and provide a range of Shariah-complaint products. They As shown in Figure 7.12.5, the real estate sector constitutes focus mainly on granting loans to customers for financing 33 percent of the private sector, with a volume of 85.5 vehicles, mortgages, household/electronic equipment, billion Qatari riyals. The consumption sector—loans and other consumer goods. They also have products granted to finance individuals’ purchase of consumer goods specifically catering to small and medium enterprises as and services—has the second largest share, constituting of well as corporations. 28 percent and a volume of 71 billion Qatari riyals.349 Islamic financing activities have decreased by 11.9 percent, The ratio of nonperforming loans in the banking sector has from 3.27 billion Qatari riyals in 2011 to 2.88 billion Qatari been low, with only 1.7 percent in the year 2012. This is a riyals in 2012, as shown in Figure 7.12.6. This decline is decrease from 2 percent in 2010. mainly attributed to the drop-off in the majority of assets components, especially Islamic finance, in addition to Figure 7.12.5: Private Sector Credit by Sector – 2012 the decline of cash and balances with banks, financial (QR Billion) investments, and other assets.351 35.7 7.5 As a percentage of private sector credit by banks, the 41.9 volume of Islamic financing activities was only 1 percent 16.5 of the total; as a percentage of consumption sector credit, 71 the volume was 3.9 percent of the total. 85.5 Figure 7.12.6: Islamic Financing Activities General Trade and Industry Contractors Real Estate Consumption Services Others 3.5 Source: Annual Reports, Central Bank of Qatar, 2010–2012. 3.0 3.2 2.5 2.8 QR Billion Qatar Development Bank 2.0 1.5 The Qatar Development Bank (renamed from the Qatar 1.6 1.0 Industrial Development Bank in 2007) was established by 0.5 the government of Qatar in association with national banks 0.0 for financing and developing small and medium industrial 2010 2011 2012 projects, by encouraging capital intensive projects and Source: Annual Report, QCB, 2012. 159 s s s 7. Credit Reporting in MENA – Detailed Overview Other Institutions In addition to the collateral requirements, lending processes include cumbersome policies and documentation. Nonregulated lenders (such as retailers that finance The credit culture is traditional and lacks advanced customers directly and avoid banking intermediation) are risk-management tools; it is predominantly manual and not yet operational in Qatar. However, the retailing sector subjective decisions are taken by lenders. In case of non is well populated by relevant players with an international banking institutions, underwriting procedures can be even reputation for consumer lending. In the medium term, more cumbersome and taxing, requiring many additional they may represent a massive new channel of credit for documents.354 consumers and nonsalaried people. Nonperforming Loans As for other lending sectors, nonregulated microcredit and microfinance institutions are not especially developed in The asset quality of Qatar’s banking sector is strong. As Qatar. Larger car dealer groups are granting credit directly seen in Figure 7.12.4, there has been an increasing trend to buyers, though the largest share of car financing is still in credit facilities. Yet, nonperforming loan levels have mediated by banks.352 remained low over the past few years, ranging from 1.2 percent in 2008 to 2 percent in 2010, then declining Collateral Environment to 1.7 percent in 2012.355 However, in case of the QDB, nonperforming loans to total loans remain high, even with The credit system in the country is strongly collateralized. the decrease from 12.3 percent in 2011 to 9.5 percent in Unsecured portfolios are rare, even when personal and 2012.356 consumer loans are considered; typically guarantees and/ or guarantors are requested by the banks.353 This can be especially seen in the loans given to firms (see Table CREDIT PENETRATION AND ACCESS 7.12.2). As for consumers, although the number of loans The World Bank’s 2013 Doing Business Report ranked without collateral is significantly higher than those with Qatar 104 out of 185 countries. It is higher than the regional collateral, the size of the loans is much smaller. average of 128, as shown in Figure 7.12.7. (DB14, ranked 130) Table 7.12.2: Collateral Environment — 2012 Number Value of Loans Figure 7.12.7: Getting Credit Rank – 2013 of Loans (QR Billion) 100 104 With Without With Without 105 Collateral Collateral Collateral Collateral 110 115 MENA Firms 51,115 37,396 276 132 128 Average 120 Consumers 54,460 532,397 63 59 125 Source: Credit Information Sharing Survey, ACRI, January 2013. 130 MENA Region Qatar Source: Doing Business Report, The World Bank, 2013 Banks’ risk-management techniques, particularly regarding retail credit, are still quite traditional. Credit underwriting In spite of the increase in credit to the private sector from is generally marked by subjective manual decisions, low 2008 to 2012, its ratio as a percentage of GDP has been decentralization, intensive use of paper and supporting declining, as seen in Figure 7.12.8. This indicates that bank documents, lack of full automation, conventional risk- credit penetration has been decreasing in the country, as underwriting techniques, excessive reliance on collateral, seen in Figure 7.12.9; the ratio is low when compared to and lack of advanced risk-management tools (such as neighboring MENA countries, such as Bahrain (70 percent), scoring). Unsecured portfolios mainly constitute very Jordan (72.4 percent), and the UAE (50.1 percent). small loans, as seen in the table above. Otherwise, retail credit requires a guarantee to be processed and granted. With a network of 254 bank branches, the country has an outreach of 13.22 per 100,000 adults in 2012. The average 160 s s s Arab Credit Reporting Guide Figure 7.12.8: Domestic Credit to Private Sector (% of GDP) Table 7.12.3: Penetratration in Formal Financial Institutions (% of Adults) — 2011 60 51.8 44.7 50 38.9 36.1 Accounts 66 Percentage 40 30 40.9 Men 69 20 Women 62 10 Loans in the past year 13 0 2008 2009 2010 2011 2012 Men 14 Source: data.worlbank.org Women 10 Source: Financial Inclusion Data, The World Bank, 2012. http://datatopics.worldbank.org/ financialinclusion/country/qatar. Figure 7.12.9: Domestic Credit to Private Sector (as % of GDP) for Some MENA Countries in 2012 80 7.12.3 STATUS OF CREDIT 60 70 72.4 REPORTING Percentage 59.1 40 36.1 OVERVIEW 20 0 The credit information sharing system in Qatar comprises Bahrain Jordan UAE Qatar a centralized credit reporting system, operating within the Source: data.worldbank.org Supervision Department of the CBQ and its new, modern number banks per 100,000 adults was 16.5, from 2008 CR, which was established in 2010. to 2012. The ATM network has grown over this period, The centralized credit-risk system was set up to support with about 59 machines per 100,000 adults in 2012. This the supervisory requirements of the central bank, with indicates the increasing penetration of advanced banking respect to compliance of ceilings and limits on large credit facilities. Figure 7.12.10 shows the bank and ATM network exposures. This system was also intended to aid banks in outreach per 100,000 adults from 2008 to 2012. having quantitative information on the total exposure of a Figure 7.12.10: Commercial Bank Network per borrower in the banking system—not just the exposure of 100,000 Adults an individual bank. 60 59.67 50 In 2010, the Central Bank of Qatar also established the 52.53 51.82 Qatar Credit Bureau (QCB), a state-of-the-art system 49.25 47.43 40 30 developed by a reputed international provider. There are 20 no links between the centralized credit-risk system and the QCB. Supervised by the central bank, both of these 19.02 18.64 18.35 13.29 13.22 10 0 systems are used by lenders. 2008 2009 2010 2011 2012 Source: Financial Access Survey, IMF, 2012. The new QCB system started operations during the spring of 2011, after almost two years of development. The QCB Table 7.12.3 shows financial access indicators in terms of is equipped with the sophisticated functionality of a credit formal financial institutions’ accounts and loans. In 2011, bureau; it offers very advanced credit reporting services to 66 percent of adults had an account; 62 percent of women the lending community. The system is automated, online, held an account. However, in 2011, only 13 percent of adults and paperless. The QCB is the main source of credit had taken a loan. This percentage for women corresponds information services for Qatari lenders, though the old to 10 percent. system is still systematically searched by lenders before granting credit.357 161 s s s 7. Credit Reporting in MENA – Detailed Overview By 2012, 399,713 borrowers were listed in the CBQ; system is efficient and ensures that all requests are satisfied individuals constituted 96.2 percent of the total. There and all queries are addressed.358 were 384,570 individuals and 15,143 firms listed, as shown in Figure 7.12.11 and 7.12.12 respectively, with a total of To promote the benefits of credit reporting for good payers, 1,589,245 loans. According to Doing Business Report and to foster social responsibility on loans repayments 2013, 25.2 percent of adults were covered in the credit among the population, QCB had launched a unique reporting system. campaign for raising awareness among consumers. This financial education program is unusual among central Figure 7.12.11: Number of Individuals Listed in the CBQ banks and public registries; more frequently credit bureaus 400000 take on this role. The program shows Qatari regulators’ 350000 384,570 extreme care of consumers rights.359 300000 332,437 250000 281,855 200000 PARTICIPATION AND DATA SHARING 150000 100000 Under the centralized credit-risk system, banks are required 50000 0 to report all direct and indirect credit facilities granted to 2010 2011 2012 customers, as well as overdrawn accounts, irrespective of Source: Credit Information Sharing Survey, ACRI, January 2013. the credit value. On a monthly basis, banks are required to update information on credit facilities granted and utilized. Figure 7.12.12: Number of Firms Listed in the CBQ In order to monitor balances internally and externally, banks 20000 can make inquiries to the system and utilize reports on the 15000 balance of credit facilities granted to a customer. This also 15,143 10000 12,973 includes credit facilities to the group of companies, if any, 10,779 and credit concentration for all the members of the board 5000 (as well as their families, relatives and related accounts), 0 concentration of the main shareholders and related 2010 2011 2012 accounts, concentration of bank employees, and main Source: Credit Information Sharing Survey, ACRI, January 2013. customers of a bank. This system is mainly for supervisory purposes. Borrowers do not have access to this information Value-Added Services system. The QCB provides additional products and services to In case of the QCB, data is provided by regulated members and borrowers. The bureau has started providing a institutions, including public and private banks, and credit bureau score to all borrowers. This plays an important financial institutions. All 18 banks operating in Qatar role in assessing the creditworthiness of a borrower. Other are members of the QCB. The three financial institutions services such as account follow-up service and portfolio (Al Jazeera Finance, First Finance, and Qatar Finance monitoring reports , are provided to member institutions. House) are also members of the QCB. Currently there are no microfinance institutions or utilities providing data to The QCB’s services for consumers are noteworthy. The the QCB. The bureau has plans to include nonregulated bureau dedicated a large area for consumers, which entities as members; but this will require amendments to no other MENA Central Bank has done yet, providing the legal framework for collecting and sharing information excellent customer service. A special department has been with unsupervised institutions. set up, which is open to the public and ensures easy access to borrowers for requesting information or obtaining credit Data is shared only among the members of the QCB. reports. An advanced call center has also been established The regulated entities mentioned above are mandated, by and is available to all individuals or business firms. The law, to share data on all credit facilities with the bureau, 162 s s s Arab Credit Reporting Guide irrespective of the amount. Positive and negative data are In 2012, the Qatar Central Bank introduced Law No. 13 of included in the database. Entities report data to the QCB 2012, which replaced Law No. 33 of 2006. The new law on a daily and monthly basis. Individual and firm data requires a license from the Central Bank for the provision is reported, which includes demographic information, of credit information services. A code of conduct is the inquiries by other lenders, loan account data, and payment process of finalization; it will detail the bureau’s operations performance data. This data is distributed and available and practices undertaken. to members through a comprehensive credit report, a thorough format that details each loan individually. Also Consumer rights pertaining to credit reporting in the included in the report are historical payment performances, country are strong, despite the absence of a specific law. defaults and arrears, and payment history from the past 24 The Law No.33 of 2006 clearly states that consumers’ months. information cannot be disclosed unless approval has been given in writing. Thus, sharing and accessing consumer The members’ use of the QCB has significantly increased, data is only granted with the borrower’s consent. by 195 percent, from 134,200 credit reports in 2011 to 396,277 credit reports in 2012, as shown in Figure 7.12.13. The QCB is also finalizing the bureau’s code of conduct, The depth of credit information sharing is high, as indicated which will grant important privacy rights to all borrowers in the country’s ACRISI score. (like the possibility of reviewing, disputeing and correcting data). Figure 7.12.13: Number of Credit Reports ARAB CREDIT REPPORTING INFORMATION 400000 SHARING INDEX 350000 396,277 300000 Based on the parameters and sub-parameters discussed in 250000 Chapter 6, the ACRISI score has been determined for Qatar, 200000 150000 as shown in Table 7.12.4. The index provides a snapshot 100000 134,200 and quantification of the credit information sharing system 50000 in the country. 0 2011 2012 Source: Credit Information Sharing Survey, ACRI, 2013. CONCLUSIONS n The credit reporting system of Qatar includes a LEGAL FRAMEWORK AND CONSUMER centralized credit risk system and a CR (CBQ); RIGHTS n The CR, set up in 2010, was developed and equipped The credit information was first referenced in the Qatar to function as a credit bureau. The central bank’s Central Bank law No. 33 of 2006. Even though this law establishment of a full-fledged credit bureau system has did not specifically mention the framework for credit significantly improved the credit reporting system in information sharing, certain articles can be interpreted for Qatar and has resulted in an ACRISI score of 15. credit information. Articles 5 and 79 empower the Qatar n Since data for 2008 was unavailable, a comparison with Central Bank to grant licenses for financial institutions and the old reporting system cannot be drawn; representation bureaus; establish, administer, and develop central banking services; and acquire information or n Although there is no specific law regarding consumer statements on a customer’s liabilities. rights, basic provisions have been spelled out in the Qatar Central Bank Law, which also deals with privacy Article 84 allows for the exchange of supervisory and confidentiality of data. The QCB is also finalizing a information with foreign central banks and official code of conduct for the bureau; institutions, based on the principle of reciprocity. 163 s s s 7. Credit Reporting in MENA – Detailed Overview n The QCB has done excellent work with respect to RECOMMENDATIONS consumer rights and information. All parameters in the ACRISI consumer rights section have been complied The role and structure of the CR and the CBQ should be n with, including the right to give consent before inquiry; clearly defined; n The CBQ has certainly set standard as for consumer Lenders should exclusively use the new bureau for n rights protection in MENA; assessment purposes; n Currently all regulated institutions are sharing full data Central Bank internal functions (banking supervision, n on loans with the QCB; statistics, monetary policy, etc) should start to rely on CB’s data for absolving their internal institutional n All parameters in the ACRISI depth of data sharing responsibilities; and reporting have been complied with, indicating a comprehensive database, though it is limited to regulated Going forward, data should be collected and reported n entities; from nontraditional sources, such as retailers, which form an important component of the credit market. n As of 2012, credit scores were not provided to lenders or consumers; however QCB has introduced scoring Necessary legal and regulatory amendments will have to n subsequently; be made for this purpose. This can also be extended to public data. n Qatar is one of the few countries in the region with a provision for cross-border data sharing. 164 s s s Arab Credit Reporting Guide Table 7.12.4: Arab Credit Reporting Information Sharing Index — Qatar ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES Does the country have a CB? NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO Is there a legal framework for privacy and protection of data? YES   Is information on consumers included? YES Is information on firms included? YES Consumer rights environment in the country Are consumers allowed to access their reports? YES Do consumers have access to at least one free report in a year? YES Are consumers allowed to raise disputes? YES Do entities collect consumer consent before making inquiries? YES   Entities in the country participating in CIS Are regulated entities participating? YES Are nonregulated entities participating? NO Are utility entities participating? NO Are MFIs participating? NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES Are entities mandated to make inquiries? YES Are both positive and negative information reported? YES Are all loans reported without any limits? YES Does the principle of reciprocity apply? YES   Are credit scores provided to the users? NO Is cross border data sharing allowed? YES ACRISI score 15 165 s s s Arab Credit Reporting Guide M e d i t erranean Sea IRAQ SAUDI ARABIA An Nabk Ar'ar ISLAMIC REP. JORDAN OF IRAN KUWAIT Tabuk Pe rs ia n Al Jubayl BAHRAIN Ad Dammam Gu lf ARAB REP. Yanbu` QATAR RIYADH OF EGYPT al Bahr Medina UNITED ARAB EMIRATES Re d Jeddah Mecca Capital Riyadh At Ta'if SUDAN Currency Saudi Arabian Riyal (SAR) Se OMAN a Abha Jaizan USD/SAR 3.75 ERITREA R E P. O F Y E M E N Arabian Sea Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41513, March 2015. 7.13 SAUDI ARABIA growth rate was 6.2 percent in 2012, as compared to 27.1 percent in 2011. The GDP value was 2.66 trillion Saudi 7.13.1 ECONOMIC OVERVIEW Arabian riyals in 2012. As seen in Figure 7.13.1, there have been major fluctuations in the growth rate over the past The Kingdom of Saudi Arabia is one of the most important five years. As an oil-based export economy, the country is and powerful countries in the Middle East, and one of affected by global economic conditions. With continuous the wealthiest nations in the region because of its vast support from the government and increasing participation oil resources. It has the world’s largest oil reserves and is from the non-oil sectors, the economy has had a healthy the largest exporter of petroleum. The petroleum sector economic growth.361 accounts for roughly 80 percent of budget revenues, 45 percent of GDP, and 90% percent of export earnings. Saudi Saudi nationals constitute almost 68 percent of the total Arabia is encouraging the growth of the private sector population (29.2 million). Of 19.84 million people, as of in order to diversify its economy and to employ more 2012, women represented nearly half of this population. Saudi nationals. Diversification efforts focus on power generation, telecommunications, natural gas exploration, Figure 7.13.1: GDP Performance and petrochemical sectors. The government has begun 3 30 establishing six economic cities in different regions of 2.5 20 the country, to promote foreign investments. From 2010 Percentage SR Trillion 2 10 to 2014, the government plans to spend $373 billion on 1.5 0 1 social development and infrastructure projects to advance -10 0.5 the country’s economic development.360 0 -20 2008 2009 2010 2011 2012 With a population of 29.2 million people, Saudi Arabia is GDP GDP growth rate Real GDP growth rate a high-income, medium-sized economy. The nominal GDP Source: “KSA Economy in Figures,” Ministry of Planning and Economy, 2013. 167 s s s 7. Credit Reporting in MENA – Detailed Overview As seen in Figure 7.13.2, non-Saudi women constitute less In addition to these institutions, there are five specialized than half of the expatriate population. Thus, as a whole, the credit institutions established and owned by the Ministry percentage of women drops to 43 percent of the total. of Finance. They account for 14 percent of the financial sector assets. Loans issued by these institutions amount to The GDP per capita has also seen an increasing trend from the equivalent of 24 percent of normal bank lending to the 2008 to 2012. Although there was a decrease in the years private sector.365 2009 and 2010, GDP per capita has increased from 75,590 Saudi Arabian riyals in 2008 to 94,274 Saudi Arabian riyals In 2012, new laws were passed to reform the country’s in 2012.362 financial sector. These laws, listed below, strengthen the financial system framework, in the respective areas, and Figure 7.13.2: Population – 2012 increase financing: 35 n The Real Estate Finance Law—provides for the 30 authorization and licensing of banks and finance 25 20 companies to enter the real estate finance market; Million 15 n The Finance Companies Control Law—provides a 10 framework for Shariah-compliant finance companies to 5 enter the market alongside banks as providers of finance 0 Saudis Non-Saudis Total for real estate and other assets, including alternative Male Females Total forms of finance like lease finance and microfinance; Source: “KSA Economy in Figures,” Ministry of Planning and Economy, 2013. n The Registered Real Estate Mortgage Law—provides a new framework for security over real estate, including, 7.13.2 CREDIT MARKET for the first time, provision for second-ranking mortgages; OVERVIEW n The Finance Lease Law—codifies the rules surrounding The Saudi Arabian Monetary Agency (SAMA) is the finance leasing (including real estate) as an alternative country’s central bank. Established in 1952, it is the product to secured debt.366 supervisory authority of the financial system. It overseas commercial banks and exchange dealers, the insurance Changes in the framework will further strengthen the credit sector, finance companies, and credit information market. Outstanding loans increased significantly from companies.363 The banking sector dominates the financial 9.5 percent of GDP in 2008 to 43.3 percent in 2012. The system, with assets worth over half of the financial system’s number of outstanding loans in the credit market stood at total and the equivalent to 85 percent of GDP.364 3.05 million, as of 2012, with a total value of 1.18 trillion Saudi Arabian riyals. The split between individuals and firms is given in Table 7.13.1. Additionally, the number of Table 7.13.1: Credit Market, Outstanding Loans Individuals Firms 2008 2012 2012 Number of outstanding loans 1,969,234 2,884,262 173,749 Value of outstanding loans (SAR millions) 169,534 316,102 865,102 Number of loans granted to new clients 667,986 1,323,757 120,029 Value of outstanding loans granted to new clients (SAR millions) 54,310 159,178 306,674 Source: Credit Information Sharing Survey, ACRI, January 2013. 168 s s s Arab Credit Reporting Guide Figure 7.13.3: Bank Credit Figure 7.13.4: Bank Credit by Sector 1000 1% 800 1% SAR Billion 13% 600 4% 39% 400 8% 200 0 21% 2008 2009 2010 2011 2012 6% 3% 4% Private sector Credit Loans, Advances and Overdrafts Consumer and Credit Card Loans Agriculture & fishing Manufacturing & processing Mining & quarrying Electricity, water, gas & health services Building & construction Source: Monthly Statistical Bulletin. Commerce Transport & communications Finance Services Miscellaneous Source: Monthly Statistical Bulletin. loans granted to individuals that were new clients doubled, from 0.66 million in 2008 to 1.32 million in 2012.367 the highest growth.368 As shown in Figure 7.13.4, the Banking miscellaneous segment constitutes the largest share of bank credit, followed by the commerce sector. The banking sector comprises a total of 23 commercial banks, including national and foreign banks. As of 2012, The consumer loans achieved continuous growth over the they operated through a vast network of 1,696 branches past few years, increasing from 173.9 billion Saudi Arabian across the country. riyals in 2008 to 292 billion Saudi Arabian riyals in 2012, as shown in Table 7.13.2. Consumer loans comprise real The total credit provided by the commercial banks to the estate finance, cars and equipment, and other loans. The private sector increased from 824.7 billion Saudi Arabian other loans segment constitutes the major portion, 67 riyals in 2011 to 960.4 billion Saudi Arabian riyals in 2012. percent of total consumer loans. Cars and equipment and From 2008 to 2012, there has been an overall growth of real estate finance constitute about 20 percent and 13 about 35 percent in private sector bank credit, with an percent respectively. There has been a decline in credit card increasing trend during the period, as shown in the Figure loans since 2008, from 9.4 billion Saudi Arabian riyals to 7.13.3. Loans, advances, and overdrafts totalled 951 billion 7.9 billion Saudi Arabian riyals in 2012. However, the 2012 Saudi Arabian riyals in 2012, representing an average of figure is a slight increase of 2.6 percent from 7.7 billion over 98 percent of private sector credit throughout the Saudi Arabian riyals in 2011.369 period. The growing consumer loans segment indicates the The allocation of private sector credit showed a mixed presence of a market for individuals that are increasingly trend of expansion and contraction. Bank credit for mining undertaking credit facilities for financing personal and and quarrying, electricity, services and finance showed consumer needs, or for other general purposes. Table 7.13.2: Consumer and Credit Card Loans (SAR million) Real Estate Cars and Others Total Consumer Credit Card Year Total Finance Equipment Loans Loans 2008 14,906 37,261 121,817 173,985 9,452 183,436 2009 17,860 38,134 123,924 179,918 8,621 188,539 2010 23,088 42,209 133,538 198,835 8,400 207,234 2011 29,301 49,444 163,501 242,246 7,783 250,029 2012 37,952 57,422 196,640 292,014 7,983 299,997 Source: National Account Annual Statistics, SAMA. 169 s s s 7. Credit Reporting in MENA – Detailed Overview Specialized Credit Institutions (iv) The Saudi Industrial Development Fund (SIDF) was established as a funding agency to grant medium- The five specialized institutions and funds, owned by the and long-term soft loans for private industrial projects Ministry of Finance, were set up to cater to specific needs as well as administrative, financial, technical, and of the economy: marketing consultancy services to develop and enlarge (i) The Agricultural Development Fund or the Saudi the country’s industrial base.373 Arabian Agricultural Bank (SAAB) was established (v) Real Estate Development Fund (REDF) was set up as a public credit institution to provide finance for to meet the needs and aspirations of citizens, by raising various agricultural activities in all regions, with the quality of life in society through the development a mission of supporting the agricultural sector and of high-quality housing.374 enhancing production.370 (ii) Saudi Credit and Savings Bank (SCB) is considered These five institutions collectively disbursed loans of 50.9 one of the cornerstones of the Saudi government. The billion Saudi Arabian riyals in 2012, increasing from 42.5 bank was established to cater to micro, small, and billion Saudi Arabian riyals in 2011. Disbursements by medium enterprises, and the social sector by providing all institutions have increased—except for SCB, which interest-free loans to small enterprises, employers, and decreased from 15.4 billion Saudi Arabian riyals in 2011 emerging trades as well as social loans for citizens with to 6.6 billion Saudi Arabian riyals in 2012.As of 2012, limited incomes. The bank also encourages savings for disbursements by ADF stood at 674 million Saudi Arabian individuals and institutions.371 riyals, PIF at 19.4 billion Saudi Arabian riyals, SIDF at 5.2 billion Saudi Arabian riyals, and REDF at 18.8 billion (iii) The Public Investment Fund (PIF) was established Saudi Arabian riyals.375 The total disbursements and break to provide financial support to projects of a down among these institutions, for 2008 to 2012, is shown commercial nature that are strategically significant for in Figure 7.13.5. the development of the national economy; it focuses on projects that cannot be implemented by the private sector alone, either because of insufficient experience or inadequate capital resources.372 Figure 7.13.5: Disbursements by Specialized Credit Institutions 60000 50000 40000 30000 20000 10000 0 Agriculture Saudi Credit & Public Investment Saudi Industrial Real Estate Total Development Fund Savings Bank Fund Development Fund Development Fund Disbursements 2008 2009 2010 2011 2012 Source: SAMA - Quarterly Statistical Bulletin. 170 s s s Arab Credit Reporting Guide Other Institutions However, access to credit is low compared to Bahrain and the UAE. In 2012, Saudi domestic credit to the private The new laws described in the previous section have given sector was 37.6 percent of GDP, increasing from 34.2 way for the establishment of new financial institutions, percent in 2011.380 The comparative trends are shown in such as finance companies providing products and services Figure 7.13.8. according to Islamic principles. Two such companies were previously registered, but the new law defines the Figure 7.13.7: Getting Credit Rank, 2013 regulatory framework under the aegis of SAMA.376 0 20 The mortgage law will overhaul the home finance market 40 52 in the country. It is expected to transform the market to 60 property-secured lending, from the current practice of 80 100 MENA extending loans based on salary assignment or banks’ 128 Average 120 automatic deductions from borrowers’ salaries to repay 140 home loans. The law lays down rules for the creation of MENA Region Saudi Arabia licensed private mortgage providers as well as a state-run Source: Doing Business Report, The World Bank, 2013. company for refinancing mortgages backed by real estate.377 Figure 7.13.8: Domestic Credit as % of GDP Nonperforming Loans 90 80 Led by a financially sound and well-capitalized banking 70 60 sector, the country’s credit market is developed. Even with 50 increasing bank credit, nonperforming loan levels have 40 30 been fairly stable and within acceptable limits from 2008 to 20 10 2012. As seen in Figure 7.13.6, there has been a downward 0 2008 2009 2010 2011 2012 trend, following an increase from 1.4 percent in 2008 to Saudi Arabia Bahrain UAE 3.3 percent in 2009. In 2012, the nonperforming loan ratio reached a low of 1.9 percent of the banking sector.378 Source: data.worldbank.org As of 2012, the 23 commercial banks operated through a Figure 7.13.6: Non-Performing Loans network of 1,696 branches across the country. The Al-Rajhi 3.5 Bank has the largest network (467 branches) followed by 3 2.5 the National Commercial Bank (299 branches) and Riyadh Percentage 2 1.5 Bank (252 branches). However, as per the IMF Financial 1 Access Survey, this translates to a low outreach of 8.65 0.5 0 commercial bank branches per 100,000 adults. The number 2008 2009 2010 2011 2012 of bank branches with their corresponding outreach, from Source: “Kingdom of Saudi Arabia Economic Insight,” QNB, 2013. 2008 to 2012, is shown in Figure 7.13.9. CREDIT PENETRATION AND ACCESS Figure 7.13.9: Commercial Bank Outreach 1800 8.8 The World Bank’s Doing Business Report 2013 ranks 1600 8.6 1400 Saudi Arabia a high 52 out of 185 countries. As seen in 1200 8.4 1000 8.2 Figure 7.13.7, it is much higher than average MENA 800 600 8 rank of 128. In this context, Saudi Arabia performs far 400 7.8 200 better than all the other MENA countries. These rankings 0 7.6 2008 2009 2010 2011 2012 indicate a strong and established credit system.379 Bank Branches Branches per 100,000 Adults (DB14, ranked 55) Source: Financial Access Survey, IMF, 2012 171 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.13.3 shows the financial access indicators in terms The establishment of the Saudi Credit Bureau (SIMAH) of formal financial institutions’ accounts and loans . The significantly changed the credit reporting system. It has percentage of adults with an account was only 46 percent played an active role in the credit market, by providing in 2011. Only 15 percent of women have an account with institutions with information and services to undertake a formal financial institution. The percentage of adults that accurate risk analysis. It is one of the region’s pioneering took a loan in 2011 was only 2 percent. This percentage for credit information companies, diversifying its finance women corresponds to 1% percent. The low figures may and credit information services.383 The strengthening of be a result of the concentration of loans within a selected the credit and risk processes can be seen in the decreased population. requirement for collateral. The number of loans to individuals with collateral decreased from 691,247 in 2008 Access to credit facilities for women, overall, has to 460,703 in 2012; those without collateral increased significantly increased since 2008. The number of women from 1.27 million in 2008 to 2.42 million in 2012. These holding credit facilities increased 194 percent, from numbers, and their corresponding values, are shown in 286,156 borrowers in 2008 to 842,032 in 2012.381 Table 7.13.4.384 Table 7.13.3: Penetratration in Formal Financial The Credit Bureau Institutions (% of Adults) — 2011 Accounts 46 The Saudi Credit Bureau is the first and sole licensed Men 73 national credit bureau offering consumer and commercial Women 15 credit information services to members in the country. Established in 2002, SIMAH began operating in 2004.385 Loans in the past year 2 Although it currently operates within a specific legal and Men 3 regulatory framework, the bureau was initially established Women 1 by banks—with the encouragement of SAMA—simply on Source: Financial Inclusion Data, The World Bank, accessed September 15, 2014. http://datatopics.worldbank.org/financialinclusion/topic/gender#divMap the basis of self-regulation (consumer consent and a code of conduct).386 7.13.3 STATUS OF CREDIT REPORTING SIMAH is a state-of-the-art credit bureau with a vision to provide products and services according to international OVERVIEW standards. It currently operates within the framework of a modern credit information law, regulated and supervised by Saudi Arabia is one of the six countries in the region with SAMA. The bureau has gained acceptance among financial a CR and an operational CB. The CB plays a significant institutions in the country and has considerably increased role in the credit-reporting system and is the primary its operations over the past few years. source for credit information. The CR exists in the form of a B-list by SAMA, which collected and shared credit The bureau started operations with information sharing information from regulated financial institutions on credit on individuals and subsequently on commercial entities facilities above 500,000 Saudi Arabian riyals. The B-list in 2009. The number of individuals listed in the bureau contained positive and negative information in a paper- increased from 3.9 million in 2008 to 7.8 million in 2012. based system.382 This growth (over 98 percent) indicates an increasing trend in participation and data sharing, as shown in Figure 7.13.10. Table 7.13.4: Collateral requirements for Individual loans 2008 2012 Number Value (millions) Number Value (millions) With collateral 691,247 61,162.62 460,703 77,504.27 Without collateral 1,277,987 108,371.55 2,423,559 239,052.94 Source: Credit Information Sharing Survey, ACRI, January 2013. 172 s s s Arab Credit Reporting Guide Commercial operations have increased by 58 percent since operations management, including customer management 2009. The number of firms listed in 2009 was 54,532, and it applications, debt management applications, and collection increased to 86,323 in 2012, as shown in Figure 7.13.11.387 process applications. Figure 7.13.10: PCB Database – Number of Individuals PARTICIPATION AND DATA SHARING 8000000 7000000 As mentioned in the previous section, the CR shares credit 6000000 5000000 information from regulated financial institutions. The 4000000 participation was limited to certain institutions, with a 3000000 minimum threshold for reporting loans.388 2000000 1000000 0 The CB has a much larger and comprehensive participation 2008 2009 2010 2011 2012 from financial entities as well as others. Apart from Source: Credit Information Sharing Survey, ACRI, January 2013. banks (public, private and development/specialised), Figure 7.13.11: PCB Database – Number of Firms other financial institutions participate. These include microfinance institutions, finance corporations and leasing 100000 companies, credit card issuers, and trade credit companies. 80000 The database also includes credit information shared by 60000 retailers and merchants, mobile telephone companies, and 40000 utility providers. 20000 All lenders are mandated to share data with the CB and 0 2008 2009 2010 2011 2012 inquire before granting credit. Information on borrowers Source: Credit Information Sharing Survey, ACRI, January 2013. includes demographics, details of the loan accounts, and payment performance data. The CB has a minimum Value-Added Services threshold of 500 Saudi Arabian riyals. Positive as well as negative information is shared. In addition to providing credit reports for individuals and commercial entities, SIMAH also provides a range The significant increase in the number of credit reports of value-added services. These include scoring for issued by the CB, from 2008 to 2012, indicates an increase small and medium enterprises, ratings for corporations in participation—not only by the institutions, but also by in coordination with international companies, credit borrowers that request their own credit reports. As shown training sessions, risk-management solutions, systems that in Figure 7.13.12, the number of individual credit reports prevent fraud and money laundering, credit and solvency issued increased over 94 percent, from 0.77 million in 2008 indices, and a credit bureau establishment consultancy. to 1.4 million in 2012. However, credit reports on firms They also provide technical solutions for credit decreased from 220,809 in 2009 to 120,029 in 2012. Figure 7.13.12: Credit Reports Issued by the PCB 2000000 1500000 1000000 500000 0 2008 2009 2010 2011 2012 Individuals Firms Total Source: Credit Information Sharing Survey. 173 s s s 7. Credit Reporting in MENA – Detailed Overview Borrowers also actively participate. In 2008, 11,112 The law also specifies acceptable use of the credit informa- borrowers requested their own credit reports. This increased tion shared among members; it guards confidentiality. As to 114,458 in 2012.389 per Article 7, this information may be used for statistical figures, provided that consumer identities are not revealed. LEGAL FRAMEWORK AND CONSUMER RIGHTS Article 6 “Members, companies and their staff shall The Credit Information Law (Royal Decree No. M/37), maintain the confidentiality of consumer credit passed by SAMA in 2008, governs the country’s credit information, and they may not publish or use such reporting system. This law establishes general principles information for any purpose other than those provided and controls necessary for collection, exchange, and for in this Law or its Implementing Regulations, or in protection of consumer credit information. It is applicable accordance with laws and instructions regulating the to companies, members, government agencies, and private confidentiality of information in the Kingdom.” entities that maintain credit information. The law is comprehensive and has incorporated Article 9 specifically establishes consumer rights in the international best practice. It establishes SAMA as the credit reporting system. It allows consumers to obtain their supervisory authority for credit information companies, own credit reports at any point of time after payment of tasking it with the following: requisite fees. Consumers may also obtain one free copy n Drafting and implementing regulations; of their credit record upon the establishment of the record, or when a credit application is rejected. If rejected, the n Determining conditions for credit information bureaus consumer can request the institution’s grounds for decline. seeking to provide services as well as controls and procedures for licensing; Written consent of the consumer has to be obtained before n Issuing, renewing, and amending licenses for credit establishing the consumer’s credit record for the first time; information bureaus; consent is also required for each inquiry before granting credit. n Establishing mechanisms for oversight and monitoring credit information bureaus; n Approving work procedures for members and credit Article 5 “A member may obtain a copy of the information bureaus in the maintenance of credit consumer credit record from companies subject to the records; written consent of the consumer.” n Detecting and investigating violations; prosecuting Article 9 “A consumer credit record may not be violators; established with companies for the first time except with the written consent of the consumer.” n Determining measures with respect to credit information in the case of license revocation of a credit information bureau, including dissolution, liquidation, Consumers, by submitting the required documents, have or bankruptcy.390 the right to raise disputes with the bureau in case of an error in their credit report. They also have the right to file Article 4 of the law requires credit bureaus to collect, a complaint with the relevant committee if such an error provide, exchange, and protect credit information; they is not corrected or if their credit record is requested for an have to prepare and exchange credit records with members, unlawful reason. upon request, for a fee. The article also requires that government entities maintain credit information to provide In 2012, 114,458 borrowers requested their credit reports, to licensed bureaus. and 5,723 of these reports contained incorrect information. 174 s s s Arab Credit Reporting Guide Borrowers disputed 5,052 reports. In 2008, 4,234 reports The legal framework provides for basic consumer rights n that contained incorrect information were disputed by as well; borrowers.391 SIMAH is the only CB in the region that has a database n ARAB CREDIT REPORTING INFORMATION collecting information from regulated as well as SHARING INDEX nonregulated entities, as indicated in the ACRISI table; The bureau provides a wide range of services to n Based on the parameters and subparameters discussed in members; these cover various stages of the lending Chapter 6, the ACRISI score has been determined for Saudi process, including custom scoring, portfolio monitoring, Arabia, as shown in Table 7.13.5. The index provides alerts, and more. The result is stronger credit appraisal a snapshot and quantification of the credit information and management for lenders. sharing system in the country. RECOMMENDATIONS CONCLUSIONS The minimum threshold limit of 500 Saudi Arabian n n The credit market is well-developed and strong; the CB riyals for reporting loans to the CB should be removed has significantly contributed to the strengthening of the in order to include all loans. This will ensure a complete market; and comprehensive database; n SIMAH has laid the foundation for a well-developed SIMAH currently scores the credit of SMEs. The next n and sound credit reporting system. The high ACRISI step would be to develop a scoring model for individuals’ score of 19 can be attributed to the bureau. It is a modern data; credit bureau with state-of-art infrastructure, operating according to international standards and within a well- Going forward, SAMA could consider issuing additional n defined legal and regulatory framework; private bureau licenses in order to further strengthen the credit reporting system and ensure healthy competition n Although an operational CR is also present in the within the industry; country, lending institutions are entirely dependent on SIMAH for information sharing; SIMAH is one of the more sophisticated bureaus in n the region, with an established legal and regulatory n A specific credit information law was passed in 2008. framework. One aspect that could be addressed is cross- This law, along with relevant regulations, provides for border data sharing. SAMA and SIMAH together can the establishment of all operational aspects as well as initiate the framework, including changes in the law. the privacy and confidentiality of data sharing. 175 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.13.5: Arab Credit Reporting Information Sharing Index — Saudi Arabia ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? YES YES   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? YES YES   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? YES YES Are utility entities participating? YES YES Are MFIs participating? YES YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? NO NO Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO YES Is cross border data sharing allowed? NO NO ACRISI score 18 19 176 s s s Arab Credit Reporting Guide A R A B R E P. O F E G Y PT Wadi Halfa SUDAN L I B YA SAUDI ARABIA Port Sudan Re Dongola d Nile Merowe Atbara Se a CHAD KHARTOUM ERITREA Wh El Fasher ite El Obeid Blu Capital Khartoum Nile e Nile Nyala DJIBOUTI Currency Sudanese Pound (SDG) ETHIOPIA CENTRAL AFRICAN USD/SDG 4.402 REPUBLIC SOUTH SUDAN Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41515, March 2015. 7.14 SUDAN Since secession, Sudan’s economy has yet to demonstrate resilience. After 2012, the government had to adjust to the 7.14.1 ECONOMIC OVERVIEW new economic reality and the loss of about 75 percent of the country’s oil revenues.394 The real GDP growth rate In 2010, Sudan was considered the seventeenth fastest dropped to 1.4 percent in 2012, down from 1.9 percent in growing economy in the world. The rapid development 2011.395 Figure 7.14.1 shows the GDP performance from of the country was largely from oil profits. With rising 2008 to 2013. oil revenues, the Sudanese economy was booming; GDP growth registered more than 10 percent per year in 2006 CPI inflation was 36 percent in 2012, up from 20 percent in and 2007.392 Historically, agriculture was the main source 2011, largely driven by the monetization of the fiscal deficit of income, employing 80 percent of the work force and and a weakening exchange rate.396 Figure 7.14.2 shows the contributing a third of the economy. Oil production, trend from 2008 to 2012. The inflation rate increased from however, drove most of Sudan’s growth since 2000, 36 percent in December 2012 to 47.9 percent in March accounting for over half of government revenues and 95 2013. percent of exports.393 Figure 7.14.1: GDP Performance The secession of the Republic of South Sudan induced 7 multiple economic shocks; the most important and 6 4.5 6.5 immediate was the loss of oil revenue. Even with oil profits 5 3.8 Percentage before secession, Sudan still faced serious economic 4 3 1.9 problems. Overall, this has left huge macroeconomic and 1.4 2 fiscal challenges, with economic growth rates plummeting 1 and consumer price inflation rising, exacerbated by 0 2008 2009 2010 2011 2012 increasing fuel prices. Source: Statistics, African Economic Outlook. (Real GDP growth rates) 177 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.14.2: CPI Inflation Banking sector 40 36 The banking sector comprises of the Central Bank of Sudan, 35 33 commercial banks (including five foreign banks), and 30 four specialized state-owned banks, which provide funds Percentage 25 20 16 to specific sectors of the economy. CBOS adheres to 20 15 11.2 11.8 Islamic banking principles and employs Islamic banking 10 instruments in conducting its monetary policy operations.397 5 CBOS is the government’s bank, its advisor, and its agent. 0 CBOS is considered a market organizer and a supporter 2008 2009 2010 2011 2012 of the banking system. Thus, the Sudanese banking Source: IMF 2013 and data.worldbank.org sector comprises a dual banking system of Islamic and conventional banking. The total population, as of 2012, was 37.2 million. Women accounted for nearly 49.8 percent of the total population. Total deposits held by commercial banks increased 5.5 Figure 8.15.3 shows the bifurcation of the total population percent, from 39.54 billion Sudanese pounds in the fourth from 2008 to 2012. quarter of 2012, to 41.71 billion Sudanese pounds in the first quarter of 2013.398 Figure 7.14.3: Population Advances by banks increased significantly in 2012 over 40,000,000.00 35,000,000.00 the previous year. As seen in Figure 7.14.4, the growth 17,887,710.40 17,764,291.60 18,278,095.20 18,152,827.80 18,660,941.40 18,534,407.60 17,487,042.00 17,366,136.00 30,000,000.00 rate declined after 2009 to a low of 11 percent in 2011; it 25,000,000.00 increased to 33 percent in 2012. The total value of local 20,000,000.00 and foreign bank advances increased from 22.86 billion 15,000,000.00 Sudanese pounds in 2011 to 30.47 Sudanese pounds in 10,000,000.00 2012. Despite volatile movement, the average growth, 5,000,000.00 from 2008 to 2012 period, is over 18 percent. 0.00 2009 2010 2011 2012 Figure 7.14.4: Banks' Advances Women MEN 30 35 Source: data.worldbank.org 30 25 Billion SDG 25 Percentage 20 20 15 7.14.2 CREDIT MARKET 10 15 10 5 5 OVERVIEW 0 0 2008 2009 2010 2011 2012 Local Currency Advances Foreign Currency Advances The Central Bank of Sudan (CBOS) is the supervisory Growth rate authority of the banking sector, ijara (leasing) corporations, Source: Economic & Financial Statistic Review, Central Bank of Sudan, First Quarter 2013. and microfinance institutions. CBOS’s objectives include: issue of currency; issue of monetary and financing policies; Figure 7.14.5 shows the distribution of bank advances by organization, monitoring and supervision of banking sector. Others constitute the single largest component of business. The bank strives to promote efficiency, economic advances, followed by local trade and industry. and social development, and stability of the economy and currency. The financial sector in Sudan can be categorized into the banking and the nonbanking sectors. 178 s s s Arab Credit Reporting Guide Figure 7.14.5: Sectoral Distribution of Advances – 2012 In 2009 the CBOS issued a circular describing the SMDF and detailing the role of banks in developing the microfinance 12% sector. One major directive called for all banks to allocate a 33% 13% minimum of 12 percent of their portfolios to microfinance 3% and to develop departments dedicated to these operations.401 7% 11% 8% These developments are the result of a plan aimed at 13% positioning the microfinance sector within a wider 0.29% framework for poverty alleviation, and economic and Agriculture Industry Exports Transport & Storage Imports Local Trade Mining & Energy Construction Other financial development. To date, the results of this push have Source: Economic & Financial Statistic Review, Central Bank of Sudan, First Quarter 2013. been impressive. The number of microfinance borrowers increased from 49,000 at the end of 2007 to 494,000 in 2012. The growth has occurred in bank portfolios (increasing Nonbanking Sector from 49,000 to 300,00) and in dedicated microfinance The nonbanking sector comprises the stock exchange, bank institutions (increasing from 0 to 194,000). deposit security funds, and 15 insurance companies.399 Sudan is also one of the top markets for Islamic The insurance companies invest their funds in securities, microfinance. Nonetheless, it is still a very small market— Islamic sukuk bonds, real estate, and deposits. The most about $1 billion according to Al-Huda Centre of Islamic known social funds are the National Pension Fund, the Banking and Economics. As in other Islamic microfinance National Social Insurance Fund, and the Deposits Security markets, murabaha (cost plus mark up) funding is the Fund. vehicle of choice in Sudan.402 The insurance sector in Sudan, regulated by the Nonperforming Loans403 Insurance Supervisory Authority, remains small with limited penetration. Factors contributing to low levels Although gross nonperforming loans remain high in the of penetration include low per capita income, a missing banking sector, there has been a downward trend over the middle class, political instability, and the prevailing rate years. NPLs decreased from 22.4 percent in 2008 to 11.8 of financial illiteracy. In addition, there is still a debate in percent in 2012. However, the banking sector still remains the Islamic world about whether conventional insurance is weak compared to its counterparts in the region. The acceptable under Shariah principles. percentage of loan provisions to NPLs has increased, from 20 percent in 2008 to 36.5 percent in 2012. Microfinance NPLs in the microfinance sector are much lower than Since the mid-1990s, Sudan has attempted to use those of the commercial banking sector. NPLs on microfinance as a mean of reducing poverty. However, microfinance funding transactions average about 4 percent. decades of civil war and political instability have prevented Microinsurance, paid for by the borrower, plays a role in Sudanese stakeholders’ efforts from having any noticeable keeping these rates low. Typical microinsurance policies impact; the microfinance industry only covers 1 to 3 percent add about 1 to 3 percent to the annual cost, and cover 75 of the potential market.400 percent of losses. In 2006 the CBOS signed an agreement with the World Bank to launch a $50 million microfinance fund. The CREDIT PENETRATION AND ACCESS purpose of the fund was to support existing microfinance The World Bank’s 2013 Doing Business Report ranked activity and establish a microfinance department within Sudan 167 out of 185 countries in the Getting Credit the CBOS, called the Sudan Microfinance Development Indicator. As seen in Figure 7.14.6, Sudan’s ranking is Facility (SMDF). much lower than the MENA average. (DB14, ranked 170) 179 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.14.6: Getting Credit Rank – 2013 Figure 7.14.8: Domestic Credit to Private Sector (as % of GDP) for Selected MENA Countries – 2012 100 80 MENA Average 70 73.3 120 128 60 Percentage 50 140 40 30 160 167 29.1 20 10 14.5 12.8 180 0 MENA Region Sudan Moroco Egypt Algeria Sudan Source: Doing Business Report, The World Bank, 2013 Source: data.worldbank.org Domestic credit provided by the financial sector as a share Figure 7.14.9: Commercial Bank Network of GDP—a measure of banking sector depth and financial 4.0 sector development, in terms of size—shows a decreasing 3.5 3.9 3.51 trend since 2009. It reached a low of 11.4 percent in 2011 3.0 3.3 2.88 2.92 and then increased to 12.8 percent in 2012, as seen in Figure 2.5 2.79 2.28 2.39 7.14.7. This trend maps the growth of bank advances, which 2.0 1.5 1.94 had declined from 2009 to 2011, and increased thereafter. 1.49 1.0 0.5 0.0 Figure 7.14.7: Domestic Credit to Private Sector 2008 2009 2010 2011 2012 (% of GDP) 15 Commercial bank branches per 100,000 adults ATMs per 100,000 adults Source: Financial Access Survey, IMF, 2012. 12.8 12.8 Percentage 12 Table 7.14.1 shows the financial access indicators in terms 12 of formal financial institutions’ accounts and loans. Seven 11.4 percent of adults held an account in 2011, which is very 11.2 low for the region. Four percent of women have an account with a formal financial institution. The percentage of adults 9 2008 2009 2010 2011 2012 took a loan in 2011 was only 2 percent. This percentage for Source: data.worlbank.org women corresponds to less than 2 percent. Table 7.14.1: Penetratration in Formal Financial Measured by private sector credit as a percentage of GDP, Institutions (% of Adults) — 2011 credit penetration in Sudan has been the lowest in the MENA region, as seen in Figure 7.14.8. Accounts 7 Men 9 Four publicly owned banks continue to dominate the Women 4 financial landscape; together with 29 other banks they Loans in the past year 2 own 589 branches countrywide. Forty-one percent of these Men 2 branches are concentrated in Khartoum. This has resulted Women <2 in a low outreach of 2.92 bank branches per 100,000 adults Source: Financial Inclusion Data, World Bank, accessed September 16, 2014. http://datatopics.worldbank.org/financialinclusion/country/sudan in 2012, as shown in Figure 7.14.9. 180 s s s Arab Credit Reporting Guide 7.14.3 STATUS OF CREDIT Figure 7.14.10: Number of Individuals and Firms Listed in the PCR REPORTING 200000 192,258 OVERVIEW 150000 Sudan established a CR with the enactment of the Credit 100000 Inquiry and Classification Act of 2011, entitled Credit Information and Scoring Agency (CIASA). The CBOS 50000 supervises the agency. This is the first and only source of 7,793 319 7,570 credit information available to lenders and borrowers in 0 2011 2012 the country. The CR has been established on the principles Individuals Firms of best practice; detailed information on credit facilities (negative and positive) and payment histories are made Source: Credit Information Sharing Survey. available to lenders for credit assessment purposes. Total number of inquiries received by the CR, as of 2012, was 112,389; the same number of credit reports were Key milestones transmitted to the lenders. The total number of inquiries n Establishment of borrower code project in can be further broken down into 102,376 inquiries for September 2008 individuals and 10,013 for firms. n Issue of the borrower code in January 2009 PARTICIPATION AND DATA SHARING n Approval of the Credit Information and Scoring Data at the CIASA includes demographic information, Agency (CIASA) Law in August 2011 inquiries by other lenders, loan account data, and the n Upgrade of the Credit Reporting System, payment performance data for both individuals and firms. implemented in October 2011 Public and private banks, development banks, microfinance institutions, and nonbanking financial institutions are all regulated by the CBOS; they provide credit information Figure 7.14.10 shows the number of firms and individuals to the CR monthly. Financial institutions and microfinance listed in the CR in 2011 and 2012. In one year, there has institutions report data to the CR monthly as well. been a significant increase, especially in case of individuals. However, there were challenges faced in data collection, Regulated microfinance institutions (including the two primarily related to banks’ readiness in terms of data and microfinance banks) are obliged to provide data and inquire technology, as well as data quality improvement. According for their operations; non-regulated microfinance institutions to ACRI’s 2013 Credit Information Sharing Survey, 20 voluntarily provide data and inquire the registry. percent of data received by the CIASA was rejected due to quality problems. However, over time, with upgrades to the For individuals and firms, credit reports contain current CR and bank systems, this percentage will decrease. client data, historical data, current negative statuses, historical negative statuses, number of inquiries, black- There is no minimum threshold for a loan to be listed in list borrowers, summary information about all types of the CR. The total number of loans registered in the CR, in contracts (whether the client is acting as main debtor or co- 2012, was 305,804, which is significantly higher than the debtor, or guarantor), and details about existing contracts. 13,328 loans registered in 2011. The total value of loans For firms, credit reports also show the firm’s related parties. registered in the CR, at the end of 2012, was 41,359 million Sudanese pounds. Positive as well as negative credit information is maintained by the CR and distributed to the financial institutions. The positive records pertaining to credit are retained by the CR 181 s s s 7. Credit Reporting in MENA – Detailed Overview for only two years, whereas negative information is kept The act also outlines the obligations of the information for five years if all the payments have been made; if not provider and the information inquirer. It clearly defines the repaid, records will be maintained in the CR for five years institutions that are required to provide data to the agency. until the payment is made. The lenders are charged 2.00 It also details the protocol of maintaining relations between Sudanese pounds to 5.00 Sudanese pounds for a single the agency and borrowers. credit report. ARAB CREDIT REPORTING INFORMATION Individuals cannot access their credit reports directly from SHARING INDEX the system or online; they can only receive them from the CIASA. Consumers can dispute erroneous entries on Based on the parameters and subparameters discussed their credit reports and have them corrected. The CR takes in Chapter 6, the ACRISI score has been determined for maximum of 7 days to examine consumer complaints and, Sudan, as shown in Table 7.14.2. The index provides if necessary, correct the information. Regulated financial a snapshot and quantification of the credit information institutions are required to ask for consumer consent before sharing system in the country. sharing data with the CR or inquiring the CR. CONCLUSIONS LEGAL FRAMEWORK AND CONSUMER n Despite recent growth in the banking sector, Sudan RIGHTS continues to be underbanked; most banking and financial institutions are concentrated in the Khartoum The Credit Inquiry and Classification Act of 2011 area. Only a small share of the population has access established the framework for credit information sharing in to bank services. Enterprises often face difficulties in Sudan. It also constitutes the basis for the establishment of obtaining funding from banks or capital markets; CIASA. The act clearly lays down definitions and defines the main objectives of CIASA—to offer credit services, n A sound and effective credit information sharing provide and prepare credit information, and carry out credit system will facilitate improvement in access to credit, classification. The agency has the power to exchange of especially for individual borrowers and small and information and data with similar foreign agencies. medium enterprises; n The central bank has taken the first step by establishing Objectives of the Agency: The Agency shall have the a regulatory framework for credit information sharing following roles, namely to: and establishing the CR. (a) Offer credit inquiry service; n The ACRISI score of 15 indicates a well-established (b) Provide and prepare information; framework, even though the country lacks a full-fledged, (c) Exchange information and data with similar comprehensive registry with information on all loans foreign agencies; (only regulated entities and microfinance institutions are participating in the system); (d) Carry out credit classification. n A specific law for credit information sharing was passed The law outlines the agency’s functions and powers. Under in 2011, which gave way to the CR’s establishment. this section, the agency is required to collect and process Data shared with the CR is also protected under this law; credit information, prepare credit files on borrowers, issue n Basic consumer rights have been granted: consumers reports without making recommendations as to granting can inspect data and raise disputes for incorrect data; or not granting credit, and ensure confidentiality of their consent is required before inquiring the CR. information. It is also required to establish a separate unit However, consumers lack access to free reports; to deal with borrowers. n Lenders have started sharing data on all loans, with positive and negative information being reported. 182 s s s Arab Credit Reporting Guide Lenders are mandated to share data and make inquiries n The central bank should undertake a common program n before granting a credit facility. However, some of awareness and financial education for lenders and nonregulated entities only voluntarily share or inquire borrowers on all aspects of information sharing, such as data. purpose, benefits, usage, rights and obligations, etc. RECOMMENDATIONS Additional Value Added Services offer should be n considered the next phase of risk management Access to credit reports should be made for free for n improvement for the lenders. consumers, at least once a year; Establish, under the guidance of the CIASA, a private, n Data obsolesence of negative data is too long (5 years). n complete and un-fragmented credit information sharing It should be reviewed and shorten. system, such as a credit bureau. The central bank should remove any obstacles that n prevent a CB’s establishment. 183 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.14.2: Arab Credit Reporting Information Sharing Index — Sudan ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? NO YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? - YES Is there a legal framework for privacy and protection of data? - YES   Is information on consumers included? - YES Is information on firms included? - YES Consumer rights environment in the country Are consumers allowed to access their reports? - YES Do consumers have access to at least one free report in a year? - NO Are consumers allowed to raise disputes? - YES Do entities collect consumer consent before making inquiries? - YES   Entities in the country participating in CIS Are regulated entities participating? - YES Are nonregulated entities participating? - NO Are utility entities participating? - NO Are MFIs participating? - YES   Depth of data sharing and reporting in the country Are entities mandated to share data? - YES Are entities mandated to make inquiries? - YES Are both positive and negative information reported? - YES Are all loans reported without any limits? - YES Does the principle of reciprocity apply? - NO   Are credit scores provided to the users? - NO Is cross border data sharing allowed? - YES ACRISI score 0 15 184 s s s Arab Credit Reporting Guide T URKE Y SYRIA Al Qamishli gr Ti is Azaz Manbij Al Hasakah Aleppo Ar Raqqah Idlib Madinat Sea Latakia Ath Thawrah Dayr az Zawr Hamah ean Tartus erran Homs Tadmur Euphrates (Palmyra) M e d it LEBANON Capital Damascus IRAQ DAMASCUS Currency Syrian Pound ISRAEL (SYP) As Suwayda USD/SYP 143.05 West JORDAN Bank Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41516, March 2015. 7.15 SYRIA Syria’s GDP had remained dependent on the oil and agriculture sectors, which are subject to fluctuating oil 7.15.1 ECONOMIC OVERVIEW prices and rainfall. The main sources of foreign earnings were oil exports, exports of services, and foreign transfers The Syrian Arab Republic has been in a state of crisis of income and remittances; these sources have now been since the outbreak of unrest in March 2011. The economy seriously curtailed by the crisis. Over the short and medium continues to suffer the effects of conflict. The impact on term, Syria’s recovery will depend on the ongoing conflict’s the economy is significant. According to unconfirmed end-game and the scope of political and economic reform estimates, the economy contracted about 4 percent in 2011, that follows.406 about 30 percent in 2012, and a further 7 percent in the first quarter of 2013.404 At the time of writing this chapter, the latest official GDP statistics for 2011 and 2012 were not available. The average Prior to the crisis, Syria’s economic reform efforts had real GDP growth rate from 2006 to 2010 was a modest helped strengthen growth, even though external and 4.9 percent. The growth trend during the same period can domestic shocks, particularly the global financial crisis and be seen in Figure 7.15.1. GDP per capita increased from prolonged droughts, had adversely affected the country’s $1,645.5 in 2006 to $2,834.7 in 2010. macroeconomic performance. Figure 7.15.1: GDP Performance Economic growth had not been inclusive even as it 3 7.0 accelerated over the past decade. It had not led to significant 2.5 6.0 Trillion SYP 5.0 job creation or to poverty reduction. The rural society is Percentage 2 4.0 increasingly marginalized and suffered from severe shocks 1.5 3.0 1 related to both economic transition and drought. Its impact 2.0 0.5 1.0 had been particularly acute in the country’s east, spurring 0 0.0 internal migration to larger regional cities and Damascus 2006 2007 2008 2009 2010 suburbs, fuelling social and political discontent.405 GDP in current prices Real GDP growth rate (%) Source: Monetary Statistics, Central Bank of Syria, 2011. * Data for GDP per capita 2011 is not available 185 s s s 7. Credit Reporting in MENA – Detailed Overview The inflation rate had decreased from a high 15.2 percent in Banking 2008 to 4.8 percent in early 2011, as seen in Figure 7.15.2. Currently there are 20 commercial banks in the country, Since the beginning of the crisis, inflation rates have which include domestic and foreign banks: six state-owned soared. In December 2012, it was as high as 49.5 percent407 or public banks, 11 conventional private banks, and three and the Central Bureau of Statistics announced that the private banks operating according to Islamic principles. annual inflation rate hit 68 percent in May 2013.408 Public banks dominate the banking system. With assets The Syrian pound also has depreciated considerably worth 1.4 trillion Syrian pounds, they accounted for 72 against the U.S. dollar in the past two years. In 2010, the percent of total banking system assets. official exchange rate was 46.5 Syrian pounds per U.S. The Syrian credit industry had made undeniable progress dollar; it fell to 130.8 Syrian pounds in July 2013, while in the years before the crisis, as a result of government the unofficial rate reached 222.6 Syrian pounds.409 reforms and the CBS’s efforts. Syria had taken a major step towards promoting a healthy banking sector through Figure 7.15.2: Per Capita Income and Inflation a series of banking laws passed since 2000, creating a 3000 16 framework for far-reaching economic reform measures.411 2500 14 12 2000 Percentage 10 Since 2004, 10 private banks, both conventional and USD 1500 8 1000 6 Islamic, have been established, breaking the monopoly of 4 500 2 state banks. New products, particularly in the consumer 0 0 2006 2007 2008 2009 2010 2011 segment, have started to appear in the market. Some are GDP per Capita (USD) Inflation - CPI in higher demand among the public (such as car loans); Source: Monetary Statistics, Central Bank of Syria, 2011. others still in their early infancy (such as ATMs and credit * Data for GDP per capita 2011 is not available cards).412 7.15.2 CREDIT MARKET During the period of 2006 to 2011, the ratio of total credit to deposits showed continuous growth; it was a little over OVERVIEW 101.9 in 2011. In the same year, total credit granted by the banking system was 1.87 trillion Syrian pounds. Credit The Syrian financial system consists of banking institutions, granted to the private sector was 674.69 billion Syrian microfinance institutions, exchange companies, insurance pounds. Figure 7.15.3 shows the bifurcation of credit companies, and securities markets. The Central Bank of granted to private sector, by bank category, from 2007 to Syria (CBS) is the regulatory and supervisory authority for 2011. Here as well, public banks played a dominant role, the system. with a share of 62.66 percent of total credit to private sector.413 Current events have had a significant impact on the financial and credit activities in the country. Due to Figure 7.15.3: Private Sector Credit tightening credit, cash is playing a much greater role 500000 in the economy than before. Banking activity is at a 400000 minimum, as banks run down existing credit facilities SYP Million 300000 while continuing to fund basic imports, such as food and medicine. Banks say that they are able to get U.S. dollars 200000 as well as local currency to stock ATMs (in areas under 100000 government control). Money exchangers are playing an 0 2007 2008 2009 2010 2011 increasingly important role in the distribution of cash.410 Islamic Banks Private Banks Public Banks The exchange rate has dropped significantly against the Source: Monetary Statistics, Central Bank of Syria, 2011. *Islamic banks’ data were U.S. dollar, as mentioned above. included from December 2007 186 s s s Arab Credit Reporting Guide Current consolidated data for the banking system is 106 and 71 branches respectively.415 While the outreach in unavailable. However, from the 12 banks that have posted terms of number of commercial bank branches per 100,000 their financial statement disclosures to the Damascus adults is low, it was showing an upward trend until 2010. Securities Exchange, it appears that there was an aggregate This number increased from 2.74 branches in 2006 to 3.73 28 percent decline in loans extended from 2010 to 2012, branches in 2010.416 and a 29 percent decline in customers’ deposits. The political turmoil has resulted in a significant decline of As per the IMF Financial Access Survey, the outreach of bank operations in the country. the ATM network was negligent prior to 2008. However, in 2010, the number of ATMs per 100,000 adults was 7.28. Microfinance Figure 7.15.5 shows the outreach of the commercial bank network from 2006 to 2010. Data for 2011 and 2012 is not In addition to the banks, there are three microfinance available for either indicator. institutions that provide loans to individuals: First Microfinance Institute—Syria, Jabal Al Hoss, and the Figure 7.15.5: Commercial Bank Network per United Nations Relief and Works Agency—Syria. The 100,000 Adults 8 three institutions had 33,014 active borrowers, as of 2012, 7 and a loan portfolio of $15.9 million.414 6 5 4 CREDIT PENETRATION AND ACCESS 3 2 1 The World Bank’s 2013 Doing Business Report ranked 0 2006 2007 2008 2009 2010 Syria 177 out of 185 countries in the Getting Credit Bank Branches ATMs Indicator. As seen in Figure 7.15.4, it is much lower Source: Financial Access Survey, IMF, 2010. than the regional rank of 128. The ranking indicates the tremendous scope for strengthening the above framework and improving access to credit. (DB14, ranked 180) 7.15.3 STATUS OF CREDIT Domestic credit to private sector was 22.5 percent of GDP REPORTING in 2010. Although this percentage is low, it is an increase OVERVIEW from 14.9 percent in 2006. Based on the information given in the April 2009 ACRI As of June 2013, the country’s 20 banks operated through report, Assessment and Observations on the Credit a network of 538 branches, with the largest concentration Reporting System in the Arab Republic of Syria, the CBS in Damascus (120 branches), followed by Aleppo had launched a project to establish an internal credit (80 branches). The Agricultural Cooperative Bank and the registry system in 2007. The CR became operational in Commercial Bank of Syria have the largest network, with 2008 but was still undergoing an enhancement phase. This was the first experiment on credit information sharing in the country, which could help achieve the supervisory Figure 7.15.4: Getting Credit Rank – 2013 objective of the CBS and also provide support to lending 80 institutions increasing credit penetration. 100 120 128 MENA Average As of 2009, the CR was receiving and disseminating 140 information from regulated financial institutions (mainly 160 177 banks) and was becoming an important tool for the 180 evaluation and management of credit risks in regulated 200 MENA Region Syria financial institutions. In an initial phase, only public banks were contributing; then private banks joined the scheme. Source: Doing Business Report, The World Bank, 2013. 187 s s s 7. Credit Reporting in MENA – Detailed Overview However, there were issues with data quality and quantity, LEGAL FRAMEWORK AND CONSUMER since information was not being provided by all institutions. RIGHTS In addition, there were significant discrepancies in the There is no specific law or regulation for the sharing of systems, methodologies, and telecommunications devices credit information in the country. However, the Bank through which lenders provided information to the CR. Not Secrecy Law (No.29/2001) clearly establishes limits and all of the regulated entities were able to respect the technical boundaries for communicating credit information among procedures, layouts, and deadlines established by the CBS. and with third parties, though the provision is only limited Other issues were prevalent in the system, including: to the banking sector. threshold limits for sharing loan data; cumbersome and manual sharing procedures; paper-based inquiries; the system’s technological limits; obsolescence of data; and Article 3 of the law clearly states: “…All workers in delay in obtaining reports. the banks…and every person… authorized to look into the books and records and formality procedures The most recent information on the reporting system is and investment bonds are bound to keep the secrets not available. However, the World Bank’s Doing Business of those records at all times... They may not in any reports have indicated certain improvements in the systems, case whatsoever give information about what they which are discussed in the following sections. know concerning the names of clients or their assets or whatever relates to their deposits or their banking PARTICIPATION AND DATA SHARING matters to any party whatsoever… except in cases mentioned in Article 2 of this law above…”. As mentioned above, in 2009, only regulated financial entities were sharing data with the CR. These entities Article 2 makes a reference to information being are mandated to share information on a monthly basis. declared and shared only by the written permit by a However, there was a low level of awareness; several depositor. financial institutions, mainly state banks, were not ready to provide data in a systematic and efficient manner to the CR. There was no system for credit reporting among The CR does not have a system for consumers to access microfinance institutions. their own credit reports or dispute the data contained in their reports. In 2009, data was shared among the banks and the CBS in the form of a CD-ROM. Negative as well as positive ARAB CREDIT REPORTING INFORMATION information was shared with the CR. There was a minimum SHARING INDEX threshold limit of 300,000 Syrian pounds for loans to be included in the database. In the reforms measured by the Due to the unavailability of complete and updated 2011 Doing Business Report, Syria enhanced access to information on the credit reporting system, the index for credit by eliminating the minimum threshold for loans Syria has not been developed.417 included in the database, which expanded coverage of individuals and firms to 2.8 percent of the adult population. CONCLUSIONS n The political turmoil in the country has affected the As per the 2013 Doing Business Report, improvements entire financial system. Only thin information on recent were made with the establishment of an online system for reforms is available. The government did not respond to data exchange among banks, microfinance institutions, and ACRI’s MENA Credit Information Sharing Survey from the central bank‘s credit registry. January 2013, so this report cannot comment on the CR’s current status. However, it can be expected that there has been decline in the coverage of data and activities 188 s s s Arab Credit Reporting Guide Going forward, minor, basic improvements,such as the n to establish a framework, starting with a legal and implementation of an online system and removal of the regulatory framework threshold limit, could play an important role for the CR in moving towards a complete database for collecting Ensuring the collection and distribution of complete n and disseminating credit information from all lending and full-file information is necessary to enable lenders entities in the country. to make better credit assessments. For this, adequate systems must be in place, with defined rules for the central bank and lenders RECOMMENDATIONS The central bank should undertake a common program n For an effective credit information sharing system, n of awareness and financial education for lenders and which includes a CR and CB and which will facilitate borrowers on all aspects of information sharing such as and improve access to credit, the central bank needs purpose, benefits, usage, rights and obligations, etc. 189 s s s Arab Credit Reporting Guide Mediterranean Se a Bizerte St rai t o TUNISIA f Sic TUNIS ily Nabeul Le Kef Sousse Kairouan Kasserine Sfax Gafsa Mediterranean Se a Tozeur Gabès Médenine Capital Tunis Currency Tunisian Dinar (TND) USD/TND 1.06 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41540, March 2015. 7.16 TUNISIA Political uncertainty is slowing down economic decisions and weakening the recovery that had begun in 2012. This 7.16.1 ECONOMIC OVERVIEW political transition is taking too long and affecting the Tunisia has a diverse economy that includes agriculture, Figure 7.16.1: GDP (Current USD in Billion) manufacturing, mining, petroleum products, and tourism. Prudent economic and fiscal planning has resulted in 50000 moderate but sustained growth for over a decade. Tunisia is 46,430 47500 an export-oriented country in the process of liberalizing and 44,730 privatizing. In 2009, the World Economic Forum ranked 45000 45,660 Tunisia as the most competitive economy in Africa and 42500 44,370 43,600 the fortieth in the world.418 The country has attracted many 40000 international companies, such as Airbus and Hewlett- 2008 2009 2010 2011 2012 Packard. Tunisia’s main natural resource, phosphate, Source: Banque Centrale de Tunisie, BCT remained vital to an economic recovery in 2013. Figure 7.16.2: GDP Performance Following the January 2011 revolution and the ensuing sharp decline in economic activity, the Tunisian economy 5 4.6 embarked on a moderate recovery in 2012; GDP grew at a 4 2.7 2.2 rate of 3.3 percent after a contraction of almost 2 percent in 3 2 2011.419 A good agricultural season and the relative recovery 2.3 1 2.2 in tourism, as well as hydrocarbon and phosphate production, -0.6 0 contributed to the economic growth. Figures 7.16.1 shows -1 2008 2009 2010 2011 2012 2013 the real GDP in billions of U.S. dollars, from 2008 to 2012; Figure 7.16.2 shows the GDP performance trend from 2008 GDP Annual Growth Rate (%) to 2013, based on the African Economic Outlook. Source: Banque Centrale de Tunisie, BCT 191 s s s 7. Credit Reporting in MENA – Detailed Overview economy as a whole, which is not improving as fast as was 7.16.2 CREDIT MARKET expected. There is growth, but it is not enough to respond to the country’s main challenges, which are unemployment OVERVIEW and regional development disparities. Growth is not The Tunisian banking sector is one of the smallest in the creating enough jobs or improving the quality of jobs. region, with commercial banks’s total assets representing Inflation averaged 5.6 percent in December 2012, up 97 percent of GDP. Banks had already been struggling from 3.5 percent in 2011.420 Inflation was driven up by with structural problems before the uprising, and the higher international market prices for certain imported difficult economic situation resulting from the political goods, a depreciated dinar, a bigger payroll, weaker price transformation has accentuated those vulnerabilities. control, distribution network problems, and the illegal The Central Bank of Tunisia, or Banque Centrale de movement of certain goods to neighboring countries. Tunisie (BCT), has a general mission of preserving the Figure 7.16.3 shows the trend from 2008 to 2012. dinar’s value and maintaining its stability. The central bank oversees monetary policy and controls the money in circulation. It supervises lending institutions and preserves Figure 7.16.3: CPI Inflation the stability and security of the Tunisian financial system.421 6 4.9 4.4 5.6 The banking sector of Tunisia has evolved over the past 5 few years, with a number of private international banks Percentage 4 3.5 3.5 3 acquiring local banks. 2 1 Banking 0 2008 2009 2010 2011 2012 With 21 commercial banks, the largest player barely Source: IMF 2013 and data.worldbank.org reaches 15 percent of the market; the largest three banks account for about 41 percent of the market in terms of The total population as of 2012 was 10.78 million. Women assets. Of the largest five banks, three are publicly-owned accounted for nearly 50.4 percemt of the total population. and control 38 percent of total assets.422 Of the four largest Figure 7.16.4 below shows the bifurcation of the total foreign banks present in the country, two are French, one population from 2008 to 2012. is Moroccan and one is Jordanian, accounting for about 24 percent of total assets. Figure 7.16.4: Population (Million) In 2011, the growth rate of deposits reached only 5 percent. 12 This compares to a relatively strong loan growth of almost 14 percent; banks are left in a challenging position, and 10 need to attract enough resources to support the increase in 8 lending. The loan-to-deposit ratio, which was already high 5.43 5.31 5.38 5.25 5.20 in comparison with the rest of the region, consequently 6 increased, reaching 113 percent at the end of 2011.423 4 Figure 7.16.5 shows loan distribution sector-wise, from 2004 to 2013. Loans to the services sector and individuals 5.35 5.14 5.19 5.24 5.30 2 comprise the largest component of total loans. 0 2008 2009 2010 2011 2012 Women Men Source: data.worldbank.org 192 s s s Arab Credit Reporting Guide Figure 7.16.5: Loans by Sector of Activity (In TND Million) 60000 50000 40000 30000 20000 10000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 Agriculture & Fishing Industries Services & Loans to Individuals Source: Banque Centrale de Tunisie, BCT Microfinance commercial banks because of a lack of collateral. Men and women, in both urban and rural areas, are eligible to apply The Tunisian Solidarity Bank (BTS), a government bank, for a loan of up to $9,500, with a maximum annual interest was established in 1997 to promote microenterprise; rate of 5 percent. As of November 2008, BTS had granted it sponsors microfinance associations throughout the 340,625 loans to 277 associations.425 country.424 The bank aims to help all segments of society to seize the opportunities created by the country’s economic and The largest private provider of microfinance in Tunisia social development efforts. Through a network of smaller is an nongovernmental organization, ENDA Inter-Arabe. associates institutions, the bank finances microprojects for ENDA is the only microfinance institution in Tunisia, people that would not normally qualify for a loan from Central Bank of Tunisia Agencies Representing Lending Institutions Specialized Banks Foreign Banks in Tunisia 13 Financial 21 Commercial Intuitions Banks 8 Off Shore Banks 9 Leasing 2 Factoring 2 Merchant Companies Companies Banks 193 s s s 7. Credit Reporting in MENA – Detailed Overview with over 170,000 active clients. Its loan portfolio is Nonperforming Loans over $28.8 million, and women account for 80 percent. The sector has more than 280 other NGOs providing At the end of 2011, the official level of nonperforming loans, though their client numbers are unknown. Loan loans was 13 percent, down from over 19 percent in 2006. size is restricted at 5,000 Tunisian dinars ($3,625). Other The total nonperforming loan flow is estimated at 2.6 microfinance providers include foreign governments and billion Tunisian dinars. Total reported collateral values international organizations, such as the Agence Francaise represent about half the value of NPLs, even though a large de development (AFD), the World Bank, and the African share of this collateral is more than five years old. State development Bank. initiatives to support small and medium enterprise finance have resulted in growing NPLs at a rapid pace (19 percent Leasing Companies in 2011). Developers loans are quickly deteriorating and require close monitoring. In 2011, NPLs stood at 13.1 Leasing companies ensure the financing of movable and percent of this portfolio.427 immovable equipment acquisitions. These companies purchase modern agricultural, industrial, and administrative In addition to banks, there are various other sources of equipment, and then hire them out to those in need. These credit. Informal money lending is fairly common but companies are committed to submit, at end of every month, poorly documented. Various parties are believed to grant all their account positions to the central bank. loans to individuals at interest rates as high as 7.5 percent monthly. Figure 7.16.6 shows the breakdown for loans by Activity of the leasing sector recovered in 2012 to the various financial sources. 21.3 percent—a 251 million Tunisian dinar increase in disbursements—coming to 1.43 billion Tunisian dinars CREDIT PENETRATION AND ACCESS (In 2011, the sector was at a 15.5 percent level, a drop of 216 million Tunisian dinars). The leasing sector’s outstanding The World Bank’s 2013 Doing Business Report ranked balance increased by 10.1 percent, to reach 2.54 million Tunisia 105 out of 185 countries in the Getting Credit Tunisian dinars, financed by borrowing resources at 78.1 Indicator. It is much lower than the regional rank of 128, as percent (bank borrowing was 45.7 percent; debenture loans seen in Figure 7.16.7. (DB14, ranked 109) were 40.9 percent).426 Figure 7.16.6: Loans in Economy by Various Financial Sources (in TND Million) 60000 50000 40000 30000 20000 10000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Banks Leasing Companies Off Shore Banks Source: Banque Centrale de Tunisie. 194 s s s Arab Credit Reporting Guide Figure 7.16.7: Getting Credit Rank – 2013 Figure 7.16.9: Domestic Credit by Finacial Sector (% of GDP) 100 100 105 105 82.1 82.3 110 80 115 73.6 68.2 MENA 65.8 120 128 Average 125 60 2008 2009 2010 2011 2012 130 Tunisia Source: data.worlbank.org MENA Region Source: Doing Business Report, The World Bank, 2013. The Tunisian banking network has 42 financial institutions Figure 7.16.10: Domestic Credit to Private Sector (% of GDP) and 1,400 branches altogether. Tunisia has about 1,660 for Selected MENA Countries, 2012 ATMs and 12,000 point-of-sale terminals (POS). Figure 80 7.16.8 below shows the physical outreach of banks in 70 73.3 75.2 Tunisia in form of branches and ATM per 100,000 adults. 60 Percentage ENDA has 63 branches and 170,000 active microfinance 50 clients. Due to regulatory constraints, it does not have 40 ATMs, POS terminals, or card services for customers. 30 20 29.1 Figure 7.16.8: Commercial Bank Network 10 14.5 12.8 0 25 Algeria Sudan Egypt Morocco Tunisia Source: data.worldbank.org 22.88 20 21.7 20.67 17.93 17.71 15 Table 7.16.1 shows the financial access indicators in terms 16.97 16.55 15.55 15.04 14.48 of formal financial institutions’ accounts and loans. In 2011, 10 32 percent of adults held an account, which is relatively 5 very low for the region; 32 percent of women have an 0 account with a formal financial institution. The percentage 2008 2009 2010 2011 2012 of adults that took a loan in 2011 was only 26 percent. This Commercial bank branches per 100,000 adults percentage for women corresponds to 25 percent. ATMs per 100,000 adults Source: Financial Access Survey, IMF, 2012. Table 7.16.1: Penetratration in Formal Financial Institutions (% of Adults) — 2011 Figure 7.16.8 shows the strength of the Tunisia banking Accounts 32 sector through the banking sector’s provision of domestic Men 39 credit as percentage of GDP, a measure of banking sector Women 32 depth and financial sector development in terms of size. Loans in the past year 3 The credit penetration in Tunisia when measured by private sector credit as a percentage of GDP has been the highest in Men 4 North Africa, as seen in Figure 7.16.10. Women 3 Source: Financial Inclusion Data, The World Bank, accessed September 16 2014. http://datatopics.worldbank.org/financialinclusion/country/tunisia. http://datatopics.worldbank.org/financialinclusion/topic/gender#divMap. 195 s s s 7. Credit Reporting in MENA – Detailed Overview 7.16.3 STATUS OF CREDIT The CR’s technology is based on three layers architecture: presentation, processing, and data. Future planned REPORTING improvements include the calculation of statistical data OVERVIEW covering all flows (incoming and outgoing) for the total portfolios and for NPLs as well as the calculation of The only source of credit information is the CR of the credit transition matrixes.429 BCT uses data from the CR BCT, though it is still limited to regulated entities. The (classified assets, unpaid checks, credit histories, etc.) to registry is known as CIBCT, which stands for Centrale mitigate operational risk. Some banks have developed their d’Informations de la Banque Centrale de Tunisie. CIBCT’s own assessment tools like rating or scoring. coverage had reached 28.8 percent of adult population based on the 2013 Doing Business Report. In 2012 about A recent law mandates that the Authority of Microfinance 1,456,000 individuals and about 710,500 firms were listed Institutions Supervision establish an information sharing in the CIBCT, an increasing trend, as seen in Figure 7.16.11 tool—a CR for the microfinance industry. This will result below.428 in the creation of a second CR, one that is fully dedicated to MFIs. It should be noted that two separate CRs will result Figure 7.16.11: No. of Individuals and Firms Listed in fragmented information; especially in case of cross in the CdR 1456023 lending, it will not provide comprehensive and complete 1500000 information on borrowers’ outstanding debts. Therefore, 1200000 837692 895054 a technical solution should be identified to allow banking 900000 779023 731775 710534 and MFIs data to be hosted in a common database, which is 600000 292453 302468 319147 shared by both sectors for the benefit of the credit industry 279995 300000 and good borrowers. 0 2008 2009 2010 2011 2012 Individuals Firms PARTICIPATION AND DATA SHARING Source: Credit Information Sharing Survey. CIBCT is a system that integrates eight different sources of information—including unpaid checks, credit data such The central bank has undertaken various initiatives as demographic information, inquiries by other lenders, internally to improve the CR. Since 1997, it specifically balance sheet data, loan account data, and payment decided to establish a new credit registry based on an performance data for both firms and individuals. However, architecture that would allow: files are separate and not integrated in a single database. n Integration of the separate existing files (balance sheets, CIBCT only collects and disseminates information from commercial and economic data) as well as the creation regulated financial institutions.430 of new files (classifies assets, nonperforming loans sold to collections agencies); A circular issued in 2012 also mandates retailers to share data with the CIBCT. This does not include credit card n Adoption of a unique ID for all databases (national ID is issuers, telecommunications or utility companies; retailers managed by the National Institute of Statistics); are not yet participating in the sharing scheme with the CR. n Implementation of a new data sharing system; LEGAL FRAMEWORK AND CONSUMER n Right of borrowers to check their data (both businesses and private individuals); RIGHTS n Collections agencies to share information; since 2009, CIBCT was established more than 50 years ago by Article data concerning nonperforming loans was sold them by No. 34 Law No 58-90 of September 19, 1958, which was the banks. the founding regulation for the creation and organization of the central bank. The law was then amended in 2000 196 s s s Arab Credit Reporting Guide (Law 2000-37) to enhance the CIBCT’s existing credit The Data Privacy Law (2004/63 of July 27, 2004) is the information infrastructure and was further amended by legislation that allowed CBs to be established and provides BCT circular of No. 2008-06431. regulations for the bureaus. The Tunisian financial system is supervised by five different The decree n° 2012-2128 of September 2012 established authorities: the new Microfinance Supervision Authority as well as the obligation of the same to establish a CR for MFIs. n The BCT, the supervisor of credit lenders; n The Financial Markets Council, the authority protecting The other regulations that safeguard the credit information depositors and public savings in general. The FMC also sharing are:433 supervises financial and securities markets and the stock n BCT Law No. 58-90; exchange; n Banking Law No. 2001- 65; n The Insurance General Committee, overseeing insurance and re-insurance companies as well as all activities n Credit Registry Circular No. 2008-06; linked to this sector; n Circular No. 91-24, concerning bank provisions; n Data Privacy Authority (established under the Data n Circular No. 87-47, for banks, related to the modalities Privacy Law 2004-63); of granting, monitoring, and refinancing credit. n The Supervision Authority for Microfinance, which was created in 2013. ARAB CREDIT REPORTING INFORMATION SHARING INDEX Based on the parameters and subparameters discussed Law 2000-37, coupled by Circular 73-50/1973 and in Chapter 6, the ACRISI score has been determined for Circular 2002-10, unmistakably establishes clear Tunisia, as shown in Table 7.16.2. The index provides legal parameters, duties, and responsibilities of both a snapshot and quantification of the credit information lenders and BCT in the operation of the CIBCT. Law sharing system in the country. 2004/63 (Data Protection Law) regulates private credit reporting, including all information flows in Tunisia. CONCLUSIONS n Access to credit in Tunisia remains limited, particularly for the low-income workers and for consumers, while Circular 2002-12 mandates nonregulated entities to provide NPLs are on the north trend. Banks generally neglect monthly information to the CIBCT regarding every credit micro, small, and medium enterprises, which mainly are consumer loan. Relating to loan establishments, Article 49 part of the informal economy. A robust credit reporting of Law No. 2001-65 of July 10, 2001 ensures the accuracy system, integrating information from regulated and of data reported to the CR. A fine of 100 Tunisian dinars nonregulated institutions, can support the development per day is imposed on a bank as penalty for reporting of a stronger financial system; inaccurate information to CIBCT.432 n CIBCT is standard system in terms of its technical CBT regulations also mandate retailers to participate to the operations, but consists of an old design. A framework for CR, share data monthly, and make inquires to the CR as effective participation and usage needs to be developed; needed. However, technological limits have impeded this BCT will have to educate financial institutions about participation. The participation of nonregulated entities to using the system to ensure quality data is provided. This the CR is quite infrequent. will maximize the benefits of full information sharing; 197 s s s 7. Credit Reporting in MENA – Detailed Overview n There is no specific law governing credit information Establish, under the guidance of the BCT, a private, n sharing. However, the central bank has issued circulars complete and unfragmented credit information sharing for regulating the CR operations, which include the system, such as a credit bureau. Such a credit reporting mandated sharing of information, reporting on all loans, system would provide complete credit history for and borrower rights. firms—and SMEs in particular—and would supply information to all participants in the system. It would n A data privacy law is also in place that protects consumers also allow the universal representation of all lending and ensures the confidentiality of information. It also sectors (supervised and nonsupervised); protects borrower rights with regard to access and dispute incorrect data; nImprove current guarantee mechanisms. Current collateral mechanisms are a hindrance to the long-term n In the banking and nonbanking financial community, development of SME financing systems. It is necessary there is still a low level of appreciation of the full to improve collateral mechanisms and reduce the time power of positive information sharing, as well as of its required to register collateral in land registries; beneficial impact on the credit environment; Encourage the development and use of value-added n n Level of participation is limited to only regulated services, such as credit scoring, by implementing entities. In practice, no other entities are sharing or incentives (or regulatory changes) and by raising banks’ making data inquires from the CR, despite a regulation awareness; imposing data sharing on retailers; The central bank should undertake a common program n n Entities are not mandated to make inquiries to the CR of awareness and financial education for lenders and before granting a loan; hence usage of the CR for credit borrowers on all aspects of information sharing such as assessment remains limited; purpose, benefits, usage, rights, and obligations, etc.; n Assessment tools, such as credit scores, are currently Emphasize and promote borrowers’ rights to view, n not provided to lenders or borrowers; dispute, and correct their own information; n The financial institutions seek to synchronize their Strengthen information sharing collaboration between n operating systems and procedures with the credit different supervisory authorities (banking and registry; automation will eventually reduce operational microfinance) to produce common reports and services; costs and time. Establish an effective communication system between n RECOMMENDATIONS the new microfinance CR and the central bank’s CR to avoid fragmented information on borrowers; n Regulators should eradicate all obstacles to the establishment of credit bureaus and proactively support More thoroughly exploit data for the central bank’s n attempts to create a modern, advanced information institutional purposes, which is possible and advisable. sharing system; 198 s s s Arab Credit Reporting Guide Table 7.16.2: Arab Credit Reporting Information Sharing Index — Tunisia ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO NO Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? NO NO   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 11 11 199 s s s Arab Credit Reporting Guide Ash Sha'm OMAN Ra's Al-Khaymah Umm Al Qaywayn - Hisn Diba UNITED ARAB EMIRATES P e rs i a n G ul f - Ajman Gulf of Dubai Sharjah Oman QATAR - Jabal 'Ali Mina' Fujayrah ABU DHABI Al 'Ayn - Tarıf Capital Abu Dhabi OMAN Currency UAE Dirham (AED) SAUDI ARABIA USD/TND 3.6727 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41517, March 2015. 7.17 UNITED ARAB EMIRATES According to the National Bureau of Statistics, the economy’s GDP stood at 1.4 trillion Emirati dirhams in 7.17.1 ECONOMIC OVERVIEW 2012, with a growth rate of 10.1 percent. Due to the global recession, GDP was affected in 2009, but since then has The United Arab Emirates (UAE) is a federation of seven seen an average growth rate of over 14 percent. Figure emirates—Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al- 7.17.1 shows GDP performance from 2008 to 2012. The Quwain, Fujairah, and Ras Al Khaimah. The UAE is the economy has been diversified, and the non-oil sector Middle East’s second largest economy and one of the contributes significantly to the GDP. wealthiest countries in the region on a per capita basis. It is the eighth largest producer of crude oil and the eighteenth As of 2012, the population of the country was 9.2 million. largest producer of natural gas in the world. Reserves, as Women constitute approximately 30 percent of the total of January 2012, were estimated at 97.8 billion barrels and population. The UAE has one of the highest expatriate 6.09 trillion cubic metres (ranking eighth in the world for population in the region, nearly 84 percent.437 both commodities).434  Figure 7.17.1: GDP Performance The economy is dependent mainly on oil and 1.6 25 natural gas, which accounted for 40.2 percent435 1.4 20 15 of GDP in 2012. But the UAE has been successful in 1.2 AED Trillion 10 Percentage 1 reducing its dependency on oil exports by diversifying the 0.8 5 0 economy; it has created booming business, tourism, and 0.6 -5 -10 0.4 construction sectors. Abu Dhabi plays a dominant role in 0.2 -15 -20 the economy with over 90 percent of the country’s oil and 0 -25 2008 2009 2010 2011 2012 gas reserves. But Dubai has emerged as a regional hub for GDP GDP (Non-oil) commercial and financial services, tourism, logistics, and GDP growth rate (%) Real GDP growth rate (%) trading.436 Source: Annual Accounts, National Bureau of Statistics National, 2012. “Economic Insight.” 201 s s s 7. Credit Reporting in MENA – Detailed Overview The economy has a high per capita income of $41,692 as of The UAE banking sector has grown 30 percent year on year 2012.438 This is about 153,134 Emirati dirhams per capita.439 for the past five years, making it one of the fastest growing However, there are significant differences in per capita economies worldwide.443 As of December 2012, total assets income among the seven emirates. In 2012, Abu Dhabi’s of the banking sector stood at 1.79 trillion Emirati dirhams, per capita income stood at $82,000; Dubai at $30,000; and increasing from 1.66 trillion Emirati dirhams in 2011.444 the five northern emirates at $12,000.440 Total domestic credit by the banking sector crossed the 1 trillion mark in 2012, with total credit of 1.02 trillion 7.17.2 CREDIT MARKET Emirati dirhams. As seen in Figure 7.17.2, bank credit OVERVIEW has steadily increased from 2008 to 2012 period. Credit to the private sector—which includes loans, advances and Since the mid-2000’s, the UAE—and Dubai in particular— overdrafts, real estate mortgage loans and commercial has established itself as the regional financial center and bills—constituted an average of 74.6 percent of the total the Middle East’s banking hub. The UAE Central Bank credit during that period. However, the volume of private is the regulatory authority of banks and other financial sector credit remained the same at 729 billion Emirati institutions in the country. The financial system comprises dirhams as compared to 2008; it decreased from 730 billion 51 commercial banks, six investment and wholesale banks, Emirati dirhams in 2011. 25 finance companies, and 23 investment companies and other financial intermediaries. Figure 7.17.2: Bank Credit 1200 To encourage economic growth and development, the 1000 government of Dubai established the Dubai International AED Billion 800 Financial Centre (DIFC). It has given the emirate the 600 status of an international financial center because of its 400 state-of-the-art infrastructure, extremely good financial 200 and communications infrastructure, and world-class 0 2008 2009 2010 2011 2012 business environment. It is the financial and business hub Total domestic credit Private sector credit connecting MENA with emerging markets as well as the Source: Monthly Statistical Bulletin: Banking & Monetary Statistics, Central Bank of UAE, June 2013. developed markets of the Americas, Asia, and Europe. It has been committed to encouraging economic growth and Personal loans for business purposes totalled 179.65 billion development, which makes it the destination of choice Emirati dirhams in 2012, decreasing from 182.95 billion for financial services firms establishing a presence in the Emirati dirhams in 2011. Real estate mortgage loans region. It has also established an on-shore finance-free also decreased from 161.53 billion Emirati dirhams in zone, focusing on several sectors of financial activities.441 2011 to 159.82 Emirati dirhams in 2012. Personal loans Commercial Banks for consumption purposes increased from 69.14 billion Emirati dirhams in 2011 to 81.19 billion Emirati dirhams Commercial banks in the UAE are divided into two main in 2012. The three sectors constitute 25 percent, 22 percent, categories, locally incorporated banks (or national banks) and 11 percent of private sector credit respectively. The and branches of foreign banks; the central bank licenses distribution of private sector credit is shown in Figure and regulates both. As of 2012, there were 23 national 7.17.3.445 banks operating through a network of 805 branches. The 28 foreign banks operate through a network of 85 branches. Islamic Banks Apart from these, there are four wholesale banking The Islamic banking sector has a bright future in the UAE companies.442 and has been playing a major role in financing infrastructure projects, residential properties, and corporate expansion.446 202 s s s Arab Credit Reporting Guide Figure 7.17.3: Distribution of Private Sector Credit – 2012 Figure 7.17.4: Getting Credit Rank – 2013 60 25% 83 80 42% 100 11% MENA 120 128 Average 22% 140 Personal loans for business purposes Real estate mortgage loans MENA Region UAE Personal loans for consumption purposes Other sectors Source: Doing Business Report, The World Bank, 2013. Source: Monthly Statistical Bulletin: Banking & Monetary Statistics, Central Bank of UAE, June 2013. As seen in the previous section, private sector credit has The Islamic banking window is becoming an important part not increased over the past few years. Domestic credit to of the UAE’s conventional banking landscape, with lenders the private sector increased through the year 2009 to 79.2 expanding their existing offerings, thereby contributing to percent of GDP, after which it declined to 59.1 percent in an increased share of this sector.447 In addition to Islamic 2012. banks, many conventional banks and finance companies have also opened Islamic banking windows offering Both national and foreign commercial banks operated Shariah-compliant products.448 through a total network of 890 branches in 2012. This translates into an outreach of 11.94 commercial bank Finance Companies branches per 100,000 adults, as shown in Figure 7.17.5.451 Dubai has the largest network of branches (336 national There are 25 finance companies in the UAE, operating bank branches and 47 foreign bank branches), followed by through a network of 22 branches. These include companies Sharjah (122 national bank branches and 15 foreign bank that conduct their business according to conventional branches).452 banking methods as well as Shariah principles. They extend advances and/or personal loans for various consumption The ATM network is strong, with a total of 4,492 ATMs purposes. These companies also provide services for for commercial banks, as of 2012.453 This translates into financing trade and business, opening credit, and issuing an outreach of 57.01 ATMs per 100,000 adults, which has guarantees in favor of customers.449 increased from 42.39 in 2008. Nonperforming Loans Figure 7.17.5: Commercial Bank Network As of 2012, the UAE has one of the highest per 100,000 Adults nonperforming loans levels in the region. It has increased 60 from 2.9 percent in 2008 to 9.4 percent in 2012.450 50 According to World Bank data, the ratio of banks’ NPLs to 40 total gross loans has been on the rise, increasing from 2.3 30 20 percent in 2008 to 8.4 percent in 2012. This indicates the 10 need for more effective risk controls and assessment. 0 2008 2009 2010 2011 2012 CREDIT PENETRATION AND ACCESS Bank Branches ATMs Source: Financial Access Survey, IMF, 2012. The World Bank’s 2013 Doing Business Report ranks UAE 83 of 185 countries in 2013. As seen in Figure 7.17.4, it is much higher than the regional rank of 128 and indicates the country’s relatively strong and established credit system. 203 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.17.1 shows the financial access indicators in terms restricts coverage. The coverage, in terms of the percentage formal financial institutions’ accounts and loans. The of adults, decreased from 9 percent in 2012 to 5.9 percent percentage of adults with an account was 60 percent in in 2013. 2011; 47 percent of women have an account with a formal financial institution. The percentage of adults who took The Emirates Credit Information Company (Emcredit) a loan in 2011 was only 11 percent. This percentage, for is the first and only CB, established by the government of women, corresponds to 8 percent. Dubai in 2006. It is a modern credit bureau with state-of- the-art infrastructure, located in the DIFC zone. Given its Table 7.17.1: Penetratration in Formal Financial location, the bureau supplies credit information services Institutions (% of Adults) — 2011 mainly to the credit community of the DIFC and Dubai.455 Accounts 60 The bureau provides a range of services, such as factual Men 69 records of a company’s or individual’s credit history and Women 47 an enterprise information report, as well as solutions to Loans in the past year 11 clients for portfolio and debt management. Emcredit is also Men 13 connected with the Dubai police, providing comprehensive Women 8 and up-to-date records on defaulted checks.456 Source: Financial Inclusion Data, The World Bank, accessed September 16, 2014. http://datatopics.worldbank.org/financialinclusion/country/united-arab-emirates Although Emcredit is the official provider of credit information services in Dubai, its location has proven to 7.17.2 STATUS OF CREDIT be a challenge, limiting the expansion and outreach to REPORTING other Emirates.457 Al Etihad Credit Bureau (AECB) was established by the federal government as a public OVERVIEW central repository for credit information in the UAE. The bureau will offer credit information services to all lending The credit reporting system implemented in the UAE is an institutions in the country; in the first phase, it will collect example of good financial infrastructure coordination. It is consumer credit information, including individuals’ credit one of the six MENA countries with an operational CB. applications, payment behaviors and debt records as well as The CB, established in 2006, is restricted to Dubai. Given information from lenders, telecommunications companies, this limitation and the need for an effective national credit and other financial services providers. reporting system, the federal government has established a new credit registry, Al Etihad Credit Bureau (AECB), also AECB is expected to provide full information on borrowers’ referred to as the Federal Credit Bureau, which, though credit histories, which will enable lenders to effectively a public credit registry, will have CB functionality and analyze risk profiles and make informed lending decisions. will provide credit information services across the seven This will help to reduce and control the high nonperforming Emirates.454 loan levels. The old CR was established by the central bank of the The second phase will see the launch of a commercial UAE in 1982 to: bureau, as well as the bounced check reporting. Phase three n Support the central bank’s supervisory responsibilities; will include the introduction of value-added services for lenders, and individual credit scores based on historical n Provide lenders with credit data to assess large business data will make up phase four.458 firms (loans of greater than 250,000 Emirati dirhams). Based on the ACRI team’s April 2011 assessment mission, The CR provides lenders with information on the total risk-management techniques adopted by the majority of the debt undertaken by an individual or firm. However, the banks, particularly for retail credit, are still quite traditional. minimum threshold for inclusion of loans in the registry Credit underwriting is generally marked by subjective 204 s s s Arab Credit Reporting Guide manual decisions, low decentralization, significant use information on loans (positive and negative) without any of paper/supporting documents, lack of fully automated minimum threshold. As mentioned previously, the bureau decisions, conventional risk-underwriting techniques, also collects information on check bounces from the Dubai excessive reliance on collateral, and lack of detailed and police. reliable information.459 As per the 2013 Doing Business Report, a total of 213,966 PARTICIPATION AND DATA SHARING firms and 1,857,624 individuals were listed in the CB database, as shown in Figure 7.17.7. Within Dubai, Emcredit shares with the lending community complete credit information and nonfragmented payment Figure 7.17.7: PCB Database histories on consumers for underwriting purposes.460 The 2000000 old CR collects positive as well as negative information 1,857,624 1500000 on loans above 250,000 Emirati dirhams from public and private banks, development banks, and microfinance 1000000 institutions. These institutions report data to the CR 500000 monthly. Data is collected on individuals and firms and includes basic demographic data, loan account information, 0 213,966 Individuals Firms and payment performance data—such as the current payments and arrears. Source: Doing Business Report, The World Bank, 2013. The number of individuals listed in the CR, as of 2012, As mentioned in the previous section, Al Etihad Credit was 404,529, increasing from 226,277 in 2008, as shown Bureau will collect all credit information from not only in Figure 7.17.6. The number of firms listed increased from lenders but also telecommunications companies and other 38,302 in 2008 to 50,062 in 2012.461 financial services providers across the country. Figure 7.17.6: PCR Database LEGAL FRAMEWORK AND CONSUMER 450000 RIGHTS 400000 350000 The first framework for sharing credit information was 300000 250000 established in the Union Law No. 10 of 1980, concerning 200000 the central bank, monetary system, and Organization of 150000 100000 Banking. Through Article 105 of the law, commercial banks 50000 are required to provide the central bank with statements, 0 2008 2012 information, statistical data, and other documents deemed Number of individuals Number of firms necessary for the performance of the bank’s tasks. Source: Credit Information Sharing Survey Central bank has authority to set rules specifically for the compilation of bank credit statistics on a periodic basis. Although lending institutions are mandated to share The 1982 Risk Bureau Regulation is directed at the data with the CR, there is no such mandate for making commercial banks, investment banks, and financial inquiries on a borrower. Lending institutions made a total institutions operating in the UAE. The regulation requires of 1,036,987 inquiries to the CR in 2012.462 these institutions submit details of customers whose credit is greater than 500,000 Emirati dirhams. The purpose was Decree No. 8 of 2010, issued by the prime minister of to ascertain such borrowers’ risk. The regulation also laid the UAE, mandates that Dubai credit institutions provide down the need for confidentiality of such information. Emcredit with credit information records, to render its credit information services.463 The bureau collects 205 s s s 7. Credit Reporting in MENA – Detailed Overview In May 2010, Decree No. 8 was issued, establishing Emcredit as the official provider for credit information Article 8 “Credit information, credit record services in Dubai. This decree mandated that, when and credit information report shall be deemed processing credit information, the bureau must comply confidential by nature, and shall be used for the with criteria and instructions stipulated by the Department activities of the company only, and among parties set of Economic Development along with guidelines issued by forth in the present Law and as per the provisions the central bank.464 hereof. They may not be disclosed or divulged in a direct or indirect manner unless by virtue of a written The current legal framework for credit reporting in the approval of the person, the heirs, legal representative UAE has been laid down by the Federal Law No. 6 of 2010. or proxy thereof, or upon the request of pertinent This law gave way to the establishment of Al Etihad Credit judicial authorities, and within the extent required Bureau. It is a modern, innovative law based on international for the investigations and actions examined thereby.” best practice, one of the first of its kind worldwide. Despite being quite lean, the law includes the most important basic concepts of advanced credit reporting with an ample and Article 14 includes all types of lenders in the new reporting flexible gamut of functions and activities.465 system; by the implementing regulation to provide credit information, it mandates that commercial and investment Article 4 of the law establishes the central bank as the banks, financial institutions, and other entities be added overseeing authority for credit reporting and credit to the system. It also establishes violations, penalties, and information sharing activities. sanctions, including prison for deliberate mishandling and unlawful use of information, through Articles 17–20. Article 4: “The request, gathering, preservation, Although consumer rights, in terms of mechanisms and analysis, categorization, use, circulation, and procedures, have not been clearly defined in the new law, protection of credit information and the preparation the basic framework has been established. Article 6 states of credit records and credit information reports and that written approval from the consumer is required prior the organization of such operations shall be subject to inquiry. However, consent is not required to share data to restrictions set by the Central Bank, and such with a credit bureau. The same applies to data sharing with subject to the provisions of the present Law and the the CR. implementing regulation thereof.” Article 6: “(1) Prior to the issuance of credit Article 7 clearly establishes how the credit reporting information report, the prior written approval of the system can bed used. The necessity for confidentiality is person must be obtained. also clearly spelled out in Article 8. The law strikes a good balance between the use and confidentiality of data.466 (2) The company may contact the person directly to receive said approval whenever it receives the request to issue a credit information report that is not Article 7 “The credit information, credit record and accompanied by said approval. credit information report, gathered and kept, may (3)The company may request that it be provided with neither be used nor be circulated unless for purposes credit information to prepare and develop a credit agreed upon or for the purposes for which such database without the need to obtain the approval of information were provided as per the provisions of the person thereon.” the present Law and the implementing regulation thereof.” 206 s s s Arab Credit Reporting Guide Consumers have access to their own data and the right to The AECB started operations in 2014, and the registry has n dispute incorrect data. For the CR, access is free, and there a fairly well designed strategy to increase participation; are no restrictions on the number of general inquiries.467 it will roll out new products and services in phases. The new federal law and the AECB together address most of ARAB CREDIT REPORTING INFORMATION the old credit reporting system’s limitations. SHARING INDEX Based on the parameters and subparameters discussed RECOMMENDATIONS in Chapter 6, the ACRISI score has been determined for Participation of all lending entities is necessary for a n the UAE, as shown in Table 7.17.2. The index provides credit reporting system to be successful. The federal a snapshot and quantification of the credit information bureau should take necessary steps in this direction sharing system in the country. to ensure participation and sharing of complete credit information; CONCLUSIONS The establishment of the AECB (which will perform n n The sharing and use of complete credit information is functions of a CR and CB) should not be a hindrance to not a new concept in UAE. Emcredit is a modern credit the establishment of new CBs or create a monopoly that bureau, however its opeartions are limited to Dubai would not be healthy for the improvement of the credit only; reporting industry; n The establishment of the new CR, which will provide The government and the central bank should take the n credit information services across the seven Emirates, necessary steps to create a favorable credit-reporting will lead to necessary updates given the location limits environment by permitting the establishment of private of Emcredit;468 bureaus as well; n The Federal Law No. 6 of 2010 specifically addresses Particularly the AECB shall not cannibalize the existing n credit information and establishes a sound legal Emcredit systems, and infrastructure, which are an framework on par with international best practice and important experience and asset for the country; applicable to all seven Emirates. It is a modern law and AECB should undertake a common program of n provides for rules and regulations to effectively support awareness and financial education for lenders as well as bureau operations; borrowers on all aspects of information sharing such as n As of 2012, participation was limited to traditional data- purpose, benefits, usage, rights, and obligations etc. sharing entities; Emcredit was limited to the Dubai. However, the AECB is expected to expand the scope of participation to wide range of financial service providers across all Emirates; n The depth of data sharing was low: only loans above the threshold of 250,000 Emirati dirhams were reported to the CR. There was no mandate to make inquires to the CR before granting a credit facility and risk-assessment tools, such as credit scores, were not provided; 207 s s s 7. Credit Reporting in MENA – Detailed Overview Table 7.17.2: Arab Credit Reporting Information Sharing Index — United Arab Emirates ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? YES YES   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? YES YES Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? YES YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? NO NO Are both positive and negative information reported? YES YES Are all loans reported without any limits? NO NO Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 14 14 208 s s s Arab Credit Reporting Guide Jenin ARMISTICE DEMARCATION West Bank and Gaza LINES, 1949 NO-MAN’S LAND AREAS, ARMISTICE DEMARCATION Tubas LINE, 1949 Tulkarm Nablus n Qalqilyah Jorda M edi t erranea n Salfit Sea West Bank Ramallah Jericho JERUSALEM JORDAN ISRAEL Bethlehem Currency Israeli Shekel De ad Gaza City Hebron Sea (ILS) Jabalya Gaza Deir el Balah USD/ILS 3.51 Khan Yunis Rafah Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41518, March 2015. 7.18 West Bank and Gaza Figure 7.18.1 shows GDP performance from 2008 to 2012. In 2012, real GDP was $6.79 billion. 7.18.1 ECONOMIC OVERVIEW In October 2013, the West Bank and Gaza’s inflation rate Due to occupation, production capacity and access to natural was 1.86 percent. Inflation was at an all-time high of 15.08 resources in the West Bank and Gaza has been significantly percent in July 2008.471 Overall, yearly inflation rates have reduced. Services are by far the most important sector of decreased, from a high rate of 9.9 percent in 2008 to 2.8 the economy (nearly 83 percent of GDP). The West Bank percent in 2012. This trend can be seen in Figure 7.18.2. and Gaza remains heavily dependent on foreign aid to support the government’s budget and fund infrastructure In 2013, the population was 4.4 million. In 2012, the development.469 population was estimated to be 4.35 million—2.21 million males and 2.14 million females. Males comprise 50.8 The one area where progress has been made is the banking sector. A number of new banks have been established and Figure 7.18.1: GDP Performance are operating according to international standards. This 8,000 14 has made it much easier for Palestinians to borrow money 7,000 12 and found small businesses. Nevertheless, the economy is 6,000 10 USD million almost completely dependent on foreign aid. This is likely 5,000 Percentage 8 to continue for a long time, as it will take years to build up 4,000 6 3,000 the economy.470 2,000 4 1,000 2 Despite these limitations, the economy witnessed an 0 0 2008 2009 2010 2011 2012 average real GDP growth rate of over 8 percent from 2008 Real GDP Real GDP Growth Rate to 2012. However, the rate declined to 5.9 percent in 2012, Source: Annual Report, Palestine Monetary Authority, 2012. after reaching a high of 12.2 percent in 2011. Growth rates continued to decline in the early part of 2013 as well. 209 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.18.2: Inflation Banking475 16 16 At the end of 2012, the banking sector is composed of 17 14 14 banks: seven were locally-incorporated banks, and 10 were 12 12 foreign banks. Foreign banks comprise eight Jordanian 10 10 banks, an Egyptian bank, and a British bank. As seen in 8 8 Table 7.18.1, the total number of banks has decreased, from 6 6 4 4 21 in 2008, on account of mergers and restructuring within 2 2 the sector. 0 0 Jan/08 Jan/10 Jan/12 Table 7.18.1: Banking Network Source: www.tradingeconomics.com Items 2008 2009 2010 2011 2012 Number of Banks percent of the population compared to 49.2 percent for Local Banks 10 10 8 8 7 females. Nearly half of the total population of the West Foreign Banks 11 10 10 10 10 Bank and Gaza are refugees (1.9 million).472 Jordanian Banks 8 8 8 8 8 Egyption Banks 2 2 1 1 1 7.18.2 CREDIT MARKET British Banks 1 1 1 1 1 Total 21 20 18 18 17 OVERVIEW Number of Branches & Representative Offices Despite the generally unstable political and economic Local Banks 89 104 110 118 121 situation in the West Bank and Gaza, Palestinians have Foreign Banks 101 105 102 108 111 established a relatively stable and growing financial sector. Jordanian Banks 93 98 95 101 104 The Palestinian Authority (PA) has established two main Egyption Banks 7 6 6 6 6 institutions to regulate and supervise the financial sector: British Banks 1 1 1 1 1 n The Palestine Monetary Authority (PMA), supervising Total 190 209 212 226 232 the banking sector, the payments system, microfinance Source: Annual Report, PMA, 2012. institutions, and money changers; n The Palestine Capital Market Authority (PCMA), The banking sector has evolved into a vital player and overseeing the nonbanking sector, including the value-adding sector in the Palestinian economy. Through securities market, financial leasing, mortgage finance financial intermediation, banks contribute directly and companies, pension funds, and insurance companies.473 indirectly to GDP, while promoting economic growth. The PMA ensures the management of banks according to As in most developing economies, the credit market in international best practice, including a full commitment the West Bank and Gaza is far from complete or perfect. to the principles of banking governance, addressing weak The lending-to-deposits ratio is at a relatively low level; banks, strengthening banks’ capital, developing financial most small and medium enterprises (constituting the vast infrastructure, and maintaining customer confidence in the majority of establishments there) are not connected to the banking system. This is reflected positively in the financial existing formal credit channels. More needs to be done to indicators of the West Bank and Gaza’s banking system. enhance the credit market and, thus, empower economic For over a decade, the size of bank operations has been growth and development opportunities.474 growing significantly. The banking sector’s total assets increased 31 percent, from $7.64 billion in 2008 to $10.04 The credit market primarily comprises the banking sector, billion in 2012. which is the dominant player, the MFIs and mortgage and leasing companies. 210 s s s Arab Credit Reporting Guide In line with this trend, the sector witnessed remarkable 71 percent share. The high share of personal loans indicates developments in 2012. Despite the considerably risky that PMA and banks have taken significant measures to environment; PMA undertook measures for promoting ensure access to banking and credit for individuals. The growth and effective performance within the banking system. value of credit facilities has increased from $930.2 million in 2008 to $1.62 billion in 2012. These include consumer The overall credit portfolio of banks has also increased loans, educational loans, car loans, credit card lending, over the last few years, from $1.82 billion in 2008 to $4.19 mortgage loans, and other loans. billion in 2012. On average, private sector credit accounts for nearly 70 percent of total credit, from 2008 to 2012; On the other hand, credit facilities to the corporate sector but its share of the total has slightly declined, as seen in have increased from $365.3 million in 2008 to $1.16 billion Figure 7.18.3. The share of credit facilities to the public in 2012. Its share of the total has increased from 28 percent sector increased by 2.5 percent from 2011, at the expense in 2008 to 41 percent in 2012. Figure 7.18.5 shows the of the private sector. As of 2012, nearly 90 percent of total bifurcation of private sector credit between personal and loans to the public and private sector is directed toward the corporate sectors. West Bank, as shown in Figure 7.18.4. Gaza accounts for only 10 percent of total credit facilities. Figure 7.18.5: Private Sector Credit 2000 As of 2012, credit facilities to the private sector were valued 1500 at $2.79 billion, increasing from $1.29 billion in 2008. USD Million Personal loans constitute the majority of private sector, 1000 with a share of 58 percent, as of 2012. This represents a 500 decrease from 2008, when personal loans accounted for a 0 2008 2009 2010 2011 2012 Figure 7.18.3: Distribution of Total Credit Facilities Personal Corporates 100 Source: Annual Report, PMA, 2012. 80 Banks grant credit facilities by way of loans, overdrafts, 60 and lease financing. Loans form the largest portion of total credit, with a value of $2.95 billion, as of 2012. Figure 40 7.18.6 shows the bifurcation of credit facilities in 2012. 20 Overdrafts account for over 29 percent, with a total of 0 $1.23 billion. Rarely offered by banks, lease financing is at 2008 2009 2010 2011 2012 a nascent stage in the West Bank and Gaza; it accounted for Public sector Private sector Source: Annual Report, PMA, 2012. only 0.26 percent, with a value of $10.9 million. Figure 7.18.6: Types of Credit Facilities Figure 7.18.4: Credit Facilities by Region 0.26% 29.48% Public Sector Private Sector West Bank 70.26% 35.5% 65.5% 89.7% Loans Overdrafts Lease Finance Source: Annual Report, PMA, 2012. Gaza Strip 10.3% Source: Annual Report, PMA, 2012. 211 s s s 7. Credit Reporting in MENA – Detailed Overview Specialized Lending Institutions and have yet to be established. The PCMA is in process of Microfinance476 developing a framework for these sectors in line with international standards. Specialized lending institutions mostly operate as nonprofit organizations, with a focus on economic development As of 2012, there were eight leasing companies operating and the alleviation of poverty and unemployment. Basic in the area of car leasing. There were two mortgage finance financial services are provided to a broad segment of companies—Palestine Mortgage and Housing Corporation society; easy credit terms and guarantees address limited and its subsidiary Palestine Housing Finance Corporation. capabilities of targets segments. The total assets of the two sectors reached $37.5 million, achieving a growth rate of 1.1 percent, as compared to 2011. Since 2011, these institutions have been under the purview of the PMA, the regulatory and supervisory authority for Nonperforming Loans the sector. Previously, there was no specific legal context for the sector; each institution operated within a different The ratio of nonperforming loans in the credit market has legal framework. In order to maintain financial stability decreased from a high of 14.5 percent in 2008 to 8 percent and effective performance, the PMA issued guidelines and in 2012.478 For the banking sector specifically, as per the instructions, in 2012, to regulate this sector. The PMA lay PMA 2012 Annual Report, NPLs have decreased from ground for licensing mechanisms and permits. 8 percent of total credit facilities in 2008 to 2.3 percent in 2012. Figure 7.18.8 shows the value of NPLs of the As of 2012, there were eight specialized lending institutions banking sector, with respect to the total credit facilities that were members of the Palestinian Network for Small from 2008 to 2012. and Microfinance, Sharakeh. Their net credit portfolio was $84.2 million, distributed among various sectors, including Figure 7.18.8: NPLs in the Banking Sector agriculture, commerce and services, consumption and 4500 10 others, and industry and crafts, as shown in Figure 7.18.7. 4000 8 USD Million Percentage 3000 6 The credit portfolio has increased by 78 percent, from a 2000 4 portfolio value of $47.2 million in 2008 to $75.7 in 2011. 1000 2 The number of loans, however, have decreased from 43,409 0 0 in 2011 to 32,562 in 2012. 2008 2009 2010 2011 2012 Total credit by banking sector NPLs NPLs (%) Mortgage and Leasing companies477 Source: Annual Report, PMA, 2012. These sectors are newly introduced to the West Bank and CREDIT PENETRATION AND ACCESS Gaza. Proper organizational and legislative frameworks The World Bank’s Doing Business Report ranked the West Bank and Gaza 162 out of 185 countries in 2013. As seen Figure 7.18.7: Sectoral Distribution of Credit by in Figure 7.18.9; it is lower than the regional average of Specialized Lending Institutions 128. (DB14, ranked 165) 10% The PMA has been undertaking various measures to 31.3% facilitate better access to banking services. Through its 2007 38.5% branching policy, the authority has licensed several new branches and offices with an aim of improving penetration 20.2% and outreach to all cities and rural areas. The total number of bank branches and representative offices has increased Industry & Crafts Commerce & Services from 190 in 2008 to 232 in 2012, as seen in Table 7.18.1. Agriculture Consumption & Others In rural areas, it has increased from 17 branches in 2007 to Source: Annual Report, PMA, 2012. 39 branches in 2012. 212 s s s Arab Credit Reporting Guide Figure 7.18.9: Getting Credit Rank, 2013 only 6 percent. This percentage for women corresponds to 40 a mere 2 percent. However, as per the ACRI’s 2013 Credit 60 Information Sharing Survey, the number of women holding 80 credit facilities has increased significantly, from 16,532 in 100 MENA 128 Average 2008 to 60,899 in 2012. 120 140 162 160 7.18.3 STATUS OF CREDIT 180 MENA Region Palestinian Territories REPORTING Source: Doing Business Report, The World Bank, 2013. OVERVIEW This initiative for improving access to banking has resulted The credit reporting system in the West Bank and Gaza in a decrease in the ratio of persons per branch, from over consists of the Palestine Monetary Authority Credit 18,000 in 2008 to 16,800 in 2012, as shown in Figure Registry (PMACR), established in 2008. It is the first credit 7.18.10. This will result in better and more efficient banking information sharing system in the territories. The PMACR services to clients. The PMA is undertaking measures is operated and controlled by the PMA, with assistance to advance financial inclusion and banking awareness, from the Middle East Regional Technical Assistance enabling the poor and limited-income families to benefit Centre (METAC). from financial services. PMACR is a very effective CR. This is a testament to Table 7.18.2 shows the financial access indicators in terms PMA’s hard work, strong commitment, and responsiveness of formal financial institutions’ accounts and loans. In 2011, to the technical assistance provided since its founding. 19 percent of adults held an account; 10 percent of women had an account with a formal financial institution. However, The work on the PMACR was completed in three phases. that year, the percentage of adults who took a loan was The first phase involved the accumulation of comprehensive and detailed information on borrowers, to empower users Figure 7.18.10: Banking Sector Outreach of the system to make informed credit decisions. The 240 18500 second phase consisted of automating the registry to create Population per Branch 230 a more efficient and responsive registry. The third phase Number of Branches 18000 220 210 17500 witnessed two important achievements: 200 17000 n Microfinance institutions’ credit information was entered 190 16500 in the PMACR database, and MFIs gained access to the 180 170 16000 registry to inquire about credit applicants; 2008 2009 2010 2011 2012 n An internal credit-scoring model was developed. Number of branches (lift) Population per branch (right) Source: Annual Report, PMA, 2012. METAC started providing technical assistance to the PMA in 2006, and the new credit reporting system was launched in Table 7.18.2: Penetratration in Formal Financial 2007. Online services began in 2008, and the microfinance Institutions (% of Adults) — 2011 institutions were connected to the system a year later. In Accounts 19 2010, a bounced check system and credit scoring system Men 29 were launched.479 METAC’s assistance to the PMA in the Women 10 area of banking supervision is part of comprehensive IMF Loans in the past year 4 support to restructure the PMA. METAC has helped PMA Men 6 to develop a credit registry system operating in line with Women 2 international best practice; it is considered among the best Source: Financial Inclusion Data, The World Bank, accessed September 15, 2014. credit registries in the region.480 http://datatopics.worldbank.org/financialinclusion/topic/gender#divMap. 213 s s s 7. Credit Reporting in MENA – Detailed Overview The efficiency of lenders’ underwriting processes has Figure 7.18.11: Number of Individuals in the PCR improved with the introduction of automated decision- 200000 180000 making processes, fairer credit decisions, and quicker 160000 turnaround. The system is quite advanced, with 25 regulated 140000 120000 entities (17 banks and eight microfinance institutions); 100000 80000 it provides the CR with all credit information on all 60000 borrowers. In addition, the bounced check system is now 40000 20000 automated; this information is included in credit reports.481 0 2008 2009 2010 2011 2012 Source: Credit Information Sharing Survey, ACRI, January 2013. The total number of loans registered in the CR increased by over 131 percent, from 141,024 in 2008 to 326,004 in 2012. The volume of credit granted by lending institutions, Figure 7.18.12: Number of Firms in the PCR as registered in the CR, has also increased from $1.85 4000 billion in 2008 to $4.90 billion in 2012.482 3500 3000 2500 PARTICIPATION AND DATA SHARING 2000 1500 Private banks and the microfinance institutions (that are 1000 regulated by the central bank) share data and access the 500 PMACR. All these regulated financial institutions are 0 2008 2009 2010 2011 2012 required by law to share data as well as inquire with the Source: Credit Information Sharing Survey, ACRI, January 2013. CR before granting any credit facility. Data on individuals and firms is shared. The number of Total number of inquiries received by PMACR has also individuals and firms listed in the CR is shown in Figures jumped from 80,423 in 2008 to 415,107 in 2012, indicating 7.18.11 and 7.18.12 respectively. As of December 2012, that borrowers are also increasingly obtaining their own 186,718 individuals and 3,462 firms were listed. Full-file credit reports. Although free reports can be obtained once information on these borrowers is shared, which includes a year, individuals have to pay $1.30 and firms $2.70 for demographic details, information on the credit facilities subsequent reports.483 availed, a list of lenders’ inquiry in the past three years, and payment performance data (including a monthly payment LEGAL FRAMEWORK AND CONSUMER history of the last three years). Negative and positive RIGHTS information, without any threshold limit, is shared. All information is shared on a monthly basis and on a daily basis There has been no specific law or regulation issued for for new credit facilities. All such information is distributed the regulation and supervision of credit information in on inquiry by lenders or borrowers, through credit reports the West Bank and Gaza. The PMACR is under the direct which describe each credit facility individually and provide supervision of the PMA, but there is no legal framework for full-file information on the borrower. the establishment of private credit information companies in the country. Since it started operations, the PMACR is increasingly being used for inquiries by lenders in the underwriting The Banking Law of 2010 enables the PMA to undertake process. The credit-scoring model has proved to be an activities with regard to the collection of sharing and effective and important tool for risk assessment, predicting usage of credit information. However, this matter is only borrower’s probability of default. The number of credit a reference in the law; detailed guidelines and provisions reports transmitted to lenders has increased considerably, have not been explicitly mentioned. from 69,693 in 2008 to 308,951 in 2012. 214 s s s Arab Credit Reporting Guide ARAB CREDIT REPORTING INFORMATION Article 43, Other requirements “Organize and use SHARING INDEX credit information for database managed by the Based on the parameters and subparameters discussed Office of credit information” in Chapter 6, the ACRISI score has been determined for Article 49 “All banks must submit reports and the West Bank and Gaza, as shown in Table 7.18.3. The financial data to the PMA, and other information index provides a snapshot and quantification of the credit of its activities in regular bases according to information sharing system in the country. instructions set by the PMA” CONCLUSIONS However, the PMA law grants the monetary authority and n The establishment of the PMA CR in 2008 is the first its board the power to establish rules and regulations with initiative undertaken for credit information sharing respect to sharing of information among banks. in the West Bank and Gaza. PMA’s formation of a credit registry, according to international standards, is Article 41 “The Board shall develop regulations and noteworthy. instructions governing the secrecy of bank accounts n No CB or any other private information sharing system and the exchange by banks of information and data are operating; relative to the indebtedness of their clients and the facilities to be granted to them as determined by the n No specific law or regulation addresses credit sharing; Monetary Authority and the Board, in accordance the PMACR is directly under the supervision of the with the provisions of the Banking Law” PMA and rules and guidelines have been issued to banks. However, there is a data privacy law in place, which protects the privacy and confidentiality of data; Confidentiality, with respect to data required to be shared, has been addressed in this law. Article 32 requires n Consumer rights are well defined; the PMA to establish rules and guidelines on bank n Information on both consumers and firms and full- account confidentiality, exchange information regarding file information (negative and positive), without any indebtedness of bank clients and lending agencies, and threshold limits, is shared with the PMACR. assure the confidentiality and availability of information to manage credit and risk. All stakeholders in banks and n Currently, only regulated entities and the microfinance lending institutions are required to protect the confidentiality institutions are sharing and inquiring data. However, the of client information. Such information can be revealed to PMACR is working on including utilities payment data a third party only with written approval from the client, or (telephone, electricity, water) as well as lease-financing based on a judgement by a Palestinian court. companies and court judgments information. This will lead to a more comprehensive database; Consumer rights have been fairly defined according n A credit scoring system, built by an international service to international standards. Borrower’s written consent provider, has been developed for internal and lenders’ is required not only to share data, but also for inquiring use. PMACR has been the first CR in the region to adopt data from the PMACR. Borrowers can access their own such a system and remains one of the few Central Bank credit reports either from banks or the PMACR. They to have adopted such methodology. have the right to dispute erroneous data in their reports by submitting a request to the authority, which will take n The model provides a statistical score based on a the necessary action to correct the data and inform the borrower’s credit details and payment performance borrower accordingly. Lenders also provide borrowers history, and the reason for the score; it also calculates with a credit report in the case of an adverse decision, such the probability of default. This model forms the basis as the rejection of a loan application. for an interesting case study for other countries in the region, further detailed in Chapter 10.3; 215 s s s 7. Credit Reporting in MENA – Detailed Overview n The participation and use of the PMACR by lenders and borrowers has been increasing over the years. This has improved underwriting and risk assessment of borrowers, indicated by a decrease in nonperforming assets over the years. RECOMMENDATIONS n Mandate sharing of all information on borrowers, and collect consumer consent on inquiries. Efforts should be undertaken to create awareness on the need and benefits of sharing data with the PMACR; n In absence of a CB, efforts should be made by regulators to include as many lending sectors as possible, if necessary through a new legal framework, in order to give the most reliable and complete borrower risk profile. 216 s s s Arab Credit Reporting Guide Table 7.18.3: Arab Credit Reporting Information Sharing Index — West Bank and Gaza ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? YES YES   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? YES YES   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? YES YES   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? YES YES Are all loans reported without any limits? YES YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? YES YES Is cross border data sharing allowed? NO NO ACRISI score 16 16 217 s s s Arab Credit Reporting Guide SAUDI ARABIA Sanaw OMAN YEMEN Thamud Habarut Saadah Zamakh Al Hazm Al Ghaydah Hajjah Amran Al Mahwit Marib SANAA Al Hodeidah Al Gabain Ataq Red Dhamar Al Mukalla Ibb Al Beida Taiz Al Dhale'e Capital Sana’a Sea Lahej Zinjibar Socotra Currency Yemeni Rial Aden Gulf of A de n (YER) DJIBOUTI USD/YER 214.90 Note: “Current and Historical Rate Tables,” Xe, exchange rate as of January 31, 2014. http://www.xe.com/currencytables/?from=IQD&date=2014-01-31. Source: This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. IBRD 41519, March 2015. 7.19 YEMEN term challenges, including declining water resources, high unemployment, and a high rate of population growth.484 7.19.1 ECONOMIC OVERVIEW The regional crisis that began in early 2011 caused GDP Yemen is a low income country and is highly dependent growth rate to plunge to -10.5 percent, as shown in Figure on its declining oil resources for revenue. Petroleum 7.19.1.485 In 2012, GDP stood at 7.03 trillion Yemeni rials accounts for roughly 25 percent of GDP and 70 percent of as compared to 6.71 trillion Yemeni rials in 2011.486 The government revenue. annual growth rate was a marginal 0.1 percent. In 2012, GDP per capita was $1,494, increasing from $1,361 in Yemen has tried to counter the effects of its declining oil 2011, as shown in Figure 7.19.2. In 2012, the population resources by diversifying its economy through an economic of the country stood at 25.06 million. Women constitute reform program initiated in 2006, designed to bolster non- nearly half the population.487 Figure 7.19.3 shows the oil sectors of the economy along with foreign investment. In population trend from 2008 to 2012. October 2009, Yemen exported liquefied natural gas for the first time as part of its diversification efforts. In January Figure 7.19.1: GDP Performance 2010, the international community established the Friends 9 of Yemen group, which aims to support Yemen’s efforts 4 toward economic and political reform. In 2012, the group pledged over $7 billion in assistance to Yemen. Availability -1 2008 2009 2010 2011 2012 of basic services—including electricity, water, and fuel— -6 has improved since the transition, but progress toward -11 achieving a more sustainable economic stability has been GDP (Trillion Rials) GDP Growth (annual %) slow and uneven. Yemen continues to face difficult long- Source: Monetary and Banking Developments, Central Bank of Yemen, September 2013. data.worldbank.org 219 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.19.2: GDP per Capita (USD) banks, and three specialized banks catering to the micro, small and medium enterprises. The Central Bank of Yemen 1500 (CBY) regulates these institutions as well as exchange 1200 companies, insurance corporations, and pension funds.488 900 Apart from regulated institutions, there are a number of 600 microfinance institutions and funds prevalent in Yemen. 300 Banking 0 2008 2009 2010 2011 2012 The banking system dominates the credit market. Credit Source: Monetary and Banking Developments, Central Bank of Yemen, September 2013. data.worldbank.org granted by banks includes loans and advances to the private sector, public enterprises, the government, and certificates Figure 7.19.3: Population of deposit. Total loans and advances granted in 2012 26 was 1.33 trillion Yemeni rials, of which the government 25 constitutes the largest portion (64 percent), followed by 24 the private sector (28 percent), as shown in Figure 7.19.5. Million 23 Loans and advances granted to the private sector was 22 373.76 billion Yemeni rials in 2012, increasing marginally 21 from 366 billion Yemeni rials in 2011. As shown in Figure 20 7.19.6, there has been a decline of 11.8 percent in credit 2008 2009 2010 2011 2012 to the private sector, from 423.81 billion Yemeni rials in Source: Central Bank of Yemen Annual Reports 2008. In 2010, that number peaked to 438 billion Yemeni data.worldbank.org rials and has decreased significantly since.489 After a decline in 2009, consumer prices have shown an increasing trend, with CPI increasing from 11.2 percent Figure 7.19.5: Share of Total Credit by Banks – 2012 in 2010 to 19.5 percent in 2011. Figure 7.19.4 shows the 7% inflation trend from 2008 from 2011. 28% Figure 7.19.4: Inflation 1% 25 18.98 19.5 64% 20 15 11.2 Government Public Enterprises 10 Private Sector Certificates of Deposit 5.41 5 Source: Finance Banking Statistical Yearbook, Central Statistics Organisation, 2012. 0 2008 2009 2010 2011 Source: Central Bank of Yemen Annual Reports. Figure 7.19.6: Loans and Advances to Private Sector 500 7.19.2 CREDIT MARKET 400 YR Billion 300 OVERVIEW 200 The financial system of Yemen consists of banks, 100 microfinance institutions, and other nonbanking financial 0 institutions. There are a total of 18 banks, including 11 2008 2009 2010 2011 2012 commercial banks (national and foreign), four Islamic Source: Finance Banking Statistical Yearbook, Central Statistics Organisation, 2012. 220 s s s Arab Credit Reporting Guide Of the total loans and advances to the private sector, billion Yemeni rials. The number of women holding credit advances constitute over 68 percent with a value of facilities has shown an increase of nearly four-fold from 256.32 billion Yemeni rials as of 2012. This includes 2008 to 2012 period, increasing from 5,844 to 21,833.493 advances to individuals (86.1 billion Yemeni rials), local companies (145.61 billion Yemeni rials), organizations In 2012, outstanding loans from commercial banks and associations (16.59 billion Yemeni rials), and foreign accounted for 5.11 percent of GDP, a decrease from 7.96 companies (8.02 billion Yemeni rials). percent in 2008.494 As of December 2012, the total number of outstanding Microfinance loans was 128,257, a value of 376.66 billion Yemeni Apart from the regulated microfinance banks in the country, a rials; in December 2008 there were 87,894 loans, a value number of developmental funds and programs—starting with of 418.41 billion Yemeni rials.490 The cause may be the Social Fund for Development in 1997—have been set up commercial banks’ increased focus on small-ticket loans.491 to cater to the financial needs of the microfinance sector. The number of outstanding loans to individuals increased 47 percent, from 82,878 in December 2008 to 121,941 With a view to promote, develop, and provide technical in December 2012.492 The number of loans and the value assistance to the microfinance sector, the Yemen of outstanding loans in the system are shown in Figures Microfinance Network (YMN) was set up in 2009. 7.19.7 and 7.19.8. Its members constitute 90 percent of the microfinance industry. The three microfinance banks, three foundations, Figure 7.19.7: Number of Loans one company, and five programs are members of this 150000 network.495 120000 As of April 2013, statistics from the YMN show that 563,420 90000 loans were disbursed by these institutions; their total 60000 outstanding loan portfolio was 7.02 billion Yemeni rials. 30000 0 Collateral Environment 2008 2012 Oustanding New clients In Yemen, collateral is a general prerequisite for the Source: Credit Information Sharing Survey. disbursement of loans in the banking system. Unusually, it is also part of microcredit institutions’ policies, although Figure 7.19.8: Value of Outstanding Loans not all microcredit loans are backed up by collateral. It is common for banks to request an amount of collateral up to 300 250 130 percent of the loan value from potential borrowers.496 Table 7.19.1 gives the number and value of loans with and YR Billion 200 150 without collateral, in 2008 and 2012. 100 50 Table 7.19.1: Loans with and without Collateral 0 Number Value of loans 2008 2012 Type of loan Year of loans (YR billion) Total New Clients 2008 50,372 NA Source: Credit Information Sharing Survey. With collateral 2012 83,519 252.26 In 2012, 66,019 loans were granted to new clients, an 2008 11,375 NA Without collateral outstanding value of 233.78 billion Yemeni rials; in 2008, 2012 11,830 124.4 there were 42,449 loans, an outstanding value of 213.91 Source: Credit Information Sharing Survey. 221 s s s 7. Credit Reporting in MENA – Detailed Overview Nonperforming Loans The size of the credit market is still very small and traditional. The use of banking services is limited. Access to Nonperforming loan levels in Yemen are extremely high— credit is difficult due to impediments, such as a generalized 16 percent in 2008, with 14.1 percent of loans defaulting requirement for collateral as well as the lack of advanced for over 90 days. This increased to 27 percent in 2012, with risk-management tools and credit information.497 25.5 percent loans with a default of over 90 days. These increasing NPL levels could be a factor in the country’s Despite the increase in number of branches, Yemen remains extremely high lending rates, with the average being 25 under-branched. The low outreach of the commercial bank percent in 2012. In 2008, they were comparatively lower network has resulted in limited access and penetration of at 17 percent. banking services. As per the IMF Financial Access Survey, the number of commercial bank branches per 100,000 CREDIT PENETRATION AND ACCESS adults in 2012 was only 1.75. This indicator has shown a declining trend since 2008, with the rate remaining at less The World Bank’s Doing Business Report by the World than two bank branches per 100,000, as shown in Figure Bank ranked the Yemen 167 out of 185 countries in 2013. 8.19.11. As seen in Figure 7.19.9, it is much lower than the regional average. (DB14, ranked 170) Figure 7.19.11: Commercial Bank Network per 100,000 Adults Figure 7.19.9: Getting Credit Rank, 2013 5 4.19 3.38 3.67 60 4 2.86 3 2.44 80 2 100 1.99 1.98 1.89 1 1.81 1.75 128 MENA Average 120 0 2008 2009 2010 2011 2012 140 Bank Branches ATMs 160 167 Source: Financial Access Survey, IMF, 2012. 180 *Data on ATM network for Oman is not available. MENA Region Yemen Source: Doing Business Report, The World Bank, 2013. The ATM network is also comparatively small, but has been increasing during this period with a reach of 4.19 Domestic credit to private sector has been decreasing as ATMs per 100,000 adults in 2012. By 2011, a total of 502 shown in Figure 7.19.10. Credit decreased from 7.7 percent ATMs were installed in the country. of GDP in 2008 to 4.6 percent in 2012. The figure compares this trend in Yemen with selected MENA countries. As seen Figure 7.19.12 shows a comparative chart of the commercial in the figure, the level of credit penetration in Yemen is bank network in some of the neighboring countries. Access extremely low as compared to the other countries. In 2012, to the banking network in Yemen is low, and initiatives need Oman and the UAE, for instance, compare at 41.2 percent to be taken to increase the outreach of banking facilities in and 59.1 percent respectively. the country. Figure 7.19.10: Domestic Credit to Private Sector (% of GDP) Table 7.19.2 shows the financial access indicators in terms 100 of formal financial institutions’ accounts and loans. Only 4 80 60 percent adults held an account in 2011. Only 1 percent of 40 7.7 7.7 women held an account with a formal financial institution. 20 6.3 4.9 4.6 0 The percentage of adults who took a loan in 2011 was a 2008 2009 2010 2011 2012 low 1 percent. This percentage for women is less than 1 Yemen Oman Qatar Saudi Arabia UAE percent. Source: data.worldbank.org 222 s s s Arab Credit Reporting Guide Figure 7.19.12: Commercial Bank Network per 100,000 The 2009 revamp sought to achieve two objectives: Adults for Some MENA Countries – 2012 70 n Providing CBY with appropriate and effective 60 supervisory data and tools to monitor the expected 50 40 growth and evolution of credit portfolios in the country; 30 20 n Initially support the lending industry in the effort to 10 supply more credit, in a more responsible manner, to the 0 Yemeni consumers. Oman Qatar Saudi Arabia UAE Yemen Bank branches ATMs The ACRI team’s 2009 assessment of the credit reporting Source: Financial Access Survey, IMF, 2012. *Data on ATM network for Oman is not available. system detected improvements, notably: n The elimination of the historical 500,000 Yemeni rials Table 7.19.2: Penetratration in Formal Financial (or $2,470) threshold; Institutions (% of Adults) — 2011 Accounts 4 n The automation of the sharing and inquiring processes, Men 6 now fully online via the Internet; Women 1 n The improved system for collection and storage of data Loans in the past year 1 on consumer credit information and of other small-ticket Men 1 loans (notably to small business). Women 0.7 Source: Financial Inclusion Data, The World Bank, Accessed September 16, 2104. Typically, lenders use traditional risk-management tools http://datatopics.worldbank.org/financialinclusion/topic/gender#divMap when granting credit facilities. These include financial analysis of the client, guarantees, client reputation, and As of April 2013, the microfinance institutions under the periodic follow up. However, data shows that the credit YMN have reached out to 82,171 active borrowers in the information system (the CR) is increasingly being used as country, as compared to 76,469 in 2011. This has resulted an assessment tool by regulated institutions. The CBY has in over 3.6 million direct and indirect beneficiaries. In issued circulars to strengthen the credit reporting system. 2011, 69 percent of YMN borrowers were women.498 Moreover, the revamping of the CR in 2009—especially the installation of an online system, coupled with the STATUS OF CREDIT REPORTING499 removal of thresholds—has launched the country’s first experiment in full sharing of positive credit information. OVERVIEW These changes have led to a significant increase in the data The current credit reporting environment in the country shared and information available within the CR. Although only comprises the CR established by the CBY in 1975. this does not directly indicate that access to finance has It was a paper based credit registry. The first system improved, it shows that banks are increasingly sharing data revision occurred in 1998, which allowed for automated with the CR and using it as part of their lending processes. functionalities. In April 2009, a thorough revamp of the The number of individuals listed in the CR increased over system was undertaken, with the adoption of a new off-the- five-fold, from 22,125 individuals in 2008 to 126,375 in shelf software from the Central Bank of the United Arab 2012, as shown in Figure 7.19.13. However, the number of Emirates. The current registry is a paperless, automated, firms listed in the CR has decreased, from 6,095 in 2008 to and web-based system allowing for online updates and 4,009 in 2012. inquiries. 223 s s s 7. Credit Reporting in MENA – Detailed Overview Figure 7.19.13: Individuals and Firms Listed in the PCR The second initiative was a limited and basic experiment 150,000 of negative information sharing started by the microfinance 120,000 institutions, under the Social Fund for Development, 90,000 collecting information sourced from associated institutions. 60,000 The data supplied, however, is essentially composed by 30,000 demographic information (name, ID, address); the data 0 returned consists of a black list containing only the names 2008 2009 2010 2011 2012 of defaulters. Neither positive information nor any type Individuals Firms of loan data is disseminated,. Though some cross-lending Source: Credit Information Sharing Survey. has already been detected, the limited technology available to microfinance institutions makes this mechanism With the increase in the number of individuals, the total insufficient, particularly in the offing of a significant number of loans registered in the CR also increased development of microcredit. Still at an experimental stage, significantly—362.03 percent—from 28,220 in 2008 to the sharing scheme is quite elementary and banks do not 130,384 in 2012, as shown in Figure 7.19.14. participate. Apart from the CR and the two vertical private information Figure 7.19.14: Total Loans Listed in the PCR sharing initiatives, there is no established institution for 150000 comprehensive, full-file credit information sharing and 120000 130,384 payment histories (for either positive or negative data). 90000 The CR itself is a basic system that shows only aggregate 60000 information. In order to improve access to credit and the 30000 supervisory abilities of CBY, it is imperative to further 28,220 upgrade the system that will enable efficient and complete 0 2008 2012 information sharing, including detailed information on Source: Credit Information Sharing Survey. borrowers’ credit facilities and payment histories. In this regard, CBY is currently undertaking a project Despite the improvements, the CR framework remains quite to improve the country’s financial infrastructure in basic. There are several issues that must be addressed, such collaboration with the World Bank Group, namely through as the absence of automated logic controls and validations, the Financial Infrastructure Development Project (FIDP). lack of historical records, limited data sharing and data This includes the implementation of a state-of-the-art quality, partial data returned to lenders, and absence of credit registry and the revamping of the credit reporting detailed monthly payment histories. legal framework. Other databases PARTICIPATION AND DATA SHARING The ACRI team’s 2009 assessment noted two recent initiatives undertaken for credit information sharing by Presently, regulated institutions (such as banks, including commercial banks and microfinance institutions. the three microfinance banks) are mandated to share information with the CR. With the removal of thresholds, The Yemen Bankers Association had initiated a project for negative and positive data on loans is being shared. These establishing a CB limited to the banking sector. The CBY institutions are required to submit data daily. authorized the bureau, only to later put it on hold. The bank first wanted to determine whether the revamped CR system Basic information is collected about individuals and firms will fulfill the informational needs of the lending industry. with respect to demographics, loan account data (type of loan and collateral), and payment performance data; almost 224 s s s Arab Credit Reporting Guide all of this data is distributed to the banks upon inquiry. With The CBY has issued circulars and reminders (including respect to payment performance data, only information on revisions) to supervised entities instructing banks to do the the current payments (on time) with balances and the arrears following: are shared and distributed. Monthly payment histories are n Provide data on borrowers (as mentioned previously, the not reported. threshold limit and sharing of only negative data was removed); However, historical data is not stored in the CR database. Records are deleted once the loan account has been updated n Consult the CR before granting a loan (mandatory or if the account is closed. inquiry); n Request consumer consent; As per the circular issued in 2000, regulated banks were mandated to make inquiries to the CR before granting n Provide access to customers to see their credit reports; a credit facility. As mentioned in previous sections, n Introduction of the new system in 2009; participation has increased. The number of inquiries made by the banks increased from 23,599 in 2008 to 112,977 in n Provide daily updates on customers’ positions. 2012. As mentioned above, the regulations provide for borrowers’ access to their own data in the CR. There is also a procedure LEGAL FRAMEWORK AND CONSUMER in place for borrowers to dispute data and ask for it to be RIGHTS corrected. Also, borrowers’ access is free of cost. The legal framework for credit reporting in Yemen has been defined by the Banking Law No. 38 of 1998, the The banking law and CBY circulars clearly establish Law of the Central Bank of Yemen (No. 14 of 2000), and consumer rights. Banks are required to include a consent regulations passed by the CBY by way of circulars on credit clause, which needs to be signed by the customer to allow reporting. The current legislation is sufficiently clear about the bank to share data with the CR. However, banks do not the duties, responsibilities, and roles of the CBY as well as require consumer consent to make inquiries to the CR. banks in the establishment of a credit registry. The circulars have laid down the basic and rational norms to facilitate ARAB CREDIT REPORTING INFORMATION the deployment of an effective credit reporting system. SHARING INDEX However, there is no specific law on credit reporting and Based on the parameters and subparameters discussed information sharing. in Chapter 6, the ACRISI score has been determined for Yemen, as given below. The index provides a snapshot and Article 28 of the Banking Law gives clear authority to quantification of the credit information sharing system in the CBY to request credit information from supervised the country. entities (banks) that must contribute data to the CR periodically. The law also mandates that recognized banks and financial institutions submit monthly reports to the CONCLUSION central bank. Furthermore the central bank is mandated n The CBY has established a basic framework in terms of to compile information in the form of aggregated data regulations, infrastructure, systems, and participation. and disseminate the compiled information to supervised The CBY’s efforts are visible in the improvement of the financial institutions. ACRISI score. However, continuous efforts need to be taken for further improvements to the basic framework The Law of the Central Bank of Yemen (No. 14 of 2000) in order to advance to a sound credit information sharing reinforces the contents of the banking law with respect to system; banks’ sharing of information with the CBY, information to be published, and violations and penalties. 225 s s s 7. Credit Reporting in MENA – Detailed Overview n Although there is no full-fledged credit information RECOMMENDATIONS law, the central bank has issued specific circulars to The CR needs to be modernized through developing a n the regulated entities; these have established basic new system that would include data from the banking consumer rights for access to reports without a cost and and microfinance sector as well as functionalities and disputing incorrect data. However, the absence of a full- services that would benefit the country’s market; fledged law can prove to be a hindrance to the further development of the system; For a sound and complete credit reporting system, the n central bank should establish a regulatory and operational n Information on both individuals and firms is shared framework for CBs. A specific credit information law with the CR; currently, only regulated entities are should address all aspects of credit reporting, including participating in the system; the licensing process, general operations, regulation, n Sharing of positive data and the removal of a minimum data sharing, and oversight of the private credit reporting threshold limit for reporting loans has contributed to sector; the increase in the ACRISI score. Thus, in 2012, Yemen A credit bureau could be established in the longer term n meets all the criteria for depth of data sharing in the as the market develops and is ready for a private credit ACRISI; reporting model; n Although there is a significant increase in data sharing, The central bank should undertake awareness and n as per the 2013 Doing Business Report, a mere 0.9 education drives for lenders and borrowers on all aspects percent of adults are covered in the CR. It is necessary of information sharing such as purpose, benefits, usage, to ensure that all banks are sharing full information on rights, and obligations, etc. all borrowers and loans; n Also, adequate systems with higher capacities and performance need to be in place to improve coverage and also store historical data. 226 s s s Arab Credit Reporting Guide Table 7.19.3: Arab Credit Reporting Information Sharing Index — Yemen ARAB CREDIT REPORTING INFORMATION SHARING INDEX Parameters 2008 2012 Does the country have a CR? YES YES Does the country have a CB? NO NO   Legal environment in the country for credit information systems (CIS) Is there a specific law or regulation governing the credit reporting system? NO NO Is there a legal framework for privacy and protection of data? NO NO   Is information on consumers included? YES YES Is information on firms included? YES YES Consumer rights environment in the country Are consumers allowed to access their reports? YES YES Do consumers have access to at least one free report in a year? YES YES Are consumers allowed to raise disputes? YES YES Do entities collect consumer consent before making inquiries? NO NO   Entities in the country participating in CIS Are regulated entities participating? YES YES Are nonregulated entities participating? NO NO Are utility entities participating? NO NO Are MFIs participating? NO NO   Depth of data sharing and reporting in the country Are entities mandated to share data? YES YES Are entities mandated to make inquiries? YES YES Are both positive and negative information reported? NO YES Are all loans reported without any limits? NO YES Does the principle of reciprocity apply? YES YES   Are credit scores provided to the users? NO NO Is cross border data sharing allowed? NO NO ACRISI score 10 12 227 s s s CONCLUSIONS, LESSONS LEARNED, AND RECOMMENDATIONS 8 8.1 CONCLUSIONS Table 8.1: Summary of Doing Business, Getting Credit Rank, and ACRISI Scores ACRI, a regional initiative, has clearly established that Doing Busi- a holistic approach goes a long way in collectively Country ness Getting ACRISI Score addressing the needs, problems, and issues in MENA Credit Rank countries, thereby providing new solutions. This guide   2013 2008 2012 captures the collective experience and current status of Algeria 129 11 12 the region with regard to credit information experience; Bahrain 129 18 19 it shows unique legal and regulatory characteristics along Egypt 83 15 18 with the different stages of the industry in each country. Iraq 176 10 10 Lessons and possible ways forward are summarized in this Jordan 167 10 10 chapter, with recommendations for the future of the credit Kuwait 104 16 16 information industry in the region. Lebanon 104 10 11 Libya 182 0 10 Chapter 6 provides details of work done and successes Mauritania 167 6 6 achieved as a result of these initiatives. This guide also Morocco 104 6 16 highlights the challenges faced in the region and tasks Oman 83 10 14 that need to be achieved. The end of this chapter lists Qatar 104 N/A 15 recommendations and a possible road map for the next two Saudi Arabia 53 18 19 to four years. Regular monitoring and periodic assessment Sudan 167 0 15 of the efficiency of the initiative will enhance the prospects for a more successful ACRI initiative. Syria 176 N/A N/A Tunisia 104 11 11 Before analyzing lessons learned and considering UAE 83 14 14 recommendations for the way forward, table 8.1 provides West Bank and Gaza 159 16 16 interesting insights into the region. Yemen 167 10 12 Note 1: Data for Qatar (2008) and for Syria (2008 and 2012) were not available. Hence, ACRISI scores could not be developed for the two countries during those years. 229 s s s 8. Conclusions, Lessons Learned, and Recommendation Key findings, based on Table 8.1: situation in the country, on-the-ground implementation may not be so clear in some cases. n From a total of 185 countries that have been ranked by the World Bank’s 2013 Doing Business Report, the n For seven countries, the ACRISI score did not change average rank for MENA countries is 128. This is a fairly from 2008 to 2012. Of the countries with a change in low rank. Comparatively, getting credit is more difficult score, the ACRISI for Algeria, Bahrain, Kuwait and in MENA than most other regions. Saudi Arabia increased by one point; Yemen increased by two points, and Egypt increased by three. Morocco’s n The average ACRISI score for 2008 is 10.65 (out of 21). score increased significantly—by 10 points. With the Putting aside Libya and Sudan (neither of which had a establishment of CRs in Libya and Sudan, their scores CR or a CB in 2008), the average score rises marginally have increased from zero to 10 and 15, respectively. to 12.07. n When the two countries that scored zero in 2008 (Libya n The average ACRISI score for 2012 is 13.55, an and Sudan) are not considered, then the gap between increase from 2008. However, there is much room for 2008 average and 2012 average drops further to about improvement. Some fundamental changes and upgrades two points. are underway so that the region will have a more complete credit reporting system. For example, in some Figure 8.1 gives a graphical representation of our earlier countries data is being shared, yet the extent of coverage conclusions. It shows the average, rounded-off ACRISI or quality of data raises a cause for concern (such as score for 2008 and 2012, which are 11 and 14 respectively. Iraq, Mauritania, and Yemen). In several countries, The Figure also shows the movement in the score for each credit reports are being provided, yet the extent of country over the two time frames. If the five countries that information and completeness of data leaves much to had a score of zero in 2008 (Libya, Morocco, Qatar, Sudan be desired (e.g. Tunisia, Algeria, Syria); the absence and Syria, each for different reasons) are not considered, of tools to efficiently evaluate credit decisions, such as then the other countries have had marginal changes in their payment performance histories, is especially of concern. scores. n The average scores for 2008 and 2012 are above the 50 percent mark. It is important to note that the ACRISI Apart from some excellent individual situations (such as score is an objective analysis of the situation in each Egypt, Morocco, and Saudi Arabia), most countries have to country. To a significant extent, the score represents the undertake more initiatives to improve their score and thus Figure 8.1: ACRISI Scores 2008 and 2012 20 18 16 14 12 10 8 6 4 2 0 en ia co a q ia n ria AE ria n ar a k t an t n an a yp ai bi Ira ai is az n da m no an oc by at Sy ge G Ba w ra rd n m hr U Eg Ye Su Q Tu ba rit Ku or Li iA O Jo Ba Al & t au M es Le ud M W Sa ACRISI Score 2008 ACRISI Score 2012 2012 Average 2008 Average Source: Based on scores derived from ACRISI. 230 s s s Arab Credit Reporting Guide make the national credit reporting system more complete to the central bank’s CR is indirect, typically through and comprehensive. the lending institution. Hence, the process is lengthy. This suggests the need for collective efforts, within Figure 8.2 plots the ACRISI score for 2012 against the countries and throughout the region, to move toward Doing Business ease of getting credit rank for 2013 for comprehensive and sophisticated credit reporting each country. The Doing Business rank is a more general systems, consisting of CRs and CBs. rank which puts into consideration other areas besides credit reporting whereas the ACRISI score is more specific n Basic laws and regulations allowing for credit reporting and dives deeper into the credit reporting system and its exist in several countries; yet nearly 45 percent of various components. The two figures, although correlated countries do not have specific laws or regulations in this to some extent, are not entirely comparable. However, it regard. This percentage, however, has improved, from can be observed that the graphs have a strong correlation 59 percent in 2008. and move in tandem to some extent, with a few significant n All countries have data on firms, either with a CR or a variations (e.g. West Bank and Gaza, Bahrain). CB; all but one capture individual consumer data. Table 8.2 and Figure 8.3 represent the same data and n Consumers in 14 countries have access to their own information in tabular and graphical formats. Conclusions reports. All countries, except Libya, have mechanisms are, as follows: in place for consumers to raise disputes on erroneous data. Only 11 countries give consumers free access to n While every country in the region now has a credit reports. Consumer consent before inquiry is collected registry, there are only six countries with credit bureaus in less than half, or 44 percent, of the countries. While (Bahrain, Egypt, Kuwait, Morocco, Saudi Arabia, UAE); basic frameworks for consumer rights exist in many a seventh is currently being established in Jordan. Thus, countries, they may not be widely practiced and, hence, credit reporting in MENA is driven by CRs are ineffective. n In the absence of CBs, institution participation is n Entities regulated by the central bank of each country generally limited to regulated entities; the availability are required to share data. However, with regard to of quality data and full-file information is often nonregulated entities, such as utilities and microfinance questionable, even though over 72 percent of countries institutions, the number of countries that require sharing report on all loans. is very low. n Though consumer rights may be present in theory; n In 13 countries, inquiries are compulsory before making often, in practice rights are rather restricted, as access a credit decision. Figure 8.2: Rank Vs Score 20 19 0 19 18 18 16 16 15 20 16 53 16 14 40 15 14 14 60 83 11 11 12 10 10 83 80 12 104 83 10 100 104 104 104 104 8 10 120 129 6 6 140 129 176 4 182 160 167 167 159 167 176 2 180 0 0 200 ia ia n co n ia ia an t n an pt ar ya ria a k AE q ai ab no ai an da az n Ira is er y oc at w rd b m G a Sy hr Eg n U Ar ba g rit Su Li & tB Ku Q O Jo or Tu Ba Al au Le i M es ud M W Sa ACRISI Score 2012 Getting Credit Rank 2013 Source: Getting Credit Rank, Doing Business Report, The World Bank, 2013. ACRISI 2012. ACRISI score for Syria is not available. 231 s s s 8. Conclusions, Lessons Learned, and Recommendation Table 8.2: Parameters Comparison across MENA 2008 2012 Number of Percentage Number of Percentage Parameters Countries Countries Credit Registries 15 88.24 18 100 Credit Bureaus 5 29.41 6 33.33 Credit Information and reporting laws or regulations 7 41.18 10 55.56 Legal framework for privacy and protection of data 9 52.94 13 72.22 Information on consumers is collected 15 88.24 16 88.89 Information on firms is collected 15 88.24 18 100 Consumers’ access to their own reports 10 58.82 14 77.78 Consumers access to at least one free report in a year 8 47.06 11 61.11 Right to raise disputes and correct data 13 76.47 17 94.44 Need for consumer consent before making inquires 6 35.29 8 44.44 Participation of regulated entities 15 88.24 18 100 Participation of nonregulated entities 4 23.53 4 22.22 Participation of utility entities 1 5.88 2 11.11 Participation of MFIs 5 29.41 8 44.44 Entities mandated to share data 15 88.24 18 100 Entities mandated to make inquiries 8 47.06 13 72.22 Reporting and sharing of positive and negative information 12 70.59 17 94.44 Reporting and sharing of all loans reported without any limits 7 41.18 13 72.22 Principle of reciprocity 10 58.82 13 72.22 Credit scores provided to the users 1 5.88 4 22.22 Framework for cross border data sharing 0 0 2 11.11 *For percentage calculations and analysis, in 2008 – 17 countries and 2012 – 18 countries have been considered n In 17 countries, sharing full data (positive and negative) in the case of nonregulated entities, as shown in Figure is required; 13 countries have no threshold limits. 8.3. Again, this is a factor of a region dominated by CRs. n The principle of reciprocity is applied in 13 countries. A complete credit reporting system is still frequently However, in its truest sense, reciprocity is only present lacking, however, and significant efforts are required in in countries with a CB. In case of countries with only a this regard. CR, regulated entities are required to share data with the central bank; hence these are the only entities that can 8.2 LESSONS LEARNED AND access CR data. RECOMMENDATIONS n Only four countries provide scores as a value-added Since the launch of ACRI, the key considerations for service. stakeholders are the lessons learned from the past six years. n Only two countries have provisions in the laws for These must translate into a more meaningful and focused cross-border data sharing; in actuality, sharing across way forward, with specific action plans and timelines. borders does not occur. The process of developing a comprehensive credit n There has been an increase in the number of countries information system in a country is a medium- to long- with respect to addressing ACRISI parameters, except term exercise. Several key stakeholders are involved, such 232 s s s Arab Credit Reporting Guide Figure 8.3: Parameters Comparison Across MENA 20 18 18 18 18 15 16 17 17 15 15 15 15 15 14 13 13 13 13 13 10 12 10 11 10 10 9 8 8 8 8 7 7 5 6 6 5 5 4 4 4 0 1 2 1 0 2 R B ns n ta ta es s rts ism nt ie s ie s ie s FI s g rit y ta its cit y re s g PC PC io tio Da Da po e tit tit tit ar in Da m ar in at ec cc an ns M qu Li ro co gu l t er s s A Re h o En En En h rI n e ip S Sh ro irm er ec rC d d y rS tiv ol d ec it ta Re P m F ee M e te te ilit fo fo ga h R ed & an d n su sum Fr te um ula u la Ut te a te Ne r es Cr r Da a ws cy Co on s pu ns eg r eg nd nd & Th de Co C r La iva Di R n- M a M a itiv e No Bo Pr No s s Po os Cr Number of Countries 2008 Number of Countries 2012 Source: Based on ACRISI. as the central bank, other regulators, credit and lending n Reasonable levels of progress in the credit information institutions, credit bureaus, consumers associations, and systems—more work must be done, signified by ACRISI the consumers. Regional similarities have to be balanced scores of less than 13. with country specific issues; cultural and economic commonalities, and differences, need to be considered. A While each country has specific situations that need to be comphensive view that takes into account each country’s addressed (as specificly described in Chapter 6’s country particular challenges must be considered. by country recommendations), the aforementioned classifications create two buckets, enabling focused MENA has two additional characteristics that differentiate attention for each country depending on which bucket it it from other regions: the high level of expatriates working falls into. in the region; and the migratory populations among MENA countries. As a consequence of these two situations, credit After classifying the countries, as suggested, and based on risk travels across borders. In the expectation of a regional the recommendations made in Chapter 6 for each country, credit information bureau, or at least of agreements the stakeholders in each country should be encouraged and between regulators on free flows of data, the curtain that assisted in addressing these requirements in a time-bound hides credit history, which may have been built in another calendar. country, can dangerously impact credit decisions taken by lenders. This results in a need for cross-border credit Following are the key lessons learned and the information sharing. The access to information across recommendations for the way forward: countries would of course need to be supported by a solid n Developing national credit reporting systems with an legal and regulation framework, which would ensure data emphasis on the establishment of CBs security and usage (e.g. like in the West Africa region).500 One key lesson is that the region needs to increase the Based on ACRISI scores, MENA countries can be divided number of countries that have a CB. Currently, only into two categories: seven of the 19 countries have CBs. The absence of a CB results in the increased cost of funds, high collateral n Well developed credit information systems—with requirements, lower access to funding, higher levels of robust regulatory frameworks, complete data sharing, nonperforming loans, and restricted access to credit. For and data protection laws, signified by ACRISIs score of a comprehensive credit reporting system, the national 13 or more. 233 s s s 8. Conclusions, Lessons Learned, and Recommendation credit reporting infrastructure must comprise a CR and CBs; a regulatory nudge will accelerate the process. The at least one CB: the former is dedicated to supervision, absence of such appropriate laws can result in ambiguity, statistics, and monetary policy; the latter to providing uncertainty, legal issues, and a general slowdown in the sophisticated information services to the lending process of establishing a well-functioning credit bureau. industry. Central Banks, governments, and other stakeholders Central Banks should undertake greater efforts to should be made aware of the benefits of having focused upgrade and strengthen CRs, enabling the registries to laws and regulations; such authorities should remove assume the supervision of regulated lending institutions all obstacles to the establishment of a credit reporting more effectively. infrastructure by enabling a friendly and modern legal framework. Laws or regulations should address Countries that do not have CBs should strive to licensing, supervision, and the establishment of credit establish bureaus as soon as possible. The ownership bureaus that strike the right balance between caution and structure of CBs can be composed of leading credit practicality—so that the industry achieves the purpose, bureau providers, with or without local partners; the and the bureau can function to the benefit of the lenders, combination of technical partner plus a minority of consumers, the banking system, and the economy. financial institutions may result in the ideal structure of a new bureau. Chapter 4 provides the differences The laws and regulations should also address in detail between CRs and CBs. Central banks must immediately areas such as data protection, privacy principles, commence the process of establishing CBs, by creating consumer rights, access to data and information, and the supporting legal environments, floating requests for the need for consent to share and access individual data. proposals for technical service providers, and beginning Current laws must be studied before initiating necessary conversations with various stakeholders in the country. reforms. The establishment of CBs requires full, proactive n Completeness of data and related issues support of regulators. In countries where CBs cannot be established even with the support of authorities, the CR Despite intent and an enabling legal environments, at should remove all threshold limits and try to include all the ground level, full data sharing is not happening in financial entities to the extent possible. reality. Coverage has been limited in terms the type of institutions sharing data. Even when data is shared, the n Formalize the informals quality, completeness, and accuracy of the data leaves Access to finance is a major concern in MENA, much to be desired. This results in incomplete data and, especially through the formal sector. There is a growing therefore, incomplete credit reports and incorrect credit credit market not regulated by the central banks; the decisions. The result is increasing NPLs. instance of informal lending as well as the number of The other lesson is that, in most countries, nonregulated micro, small and medium enterprises is huge. entities, microfinance institutions, and utility companies The establishment of CBs can be a shortcut to increasing were not providing data. This is driven by the fact that the financial access to these sectors, as they can provide registries are owned by the central banks. The outcome information services to the nonregulated entities is incomplete profiles of individuals with crucial credit such as telecommunication companies, utilities and inputs missing. In some countries, threshold limits were microfinance institutions; CRs are mainly a database of prescribed. In the early days when technology was a the “bankables” of enterprises and large borrowers. challenge and the domain was establishing itself, these thesholds were defendable, but now they must be lifted. n Legal and regulatory requirements Technology is no longer a constraint from the As seen in various cases, a specific law is not absolutely perspectives of both the bureaus and the data providers. essential to establish CBs. However, it is good practice, All data (positive and negative), without threshold especially in countries that are beginning to establish limits, from all lending sectors, must be populated into the CB and the CR. 234 s s s Arab Credit Reporting Guide All credit providers, regulated and nonregulated, must in the ability of the CR to provide robust solutions and be encouraged to provide full data. This can be achieved modern risk-management tools, which bureaus in other through a combination of a regulatory nudge (mandating parts of the world are able to provide. the sharing and inquiry of data) or placing higher In order to modernize the entire credit information provisioning rules on loans granted without making an system, most countries will have to invest in technology inquiry to the CB, along with education and awareness in a significant manner. The stakeholders should evaluate creation on the benefits of a credit information system the current status, current and future needs, debate the that is complete and accurate. options of customization through a global or regional service provider, and then migrate to a new platform. n Consumer rights and protection The more modern system must have technology that is As seen from the conclusions in the previous section, robust, flexible, and able to support the demands of a new consumer rights are theoretically present, but the extent order. The Palestine Monetary Authority Credit Registry of participation remains limited. In countries with only and the Qatari Central Bank are examples of excellent a CR, access and transparency of information shared technology upgrades, which now provide modern credit remains restricted in most cases (Qatar and the West information services based on best practice. Bank and Gaza are exceptions). However, even in the Regulators should consider whether it is worthwhile to case of countries with CBs, awareness on the rights and invest taxpayer money in building a best practice public obligations of consumers is low, often absent. information sharing system, or to delegate the task and Authorities should create a sound framework for the onerous investment to the private sector. Seven consumer rights and also ensure that rights and data MENA countries have already opted for the latter. are protected. Authorities and CBs should undertake a Regulators need to choose whether to maintain control strong campaign for educating the users (institutions and and oversight of the CB’s, limiting the CR’s objectives individuals) on the importance of information sharing, to institutional tasks (such as special purpose vehicles, their rights within the system, and their obligations as statistics, etc.). participants. n Scoring and value-added products and services n Business environment In a region that is increasingly recognizing the added A friendly legal and regulatory framework is essential value of a credit information system in the risk to a credit reporting infrastructure. Without a good mitigating processes, the next step is to provide scoring framework, the credit bureau industry can face various and other value-added services to lenders, to further obstacles to sharing borrower information, data security, ease the lending process. Scores are a natural first step in usage, etc. that direction. In order to do that, data must be complete The legal framework must strike the correct balance and accurate; technology must be capable of calculating between consumer rights and the need to establish a scores. Users (notably, lenders) must recognize the value modern information-sharing environment capable to of such products in their decision-making processes. attract the best leading providers, especially in those In countries with CBs, these bureaus must strongly countries where the market size is small. invest in technology that allows them to offer value- added products to clients. CBs must then take the n Technology initiative to demonstrate and train lenders in the various The use and need for technology in the development of methods that they can use these services. a credit information system is clear. Several CRs that were established many years ago were based on now n Cross-border data obsolete technology with limitations, or paper-based Although there is significant cross-border demographic manual systems. This has led to severe inadequacies and economic movement, only two countries have a 235 s s s 8. Conclusions, Lessons Learned, and Recommendation provision for permitting data to be exported outside the All stakeholders, especially the CR and CB, central country. Allowing data to be stored at a central location banks, and lenders will have to make serious efforts in a particular country—that then services regional to raise public awareness. Lenders must be informed stakeholders across multiple countries—can be very that such a system could positively afftect growth, useful from a cost perspective, because of economies of profitability, reduction in NPLs, and efficiency. A series scale. of education initiatives, training programs, and mass publicity efforts will be required; all stakeholders must The main requirement to allow for the cross-border participate in order to educate the public about the value export of data is to have enabling legislation in the of good credit behavior and, thus, a good credit history. country sending the data and the one that receives it. This requires significant efforts that take into account Lenders must be educated about international the laws in both countries (including data protection experiences where the existence of bureaus has and data privacy laws). When there are more than improved the efficiency of the system as a whole. two countries involved, the complexities increase exponentially, displaying the need for multidimensional n Role of regulators views of laws and regulations. In a credit reporting system, the role of regulators should The lawmakers of all countries will need to work in be clearly defined, and they should create a supportive close cooperation, with the help of external consultants, environment for facilitating the growth of the industry. to enable cross-border sharing. A first important step The regulators’ role is not to substitute for the the private would be a regional collaboration among central banks, sector, but rather to facilitate the establishment of modern to start sharing data, at least, about the major borrowers financial infrastructure while improving the function of in each country. supervision, know-how and profile. Becoming global supervisors (of lenders and CBs), regulators should n Creating awareness and education focus on CBs and users’ consumer protection and law compliance—and less on technology and establishment. Perhaps the most important lesson that emerges from the experiences of ACRI to date is the need to raise the level Finally, credit reform demands a concerted, regional of awareness across the entire spectrum of stakeholders effort requiring patience and perseverance. MENA will —central banks, lenders, other credit providers, utilities, continue to be a crucial region in the global economy. microfinance institutions, nonregulated credit providers, The impact and use of credit will exponentially increase; credit registries, and credit bureaus, and most importantly, the value of a country-specific credit information system the borrowers. The value to each of them will have and a region-wide embrace of common issues will to be explained, depending on the stage at which the play an important role in advancing a healthy credit country is with respect to the credit information system. environment. Ultimately the success of the system will depend on education, leading to demands for efficient and value- added credit information systems. 236 s s s CASE STUDIES 9 9.1 CASE STUDY: LEGAL & not regulated but simply based on the borrower consent to REGULATORY FRAMEWORK, exchange and process data, supported by a code of conduct signed by the lenders and the credit bureau. SAUDI ARABIA AND JORDAN Any of these regulatory environments can provide the 9.1.1 BACKGROUND501 necessary legal framework and support for credit reporting, Information sharing is a business based on trust and though the introduction of specific and tailored legislation transparency. Thus, a sound legal and regulatory for regulating CBs still represents the most appropriate framework is a critical element to give both lender and approach to establish a solid information sharing system. consumer confidence about data processing, privacy and Figure 9.1.1 summarizes the different approaches and confidentiality, and correct and permitted use. If users are the accepted legal best practice. These have also been concerned with their legal liability in sharing information, it separately discussed in the Legal Best Practice section. can slow or even stop the development of credit information systems. A monitored and regulated exchange of credit and Figure 9.1.1: Legal and Regulatory Best Practice other relevant data, for permissible and limited use (such as risk prediction and credit granting) can strengthen the DATA confidence of lenders and borrowers in the system, thereby PROTECTION stimulating the participation of all parties. A friendly and LAW (Dubai) equitable legal framework can boost confidence about data privacy, data processing, risk assessment, decision making, data use, and credit granting. CONSUMERS’ LEGAL AND CREDIT BUREAU CONSENT PLUS REGULATORY LAW CODE OF CONDUCT BEST (Saudi Arabia, The approach and the legal and regulatory framework (Bahrain) PRACTICE Jordan) adopted for information sharing varies from country to country. In some cases, laws governing credit reporting are part of a broader financial services or banking law. BANKING In other countries, a separate law on credit reporting has SUPERVISORS’ been enacted; in some, a comprehensive data protection (Egypt, Morocco) law exists. In several cases, regulations issued by the banking supervisory authority suffice in establishing a Source: “Assessment and observations on the credit reporting system of Jordan.” credit reporting system. In others, sharing of information is 237 s s s 9. Case Studies Whatever approach is taken, a clearly defined framework is regulation and legislation differently and independently needed to enable information sharing with defined purpose. from neighboring markets. The information-sharing legal The rights of all stakeholders cannot be compromised. In framework requires regional coordination. this regard, the World Bank has published the General Principles for Credit Reporting, which are considered as In the absence of a specific legal and regulatory framework, standards for global best practice. The fourth principle MENA countries are facing challenges, such as information specifically addresses the necessary requirements and privacy, data security, data off-shoring, technology threats, sets guidelines for an effective legal and regulatory mobility between countries, and cross-border lending, environment. which could be better resolved with coordinated and shared solutions. Specific laws and regulations have been established in recent years that address these issues—such General Principle 4: The overall legal and regulatory as the credit information laws in Jordan, Saudi Arabia, and framework for credit reporting should be clear, the UAE, and the central bank regulations in Morocco. predictable, non-discriminatory, proportionate and supportive of data subject/consumer rights. The LEGAL BEST PRACTICE legal and regulatory framework should include effective judicial or extrajudicial dispute resolution Consumers’ Consent Plus Code of Conduct mechanisms. The consumer’s consent plus code of conduct model has been adopted in countries where neither the banking Sets guidelines on: authorities were empowered to enact a specific credit n Clarity and predictability reporting regulation nor a specific law was present. Credit information is shared among lenders based on consumer n Non-discrimination authorization and within the framework of the code. This n Proportionality was the model adopted by Saudi Arabia (SIMAH), before n Consumers rights and data protection a specific law was passed and is a model currently in place in Bahrain (The Benefit Company). n Dispute resolution Banking Supervisor’s Regulations The credit reporting industry in the MENA region is at In some countries a very solid credit-reporting model has a very nascent stage. Although there are examples of been introduced with simple central bank enactments. excellent credit reporting practices undertaken in some This approach consists of regulations, not laws, approved countries (such as Bahrain, Morocco, Qatar, and Saudi by the banking supervisor, which set an information- Arabia) and the projects under development (Jordan and sharing legal framework, clarifying consumers’ rights as the UAE), most countries have yet to set up a framework to well as lender and CB responsibilities. Recent examples enable effective credit-reporting practices. There are only are the regulations passed by the central banks of Egypt six CBs in the region and one under development. The and Morocco that enable effective private credit reporting, remaining countries rely on CRs, most of which cannot with different information-sharing models—voluntary and perform the activities for an effective sharing system for mandatory sharing models, respectively. all users involved. Data Privacy Law In some MENA countries, the regulatory framework for A different regulatory approach, the data privacy law, information sharing systems remains quite fragile, old, is found in many developed and developing countries. and generally not fully tailored to the needs of a modern Normally, this legislation enforces confidentiality provisions credit reporting industry. Also, no regional standards on all personal data flows and, by default, regulates CBs have been set; each country approaches credit reporting activities. Data privacy laws have been pioneered in 238 s s s Arab Credit Reporting Guide countries where solid experience of information sharing source for full-file and comprehensive credit information exists and consumer rights are stronger. The establishment from all sources in the country. of the CB in Dubai, for instance, was based on the data protection law, which contains the following basic As mentioned in Chapter 6.14, SIMAH was established in provisions: fair processing of personal data; notification 2002 and started operations in 2004. There was no law or regime; security measures to be applied by data controllers; regulation that specifically provided for credit information consumer protection (for such rights for owners of sharing in the country. The only source for such information information and sanctions for violations of the data at the time was SAMA’s B-List, which contained protection law). information shared by regulated financial institutions. Credit Reporting Law The idea for establishing a credit bureau goes back to 1998, when 10 national commercial banks and SAMA The introduction of a specific and tailored legislation discussed establishing a credit bureau offering consumer on credit reporting still represents the most appropriate and commercial information. Meetings were held for this approach to establish a solid credit reporting system purpose, and officials were assigned to coordinate with the system, enhancing consumer rights and fostering private- World Bank to consider existing international experience credit reporting systems. This has been the avenue chosen to establish a credit bureau based on methodological and by Jordan, Saudi Arabia, and the UAE, as specific credit knowledge approaches, to contribute to the Saudi national information laws have been passed. economy. Typical issues that should be covered include: Based on SAMA’s initiative and encouragement, SIMAH n Licensing criteria for investors and operators; was established by 10 Saudi banks to operate within the context of the prevalent banking act and regulations issued n Limits on data retention duration; by SAMA. SAMA had put its full moral suasion over the n Limits on data access; lenders, encouraging the banks to start a CB, even without an ad-hoc legal framework. The bureau was initially started n Consumer rights to be informed, access data, and simply on the basis of a code of conduct and consumer correct or delete when applicable, and procedures for consent. SIMAH operated for years without any tailored enforcement; legislation or regulation. It was only recently that Saudi n Responsibilities of various stakeholders and participants authorities considered a credit information law; the law in the system; was passed in July 2008 by Royal Decree No. M/37. n Provisions to ensure security and integrity of data; THE CREDIT INFORMATION LAW n Violations and penalties in case of noncompliance; The code of conduct, which was established and approved n The credit reporting systems’ oversight function should by SAMA to regulate the credit information sharing system, be part of the legal framework ensuring smooth and covered most data-sharing and privacy issues. The code efficient functioning of the systems. even laid out specific definitions and their applicability. It also established that lenders need to be members of the 9.1.2 SAUDI ARABIA bureau in order to share and inquire data. Membership agreements had to be signed in accordance with the code to ESTABLISHMENT OF SIMAH incorporate legal rights and obligations. The clauses of the The credit bureau of Saudi Arabia, SIMAH, pioneered code are given in Table 9.1.1 below. private credit reporting in MENA. Although it was not the first CB to be set up in the region, the country’s state-of- The sharing of credit information based on this model’ the-art credit bureau is now a benchmark for other CBs to consumer consent and code of conduct—is considered to be established in the region. SIMAH is currently the only be a good start for CBs when a specific law or regulation 239 s s s 9. Case Studies Table 9.1.1: SIMAH’s Code of Conduct The credit information law (CIL) represented a significant Clause 1 Definitions step in fostering a conducive environment for data sharing. Clause 2 Application of the Code CIL brought greater confidence to all stakeholders of the credit reporting industry, enhanced the privacy of data for Clause 3 Member’s Supply of Received Information to the Bureau individuals and companies, and facilitated the sharing of Clause 4 Bureau’s Obligations with Respect to credit information to support credit decisions. Furthermore, Information CIL sets a framework of rights and obligations for data Clause 5 Member’s Obligations with respect to providers, information users and, most importantly, the Information Obtained from Bureau public at large. It strengthened the Saudi economic and Clause 6 Individual(s) Access to Own Information regulatory framework and led to greater transparency in the Clause 7 Investigation into Disputed Information banking and financial sectors. Continuous efforts have been Clause 8 Rectification and Updating of Information taken to create a robust credit culture for both consumers by the Bureau and commercial entities. On August 22, 2011, SAMA Clause 9 Complaints as to Breach of this Code also issued and applied the implementing regulations, as Clause 10 Compliance Committee provided in the CIL. Clause 11 Miscellaneous Table 9.1.2: Contents of the Credit Information Law of 2008 does not exist. However, an appropriate legal, regulatory framework is advisable to give a solid ground for credit Article 1 Definitions reporting, and tackle the issues of privacy, confidentiality Article 2 Objective and protection of data, purpose and use of data, borrower Article 3 Entities Covered under the Law rights, governance, security rules, etc. Article 4 Sharing of Credit Information by Government Entities To facilitate good credit-reporting practices and create Role of Companies an environment to enable information sharing as per best Credit Records practice, a specific credit information law was passed on Charge of Fees July 8, 2008 by the Council of Ministers. The purpose of Article 5 Mandate to Exchange Information, the law was to establish the general principles and controls Accuracy and Update necessary for collection, exchange, and protection of Written Consumer Consent consumer credit information. It applies to credit bureaus, Article 6 Confidentiality and Purpose members, government agencies, and private entities Article 7 Other Use maintaining credit information. Article 8 Information to Consumers Establishing Consumer Consent Apart from the requirements addressed by the code, Procedures the credit information law specifies all other structural, Article 9 Consumer Rights managerial, financial and breaching issues with regard to Article 10 Rules for Credit Information consumer and commercial rights along with the obligations Companies and responsibilities of credit bureaus and their members. Article 11 Tasks for the Supervisory Authority Article 12 Acts Deemed to be in Violation The law by itself is quite slim; but together with regulations, of the Law it effectively governs the credit information sharing system Article 13 Sanction and Punishments in Saudi Arabia. It addresses all the necessary aspects for Article 14 Formation of Committees credit reporting as per best practice, and establishes SAMA Article 15 Recourse for Violation as the overseeing and monitoring authority for credit Article 16 Issue of Implementing Regulations information companies. Table 9.1.2 below gives a snapshot Article 17 Publication in the Official Gazette of the articles in the law. 240 s s s Arab Credit Reporting Guide 9.1.3 JORDAN n There was no private information service provider and no credit reporting law. THE CREDIT BUREAU PROJECT LEGAL FRAMEWORK Until recently, and even at present, the only source for credit information is the Central Bank of Jordan’s CR. Following the consensus of credit providers across sectors, The establishment of Jordan’s new CB is still underway. in December 1999, a thorough review of the existing The CR collects data from the regulated entities and the Jordanian laws was undertaken by local attorneys. The microfinance institutions’ databases, as discussed in relevant laws that could provide for sharing of credit Chapter 6.5. Both of these databases, effective in their information were the Central Bank of Jordan Law and the own ways, were limited by information only pertaining to Banking Law. The excerpts of the provisions of these laws specific sectors, low coverage ratios, thresholds in the case are given below. of the CR, and the absence of detailed payment histories. In September 1999, there was a consensus by banks and Central Bank of Jordan Law No. 23 of 1971 the informal lenders that a CB should be established which will collect and share credit information, and check Article 37 (b) “The Central Bank shall provide the payment histories across sectors on individuals and firms. licensed banks with services for inter-bank clearings In October 1999, a roundtable presentation to banks and and for exchange of credit information relating to other credit grantors was held to gain support for providing their clients and these banks shall participate in such key credit information to a credit bureau as a necessity for arrangements as the Central Bank may prescribe for success.502 these purposes after consultation with them;” Credit Reporting in Jordan at the Outset of the Project503 Article 45 (a) “Licensed banks and specialized credit institutions shall furnish the Central Bank, at such n The Central Bank of Jordan’s CR began in 1966 and times and in such manner as it may prescribe, with required that banks under its supervision report all any information and statistics which it may require;” active credits with balances above a specific threshold amount along with details of loan loss provisions; Article 45 (c) “All disaggregate data and statements n Banks voluntarily reported to the bankers association on presented to the Central Bank are considered details regarding returned checks; the association would confidential and may not be revealed to any individual add the names of issuers to a list of returned check or institution except in the form of aggregate statistical issuers; statements that the Central Bank publishes from time to time;” n The association would periodically provide banks with names added to the list. In 2000, the Central Bank of Article 52 (a) “Government departments shall furnish Jordan assumed the bankers association’s role; the Central Bank with all such available information n Detailed payment histories were not available; as the Central Bank may deem necessary to obtain.” n Limited use of CR information for the purposes of risk assessment, high collateral requirements, and high NPL levels;504 n There was no other database alternative to the CR. It was only in 2007 that six private microfinance institutions partnered with a local software house to share information among and restricted to MFIs in Jordan;505 241 s s s 9. Case Studies the framework required. Amid that process, in 2003, the Banking Law No.28 of 2000 Provisional Credit Information Law No. 82 was published in the official gazette. Article 26 (c) “Providing the Central Bank with information and data required by the provisions In 2008, Jordanian authorities consulted with IFC to of this law and the regulations and orders issued undertake a project for the establishment of a credit bureau pursuant thereto;” and enforcing the legislation. Article 74 “The exchange of information pertaining A new law was drafted by IFC, of which almost all to clients on their debit balances in order to provide provisions were accepted and approved by Jordanian necessary data to ensure safety of credit granting, authorities. In June 2010, the Credit Information Law checks retained unpaid or any other act deemed No.15 was passed, which repealed the provisional law necessary by the Central Bank due to its relevance to and gave way to the establishment of the first CB in the the safety of banking. It is provided that the exchange country, under the regulatory and supervisory authority of of information is between banks, the Central Bank the central bank. Table 9.1.3 below gives a snapshot of the or any other companies or entities approved by contents of the law. the Central Bank for the purpose of facilitating the exchange of such information.” The establishment of the specific legal and regulatory framework was a long process of 10 years, as shown in Figure 9.1.2. A sound framework has now been established These Laws provide for the sharing of credit information through this modern law, which incorporates legal best among entities regulated by the central bank, which practice for effective credit reporting. Subsequent to the primarily include banks. The confidentiality aspects issuance of the law, the central bank also issued the relevant related to borrowers have also been addressed. These bylaws in July 2011 in accordance with the provisions of laws, however, did not provide for the establishment of the law. private credit information companies, their regulation and supervision, operations, and other related aspects necessary Table 9.1.3: Contents of the Credit Information Law for a sound framework for credit information sharing. It No. 15 of 2010 was concluded that a new and enabling legislation was Article 2 Definitions necessary to allow for private credit information companies Article 3, 4, 5 Provisions Relating to Licensing to operate in the country. Article 6 Clearly Defines the Role of the Central Bank in the Regulation and Supervi- THE CREDIT INFORMATION LAW NO. 15 sion of Credit Information Companies OF 2010 Article 7 Issue of Credit Reports The first step for the establishment of the CB in Jordan was Article 8 Consent Clause or “Viewing permit” to create an enabling legal and regulatory environment for Article 9 Data Providers the operation of private credit information companies. In Article 11 Activities of Credit Information early 2000, the drafting of a new legislation began with the Companies legal support of International Business Legal Associates. Article 14 Provisions for Data Providers Article 19 Obligations of a Credit Provider Until 2007, the appropriate regulatory framework for to a Client a CB underwent many rounds of discussions, which Articles 20, 21 Client Rights created a bottleneck—preventing quick decisions about Articles 23, 24 Confidentiality and Protection of Data 242 s s s Arab Credit Reporting Guide Figure 9.1.2: CIL Timeline Consensus to Drafting of IFC Credit Establish & Legislation Discussions Information Consultation PCB Law No. 15 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Provisional Review of Issue of Credit Laws By-Laws Information Law Source: “Presentation on developing Credit Reporting in Jordan: Licensing and Supervision Project,” The World Bank, Oscar Madeddu, 2013. 9.1.3 CONCLUSIONS 9.2.1 FORMER CREDIT REPORTING n The establishment of specific credit information laws or SYSTEM regulations in the region indicates the growing support In 1978, the central bank, Bank Al-Maghrib (BAM), from central banks for a sound regulatory framework for set up its credit registry to monitor the risk exposure of information sharing; large credit contracts approved by individual banks. This n The Saudi Arabian credit information law was one of step was taken with a view to check solvency and ensure the first modern and comprehensive laws in the region; smooth functioning of the banking sector. it established a solid and effective framework for information sharing under the supervision of SAMA; In the mean time, business practices began to shift to retail lending in the consumer finance, credit cards, mortgage n For Jordan, the CIL has led to the establishment of lending, leasing, factoring, and lending for micro, small, the first CB in the country. It was a long process, but medium enterprises. In response, BAM considered widening it provides a strong framework for information sharing the scope of the CR to cover the credit domain of the among lending institutions, which will ultimately entire regulated financial sector. As a result, the CR started facilitate greater access to credit. maintaining records on lending operations of regulated entities such as banks, nonbanking financial institutions, 9.2 CASE STUDY: and microfinance institutions. The objective was to manage CREDIT BUREAU DEVELOPMENT, risks through centrally available information on loans MOROCCO taken by customers. These institutions used to report, on a monthly basis, on outstanding credit greater than 100,000 Over the past few years, the Middle East and North African Moroccan dirhams along with information such as the total region has seen a growing interest in credit reporting. There authorized and utilized exposure of borrowers by credit have been encouraging trends in the establishment of credit type. The CR used to make this information available to bureaus. Since 2005, MENA demonstrated significant leaps regulated entities on a monthly basis and on demand. in improving the credit bureau coverage and as a result, six out of 19 countries had established credit bureaus. Morocco Apart from this, to mitigate the risk in lending, three separate was one of them. initiatives were undertaken by the bankers association of Morocco, the association of nonbanking financial entities, and the federation of microfinance institutions. 243 s s s 9. Case Studies ISSUES AND CONCERNS In order to address these issues and improve information availability, BAM decided to upgrade its CR. The Banking With the growth in the credit market, the CR struggled Law of 1993 was also amended to give BAM the right to meet the requirements of mass-market (consumer and to decide whether to handle credit reporting in house or commercial) credit bureau, as it had serious information delegate it to the private sector. flaws in its database. In 2005, at BAM’s request, IFC experts conducted a The major limitations were: technical and market survey of financial institutions’ retail n Highly biased information due to large exposure and SME lending portfolios to assess their capability to lending. The credit registry’s data contained only 20 provide data as well as to receive and integrate credit bureau percent of the total credit volumes, as data regarding information into their credit underwriting processes.507 The credit card facilities, microlending, mortgage and survey revealed major areas of concern in lending activity automotive lending was not recorded in the CR database. of Morocco credit market, including: Information about rejected credit applications—critical n A high incidence of collateral in lending or lack of due to high application rejection rate in the country— sufficient physical or useable collateral; was also absent; n A high rate of nonperforming loans; n The CR was unable to link information between commercial and individual entities, and contained n Massive rejection rates and red-tape culture for firms/ potentially inaccurate identity data; VIP consumers; n Insufficient technical infrastructure. Data uploads n Insufficient access to credit for potential customers; by banks and financial institutions, and transmission n Unsuccessful lending strategies of banks in view of of credit reports by CR to institutions was partially scarce, outdated, and unreliable credit information. manual. As a result, the entire reporting process was time consuming; As shown in Figure 9.2.1, favored customers that had better access to finance showed the highest non performing n No facility to record credit inquiry data or historical loan levels; middle-income customers (4,000 Moroccan data in the database. Historical data was stored in the dirhams to 9,000 Moroccan dirhams) were neglected by CR database, but not used for reporting purposes. The banks, even though this segment represented the lowest credit report contained only the latest information on the NPL levels. borrower, obscuring credit decisions; n The key account variables to check borrower’s The new system would therefore address: performance, such as debt arrears (past due) and credit n Lending limited to favored customers; charge-offs, were not stored on the credit registry’s database; n Asymmetric information generating moral hazard and adverse selection of borrowers; n Banks were required to supply information to the CR as a total authorized and utilized exposure by credit type, n High nonperforming loans;508 but not by each account; n Allowing no risk-level discrimination between false n Lack of on-site spot checks and system reporting positive and false negatives. resulted into high data rejection rate (70 percent) for the data submitted by banks to CR.506 This survey therefore emphasized the need to create a national credit reporting system that complements the functions of the existing CR through the development of the first credit bureau in Morocco. 244 s s s Arab Credit Reporting Guide Figure 9.2.1: NPLs Breakdown of volume of credit and default rates by income 450 20 400 18 350 16 14 Percentage 300 Thousand 12 250 10 200 8 150 6 100 4 50 2 0 0 A<à 3000dhs 3000<=R<4000dhs 4000<=R<5000dhs 5000<=R<7000dhs 7000<=R<9000dhs 9000<=R<20000dhs R>=20000dhs Loan volumes NPL 9.2.2 EXPERIAN MOROCCO: THE FIRST n It is mandatory for all regulated entities (banks, MFIs, CREDIT BUREAU OF MOROCCO NBFCs) to provide BAM with all the data (positive and negative) on a monthly basis; In 2006, the central bank decided to delegate CR information n The CR would make the data available to all credit provisions services to a credit bureau (CB) to establish a bureau licensed by BAM; transparent, competitive, and advanced credit-reporting infrastructure in line with international best practice. In n Nonregulated entities would be able to provide data September 2007, BAM issued the first credit bureau license directly to any credit bureau subject to consumer to Experian Morocco, based on a “Delegation Agreement” consent; signed between the two parties. The agreement contained n Under principles of reciprocity, this would allow them provisions related to public service continuity, good to consult the bureau as well; governance obligation, data confidentiality and security, consumer protection, and BAM’s supervision of the credit n All the regulated lenders would be required to consult bureau. at least one credit bureau prior to making any credit decision; The technical support to Experian Services Morocco came n Lenders would no longer be allowed to access the CR from the largest world credit bureau provider, Experian for inquiries; Plc. ESM finally became operational in October 2009. n Regulatory amendments would be introduced through Experian Services Morocco is a state-of-the-art credit simple BAM’s regulations; information sharing system owned by Experian in joint n All licensed credit bureaus would receive the same set venture with seven Moroccan financial institutions of information from BAM and then compete on the (six banks and one insurance company). basis of differentiated product, service offerings, and prices.509 CREDIT REPORTING OPERATING MODEL ESM provides users with exhaustive credit reports As shown in Figure 9.2.2, the key highlights to note are: containing full, comprehensive credit histories. The credit n BAM is the supervising and licensing authority for CBs; reports include arrears, historical data, payment pattern and n BAM can access any CB’s database for supervision and performance, previous searches, etc.510 systemic risk-prevention purposes; 245 s s s 9. Case Studies Figure 9.2.2: Information Sharing Model Regulated entities (banks, microfinance institutions, nonbank financial institutions) Customers Nonregulated entities (second phase) Regulated Entities (Banks, MFIs, and NBFIs) Credit Report Central Bank of Morocco Credit Report PCBs Source: Credit Reporting Knowledge Guide, IFC, 2012. LEGAL AND REGULATORY FRAMEWORK n Prevents lender reluctance to share data and establishes a competitive, dynamic information-sharing market; In 2006, the Banking Law of 1993 was modified and the new Banking Law No. 54-05 of February 2006 was n Allows nonregulated lenders to be part of the system, passed to allow the central bank to become the licensor and thus preventing information-sharing monopolies; supervisor of credit bureaus. In 2007, BAM issued three n Gives the central bank authority to focus on supervisory circulars (No.’s 27/G/2007, 28/G/2007, and 2/G/2007), and regulation activities; outlining the scope and type of information (positive and n Allows borrowers to build their credit history across negative) to be collected from all regulated lenders, and different sectors; the terms and conditions to access such information. In addition, they gave the customer the right to view his or n Supplies the central bank with a wealth of information her credit report and dispute false information. for credit supervision; n Allows lenders to have stake in shareholding while at BAM also issued a code of conduct to cover operational the same time avoiding any potential conflict of interest, aspects and to govern the relationship between the by restricting individual shareholding to 5 percent and lender, the credit bureau, BAM, and the borrower. With group shareholding to 49 percent; the circulars and the code of conduct, a solid legal and regulatory framework was created to govern the credit n Permits tailoring ad-hoc services, and defined special bureau industry in Morocco, using a delegation model.511 prices and terms for microfinance institutions— recognizing their socially important role.512 9.2.3 BENEFITS OF MOROCCAN MODEL PARTICIPATION AND DATA SHARING The innovative model of delegation introduced by BAM offers the following advantages: As shown in Figure 9.2.3, the major participants in data sharing are banks, financial institutions and microfinance n Establishes an open, full-file, nonfragmented credit institutions. As of February 2012, the number of participants reporting system; in data sharing increased to 55. All MFIs were sharing data 246 s s s Arab Credit Reporting Guide Figure 9.2.3: Loan Accounts and Value by Type of As shown in Figure 9.2.4, the number of inquiries made to Institutions ESM increased significantly since April 2010, and reached Loan Accounts Loan Value its peak in October 2011 (89,928); since June 2011, the 1% average range was 75,000 to 80,000 per month. The total 18% 11% number of inquiries made on individuals as well as firms in 2013 was 1.3 million, an average over 100,000 inquiries 53% per month. 29% 88% ESM has made a positive contribution by helping lenders Banks FI MFTs Banks FI MFTs as well as borrowers in terms of collateral reduction Institution Number of Value of Loan (10 percent to 40 percent), increasing in average loan Loan Accounts (MAD Billion) volumes (by 10 percent), and reducing nonperforming loans Banks 2,451,747 532 in the banking sector (from 6 percent in 2008 to 5 percent Financial Institutions 1,316,909 66 in 2012). However, the level of NPLs for nonbanking Micro Finance Institutions 847,253 4 financial institutions did not show improvement, and grew Source: Bank Al-Maghrib, 2012. from 9.1 percent in 2008 to 9.7 percent in 2012. NPLs in the microfinance sector were still on the high side (5.3 percent but were not making inquiries (the cost of CB credit reports in 2008 and 6.7 perent in 2012), due to cross lending and was a prohibiting facto). The central bank has supported over-indebtedness; MFIs only started sharing data with the microfinance sector in its negotiations of preferential ESM in 2012. conditions and services with ESM. The three major MFIs have started making inquiries since May 2012, mainly via CPU-to-CPU.513 FUTURE PLANS In 2014 BAM started the process to issue a license to a 9.2.4 PERFORMANCE OF EXPERIAN second credit bureau in Morocco. To increase data sharing SERVICES MAROC coverage, the central bank also aims to include data of mobile telephone operators, and other non financial lenders As of August 2012, ESM had database of over 7 million and service providers. records of borrowers (both individuals and firms) from lenders, representing over 4.9 million live accounts with outstanding loan of over 600 billion Moroccan dirhams.514 9.2.5 CONCLUSIONS n The establishment of credit bureaus is a crucial step for There is an increase of 33 percent in total loan accounts and the future of Morocco’s financial system; 18 percent in live accounts as well as outstanding value, over a period of 15 months, as shown in Table 9.2.1. n With a clear vision, proactive approach and conducive legal environment, the central bank set up a very efficient Table 9.2.1: ESM Database and complete model within a short span of time; June August % n BAM has played a very important role in supporting 2011 2012 Change the development of a private credit reporting system Loan Accounts 5,610,040 7,454,042 33 on par with international standards, which has attracted Live Accounts 4,135,894 4,883,353 18 considerable attention from international credit bureau Outstanding balance 548 649 18 operators interested in investing in a new credit bureau (MAD billion) in Morocco; Number of 3,293,361 3,482,084 6 Individuals n Through ESM, the development of an effective credit Number of Firms 108,729 112,225 3 information system will help Morocco to maintain its Source: Morocco Credit Bureau Presentation, Experian, March 2012. Presentation for WB substantial lead in the credit industry; it will contribute mission, BAM, September 2012. 247 s s s 9. Case Studies Figure 9.2.4: Number of Inquiries 160000 140000 120000 100000 80000 60000 40000 20000 0 D 13 Ju 3 Ja 12 Se 3 Ja 3 12 13 14 Ap 2 Ap 3 Ap 4 12 Fe 3 13 Fe 14 O 2 D 2 O 3 2 N 3 M 2 M 3 14 Ju 2 4 Au 2 Au 3 Se 12 Ju 2 _1 1 _1 _1 _1 _1 1 1 _1 1 _1 _1 1 1 _1 _1 1 1 1 _ _ g_ r_ r_ r_ n_ n_ n_ n_ p_ p_ b_ b_ b_ l_ l_ g_ n_ ov ay ec ec ar ar ar ov ct ct ay ay Ju Ja Fe M M N M M Source: M. Aissame Makhfie, MAKHFI. “Establishment of a credit bureau: The experience of Morocco,” YEAR. significantly to the development of the financial market Developing VAS can benefit both the bureaus and as it provides institutions with objective, reliable, and customers, ultimately improving access to finance for pertinent data in the underwriting process; the broader community. Opportunities, challenges, and benefits, however, vary depending on a bureau’s individual n The CB second license will create an even more circumstances and the sophistication of the market. transparent, advanced, open, and competitive information sharing industry, with benefits for the Figure 9.3.1 gives a snapshot of the status of VAS in the borrowers and lenders; international credit reporting industry. Credit bureau scores appear to be the most prevalent and used ancillary service, 9.3 CASE STUDY: BUREAU SCORE distributed by over 40 percent of CBs worldwide. It is one of DEVELOPMENT, WEST BANK AND the most effective and tested techniques to reliably predict GAZA AND SAUDI ARABIA credit risk. At the same time, they can be alternatively used in a vast array of situations.516 9.3.1 BACKGROUND Ratings developed on the basis of credit bureau data are Value-added services (VAS) comprise a broad range of called bureau scores. These are different than ratings products that sophisticated credit bureaus can offer. Such compiled with data supplied by individual lenders. Bureau services entail the processing and analysis of existing raw scores are built on information pooled across many data to produce tools that can be easily integrated into creditors, as well as public information sources; they include banks’ credit approval and risk-management processes. characteristics otherwise unavailable to the individual Given the business volumes and the number of decisions lender, such as total exposure, number of outstanding often required to manage a typical retail portfolio (such loans, and previous defaults within the system. All of these as grant/reject facility, overlimit authorization, cross sell/ are highly predictive measures of future repayment. upsell, past due action required, portfolio review), many Credit bureaus typically build scores using historical data lenders have turned to VAS as a means of maintaining related to defaults on previous credit transactions, positive efficiency.515 The range of potential VAS is quite extensive, payment behavior, and previous searches/inquiries. In and the services offered by credit bureaus have broadened certain circumstances, third-party data—such as court significantly over the past 20 years. judgments and bankruptcies, demographic data or geo- demographic—are also used. 248 s s s Arab Credit Reporting Guide Figure 9.3.1: Additional Services and Products Offered by PCBs 45 40 41 35 I Sellected “other” services, as reported by 30 34 34 the selected countries include: 37 Percentage – Portfolio statistical analysis 25 – Statistitical data mining 20 – Risk management support 20 – Investigative business reports 15 – Score-cards for banks and Fls 10 – Pre-scoring – Financial Education 5 – Identity verification services 0 – Business Information reports Bureau Credit Fraud Debt Marketing Other Score Detection Collection Services Source: Doing Business 2010 Credit bureaus typically choose to develop a suite of Palestine Monetary Authority (PMA) recognized the models rather than just one model to accommodate importance of sharing credit information to optimize the multiple requirements of customers. Similarly, they may credit lending activity and pioneered a credit-reporting use a variety of distribution channels as different users use system for the economy. The objectives were: scores for different purposes. n To collect information from the credit industry to support the PMA’s oversight duties; The presence of sufficient historical data is a prerequisite for the development of scoring models. In emerging n To supply lenders with reliable and complete information markets—where either the market is too small or the credit for credit underwriting purposes. bureau is insufficiently mature to have confidence in the data—the bureau may consider offering models that rely Within three years, the PMA made remarkable progress in more heavily on customer demographic characteristics the development of the credit registry. The PMA established than on credit performance data. Although less predictive, its first manual CR, the Palestine Monetary Authority these models often provide a useful introduction to Credit Registry (PMACR) in 2007, and launched an online the methodology for lenders with little or no previous credit reporting service in 2008. The PMA then included experience in credit scoring.517 microfinance institutions in 2009 as data providers with an access to inquiry for borrowers. CBs in a few countries (Bahrain, Egypt, Saudi Arabia) introduced the first credit bureau scoring models in MENA. In December 2009, the PMA decided to explore a new The only CR using bureau scores in MENA, and one of the area by introducing credit scores—for the first time in the rare cases worldwide, is the Palestine Monetary Authority’s region. The objectives were accurate assessments of the CR, which was launched in April 2010.518 risks of existing and future borrowers, periodic review of credit risk through portfolio monitoring, and strengthening 9.3.2 WEST BANK AND GAZA: PALESTINE banking facilities.519 MONETARY AUTHORITY BUREAU SCORE PMA began by gathering information related to credit With about 4 million inhabitants in the West Bank and practices over 18 months. This information was to serve Gaza strip, an established credit agency with the facilities as a basis for the development of a score card. The job of of credit inquiry and assessment of financial standing developing a score system was entrusted to the Creditinfo of customers, as well as borrowers, was necessary. The Schufa GmbH, which provided the decision support system 249 s s s 9. Case Studies and took over the technical aspects of implementation. n Discloses, at most, five reasons to explain the evaluation The company was provided with financial statements and of a client’s degree of risk; personal data of borrowers as well as guarantors.520 n Limits the degree of risk, compared to the average customer credit risk for the portfolio of the banking The requirements stipulated by the PMA for the score card facilities; were as follows: n The scores are a credit-assessment tool for internal use The mandate to develop a score card was six months; as well as for the use of all the regulated institutions, n n The installation of the system was to be integrated in the such as banks and microfinance institutions, none of existing financial infrastructure without impairing core which had their own credit scoring system. The scores processes of the bank; are based on demographic and financial data (past and current), and range from 100 to 380. The higher the n The PMA demanded full control of the scoring process score, the lower the likelihood of a customer’s default. as well as the calculation of scoring variables and scoring The scoring is used for individuals as well as institutions, values; also flexibility to later change these groups, if including small and medium enterprises. necessary; n Any future changes should be implemented as early The score is presented online and, as shown in Figure 9.3.2, as possible to ensure quick processing of both single provides: inquiries and bulk data. Thus, score calculation and n Credit score of the individual; inclusion went directly in the credit reports; n The probability of customer defaulting within a year; n In order to reduce the duration of development, the variables required for developing the score card should n Risk grade; be directly plugged into the scoring system, rather than n Reason codes.522 calculated by statistic software; n Batch scoring of all the client portfolios of the large banks The credit scoring system is one of the important should function without impairing core functionalities determinants in credit decision-making and offers of the CR. advantages, such as: n Accurate assessment of the risks of existing and future Initially, there were 300 variables extrapolated for the borrowers; development of score card, of which about 20 variables were used in the final score card. In addition, Credit info n More precision in the underwriting processes of lenders; developed reason codes to provide the official in charge n Objective and fair credit decisions with automated with an explanation for a poor score or negative credit decision-making process; rating. Such evaluation could be made for a score less than 300 and based on the financial transactions of a person during the past year.521 Figure 9.3.2: PMA Credit Report Snapshot The credit bureau scoring system was launched on July 5, 2010. The system: n Provides an accurate estimate of the credit risk of borrowers, based on the available data and information stored in the system; n Determines the minimum and the maximum extent of risk for each borrower, and the probable percentage of default during a year period; Source: Palestine Monetary Authority Credit Registry (PMACR). 250 s s s Arab Credit Reporting Guide n Reduced collateral requirements; product development solutions, research studies, and other n Reduced turnaround time; customized advisory and research solutions. The concept behind these value-added services is to transform raw n Risk-based pricing and assistance in evaluation of credit data into information, and then transform information into limits; knowledge.526 n Enhancement in the competitiveness among the lenders; Most of the small and medium enterprises (SMEs) in n Reduced cost of lending; Saudi Arabia are individually-owned or limited liability n Better access to banking facilities. firms. They are the major drivers of economic and social development, and contribute significantly in creating jobs. The credit scoring in the West Bank and Gaza is the first However, there were a few constraints to their growth; one experiment in credit bureau scoring adopted by a CR in major constraint was access to finance. Banks in Saudi the region. It has brought about significant improvements Arabia were hesitant to lend to SMEs because of the lack in the underwriting processes and evaluation of credit of credit information to measure the level of financial limits by the credit grantors with reduced overheads. The solvency, high cost of loan assessment and evaluation, establishment of the PMACR and the scoring system has inability of SMEs to manage credit risks, increased lending also resulted in a decrease in nonperforming loans in the costs due to increased credit risks, and the inability to Palestinian credit market, from 14.5 percent in 2008 to 8 anticipate and calculate the probability of default.527 percent in 2012, as seen in Chapter 7.19. Considering the vital role played by SMEs in the economy, With its bureau credit score model, the PMA has become SIMAH launched a project, Taqeem, to assess SMEs in the the second central bank registry out of 65 central bank Saudi Market. The project sought to: credit registries in the world to implement such a system.523 n Carry out studies and analyze all financial, economic, administrative, and strategic aspects related to SMEs in 9.3.3 SAUDI ARABIA: SME SCORE order to assess such companies in terms of capital, scope DEVELOPMENT of activities, and number of employees; The Saudi Arabia Credit Bureau (SIMAH) is the first and n Evaluate the entire SME sector by providing accurate sole licensed national credit bureau offering consumer and credit information on their projects to the lenders; commercial credit information services to its members in n Encourage banks to develop a scientific base and Saudi Arabia. It was established in 2002 with the mission methodologies of evaluation, by taking into account the of providing comprehensive credit information services financial risks of these enterprises; and value-added products. By using best business practice, SIMAH is a world-class bureau in terms of products, n Create an opportunity for banks to diversify their services and standards. It became operational in 2004.524 products, adding value to the Saudi finance market; n Remove uncertainty and increase transparency in the Initially, services were confined to individuals. Later underwriting process; SIMAH recognized the need to extend credit to small and medium enterprises, and to better equip lenders to make n Encourage responsible borrowing and improve banking fair credit decisions. Therefore, it expanded its services penetration in the economy.528 to include the commercial reporting for businesses to In order to increase awareness of this project, more than complement retail credit bureau operation in 2007.525 20 workshops were conducted throughout the country. Besides the primary mandate of providing consumer Similarly, two workshops, chaired by the governor of and commercial borrower data to members, SIMAH has Saudi Arabia Monitory Agency (SAMA), were held for also developed new products and solutions for the credit banks. The campaign included more than 300 media hits in industry. These include credit score cards, market and the press and on air, through interviews and other reports. 251 s s s 9. Case Studies As a part of Taqeem’s initiative, the SME score was The bureau score is in the range of 1 to 20, and is aligned launched in late 2010. The objectives were to minimize the with that of rating agencies - Standard and Poor’s (S & P) risk involved in SME lending, enable banks to undertake and Moody’s scale. The score is available to both SMEs accurate and sound credit decisions, contribute to and lenders. All banks adopt the SME Taqeem score, and restructuring the SME sector, and set a national benchmark the cost to access it varies from lender to lender based for SME credit lending. on the business volumes. The cut-offs are based on the score scale. There is a scope for accepting and declining, The scoring solution was a homegrown technology to ensure and referring the score. The bureau scores are also used that it would be in sync with the government’s initiatives to provide differential pricing to the borrowers.531 Figure and incubation programs. It started with a sample of 2,000 9.3.3, below, gives a snapshot of the credit report and score SMEs, and required a consolidation of critical information for SMEs. related to the nature of SME behavior (such as finances, growth, business structure, and management style) in Figure 9.3.3: Sample Credit Report and Score format the Saudi market. Scoring was developed and enhanced, for SMEs through 29 revisions, in collaboration with the banks.529 The score is easy to understand and represents the probability of default (PD) of an SME. Considering the relevant financial and nonfinancial data, an algorithm based on a statistical model produces a score that represents the PD. The model is a mix of quantitative and qualitative data, with more weightage to quantitative variables.530 The data used for scoring includes: n Three years of audited financials; n Detailed management surveys; n Detailed operational surveys; n Financial spread and ratios; n Creditor lending criteria; n Nonperforming loans and nonperforming accounts; n Historical records of default and delinquency; Source: SIMAH n Any adverse information like check bounce, legal bankruptcy, etc.; Under the Taqeem project, SIMAH has made significant contributions for improving access to finance for the SME n Positive and negative data; sector. The scoring model has improved credit and risk- n Information from the data providers—regulated as well assessment practices undertaken by lending institutions, as nonregulated entities. making decisions more objective and resulting easier access to credit for SMEs. SIMAH also plans to undertake The PD model has been tested out-of-sample and out- various other initiatives to advance economic growth, of-period, and has performed very well. SIMAH worked create an efficient credit market, lower macroeconomic closely with a pilot bank to test the model on the bank’s risk, and improve transparency. portfolio, and results have been promising. 252 s s s Arab Credit Reporting Guide 9.3.4 CONCLUSIONS income people and micro and small enterprises (MSEs). The success of these two programs encouraged more n The contribution of PMACR and SIMAH in developing nongovernmental organizations to offer similar programs. value-added services, like credit bureau scoring, is Technical and financial assistance of many donors facilitated noteworthy. The two institutions were among the first the growth of this sector. The Egyptian Social Fund for in the region to develop and introduce such advanced Development (SFD), an autonomous wholly state-owned tools; entity, was established in 1991. SFD’s mandate is to reduce n The bureau score is an important tool that has helped poverty, promote the establishment of small and medium lenders to resolve the problem of information asymmetry, enterprises, assist with credit and technical services, and and improve the efficiency of the credit market in Saudi act as an umbrella organization to support the creation and Arabia and the West Bank and Gaza. development of microfinance institutions in cooperation with international donor agencies. n The two scoring models serve as examples for other MENA countries in the development of their own In 2001, Banque du Caire—followed by Banque Misr in scoring systems. Although such initiatives have already 2003 and Bank of Alexandria in 2007—started offering been undertaken by the CBs and the Central Bank of microcredit programs. In addition, two private sector Qatar, other CRs should develop scoring models. banks in cooperation with two service companies ventured into the microfinance sector. Accordingly, Reefy, a joint 9.4 CASE STUDY: INCLUSION OF stock company, was set up in 2007 in cooperation with MICROFINANCE DATA IN I-SCORE, the Commercial International Bank (CIB); Tanmeyah, THE CREDIT BUREAU OF EGYPT a joint stock company, was started in cooperation with Egyptian Gulf Bank (EGB) in 2009. As of March 2010, Microfinance includes all financial services and products these companies had an outstanding loan portfolio of 68.4 offered to the low and limited-income segments of the Egyptian pounds and 97 million Egyptian pounds, with a population. This consists of credit, insurance, savings branch network of 29 and 54 branches, respectively.532 and remittances tailored to the needs of these segments. It is considered an important mechanism for expanding In Egypt, presently, there are two microfinance companies, access to finance, as it focuses on the self-employed, four banks, and the Egyptian Microfinance Network (which household-based entrepreneurs— those with informal includes 23 nongovernmental organizations that are the or no business records, no collateral, and no access to main microfinance providers in the country). In addition, formal credit markets. Microcredit suppliers in Egypt, there are number of NGOs or community development named microfinance institutions, provide credit programs associations that are not members in the microfinance to economically-active poor people and micro and small institution network but offer microfinance programs.533 The enterprises. NGOs are prohibited from offering savings and deposit products to clients. Egypt Post is the main provider of 9.4.1 EVOLUTION OF MICROFINANCE savings products to Egyptian microentrepreneurs.534 IN EGYPT LENDING MECHANISM OF In order to fulfill their financial needs, low and limited- MICROFINANCE INDUSTRY income people have previously depended on informal sources of finance, such as money lenders that charged There are two prevailing lending mechanisms in the exorbitant interest rates. In the late 1980’s, the United States Egyptian microfinance industry: solidarity group lending Agency for International Development (USAID) provided and individual lending. technical and financial support to Egypt’s National Bank for Development (NBD) and Alexandria Businessmen In the case of solidarity group lending, a group of three Association (ABA) to offer microcredit programs to low- to five borrowers receive a loan that is equally divided among them; they give guarantee to each other in repaying 253 s s s 9. Case Studies the loan. The loan is used to finance income-generating Figure 9.4.1: Number of Borrowers activities, mostly in the trade and service sectors. 1500 In the case of individual lending, a loan is given to an 1200 Thousand individual and/or owner of a small or microenterprise. The 900 majority of individual loans offered in this category are 600 business loans.535 300 Microfinance institutions can extend credit and related 0 2008 2009 2010 2011 financial services/products directly to customers, or Source: Sanabel indirectly as an agent for civil society organizations, donors, and financial institutions.536 Figure 9.4.2: Gross Loan Portfolio REGULATORY FRAMEWORK 3.0 2.5 Until 2009, the microfinance industry in Egypt was not EGP Billion 2.0 regulated or supervised by a single entity. NGOs were 1.5 supervised by the Ministry of Social Solidarity and banks 1.0 were supervised by the Central Bank of Egypt, whereas the 0.5 microfinance portfolio of service industries was indirectly 0.0 2008 2009 2010 2011 supervised by the central bank. In October 2010, the Egyptian Financial Supervisory Authority launched a set Source: Sanabel of controls, standards and principles. In its current form, it does not represent a legal tool, but rather a draft framework KEY CHALLENGES OF THE and code of ethics for microfinance companies.537 As of MICROFINANCE INDUSTRY November 2014, a new Mircofinance law was enacted, while exectutive regulations will follow. n Lack of uniform regulatory authority: There are different regulatory frameworks governing the microfinance SIZE OF THE MICROFINANCE INDUSTRY institutions in Egypt. The Ministry of Social Solidarity supervises NGOs; banks are supervised by the Central Egypt’s contribution to the microfinance sector is Bank of Egypt. Newly established service companies noteworthy. As of December 2011, the number of are not regulated or supervised, yet their microfinance borrowers was over 1.3 million, with an outstanding loan portfolios are supervised indirectly by CBE. As a result, portfolio of 2.6 billion Egyptian pounds. Figures 9.4.1 there is an absence of standardized reporting systems and 9.4.2 show the growth in business volumes, in terms on the performance of MFIs. This has led to a lack of of total number of borrowers and loan portfolio, since transparency in the MFI’s financial performance; December 2008. The number of borrowers increased n Competition: The playing field is not level for the from 1.15 million in 2008 to 1.49 million in 2010, with an country’s microfinance industry. The cost of funding, increase in gross loan portfolio from 2.2 billion Egyptian tax treatment, and overhead expenses vary from one pounds to 2.6 billion Egyptian pounds—a growth of 30 legal entity to another, which is not conducive to healthy percent and 14 percent respectively.538 competition; Although both outreach and scale slightly decrease by 7 n Constraints on outreach: As non profit entities, small percent, from 2010 to 2011, as a result of political changes, NGOs are unable to raise funding through commercial the Egyptian market maintained the second-largest share of sources, such as private equity or banks. There are also the market in terms of outreach, following the Moroccan restrictions on mobilizing deposits. As a result, they are market.539 unable to increase their outreach; 254 s s s Arab Credit Reporting Guide n Limited ability to offer diversified products: Under the n Over 14 percent (nearly 50,000) of the MFIs’ clients current regulatory framework and also due to lack of in the sample had been granted credit lines (one, two, infrastructure and technical expertise, MFIs cannot offer or more) by banks, corresponding to an outstanding a diverse range of products to clients; balance of nearly 500 million Egyptian pounds (three- times as much as the MFIs’ total outstanding balances); n Consumer protection of microfinance clients: There is no clear supervision with regard to the MFI practices n 6,000 of these MFI/bank customers were 90 plus days related to the consumer rights; past due; n Over-indebtedness: NGOs that are MFIs do not report n 460 of them were undergoing legal actions; to the credit bureau or inquire about their clients’ credit n About 100 showed records of dishonored checks; history. It leads to multiple lending in the same sector as well as cross-lending by banks which results in over- n Around 13,000 MFI clients had been granted credit lines indebtedness in the microfinance sector.540 (one, two, or more) by other MFIs, with an outstanding balance of 14 million Egyptian pounds.542 Some of these challenges will be addressed by Egyptian Financial Supervisory Authority, which aims to bring The incidence of multiple lending, as demonstrated by the efficiency and transparency to this sector. Similarly, cross-tabulation analysis, dissuaded the MFIs from keeping I-Score, the credit bureau, would enable MFIs to address their data separate from other lending sectors. MFIs the problem of over indebtedness through a positive credit recognized the fact that vertical information silos would information system. not have provided the necessary quality and completeness of information needed to conduct responsible and reliable 9.4.2 INCLUSION OF MFI DATA BY lending. I-SCORE, THE CREDIT BUREAU Following the cross-tabulation analysis (see Table 9.4.1), With increasing lending volumes, MFIs started facing a in early 2012, IFC entered into an agreement with the problem of defaults in repayments in the microfinance Egyptian Microfinance Network to support the integration sector. The situation became alarming, and there was an of four of the largest MFIs into I-Score over a year. The urgent need to address this crisis. objective was two-fold: I-Score, a credit bureau launched in 2008, was successful To ensure a smooth functioning system of data 1. in obtaining credit data from banks, leasing and mortgage submission and acceptance of the bureau by MFIs; companies, and the Egyptian Social Fund for Development. 2. To help MFIs to make better credit decisions, using credit It was also trying to add MFI data to its database, but was reports, and thereby build healthier credit portfolios. unsuccessful due to MFIs’ mistrust of I-Score’s intentions. MFIs were keen to establish a separate credit bureau, which The data collected and distributed is positive data, including would have led to the fragmentation of information in the personal, financial and demographic information, loan market.541 data, and payment performance data. There is no legal obligation on MFIs to make inquiries to or share data with In 2011, I-Score and IFC proposed to three of the largest the credit bureau, and they need to obtain consent from the Egyptian MFIs a cross-tabulation analysis. The aim was to borrower to do so. compare a sample of their loan portfolios with the data in the I-Score database to see if there was evidence of cross- I-Score now receives data from two microfinance lending (borrowers being granted lines of credit by other companies and the microfinance network, incorporating lending sectors, such as banks). The results were both four NGOs (Lead Foundation, Alexandria Business unexpected and alarming for the MFIs: Association, Sharkia Business Association for Community 255 s s s 9. Case Studies Table 9.4.1: Comparison Between MF Network Relationship Analysis as of September 2011 vs. September 2013 Total Total 90+ Total Total Total NPL NPL Outstanding Bad 90+ Bad Egyptian Customers Facilities (90+ ACC) (90+ AMT) Balances Accounts Amount Micro Sep-11 Finance 1,06,914 28,52,09,231 1,07,172 6,737 1,12,99,638 6.29% 3.96% Sep-12 Network 2,08,699 58,77,52,207 2,09,642 6,294 1,04,86,126 3.00% 1.78% Sep-13 2,18,102 59,32,15,247 2,19,043 6,342 1,22,00,080 2.90% 2.06% Total Bad I-Score Number Bad Balance in Number of Accounts NP NP Relation- of Accounts I-Score (EGP) Loans 90+ DPD (90+ ACC) (90+ AMT) ship with Customers 90+ DPD Amount Egyptian Sep-11 Micro 19,228 24,70,65,612 30,464 3,543 3,38,27,530 11.63% 13.69% Sep-12 Finance 37,137 53,93,84,008 57,616 4,031 4,29,27,656 7.00% 7.96% Network Sep-13 35,799 56,22,59,847 53,572 4,870 4,11,90,124 9.09% 7.33% Source: I-Score Data Development, Dakahlia Businessmen Association); the IMPACT OF MFI DATA INCLUSION ON data received from them has reached 766,848 records, as NONPERFORMING LOANS of September 2013 (individual loans). MFI borrowers are registered individually using their National ID. However, MFI data inclusion by I-Score is a recent development and the data of solidarity groups has not yet been reported. The therefore the impact of this initiative will be measurable MFI data from NGOs are submitted under the MFI network over the next few years. However, the NPLs have started (excluding two companies that report the data directly). to show a declining trend since December 2011, as shown in Figure 9.4.3. Multiple factors, including the integration There has been a significant increase in the data inclusion of MFI data into I-Score are contributing to this trend.543 by I-Score, as seen in Table 9.4.2. But there is tremendous scope to cover more MFIs as well as group lending which Figure 9.4.3: MFI Data in I-Score – NPAs (%) is not yet covered. 2 1.75 1.8 1.6 There is a special pricing arrangement of around 5 Egyptian 1.4 pounds for MFI lenders (compared to 16 to 26 Egyptian 1.2 0.92 1 0.79 pounds for other lenders); and a three to six month free trial 0.8 period. However, some MFIs feel that a better pricing deal 0.6 0.4 can be agreed upon with I-Score. 0.2 0 Dec-2011 Dec-2012 Sept-2013 Source: Based on response from I-Score. Table 9.4.2: Microfinance Data Inclusion from December 2011 to September 2013 Category Dec-11 Sep-13 % increase Active individual customers (#) 180,545 286,312 59 Active individual customers (Outstanding loans Million EGP) 532.5 834 57 Women borrowers (#) 45,450 88,617 95 Women borrowers (Outstanding loans Million EGP) 117.5 231 97 Source: I-Score Data 256 s s s Arab Credit Reporting Guide 9.4.3 CONCLUSIONS In order to increase the effectiveness of the I-Score n initiative, more NGOs need to join the initiative, as the data included is marginal considering the size of microfinance industry. It is essential to integrate group loans in the credit n bureau as they constitute a significant portion of the microfinance portfolio in Egypt. I-Score and MFIs need to reach a sustainable pricing n agreement in order to ensure the continuity of the initiative. MFIs should make inquiries to the credit bureau more n frequently in order to see the benefits of utilization of the bureau’s services. MFI data inclusion will not only help to strengthen n microlending practices but will also benefit the Egyptian financial sector as a whole. 257 s s s ENDNOTES 1. Contributors from IFC include Oscar Madeddu, 8. “World Data Bank,” The World Bank, accessed Bassim Sharafeldin, and Elsa Rodriguez. September 15, 2014. http://databank.worldbank. Contributors from AMF include Hafid Oubrik and org/data/views/reports/tableview.aspx. Yisr Barnieh. External experts include Satish Mehta and Rachna Chandrashekhar who were supported 9. “GDP Per Capita (Current US$),” The World Bank, by Swati Deshpande and and Arpita Tandon Narula. accessed September 14, 2014. http://data.worldbank.org/ indicator/NY.GDP.PCAP.CD/countries/1W- 2. Banking in the Mediterranean: Financing Needs and ZQ?display=graph. Opportunities inTurbulentTimes,” European Investment Bank, September 16, 2013. http://www.eib.org/ 10. Roberto R. Rocha et al. Financial Access and infocentre/publications/all/economic_report_banking_ Stability: A Road Map for the Middle East and med_needs_and_opportunities.htm. North Africa, The World Bank, 2011. 3. “MENA Regional Economic Update: Recovering from 11. Ibid. the Crisis, April 2010,” The World Bank, accessed September 15, 2014. http://go.worldbank.org/ 12. Estelle Brack. “Access to Finance in the MENA LD31X6LCF0. region: A Multi-pronged Approach,” The World Bank, 2011. Subika Farazi et al. “Bank Ownership 4. Ibid. and Performance in MENA Region,” The World Bank, 2011. 5. “Regional Brief,” The World Bank, accessed September 15, 2014. http://web.worldbank.org/ 13. “Domestic Credit to the Private Sector,” The WBSITE/EXTERNAL/COUNTRIES/MENAEXT/0, World Bank, accessed Septembet 15, 2014. menuPK:247606~pagePK:146732~piPK: http://data.worldbank.org/indicator/FS.AST.PRVT. 146828~theSitePK:256299,00.html GD.ZS/countries/1W-ZQ?display=default. 6. “MENA Regional Economic Outlook,” International 14. “Banking in the Mediterranean: Financing Needs Monetary Fund, 2013. “MENA Regional Annex,” and Opportunities in Turbulent Times.” Global Economic Prospects, 2013. 15. Roberto Rocha et al. “The Status of Bank Lending to 7. “MENA Regional Economic Update: Recovering SMEs in the Middle East and North Africa Region,” from the Crisis, April 2010.” The World Bank, 2011. 259 s s s Endnotes 16. 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Ibid. and Opportunities in Turbulent Times.” 35. “MENA Housing Finance Set to Grow,” Gulf Press, 21. Salman Syed Ali. “Islamic Banking in the MENA April 18, 2012. http://www.gulf-press.com/english/ Region,” Islamic Research and Training Institute, news.details.php?id=19413. 2012. 36. “Postal Networks in the Middle East and North 22. Ibid. Africa,” Consultative Group to Assist the Poor, 2011. 23. “Banking in the Mediterranean: Financing Needs and Opportunities in Turbulent Times.” 37. Ibid. 24. Douglas Pearce. “Financial Inclusion in the Middle 38. Roberto Rocha et al. “A Review of Credit Guarantee East and North Africa: Analysis and Roadmap Schemes in the Middle East and North Africa Recommendations,” The World Bank, 2009. Region,” The World Bank, 2010. 25. Ibid. 39. Ibid. 26. Ibid. 40. “Recent Credit Stagnation in the MENA Region: What to Expect? What Can Be Done?” 27. “Middle East and North Africa Regional Snapshot,” MIX and Sanabel Analysis, 2012. 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Ibid. 174. “Supporting the Establishment of Credit Bureaus,” U.S. Agency for International Development, 2009. 265 s s s Endnotes 193. Ibid. 209. Annual Report, Central Bank of Jordan, 2012. 194. Ibid. 210. data.worldbank.org 195. Annual Statistical Bulletin, Central Bank of Iraq, 211. Based on the exchange rate of 0.7101 Jordanian 2012. dinars per U.S. dollar, on December 31, 2012. “Current and Historical Rates.” 196. Annual Statistical Bulletins, Central Bank of Iraq, 2008–2012. “Financial Access Survey,” IMF, 2012. 212. Annual Report, Central Bank of Jordan, 2012. 197. “Assessment of the Credit Reporting System in 213. Central Bank of Jordan website, accessed September Iraq,” ACRI, 2012. 14, 2014. http://www.cbj.gov.jo/. 198. Ibid. 214. Based on response from the Central Bank of Jordan to the Credit Information Sharing Survey. 199. Ibid. 215. Unless specified otherwise, all information is from 200. Ibid. Annual Report, Central Bank of Jordan, 2012. 201. Ibid. 216. Feras H. Musmar and Sa’ad M. Hudairi. “Jordanian Banking Sector Brief,” Awraq Investments, October 202. “Credit Information Sharing Survey,” ACRI, 2013. January 2013. 217. “Assessment and Observations on the Credit 203. Ibid. Reporting System of the Hashemite Kingdom of Jordan,” ACRI,,2011. 204. “Assessment of the Credit Reporting System in Iraq.” – IFC - 2012 218. Ibid. 205. Ibid. 219. Annual Report and Monthly Statistical Bulletin, Central Bank of Jordan, 2012. 206. Ibid. 220. “Assessment and Observations on the Credit 207. As we write, the CBI is currently in the process of Reporting System of the Hashemite Kingdom of undertaking a project for a new PCR system based Jordan.” on best practice. 221. “Jordan Microfinance Market Study,” Ministry of 208. “Jordan,” Forbes, accessed September 14, 2014. 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Outlook, accessed September 15, 2014. http://www. africaneconomicoutlook.org/en/countries/north- 253. “Association of Banks in Lebanon,” accessed africa/libya/. September 15, 2014. http://www.abl.org.lb/. 266. “Credit Information Sharing Survey,” ACRI, 254. “Banking in the Mediterranean: Financing Needs January 2013. and Opportunities in Turbulent Times.” 267. Isaac Mireles et al. “Libya,” Wharton School, 255. “Lebanon Economic Report,” Bank Audi, accessed University of Pennsylvania, accessed September September 15, 2014. http://research.banqueaudi. 15, 2014. http://fic.wharton.upenn.edu/fic/africa/ com/documents/EconomicReports/lebanon_ Libya%20Final.pdf. economic_report.pdf 268. Ibid. 256. “Microfinance Industry Profile: Lebanon,” Sanabel, 2009. 269. “Assessment and Observations on the Credit Reporting System of Libya,” 257. Philip Issa. “Microfinance Rising in Lebanon,” Executive Magazine, July 18, 2013. http://www. 270. 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There September 16, 2014. http://www.worldbank.org/en/ was no response to the ACRI Credit Information country/syria/overview. Sharing Survey from January 2013. Thus, some of the information in this chapter may be outdated. It 406. Ibid. was not possible to provide an ACRISI score for 2008 and 2012. 407. “Syria Inflation,” Trading Economies, accessed September 16, 2014. http://www.tradingeconomics. 418. “Tunisia Overview,” The World Bank, accessed com/syria/inflation-cpi. September 16, 2014. http://www.worldbank.org/en/ country/tunisia/overview. 408. “Syria: Inflation hits 68% in May,” Ahram Online, September 18, 2013. http://english.ahram.org.eg/ 419. Philippe Trape et al. “Tunisia,” African Economic NewsContent/3/12/81921/Business/Economy/ Outlook, accessed September 16, 2014. Syria-Inflation-hits--in-May.aspx. http://www.africaneconomicoutlook.org/en/ countries/north-africa/tunisia/. 409. Monetary Statistics, Central Bank of Syria, 2011. “Syria Overview.” 420. Ibid. 410. 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Statistics Organisation, 2012. 503. Ibid. 489. Ibid. 504. “ACRI Assessment and observations on the credit 490. “Credit Information Sharing Survey.” reporting system of Jordan.” – ACRI - 2011 491. “Building Credit Reporting Infrastructure in 505. Ibid. Yemen,” ACRI, 2009. 506. M. Anas El Ouazzani Chahdi. “Supervision of PCB, 492. Ibid. Morocco: A presentation,”. IFC Report 2006 493. Ibid. 507. “Credit Reporting Knowledge Guide.” - IFC 494. Financial Access Survey, IMF, 2008. 508. Oscar Madeddu. “MENA Flagship Credit Reporting,” The World Bank Group, 2010. 495. Yemen Microfinance network presentation, www.yemennetwork.org, accessed September 16, 509. “Credit Reporting Knowledge Guide.” 2014. 510. Internal report, IFC, 2012. 496. Data.worldbank.org 511. “Credit Reporting Knowledge Guide.” 497. “Building Credit Reporting Infrastructure in Yemen.” 512. Chahdi, 2011. “ACRI Morocco Confidential Report Final.” 498. “Yemen Microfinance network presentation.” 513. “ACRI Morocco Confidential Report Final.” 499. All information in this section, unless mentioned otherwise is from the “Building Credit Reporting 514. Presentation for WB mission, BAM, Infrastructure in Yemen” the response to the MENA September 2012. Credit Information Sharing Survey, ACRI, January 515. “Credit Bureau Knowledge Guide.” 2013. 516. Madeddu, 2010. 500. The 8 countries members of the Economic and Monetary Union of West Africa ( UEMOA) 517. “Credit Reporting Knowledge Guide.” -IFC have approved a single identical credit reporting legislation, that has been enforced in the 8 countries 518. Madeddu, 2010. and will allow cross border sharing, therefore the possibility to provide credit reports on borrowers’ 519. “Launching Credit scoring system 2010,” exposures in each and all the member countries, Department of Inspection and Control, Project strongly improving mobility, borrowers access to Manager Ali Faroun, Credit Information Office credit, and improved risk management. PMA- 2010. 276 s s s Arab Credit Reporting Guide 520. “Report on the Credit Risk Management Lending 534. “Egypt: Largest Microfinance Client Base in Practices in the West Bank,” Palestine Monetary Arab World.” Authority, December 5, 2012.http://www.pma.ps/ Default.aspx?tabid=206&ArticleID=185&ArtMID 535. “Microfinance in Egypt: Brief Overview of =1054&language=en-US Current Status.” 521. Ibid. 536. “Credit information Sharing Survey.” 522. “Feasibility of Credit Bureau in a Small Market,” 537. http://www.efsa.gov.eg/content/efsa2_en/reports_ CreditInfo, September 2011. http://www.bnm. micro_en/reports_micro_en.htm gov.my/microsites/crrm/Session5_Feasibility%20 of%20Credit%20Bureau%20in%20a%20 538. Sanabel. Small%20Market.pdf 539. Newsletter, Sanabel, July-December 2012. 523. The Palestine Monetary Authority Credit Registry 540. “Microfinance in Egypt: Brief Overview of (PMACR) - A Success Story and Launching Credit Current Status.” scoring system 2010.” 541. “Credit Reporting Knowledge Guide.” 524. “Overview,” SIMAH. 542. Based on response from I-Score. 525. “Credit Bureau Knowledge Guide.” 543. Based on response from I-Score. 526. Nabil A Al Mubarak. “Reducing risk: Saudi Credit Bureau (SIMAH), on the role of credit risk in MENA,” SIMAH, accessed September 16, 2014. http://www.simah.com/en/NewsDetail.aspx?news_ id=Uq4oqo8lLRU=. 527. “SMEs new evaluation System,” SIMAH, accessed September 16, 2104. http://www.simah.com/en/ NewsDetail.aspx?news_id=fjULL32Dtq0= 528. “Door To Finance: An educational booklet by SIMAH to raise the awareness of credit,” Taqeem, 2013. 529. Response from SIMAH to case study questionnaire 530. “Door To Finance.” 531. Response from SIMAH to case study questionnaire. 532. “Microfinance in Egypt: Brief Overview of Current Status,” Egyptian Financial Supervisory Authority (EFSA), 2010. 533. “Credit information Sharing Survey.” 277 s s s 1. Introduction to the Guide Arab Monetary Fund Building Corniche Street 2121 Pennsylvania Avenue, NW Abu Dhabi, United Arab Emirates Washington, DC 20433, USA P.O Box 2818 www.ifc.org www.amf.org.ae iv s s s