Credit Information Systems in Less-Developed Countries: A Test with Microfinance in Guatemala

This paper argues that credit information systems can play a crucial role towards improving credit market performance and, in turn, credit access for the poor. The paper:

• Offers a descriptive account of the growth in credit information systems in developing countries;
• Tests the effects of a newly implemented credit bureau in Guatemala;
• Provides an empirical description of the credit reporting environments found today in various parts of the developing world;
• Offers a review of previous research on credit information systems;
• Gives a brief history of the development of credit information systems;
• Presents the data set and estimation technique used to capture the screening effects of the newly implemented Guatemalan credit bureau.

The authors study of the Guatemalan credit bureau confirms the positive role that information sharing can play in improving lending performance. Some results of the study are:

• Decline in the level of portfolio arrears between 1-3 percentage points because of the improved screening effects from the system;
• Reduction in late monthly payments made by borrowers;
• Increase in MFI investment returns;
• Lowering of interest rates by 2.59 percentage points.

The paper concludes with the following policy recommendations:

• Introduction of a robust credit reporting system the rules of which are well understood by borrowers;
• Increase in client outreach and education so as to reap efficiency benefits.