Public Credit Registries Research Articles

Banking concentration, information sharing and women's political empowerment in developing countries

PurposeThis article analyses the effect of bank concentration on women's political empowerment in 80 developing countries over the period 2004–2020.Design/methodology/approachBanking concentration (BC) is measured by the assets held by the three largest commercial banks as a percentage of total commercial bank assets in a country. We use several indices to measure political empowerment, namely: the political empowerment index, composed of three indices (i.e. the women's civil liberties index, the women's participation in civil society index and the women's political participation index). The empirical evidence is based on the Ordinary Least Squares (OLS) and Fixed Effects (FE) techniques.FindingsThe following findings are established. Banking concentration reduces women's political empowerment. Furthermore, information sharing offices (i.e. public credit registries and private credit bureaus) mitigate the negative effect of bank concentration on women’s political empowerment. Information sharing thresholds that are needed to completely dampen the negative effect of bank concentration on women’s political empowerment are provided. Policy implications are discussed, notably: (1) that governments in developing countries increase competition by easing barriers to entry for potential banks, to facilitate the transition from confiscatory concentration to distributive concentration favorable to all stakeholders; and (2) information sharing offices should be consolidated beyond the established thresholds in order to completely crowd-out the unfavorable effect of bank concentration of women’s political empowerment.Originality/valueThe paper provides new empirical evidence that helps to advance the debate on the effects of banking concentration and information sharing in the banking sector on women's political empowerment in developing countries.

How does credit information sharing shape bank loans?

This paper analyzes the influence of credit information sharing on how banks set the terms of bank loans and the ownership of the loans. Using a sample of 23,341 bank loans in 44 countries during the period 2005–2019 we examine how interest rates, collateral, maturity, amounts, and ownership of bank loans are influenced by the degree of penetration of credit bureaus and public credit registries. The results show that credit information sharing decreases interest rate spread for high-quality borrowers and decreases loan maturity. Moreover, the amount of credit is negatively affected by the degree of coverage by registries. Finally, we find evidence in line with credit information sharing increasing loan ownership concentration.

Information sharing offices and economic growth in sub‐Saharan Africa

AbstractAlthough credit availability is essential for economic growth, the information asymmetry problem inhibits the credit creation function of financial institutions. Among other means, information‐sharing offices (ISOs) have been established, including private credit bureaus and public credit registries to provide information on the financial characteristics of citizens to reduce information asymmetry. From this background, this study used an explanatory research design with a longitudinal (panel) data approach to assess whether the coverage of information by ISOs affects sectorial and overall economic growth among sub‐Saharan African (SSA) countries using the system generalized method of moments technique on data from 2005 to 2019. The results highlight that information coverage by ISOs enhances sectorial and overall economic growth by solving the information asymmetry problem. From the findings, governments in SSA countries are encouraged to support public credit registries to effectively perform their mandate while providing incentives to attract investments in private credit bureaus since they contribute to economic growth.

Credit booms and bank risk in Southeast Asian countries: does credit information sharing matter?

PurposeThis study investigates the relationship between credit booms and bank risk in Association of Southeast Asian Nations (ASEAN) countries, with credit information sharing acting as a moderator.Design/methodology/approachThe authors use a two-step System Generalized Method of Moments (SGMM) estimator on a sample of 79 listed banks in 5 developing ASEAN countries: Indonesia, Philippines, Malaysia, Thailand and Vietnam in the period 2006–2019. In addition, the authors perform robustness tests with different proxies for credit booms and bank risk. The data are collected on an annual basis.FindingsBank risk is positively related to credit booms and is negatively associated with credit information sharing. Further, credit information sharing reduces the detrimental effect of credit booms on bank stability. The authors find that both public credit registries and private credit bureaus are effective in enhancing bank stability in ASEAN countries. These results are robust to regression models with alternative proxies for credit booms and bank risk.Research limitations/implicationsBanks in ASEAN countries tend to have strong lending growth to support the economy, but this could be detrimental to stability of the sector. Credit information sharing schemes should be encouraged because these schemes might enable growth of credit without compromising bank stability. Therefore, policymakers could promote private credit bureaus (PCB) and public credit registries (PCR) to realize their benefits. The authors' research focuses on developing ASEAN countries, but future research could provide more evidence by expanding this study to other emerging economies. In-depth interviews and surveys with bankers and regulatory bodies about these concerns could provide additional insights in the future.Originality/valueThe study is the first to examine the role of PCB and PCR in alleviating the negative impact of credit booms on bank risk. Furthermore, the authors use both accounting-based and market-based risk measures to provide a fuller view of the impact. Finally, there is little evidence on the link between credit booms, credit information sharing and bank risk in ASEAN, so the authors aim to fill this gap.

Credit Information Sharing and Firm Innovation: An Empirical Evidence

This paper investigates the effect of credit information sharing (CIS) on borrower’s innovation activities. On the foundation of unique dataset from developed and developing countries, we find that public credit registries (PCRs) have significant positive relationship with firms’ innovation. These findings contract the facilitative role of CIS in lowering firm’s cost of capital and boost efficiency. Out findings are robust to different specifications and alternative measures. After the establishment of PCRs, firms may benefit more if these firms have more power in enforcing the contracts and have dispersed banking environment. These findings are aligned with the perspective that improvements in creditors’ information sets leads to innovative portfolios and better financing opportunities.

Bank Competition and Credit Access: The Case of Informal Firms in Sub-Saharan Africa

Purpose of the study: This paper investigates the impact of bank competition on access to finance by informal firms in 14 sub-Saharan African countries, using World Bank enterprise survey data. Access to finance is one of the main factors identified as hindering the growth of opaque borrowers, who are generally characterised by poor financial transparency. Methodology: This study uses a discrete binary choice probit model to estimate the probability or likelihood of accessing finance, conditional on the level of bank competition and other firm-level characteristics. Findings: Results show that the impact depends on the competition measure used. The Lerner index shows a positive relationship supporting the information-based hypothesis, while the most robust competition indicator, the Boone index, is negative in line with the market power hypothesis. These results also show that reducing or minimising information asymmetry using public credit registries is good for enhancing financial access. Research implications: Improving the competitiveness of the banking sector by encouraging the entrance of more players should be promoted without compromising the soundness of the sector. Measures should be introduced to control anti-competitive behaviour in the banking industry. Originality: The informal sector contributes close to 50% to Africa’s GDP and 80% towards employment and, therefore, strategies aimed at eliminating the obstacles faced by these firms are important for livelihood protection. Many studies done on the African banking industry have generally found it to be less competitive and this affects financial access since banks tend to be risk averse in such settings. There are also few studies that have analysed the relationship between bank competition and credit access in the informal sector, mostly because publicly available data on these firms are scarce.

Credit Information Sharing and Loan Loss Recognition

ABSTRACT Does enhancing banks' information sets and understanding of credit risks improve loan loss recognition? We study this question using a global dataset of staggered initiations and coverage increases of public credit registries (PCRs). Mandated by national regulators, PCRs collect borrower and loan information from lenders and share it with the banks in the financial system. This setting represents a significant improvement in banks' assessment of loss events. We find that PCR initiations and coverage reforms enhance the timeliness of banks' loan loss recognition—the extent to which loan loss provisions capture subsequent nonperforming loans. The effects are greater when PCRs distribute more information and are not driven by changes in borrower quality or supervisory stringency. Overall, these inferences are consistent with improvements in banks' information sets leading to better provisioning decisions. JEL Classifications: D82; G21; G28; G32; M41.

The role of finance in inclusive human development in Africa revisited

PurposeThis study aims to investigate the direct and indirect linkages between financial development and inclusive human development in African countries.Design/methodology/approachThe study employs a battery of estimation techniques, notably: two-stage least squares, fixed effects, generalized method of moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database of the World Bank are considered.FindingsThe main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development.Practical implicationsPolicies should be tailored to improve mechanisms by which credit facilities can be provided to both households and business operators. Surplus liquidity issues resulting from the inability of banks to transform mobilized deposits into credit can be resolved by enhancing the introduction of information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers.Originality/valueThis study complements the extant literature by assessing the nexus between financial development and inclusive human development in Africa.

Does credit information sharing reduce discouraged borrowers?

Information asymmetry is a fundamental problem creating malfunctions in the credit market. On the supply side, credit information sharing is recognized as an effective solution to mitigate asymmetric information. On the demand side, however, its impact on discouraged borrowers is missing in empirical research. Using data from the Enterprise Survey of The World Bank and information sharing data from Doing Business for developing countries worldwide, this research highlights the effectiveness of information sharing in reducing discouraged borrowers, especially information sharing through public credit registries. More interestingly, the non-linear effect of increased information on discouraged borrowers, predicted in the theory of Kon and Storey (2003), is also found. There is evidence to confirm that information sharing through private credit bureaus discourages firms from applying for loans if their coverage is low, while it enhances the demand for bank credit if their coverage reaches a sufficient level.

The Role of Finance in Inclusive Human Development in Africa Revisited

This study investigates direct and indirect linkages between financial development and inclusive human development in data panels for African countries. It employs a battery of estimation techniques, notably: Two-Stage Least Squares, Fixed Effects, Generalized Method of Moments and Tobit regressions. The dependent variable is the inequality adjusted human development index. All dimensions of the Financial Development and Structure Database (FDSD) of the World Bank are considered. The main finding is that financial dynamics of depth, activity and size improve inclusive human development, whereas the inability of banks to transform mobilized deposits into credit for financial access negatively affects inclusive human development. Policies should be tailored to improve mechanisms by which credit facilities can be provided to both households and business operators. Surplus liquidity issues resulting from the inability of banks to transform mobilized deposits into credit can be resolved by enhancing the introduction of information sharing offices (like public credit registries and private credit bureaus) that would reduce information asymmetry between lenders and borrowers. This study complements the extant literature by assessing the nexus between financial development and inclusive human development in Africa.

Does Bank Competition Affect Credit Access in Sub-Saharan Africa? Evidence from World Bank Informal Firms Surveys

ABSTRACT This paper investigates the impact of bank competition on access to credit by informal firms in 14 Sub Saharan African countries using World Bank enterprise survey data. Access to credit is one of the main factors identified as hindering the growth of these opaque borrowers with poor financial transparency. This study uses a binary choice probit model to estimate the probability or likelihood of accessing finance conditional on the level of bank competition and other firm-level characteristics. Results show that the impact of competition measured using the recent and empirically robust Boone indicator is negative and significant in line with the market power hypothesis. These results suggest that improving the competitiveness of the banking sector by encouraging entrance of more players and curbing anti-competitive conducts should be promoted without compromising the soundness of the sector. Reducing or minimizing information asymmetry using public credit registries is good for enhancing financial access and governments should invest resources on maintaining, updating and increasing the coverage of these registries.

Identifying Information Increases in Public Credit Registries

Academics and policy research strives to understand the role of public credit registries (PCRs) and information sharing in the development of financial markets. To provide insights into this question, the empirical literature exploits reforms that establish or expand credit registries. Thus, it is crucial to identify the date and the nature of these reforms and events. This endeavor, however, is not straightforward, and prior work does not offer a transparent approach. This note outlines a tractable methodology that identifies PCR-related events based on relevant legislation and supervisory disclosures in Europe. We also verify the data in previously available datasets for a global sample.

Information Asymmetry and Insurance in Africa

ABSTRACT In this study, we assess the relevance of decreasing information asymmetry on life and non-life insurance consumption, by using data from 48 African countries during the period 2004–2014. Reduced information asymmetry is proxied by information sharing offices, namely: public credit registries and private credit bureaus. The empirical evidence is based on the Generalized Method of Moments. The findings show that information sharing offices increase insurance consumption with a comparatively higher magnitude in life insurance penetration, relative to non-life insurance penetration. Practical and theoretical implications are discussed.

Information Asymmetry and Insurance in Africa

In this study, we assess the relevance of decreasing information asymmetry on life and non-life insurance consumption, by using data from 48 African countries during the period 2004-2014. Reduced information asymmetry is proxied by information sharing offices, namely: public credit registries and private credit bureaus. The empirical evidence is based on the Generalised Method of Moments. The findings show that information sharing offices increase insurance consumption with a comparatively higher magnitude in life insurance penetration, relative to non-life insurance penetration. Practical and theoretical implications are discussed.

The Mobile Phone, Information Sharing, and Financial Sector Development in Africa: a Quantile Regression Approach

This study investigates linkages between the mobile phone, information sharing offices (ISO) and financial sector development in 53 African countries for the period 2004-2011. ISO are private credit bureaus and public credit registries. The empirical evidence is based on contemporary and non-contemporary quantile regressions. Two main hypotheses are tested: mobile phones complement ISO to enhance the formal financial sector (Hypothesis 1) and mobile phones complement ISO to reduce the informal financial sector (Hypothesis 2). The hypotheses are largely confirmed. This research adds to the existing body of literature by engaging hitherto unexplored dimensions of financial sector development and investigating the role of mobile phones in information sharing for financial sector development.

Bank Information Sharing and Liquidity Risk

We propose a novel rationale for the existence of bank information sharing schemes. Banks may voluntarily disclose borrowers' credit history to maintain asset market liquidity. By sharing such information, banks mitigate adverse selection when selling their loans in secondary markets. This reduces the cost of asset liquidation in case of liquidity shocks. Information sharing arises endogenously when the liquidity benefit dominates the cost of losing market power in the primary loan market competition. We show banks having incentives to truthfully disclose borrowers' credit history, even if such information is non-verifiable. We also provide a rationale for promoting public credit registries.

The Role of Information Sharing in Modulating the Effect of Financial Access on Inequality

ABSTRACTThis study examines the role of information sharing in modulating the effect of financial access on income inequality in 48 African countries for the period 2004–2014. Information sharing is proxied with private credit bureaus and public credit registries. All dynamics of financial development are taken into account, namely: depth (money supply and liquid liabilities), efficiency (at banking and financial system levels), activity (from banking and financial system perspective) and size. The empirical exercise is based on interactive Generalised Method of Moments. It can be established from the findings that: first, a threshold of 18.072 percentage coverage of public credit registries is needed to counteract the unconditional positive effect of banking system efficiency. Secondly, on the role of private credit bureaus in financial depth, both the unconditional and the conditional effects are negative, implying a negative synergy. Overall, the findings show that, contingent on the type of financial development dynamic, credit registries broadly play their theoretical role of decreasing financing constraints in order to ultimately reduce inequality.

Reducing information asymmetry with ICT

PurposeThe purpose of this paper is to investigate loan price and quantity effects of information sharing offices with information and communication technology (ICT), in a panel of 162 banks consisting of 42 African countries for the period 2001–2011.Design/methodology/approachThe empirical evidence is based on a panel of 162 banks in 42 African countries for the period 2001–2011. Misspecification errors associated with endogenous variables and unobserved heterogeneity in financial access are addressed with generalized method of moments and instrumental quantile regressions.FindingsThe findings uncover several major themes. First, ICT when integrated with the role of public credit registries significantly lowered the price of loans and raised the quantity of loans. Second, while the net effects from the interaction of ICT with private credit bureaus (PCBs) do not improve financial access, the corresponding marginal effects show that ICT could complement the characteristics of PCBs to reduce loan prices and increase loan quantity, but only when certain thresholds of ICT are attained. The authors compute and discuss the policy implications of these ICT thresholds for banks with low, intermediate and high levels of financial access.Originality/valueThis is one of the few studies to assess how the growing ICT can be leveraged in order to reduce information asymmetry in the banking industry with the ultimate aim of improving financial access in a continent where lack of access to finance is a critical policy syndrome.

The Mobile Phone, Information Sharing and Financial Sector Development in Africa: A Quantile Regressions Approach

This study investigates linkages between the mobile phone, information sharing offices (ISO) and financial sector development in 53 African countries for the period 2004-2011. ISO are private credit bureaus and public credit registries. The empirical evidence is based on contemporary and non-contemporary quantile regressions. Two main hypotheses are tested: mobile phones complement ISO to enhance the formal financial sector (Hypothesis 1) and mobile phones complement ISO to reduce the informal financial sector (Hypothesis 2). The hypotheses are largely confirmed. This research adds to the existing body of literature by engaging hitherto unexplored dimensions of financial sector development and investigating the role of mobile phones in information sharing for financial sector development.

ICT in Reducing Information Asymmetry for Financial Sector Competition

In this study, we examine the role of information and communication technology in complementing information sharing bureaus (or private credit bureaus and public credit registries) for financial sector competition. Hitherto unexplored dimensions of financial sector competition are employed, namely: financial sector dynamics of formalization, informalization and non-formalization. The empirical evidence is based on 53 African countries for the period 2004-2011 and the Generalised Method of Moments (GMM) with forward orthogonal deviations. The findings differ across financial sectors in terms of marginal, net and threshold effects. By introducing the concept of financialization, the study unites two streams of research by: improving the macroeconomic literature on measuring financial development and responding to an evolving field of development literature by means of informal finance. Moreover, a practical method by which to disentangle the effects of reducing information asymmetry on various financial sectors is suggested. Policy implications are discussed.