In order to improve each problem and issue identified, Public credit registries, credit bureaus and the microfinance sector in Latin America report, prepared jointly by Banco de desarrollo de América Latina (CAF), MicroRate, Multilateral Investment Fund and Caleadow, in 2012 recommends different measures and steps:
For a better “data updating time”: MFIs need to possess strong computer systems and internet service, making able to consolidate good database and quick way of sending the information to credit bureaus; Direct transfer of data to credit bureaus, which helps to achieve a greater frequency of data actualisation, Data reports based on payment frequency, means that MFIs should update information reported at the same time than the payment frequency; Publication of negative information without previously notifying the debtor; Discontinuation of service due to late delivery of data, which means stop providing services to an MFI that has delivered data out of time; and Request Footprint Registry, which is a way of register the number of attempts made by the debtor to seek loans from other institutions, so that credit bureaus can send this data to MFIs as an alert service.
With the aim of “encouraging MFIs to report and decrease data dissemination”: Public credit registries sharing information with credit bureaus, facilitating for standardisation of the regulated financial sector, reducing systematic risk and MFI´s costs; Requirements to consult at least one credit bureau; Active MFI network participation with credit bureaus, plus additional activities such as training and support, motivating non-regulated MFIs to participate; A condition for funding to report to credit bureaus; Information technology systems owned by MFIs, to answer easily and quickly; Respect of bank privacy and consumer protection; Voluntary data reporting to all credit bureaus, as a collection effective tool, because MFIs will know when a borrower comes to ask for a loan his credit history, including arrears, mitigation the information asymmetry problem commonly called adverse selection.
To ameliorate “accuracy of data” provided by MFIs: Simple formats, created in a collaboration between credit bureaus and MFIs networks; Price discount for providing high-quality and timely data, a marketing strategy to recognise the MFIs that provided data of high-quality and duly on time; Tight data security measure, an information technology system, supervisory measures with visits on-field, internal and external audits, and more. Also, credit bureaus should reinforce a strong data validation system as information is the motor of their businesses; Contracts requiring minimum data quality measures; Unique national identification (ID) records; Clear identification of home addresses; Penalties for errors, fine when there is an error on credit report.
With the objective of eradicating “discrimination in the regulatory framework against some MFIS to obtain data”: Non-discriminatory standards, even if the general rule is that all type of MFIs have the same rights and requirements, in some countries, non-regulated MFIs, still suffering discrimination from the regulated financial system; Principle “Respect of the reciprocity”, that states that only MFIs who report data to credit bureaus can consult them.
To balance when there exist “excessive legal protection of the debtor”: Standards that can be met by all participants; Balance between the rights of the debtor and those of the MFI; Reasonable and staggered penalties based on the amount of errors and size of errors.
For more “complete data”: Regulation allowing positive information, to allow publishes all debtor´s credits information; Contracts requiring positive information, in countries where it is voluntary; Credit bureaus share arrears information to mitigate risk, to avoid that information is dispersed, and help MFIs be able to have all the data of debtor’s behaviour when they consult several credit bureaus; Consultations priced based on the amount of information reported; Partnerships between credit bureaus, MFIs and MFI networks to incorporate necessary data into the financial system. Some specialized credit bureaus have filled the gap of traditional credit bureaus, offering additional data (quota amount, payment frequency, exact number of days in arrears, number of payment past due, maximum number of days in arrears, methodology type, direct and indirect debt in group loans and more); Amounts reported (from one unit) in local currency, to enahance microfinance typical small loans amounts.
With the purpose of increasing the “data retention period” to an acceptable duration: An average of six years for unpaid debts; Five year average for cancelled debt; Staggered data retention periods for unpunctual debt, as an incentive for customer to pay their arrears more quickly.
To reduce “prices” of the service provided by credit bureaus: Good Internet, is usual as credit bureaus are located in urban areas; Notification to customers by credit bureaus in advance about interruption for maintenance; Backup equipment in case of a disaster or service interruption; Competition among various credit bureaus, because as a general effect of competition, low of prices; Public credit registries provide data to credit bureaus, which will reduce operational costs (from the activity of collecting data); Agreements between MFI networks and credit bureaus; Trade association partnerships to collect data; Zero charge when the customer has no credit history; Credit reports with different levels of information, to put a different price depending on the type of report an MFI needs.
For avoiding “a conflict of interest regarding MFI share ownership in credit bureaus”: Banning financial institutions from being shareholders in credit bureaus, reliability and trust in the credit bureaus help increase MFIs reporting to credit bureaus, benefitting data integrity; Limits on shareholder participation by financial institutions in credit bureaus, for example 20%; Publication of share ownership percentages in newspapers; Equitable access to information for all users, no matter if is a shareholder MFI or not; Banning of exclusive reporting contracts, so that an MFI who is shareholder in a credit bureau can report to another credit bureau.
To enhance the accomplishment of “data and consumer rights protection”: Bank privacy over lending and borrowing, where customers are consulted authorisation before MFIs send their information to credit bureaus; Credit bureaus audits of bank privacy compliance, credit bureaus perform audits to check if the MFI has requested the permission of the customer; Clear and short processes for complaints; Effective dissemination of regulations, a good visibility strategy and implementation actions through diverse media (TV, radio) and posters; Effective agencies to monitor compliance, usually government and supervisory bodies, who apply penalties; Accessible places to file claims, such as claims kiosks, specialised unit inside an MFI and offices in interior cities not only the capital or big cities.