Archive 2012

  • 22.12.2012

    Facilitating Cooperation between Credit Bureaus in Ukraine


    The key question of this paper is how the performance of the credit reporting system in Ukraine could be improved. In answering this question, we concentrate on the private bureaus active in Ukraine and in a first step identify the main impediments, data fragmentation and lack of data.

    While a number of stakeholders, in particular official institutions, see the predominantly private ownership of the sector as the main problem, and consequently as a key to a solution, we do not agree. First, we observe that the ownership structure with a number of private bureaus that are in fierce competition with each other is not unusual. On the contrary, a number of countries in the region exhibit a similar competitive structure. Second, there is empirical evidence that a predominantly private ownership is positively correlated with the legal efficiency of the credit reporting system.

    Thus, other mechanisms need to be found to overcome data fragmentation and lack of data. We believe that cooperation initiatives among the bureaus are a major way ahead in this respect. This message has also been partially received by the main stakeholders, as plans to form an industry association of credit bureaus and to improve data exchange are currently under discussion.

    We think these plans are a good start, but need to be supplemented by further moves. Specifically, the hopefully forthcoming industry association could be a platform to launch further initiatives, such as the development of a “Code of Conduct”, which contains well-established and recognised fundamental principles in credit reporting. The association would also be an ideal institution to initiate a regular reporting process in form of a “credit bureau dashboard”, which would ultimately contribute to a better understanding of the market by its users and increase competition among credit bureaus. Increasing financial literacy of the population with respect to credit reporting and highlighting its benefits for an improved access to finance should also be a major focus of the association.

    In order to overcome the problem of data fragmentation mentioned above, cooperation initiatives that try to achieve a higher degree of standardisation and harmonisation of the data exchange process look very promising. However, such initiatives will probably only be realistic in the medium-term, when the databases of the bureaus are more mature and the market has reached a certain level of stability.

    To sum up, the implementation of these initiatives would improve data quality and coverage, increase transparency and, most importantly, trust in the system of credit reporting. This will improve the usefulness of the system to the user-side (i.e. banks), and ultimately good borrowers will benefit from an improved access to finance. At the same time, these initiatives will likely change the vector of competition between the bureaus themselves, as market forces will bring changes into an increasingly mature market.

    It is very likely that in the end, Ukraine’s credit reporting market structure will mirror other, more developed markets insofar as a small number of players dominate a competitive market. But this will be the result of a normal market process, accelerated by cooperation, and not imposed by regulatory force.

    Authors:  Kravchuk Vitaliy, Robert Kirchner, Ricardo Giucci
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