Asia-Pacific Credit Coalition

1. Asia-Pacific Credit Coalition Lessons for Information Sharing Standards in APEC By Michael Turner Presentation for 4th SEACEN-ABAC/ABA/PECC Public-Private Dialogue for the Asia Pacific Region Westin Kuala Lumpur 18-19 August 2008

2. About APCC • The Asia Pacific Credit Coalition, an affiliate of the non-profit Political and Economic Research Council (PERC), is committed to • The promotion of credit reporting standards within APEC • Showing value proposed reporting standards • In pursuit of goal, APCC • Hosts seminars with national regulators and policy makers. • Reaches out to APEC staff, media, industry execs and governments • Conduct research demonstrating need for standard

3. Policy Position for Common Standard (I) Support the standard of full-file (positive and negative payment) and comprehensive (across many sectors) reporting to a private bureau based on results that it: • increases lending to the private sector, especially low-income groups, women; and, • results in better loan performance.

4. Policy Position for Common Standard (II) Develop standard that meets OECD Fair Information Practices (1980), providing to data subjects rights of: • notice • access • choice • notification of adverse action • dispute • correction Ensures that only responsible and experienced actors such as Experian will collect and maintain the data

5. Common Findings Long history of investigation and study of information sharing. Results are full-file and comprehensive reporting: • increases lending to the private sector especially among lower social segments more than other reporting regimes; and, • results in better loan performance than segmented and negative-only reporting. • Private bureaus with comprehensive data increase lending to the private sector.

6. Consequences of Full-file Vs. Negative-only I: (US Data) Results on acceptance rates • acceptance rates climb as information moves from full-file to negative-only in all cases

7. Consequences of Full-file Vs. Negative-only for Performance Results on loan portfolio performance • default rates climb as information moves from full-file to negative-only in all cases • good risks are confused for bad ones • bad risks confused for good ones • Data sharing • improves quality of information for risk provisioning, allowed under Basel II • with lower defaults, small capital requirements, lower credit constraints

8. Distributional Consequences of Full-file vs. Negative Only Results on demography using real credit files • disadvantaged social segment gain greater access than others • racial-ethnic minorities • young • low-income groups • Colombian simulations • under negative-only, 33% of acceptances women • under full-file, 47% are women

9. Growth and Equality Comprehensive reporting promotes economic growth by enabling an increase in lending to the private sector by as much as 45% of GDP. • Statistical tests show that an increase in private sector lending by 30% of GDP can yield: • an increase in GDP growth rates of 1%; • an increase in productivity growth of 0.75%; and • an increase in capital stock growth of 0.75%. • An increase in private sector claims by 50% of GDP: • lowers the growth of the Gini coefficient (an inequality measure) by at least 0.25%, and more by some estimates. • lowers the growth of the percentage of the population living under $1 per day by 2%, and more by some estimates. • increases the growth of the lowest (poorest) quintile’s income share by at least 0.45%, and more by some estimates. Source: Ross Levine, “Financial Development and Economic Growth: Views and Agenda” Journal of Economic Literature, Vol. 25(June 1997), pp. 688–726; Thorsten Beck, Asli Demirguc-Kunt and Ross Levine, “Finance, Inequality and the Poor.” www.econ.brown.edu/fac/Ross_Levine/Publication/Forthcoming/Forth_3RL_Fin%20Inequalily%20Poverty.pdf.

10. North America Europe Aust/NZ (N=16) Middle East N. Africa (N=5) E. Europe (N=8) S. Asia (N=3) Sub-Saharan Africa (N=12) East Asia (N=5) Latin America (N=18) Background: The Financial Sector East Asia: Healthy private sector lending in few countries Source: International Financial Statistics, IMF

11. Legal Rights of Creditors and Credit Information by Region Wealthier regions have both, strong legal rights and extensive credit information Source: Doing Business Database, World Bank

12. Legal Rights of Creditors & Credit Information by APEC Member Wealthier economies in APEC have both, strong legal rights and extensive credit information Source: Doing Business Database, World Bank

13. APEC Full-file & Comprehensive Reporting Coverage by Ownership Source: Doing Business Database, World Bank

14. What You Can Do Much work remains to be done, and help is needed. If you are interested you can: • Assist in the formulation of standards for APEC, by helping to take local concerns into account • Participate in local and country area outreach efforts, sharing experiences of best practices and methods of engaging press and policymakes • Join APCC coalition to may it wider, broader, and more multinational.

15. For more information Dr. Michael Turner Asia-Pacific Credit Coalition 100 Europa Drive, Suite 403 Chapel Hill, NC 27517 www.apeccredit.org Phone: +1 919 338 2798