Credit Bureaus and Overindebtedness

> Posted by Elisabeth Rhyne
MFNI’m blogging from the annual meeting of the MicroFinance Network hosted this year by Equity Bank in Nairobi.  Bob Annibale of Citi Microfinance led the group of CEOs from 25 leading MFIs around the world in a discussion of the impact of the global financial crisis on their institutions. 
It’s no surprise that a challenge at the top of everyone’s list was avoiding overindebting clients, especially when clients can borrow from several MFIs in the same location. This is something I saw first hand on a field visit to the large settlement of Karangwari, where not only Equity Bank but also K-Rep Bank, Kenya Women Finance Trust, Faulu, and Jamii Bora were active.  Carlos Labarthe of Compartamos noted that in Peru, with a very competitive microfinance market, the highly proficient credit bureau plays a key role in  keeping overindebtedness down.  Other network members contrasted this with Morocco, which lacks credit reference services, leaving lenders with no reliable way to find out about the existing debt of their clients. Carlos made a strong appeal to Microfinance Network members: “We have to help build the credit bureaus in our countries.” 
A spirited discussion then took place about many of the challenges involved in creating a well-functioning credit bureau – whether government or private bureaus work better, how to bring down the cost of a credit report for small loans, how to get both NGO MFIs and regulated MFIs covered, and whether a credit bureau can operate without a national identification card system. I could see that many of the CEOs in the room were thinking seriously about Carlos’ challenge.  I hope and expect they will return to their home countries and take action.