Credit Information Sharing Regime in Afghanistan_NesarYosufzai

1. 2014
By:
Nesar Ahmad Yosufzai
2014-09-25
Credit Information Sharing Regime in Afghanistan

2. 2
Credit Information Sharing
Regime in Afghanistan
Access to finance is a barrier to growth for many
businesses worldwide, financial institutions
acting as lenders need reliable information to
make lending decisions. Individuals and
businesses should provide evidence to the
lenders to prove their creditworthiness;
meanwhile regulators need to be able to
supervise systematic risk.
"Often, firms’ access to finance is constrained by
the availability of information on their credit
worthiness. Public and private credit registries
exist to improve the information available on
borrowing firms and individuals to ease
financing constraints. The information they
make available from a borrower’s total number
of current loans, repayment history, previous
bankruptcies, etc. can allow lenders to extend
greater credit at more favorable interest rates."1
"Credit Information Bureau is an agency that
collects credit information and provides it to
lenders so they can make sound decisions when
granting advances. Information sharing
institutions typically take one of two forms i.e. a
public credit registry or a private credit bureau.
A Public Credit Registry is maintained by the
public sector, generally the central bank, while a
private bureau is managed by the private
sector."2
Credit bureaus get the data from banks,
microfinance institutions, credit card issuers,
loan agencies, telecommunication companies,
public court records, utility companies,
insurance companies, rental agreements, leasing
companies and directly from consumers, then
1
OECD, Discussion Paper on Credit Information Sharing
2
OECD, Study by Love and Mylenko (2003)
analyze the data electronically and disseminate
the standard credit reports which don’t only
include the credit history but also credit scores.
The main benefits of a credit bureau are:
 Create greater opportunity for
economic growth
 Promote stable financial market
development
 Improve economic stability
 Create greater productivity
 Increase repayment rates, less defaults
 Reduce interest rates
 Promote responsible lending
 Increasing access to finance
 Reducing cost of credit and risk
A modern credit-based economy requires access
to complete, accurate, and reliable information
concerning borrowers’ payment histories. Key
features of a credit information system should
address the legal framework, permissible
purposes, privacy, integrity, consumer rights and
supervision.
Afghanistan had never experienced credit
information sharing system as centralized
database in electronic platform prior to the
establishment of the credit registry in December
2013. A traditional process of credit information
sharing was in place through a manual system
using paperwork which did not fulfill the
requirements of a standard credit report.
Financial Institutions
were making lending
decisions without
analyzing credit history
of borrowers as there
were no credit reports.
Considering the need to have an electronic
platform of credit information sharing system in
Afghanistan; World Bank, International Finance

3. 3
Corporation, Central Bank of Afghanistan (Da
Afghanistan Bank), and HARAKAT have come
together for the establishment of the first Credit
Information Bureau called "Public Credit
Registry" in Afghanistan.
Da Afghanistan Bank (DAB) launched a full
electronic Credit Information Sharing System
known as Public Credit Registry (PCR) on
December 16, 2013 for the first time in
Afghanistan. The system is fully automated
based on international best practices. PCR will
enable potential borrowers to have access to
finance and increase credit penetration in
Afghanistan. The system is helping financial
institutions to have enough online information
about the customers and their guarantors to
make better-informed decisions. On April 1,
2014, Public Credit Registry department of DAB
introduced its first online Credit Report, which is
considered a historic success for the financial
sector in Afghanistan. PCR online reports will
help lending sector to reduce fraudulent
applications for credit, provide a consumer with
the ability to assemble a positive lending history,
reduce their cost of borrowing, and increase
access to credit that enable banks to better
control credit risks.
The registry is governed by Credit Reporting
Regulation and currently the database is
populated with more than 30,000 credit
contracts which includes conventional and
Islamic Finance advances. The existing
subscribers of the registry comprise of all 16
commercial banks in Afghanistan and the
registry office is working closely with other
stakeholders and potential users to begin
utilizing the registry. The registry is operating
24/7 and has reduced time for credit
information sharing from days to seconds which
is available online.
Although establishment of the first credit
bureau which is designed based on international
best practices is considered a historical success
and fundamental step for the financial sector of
Afghanistan, but there are some challenges
which may slow down the development process
of credit information sharing regime in the
country. Challenges are;
1. Lack of unique and centralized database
for National IDs
2. Lack of Credit Reporting Law
3. Low Capacity of Stakeholders
4. Public awareness on Credit Reports
5. Existence of Manual procedures in
Financial Institutions and relevant
subscribers
6. Data Quality
7. Supervision
8. Audit of the Registry Office.
Aforesaid challenges are really important to be
considered systematically as it can't be handled
by the registry office entirely. I have outlined the
following observations and recommendations to
tackle the challenges;

4. 4
1. Lack of computerized and centralized
database for issuance of National ID is
an electronic governance challenge in
Afghanistan. Government has promised
publicly to tackle this challenge very
soon which will improve credit
information sharing regime in the
country and will reduce the number of
errors on credit reports.
2. The current Credit Reporting Regulation
needs to be improved and converted to
Credit Reporting Law in order to provide
strong legal environment not only for
Financial Institutions but also for other
stakeholders.
3. Credit Bureau subscribers listed in this
paper should be enabled to use the
system. The registry office has
established a Research and
Development unit and started capacity
building events to relevant stakeholders
in Kabul as well as major cities of
Afghanistan. This program will enable
the minimum agencies to understand
the functions and benefits of the
registry. It is also recommended that
high level officials should be encouraged
and informed on ways that this regime
can increase access to finance in the
country and how their contribution can
facilitate this process.
4. Market observations illustrates that
consumers have very limited knowledge
on banking practices in Afghanistan. As
Public Credit Registry is recently
established and online credit reports are
available for the first time in
Afghanistan, this needs an organized
public awareness program to continue
at least for two years. Publications,
advertisements and events are
considered the main drivers which may
increase public awareness.
5. Most of the registry subscribers in
Afghanistan are following manual
procedures/paper records which do not
fulfill the requirements of electronic
platform. This challenge is very
important as automation may take
several years. It is expected that
electronic governance will facilitate and
speed up this preparation.
6. The Constitution has opened a new
window for private sector businesses in
Afghanistan. The country’s banking
sector is very young, therefore quality
of data provided to the registry is a
critical challenge. Although this
challenge exists with all credit bureaus
worldwide, especially in developing
countries but the registry office itself
and regulatory bodies should introduce
procedures and build capacity in order
to assist in improving the quality of data.
7. Establishment of the electronic registry
is the starting point and there should be
supervisory mechanism to restrict
misuse of the system. Supervisory
bodies should supervise the privacy,
consumer rights, compliance of credit
reporting regulations and use of the
credit reports during the on-site
examinations.
8. As the registry is newly established, the
group of people working there; are the
only people who have relevant
knowledge of the system and there is no
internal audit in the registry office to
regularly audit the operations. Internal
or external audit should be there to
evaluate the operations technically on
regular basis.

5. 5
Conclusion:
Credit reports are not only important for
corporations but also for individuals who plan to
apply for credit facilities, credit cards, seek
employment, purchase a house or procure and
install public utilities. From a macroeconomic
point of view, Public Credit Registry can bring
higher growth rates for businesses and
individuals, and the economy in Afghanistan,
through increased Access to Finance.
The Public Credit Registry established in the
organizational structure of the Central Bank of
Afghanistan is a non-profit organization which
will further reduce the cost of credit by
providing credit reports with low cost. In order
to adopt consumer rights, the Credit Reporting
Regulation in Afghanistan allows consumers to
obtain their credit report free of charges. This
regime will promote business and help financial
institutions increase their profitability.
References:
1
OECD, Discussion Paper on Credit Information Sharing
2
OECD, Study by Love and Mylenko (2003)
Reviewers:
Oscar Madeddu
Credit Bureau and Risk Management advisor
International Finance Corporation (IFC)
World Bank Group
Email: omadeddu@ifc.org
Isimkah Ibuakah
Operations Officer
International Finance Corporation (IFC)
World Bank Group
E-mail: iibuakah@ifc.org
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