Strengthening Public and Private Credit Registry Ties

1. World Bank 2004 In Beijing Strengthening Public and Private Credit Registry Ties By Larry Chiang ã2004 UCMS, Inc. Confidential and Proprietary Reproduction Prohibited

2. Public and Private SectorsWorking together in harmony or discord?! • Public credit registries (PCR) sharing of non-sufficient data amongst multiple agencies / branches of government • Private sector sometimes fears losing competitive advantage if data is “pooled” with weaker companies • No great models available to blueprint cooperation techniques • PCRs don’t share data to make data better

3. “Self-interest doesn’t just govern, it RULES”

4. Priming the Cooperation Pump • Expecting parties to share goes against simple game theory • What primes the pump? A government mandate, an olive branch, a philanthropic corporation, or… • A technical tool that works with EXISTING data

5. Jumpstarting A Country’s Credit System with Thin File Analysis (TFA) Incomplete Files (Private)

7. Thin File Analysis (TFA) Leverages • TFA gives private credit registries a technique without full cooperation of PCRs (Public Credit Registries) • TFA allows for a “first stab” at credit underwriting • TFA is dynamic and adjusts to the level of cooperation (initially low interdependence, later more cooperation) • TFA helps a developing nation “import” a mature nation’s credit scoring system without symptoms and side effects

8. A Quantum Leap Forward With Thin File Analysis

9. Origins of TFA • Thin file analysis was used where public information was there but not organized • Private registries (Experian Equifax Trans Union) had thin credit files (i.e. very little credit data) • TFA bridged the gap • TFA catalyzed underwriting and credit line scoring

10. The Old Way f (a, b, g) The old technique of measuring credit worthiness with a score from 350-800. This (with all its parameters) is a one dimensional match.

11. When the Old Way Works Great • In countries with a mature credit industry • Great with fully stocked public data compilation that is “organized” and “accessible”. Public data by its nature is difficult to access, process and underwrite • Its great when the credit industry is ONE BIG COOKIE… not when its crumbs you’re piecing together.

12. Fighting Over Crumbs • Mature credit industry countries don’t bicker over who controls credit data • Burgeoning credit countries wrangle over control of data • Thin file analysis “primes the pump” when credit files are thin and morsels of public record data can scientifically build up a credit system

13. Adding a New Axis- Public Registries “f” is the function with traditional credit data with CRAs “e” function factors in applicant data, gov’t agency data & more

14. Thin File Analysis Marries Both… “f” is the function with traditional credit data “e” function factors in applicant data, gov’t agencies & more

15. The New Way You set how much influence the epsilon function gets

16. Recipe for a Rough Transition fusa (a, b, g) fkorea(a, b, g) The credit scoring system is directly imported from one country to Another. Charge-offs shoot over 17%

17. Why direct transferal doesn’t work. • Cultural differences in perception of credit default • Different realities of credit default • Behavior predictions based on income to asset ratio don’t transfer country to country • Private credit registries wield different influences

18. Customize an “Imported” Credit System “f” is the function with traditional credit data “e” function factors in applicant data, gov’t agencies & more

19. Sequence of Steps to aCountry Specific System • (2) is goal for China in the goal for 2007 • Is the goal for 2011 • (4) Is the goal for 2015

20. Private Registries And- Public Registries “f” is the PRIVATE function that slightly depends on “e” function “e” is the PUBLIC function supports a temporarily weak “f” function

21. Perhaps Yet Another Axis is Needed