2009
AN ASSESSMENT OF
THE STATUS OF THE
NATIONAL CREDIT
REPORTING SYSTEM
IN YEMEN
July 2010
ARAB CREDIT REPORTING INITIATIVE: GREEN BOOK
GREEN BOOK - an assessment of the credit reporting system in Yemen July 2010
ACRI |A joint effort by the Arab Monetary Fund and the International Finance Corporation Page 2
ACRONYMS AND ABBREVIATIONS
ACRI Arab Credit Reporting Initiative
AMF Arab Monetary Fund
ATM Automated Teller Machine
CACB Cooperative and Agricultural Credit Bank
CBY Central Bank of Yemen
COC Code of Conduct
CPI Consumer Price Index
CRWG Credit Reporting Working Group
CSO Central Statistical Organization
GDP Gross Domestic Product
GCBP Global Credit Bureau Program
IFC International Finance Corporation
MENA Middle East and North Africa
MFI Microfinance Institution
MOF Ministry of Finance
MOI Ministry of Interiors
MSME Micro, Small and Medium Enterprise
NBFI Non Banking Financial Institution
NID National Identification
NPL Non Performing Loans
NMFF National Microfinance Foundation
PAR Portfolio at Risk
PCB Private Credit Bureau
PCR Public Credit Registry
PE Public Enterprise
POS Point of Sale
PPSC Post and Postal Savings Corporation
SFD Social Fund for Development
SME Small Medium Enterprise
WB World Bank
YBA Yemen Bankers Association
YER Yemeni Riyal
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FOREWORD
Credit information sharing is essential to facilitate financial markets intermediation and to broaden the
depth and breadth of financial service offerings. Sharing the credit history of potential individual and
business borrowers allows lenders to determine borrower creditworthiness and decrease transaction
costs associated with lending. This information exchange also facilitates lenders’ outreach to underserved
populations, who in the absence of credit information sharing may be marginalized - either due to the
excessively high costs of determining their creditworthiness, or as a result of the impossibility to offer solid
guarantees.
Within this context, International Finance Corporation (IFC) and the Arab Monetary Fund (AMF) have
established the Arab Credit Reporting Initiative (ACRI) aimed at promoting the development of credit
information sharing in the Middle East and North Africa (MENA) region. ACRI leverages IFC’s global
expertise in developing credit information services1 and AMF’s regional network of financial market
regulators to:
i) assess the credit information infrastructure in select MENA markets,
ii) promote reforms that support best practice credit information sharing,
iii) raise awareness about the importance of credit information sharing, and
iv) support regulators, government bodies and financial institutions within MENA region to
establish/enhance credit reporting systems.
ACRI undertakes a number of activities, including confidential in-depth credit market assessments, which
are presented to financial market regulators while non-confidential overviews which are made public to
facilitate exchange of information and ideas, and annual conferences focusing on issues of particular
interest in the credit reporting field. With a similar goal of sharing knowledge, ACRI has established a
knowledge portal (www.acri-mena.org) to share its results and other relevant information pertaining to
credit information sharing.
This report on Yemen is the second in a series of credit market assessments. It has been prepared by
ACRI specialists with thanks to the Central Bank of Yemen, the lending community and several
governmental agencies for their incessant support and cooperation. More information about IFC is
available on http://www.ifc.org, while information about AMF is available on http://www.amf.org.ae.
Oscar Madeddu Mohammed Taha Rafi Hafid Oubrik
Credit Bureau and Risk
Management Advisor
International Finance Corporation
MENA Credit Bureau Program
International Finance Corporation
Payment Systems Specialist
Arab Monetary Fund
1 IFC has extensive experience developing credit information systems in emerging markets. Since 2001, IFC’s Global Credit Bureau Program has helped create and/or significantly improve 13 credit bureaus, contributed to drafting credit information laws in 21 countries, and organized over 100 credit information sharing outreach events in 40 countries. IFC, jointly with the World Bank, surveys the status of information sharing in 183 countries with the annual Doing Business report.
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CONTENTS
1. MACROECONOMICS AND DEMOGRAPHICS ................................................. 6
1.1 COUNTRY PROFILE AND ECONOMIC OVERVIEW ................................................ 6
1.2. DEMOGRAPHICS AND POPULATION TRENDS ..................................................... 7
2. STATUS OF CREDIT AND FINANCIAL MARKETS ...................................... 9
2.1 ACCESS TO FINANCE .................................................................................................... 9
2.2 MARKET PLAYERS ....................................................................................................... 13 2.2.1 BANKS ........................................................................................................................................ 13
2.2.2 MICROFINANCE INSTITUTIONS .......................................................................................... 15
2.2.3 MOBILE TELEPHONE COMPANIES .................................................................................... 18
2.2.4 OTHER LENDING INSTITUTIONS ........................................................................................ 18
2.2.5 THE CENTRAL BANK OF YEMEN ........................................................................................ 19
2.3 CREDIT RISK MANAGEMENT & CREDIT ACCESS CONSTRAINTS ................ 20 2.3.1 COLLATERAL, NON PERFORMING LOANS, REJECTION RATES............................... 20
2.3.1.1 COLLATERAL AND GUARANTEES .................................................................................. 20
2.3.1.2 NON PERFORMING LOANS............................................................................................... 21
2.3.1.3 REJECTION RATES ............................................................................................................. 22
2.3.2 CREDIT UNDERWRITING & PORTFOLIO MANAGEMENT TECHNIQUES ... 23
3. STATUS OF CREDIT REPORTING IN YEMEN ............................................. 25
3.1 OVERVIEW ...................................................................................................................... 25
3.2 PRIVATE INFORMATION PROVIDERS..................................................................... 26
3.3 THE PUBLIC CREDIT REGISTRY OF THE CBY ..................................................... 27
3.4 UPGRADING THE PUBLIC CREDIT REGISTRY OF THE CBY ........................... 32
3.5. PUBLIC INFORMATION SOURCES .......................................................................... 38
3.6. OTHER STAKEHOLDERS .......................................................................................... 38 3.6.1. MINISTRY OF FINANCE ........................................................................................................ 38
3.6.2 MINISTRY OF INTERIOR ........................................................................................................ 38
3.6.3 YEMEN BANKERS ASSOCIATION ....................................................................................... 39
3.6.4 SOCIAL FUND FOR DEVELOPMENT .................................................................................. 39
3.6.5 POST OFFICE COMPANY ...................................................................................................... 40
3.6.6 MONEYCHANGERS ................................................................................................................ 41
3.6.7 PENSION FUNDS ..................................................................................................................... 41
3.6.8 LEASING COMPANIES ........................................................................................................... 41
3.6.9 COLLATERAL REGISTRY ...................................................................................................... 42
3.6.10. STOCK EXCHANGE ............................................................................................................. 42
4. STATUS OF LEGAL FRAMEWORK ................................................................... 43
4.1. CREDIT REPORTING LEGAL FRAMEWORK GUIDELINES ............................... 43 4.1.1 SUPERVISION .......................................................................................................................... 43
4.1.2 LICENSING ................................................................................................................................ 43
4.1.3 HOW TO DEAL WITH BANK SECRECY .............................................................................. 44
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4.2 LEGISLATION IMPACTING CREDIT REPORTING IN YEMEN ............................ 45
4.3 BORROWERS’ CONSENT ........................................................................................... 50
4.4 NATIONAL IDENTIFICATION NUMBER ................................................................... 50
5. CONCLUSIONS ............................................................................................................ 51
5.1. A STRATEGY TO ENHANCE YEMEN’S NATIONAL CREDIT REPORTING SYSTEM .................................................................................................................................. 51
5.2 COMPARING EXISTING AND IDEAL CREDIT REPORTING MODELS ............. 54
ANNEXES ............................................................................................................................. 60
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2003 2004 2005 2006 2007 2008 2009*
GDP per capita 2182 2109 2203 2276 2347 2410 2474
1900
2000
2100
2200
2300
2400
2500
2600
Figure 2: GDP per capita based on purchasing-power-parity (US$) (*) 2009 estimated
Figure 2: GDP per capita based on purchasing-
power-parity (US$) (*) 2009 estimated
1. MACROECONOMICS AND DEMOGRAPHICS
1.1 COUNTRY PROFILE AND ECONOMIC OVERVIEW
The effects of the recent global financial crisis on
Yemen’s economy have been minimal due to limited
integration with the international economy and relative
underdevelopment of the local market. In the short
term, oil remains the most important resource of the
country (approximately 90% of exports) and Yemen’s
economy may be influenced by the reduced demand
from oil dependent countries, as well as by the
internationally reduced prices of hydrocarbons and
derivative products.
Yemen’s GDP in 2008 totaled US$ 27 billion,
growing at an estimated annual rate of 4.2%2.
The sharp decrease of oil prices in 2008
negatively impacted overall GDP growth.
However, growth in non-oil sectors (9%) of
Yemen’s economy partially compensated for
reduced oil revenues. Similar trends persisted
in 2009 with a registered sharp decline in oil
revenues during the course of the year,
projecting a significant drop in 2009 when
annualized. The per capita GDP3 has
significantly increased (Figure 2) in the last ten
years from US$ 1,405 (1990) to an
estimated US$ 2,474 (2009).
However, due to high inflation (Figure 3),
real GDP has been negative. In 2008,
inflation has been driven by food and
commodities price increase, but according to
recently released Central Bank of Yemen
(CBY) data, the Consumer Price Index (CPI)
is expected to remain under control. The
2 Central Bank Yemen, Annual Report, 2007 and World Bank Sana’a Yemen Economic Update, Spring 2009
3 Index Mundi on IMF data, http://www.indexmundi.com/yemen/gdp_per_capita_(ppp).html, October 22, 2009
Figure 1: Map of Yemen
2003 2004 2005 2006 2007 2008*
GDP % 3.3 3.1 5.8 4.5 4.7 4.8
CPI% 10.8 12.5 9.8 10.9 7.9 19
0
2
4
6
8
10
12
14
16
18
20
Figure 3: GDP and Consumer Price Index(*) 2008 estimate
Figure 3: GDP and Consumer Price Index
(*) 2008 estimate
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280
300
320
340
360
380
400
420
440
460
Figure 4: Yemen Crude Oil Production (bbls/day)
Year AvgMonthly
2004 2005 2006 2007 2008
Figure 4: Yemen Crude Oil Production (bbls/day)
cumulative inflation from December 2008 to July 2009 was only 1.9%, while on a yearly basis the average
inflation reached 4.4%.
The most likely impact of the global financial
crisis will be reduced foreign direct investments
and limited inward remittances, representing a
vital flow of revenue estimated at 5%-6% of the
GDP. World Bank analysis4 of the EIA (Energy
Information Administration) data shows
Yemen’s declining oil output with production
peaking in 2004-5 (Figure 4).
Yemen will continue pursuing integration with
regional economies by pursuing efforts to join GCC while pushing through a series of structural reforms
started in the past few years. Reforms will include land registration, land transportation, national
identification, electricity, social insurance, anti-money laundering, income tax, investment, and
telecommunications. Furthermore, the Government is seeking to implement a strategy to modernize the
country by diversification of exports beyond oil.
1.2. DEMOGRAPHICS AND POPULATION TRENDS
The country’s population, with an annual growth rate of 3.4%5, is expected to triple by 2050 to 58 million
6
(Figures 5 and 6). Yemen’s young population (almost 50% are under 15 years) is undergoing rapid
urbanization. Over 70% of the population currently lives in rural areas.
Figure 5: Population Pyramid 2010 Figure 6: Population Pyramid 2050
However, major cities, such as Sana’a are expected to double the number of inhabitants within the next
15 years (Table 1).
4 The World Bank Sana’a, Yemen Economic Update, Spring 2009 5 Index Mundi, Yemen Demographic Profile, http://www.indexmundi.com/yemen/demographics_profile.html, 2009
6 Population Reference Bureau, http://www.prb.org/Countries/Yemen.aspx#, October 21, 2009
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(in thousands)
The literacy rate (able to read and write) for the adult (over 15 years) population is roughly 50% -
comprised of nearly 71% males (Table 2). In 2006/2007 the number of students enrolled in the school
system totaled 4.85 million, of which 41% were girls.
(in thousands)
Table 2: Number of Students at various stages of Education8
Stage 2005/2006 2006/2007
Male Female Total Male Female Total
Basic Education 2,364 1,608 3,972 2,496 1,774 4,270
Secondary Education 353 173 526 366 195 581
Total 2,717 1,781 4,498 2,882 1,969 4,851
The formal economy in Yemen is characterized by a ballooned public sector administration, representing
the largest employer, and a private sector dominated by a limited number of private companies.
Unemployment rates are nearing 35% in 2007. The work force of Yemen is mainly employed in
agriculture (54%) and herding. Services, construction, industry, and commerce, account for less than
25% of the work force. The number of Yemeni nationals working abroad in 2005 was estimated at 2.8%
of the population. During the last 8 years, the inflow of remittances has averaged USD 1.29 billion
(roughly 6.1% of GDP) - if outflow remittances are also considered. However, the volume of remittances
is expected to decrease in 2010 due to the global financial crisis.
With population growth, the expected increase of the work force will have considerable repercussions on
the job market, new housing stock and the increased demand for durable and semi-durable consumer
goods (cars, furniture, appliances, and technology). This will create opportunities for the credit industry
requiring a shift in focus from business needs typically restricted to large business groups, to individual
credit needs.
Increased access to credit has played an evident role in improving the quality of life of a majority of the Yemeni
populace. Broader, steadier and easier credit flows can represent the only exit strategy for the poorest and largest
segment of the population, helping to create micro and small enterprises that can be the backbone of the economy.
7Population Division, Department of Economic and Social Affairs, United Nations Secretariat, World Population Prospects, Ed.2006,
and World Urbanization Prospects, Ed 2007, http://esa.un.org/unup, October 21, 2009. 8 Ministry of Education Data.
Table 1: Population of urban agglomerations 2005-20257
City 2005 2007 2010 2015 2020 2025
Al Hudaydah 672 780 951 1232 1528 1854
Sana’a’ 1801 2008 2345 2955 3636 4382
Ta’izz 657 751 902 1159 1437 1743
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BOX1: YEMEN CREDIT & FINANCIAL MARKETS SNAPSHOT
• Population: 23 to 24 million.
• Bank clients with an account: less than 5% of population.
• Loan clients: less than 1% of population (November 2009, CBY).
• Operative banks: 18 including private, public, and Islamic.
• Banks network: 215 branches (2007) and 238 ATMs.
• CBY branches: 22.
• Ratio branches/population: approximately 1 for every 107,000 people.
• Total credit outstanding: YER 912 billion (August 2009).
• Total banks’ credit outstanding: YER 910 billion (August 2009).
• Total MFIs’ credit outstanding: YER 2 billion (March 2009).
• Bank credit to private sector: 45% of total outstanding.
• Bank loan interest rates: generally between 15% - 20%.
• Money changers: 521 licensed (2007).
• MFIs: 13 Social Fund for Development associates, including NGOS - all
unregulated.
• MFI banks: 2 (Al-Amal and Tadhamon) both regulated by CBY.
• MFI loan customers: 38,091 (March 2009).
• MFI depositors: 30,430 (March 2009).
• MFI total loans disbursed since inception: 253,650.
• MFI volumes disbursed since inception: YER 12,2 billion.
• MFI P.A.R.: from 0.1% to 16.7%.
• MFIs client profile: mostly women (up to 100% in some MFIs).
• MFIs average loan: US$ 200.
• NBFI, Retailers and retail credit: none.
• Debit cards: new, negligible utilization at ATM.
• P.O.S: negligible presence, network creation in progress.
• Credit cards: virtually absent.
• Underwriting procedures: extremely traditional.
• Collateral: always requested.
• Scoring: absent or sporadic and internally built.
2. STATUS OF CREDIT AND FINANCIAL MARKETS
2.1 ACCESS TO FINANCE
The size of the credit market in Yemen
is still very modest and financial service
penetration rate is extremely low.
According to World Bank analysis9, the
number of people with a formal,
financial institution relationship neared
800,000 in 2008 (approximately 4% of
the population), with a penetration of 35
depositors for every 1,000 people.
Saving accounts and deposits are the
most popular products, while credit,
which is dominated by the banking
sector, remains at a relatively nascent
stage of development. Access to
finance is difficult, limited, cumbersome
and negligible - particularly for the low
income workers, Micro and Small
Medium Enterprises (which mainly
compose the informal strata of the
economy), as well as for individual
consumers, principally those from the
non-salaried category.
Currently, the total number of borrowers being
served by Yemen’s banking sector is only 129,905
customers (individuals and firms)10
- roughly 0.6% of
the population. The outstanding loan-to-GDP ratio is
8%. This is not only due to highly selective lending
practices by banks, but also due to a focus on
lending to corporate and high net worth individuals.
The credit market is highly concentrated, liquid, and
traditional.
9 Social and Economic Development Group MENA’s Financial Sector Review, Yemen Financial Sector Reform: a Proposed Action
Plan, 2008 10
Central Bank of Yemen, Presentation at the ACRI workshop, Abu Dhabi, November 9, 2009
1%14%
7%
42%
22%
14%
Figure 6: Credit Distribution by sector(2007)
Agriculture and Fishing
Industry
Construction
Trade
Others
Classified Loans
Figure 7: Credit distribution by sector (2007)
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Banks are well positioned to significantly expand credit and play a greater role in Yemen’s economy.
Often, banks in Yemen are not able to effectively play the intermediation role. Yemeni banks’ funds are
structured as follows:
- 70% to finance the Government,
- 20% for intermediation, and
- 10% placed with foreign correspondents banks.11
The overall loans/deposit ratio is 33%12
, which is significantly higher than the regional average and
severely limits access to finance. Banks network coverage is largely insufficient and when compared with
similar countries, shows one of the lowest ratios in the MENA region (Figure 8), both in terms of territorial
and population coverage.
Figure 8: Bank Branches13
Deposits have been increasing in the last five
years at a compounded rate of approximately
15%, reaching the amount of YER 1,275 billion
(USD 6.25 billion) as of August 2009. Foreign
currency deposits represent over 41% of the total
deposits14
, with time deposits (32%) coming
second in client preferences.
As of October 2009, 18 banks (4 public and 14
private of which 4 are Islamic banks and 5 are
foreign branches) were operating in Yemen
under the supervision of CBY.
11
Social and Economic Development Group MENA’s Financial Sector Review Yemen Financial Sector Reform: a Proposed Action Plan, 2008 12
Central Bank of Yemen, Presentation at the ACRI workshop, Abu Dhabi, November 9, 2009 13
World Bank. Finance for All comparator countries are Albania, Bolivia, Ethiopia, Ghana, Honduras, Kenya, Tanzania, Uganda and Zambia. Bangladesh and Pakistan have much more developed financial systems, nearly five times as many bank branches, and are not factored in this figure. 14
Central Bank of Yemen, Annual Report, 2007.
Figure 9: Bank Deposits (YER millions)
2005 2006 2007 Aug-08 Aug-09
Deposits 637,958 851,044 1,050,932 1,159,706 1,275,100
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
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Microfinance institutions (MFI) represent the
only alternative channel of finance available.
They are generally associated with the
Social Fund for Development (SFD), and are
not regulated by CBY. Al-Amal and
Tadhamon are two commercial banks which
are an exception to this rule, and are
operating in the microfinance sector under
CBY regulation.
Table 3: Number of Financial Establishments and
Corporations: 2002 to 2006
Unsecured credit
is not common
among banks.
There remains a
heavy reliance on
collateral to
secure credit
transactions for
large corporate
borrowers as well
as for individuals.
MFIs have also
adopted the
practice of
requiring a
guarantee to grant
lines of credits.
This has been extended to service providers such as mobile telephone operators who require 100% cash
collateral for post-paid contracts15
.
Despite high collateralization, the absence of strong creditor’s rights and a weak legal framework result in
lenders, often facing delays, in enforcing collateral. This makes credit more risky and expensive for
lenders and borrowers. Furthermore, access to finance remains limited by the absence of advanced risk
management tools, lack of complete and reliable credit information, ubiquitous financial documentation
requirements burdened with bureaucratic procedures and a long decision-making process. World Bank
analysis16
has shown that almost 83% of firms in Yemen claim to have never received a bank loan, and
15
Field interview with MTN, October 6, 2009. 16
Social and Economic Development Group, MENA’s Financial Sector Review, “Yemen Financial Sector Reform: a Proposed Action Plan”, 2008 and “Investment Climate Assessment”, 2006
Yearالسنة
Itemالبيان
Banks1 17 17 18 18 18البنوك1
The Central Bank1-1 1 1 1 1 1البنك المركزي1-1
Commercial banks1-2 10 10 11 11 11البنوك التجارية1-2
Islamic banks1-3 4 4 4 4 4البنوك األسالمية1-3
Specialized banks1-4 2 2 2 2 2البنوك التخصصية1-4
Exchange2 463 410 349 341 299الصرافة2
141417Exchange companies2-1 10 7شركات الصرافة2-1
335396446Exchange offices2-2 331 292محالت الصرافة2-2
16 16 16 15 15شركات التأمين وصناديق التقاعد3Insurance Corporations &
Pension funds3
1111121212Insurance Corporations3-1 شركات التأمين3-1
44444Pension and annuity funds3-2 صناديق التقاعد والمعاشات 3-2
332374383443496
أعداد المنشآت والمؤسسات المالية خالل الفترة 2002-2006م
Number of Financial Establishments and Corporations: 2002 to 2006
20052006*
االجمالي
ية * بيانات أول
200220032004م
(1) Central Bank of Yemen for data on banks and exchange companies, several
bulletins
* Preliminary data
Total
S
(2) Ministry of Industry & Commerce for Insurance Companies
(3) Ministry of Finance for Pension and annuity funds
Sources of data:
بنك المركزي للبنوك وشركات الصرافة، نشرات متفرقة )1( ال
تأمين تجارة لشركات ال صناعة وال )2( وزارة ال
معاشات تقاعد وال )3( وزارة المالية لصناديق ال
بيانات: مصادر ال
Government Demand Time SavingsForeign
CurrencyEarmarked Total
Deposits 333 149,523 415,379 116,399 534,206 59,260 1275100
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Figure 10: Deposit by type (YER millions – Aug. 2009)
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among medium enterprises only 28.9% have ever used a bank. Another major constraint raised by 47%
of large firms and 32% of small firms is the high cost of credit.
The financial landscape in
Yemen remains limited to
traditional financial products, and
cash constitutes the most
common method of payment for
business and personal
transactions alike. Indicative of
this is the number of checks
cleared on a monthly basis by
CBY (Figure 11). This number,
while increasing gradually, still
remains low. During July and
August 2009, the CBY processed
approximately 63,000 checks
each month17
. Checking
accounts and debit cards though
present are generally utilized by
a minority of the population - in most cases, the wealthy.
Leasing has been recently introduced, though it will require legislation and better financial infrastructure
(such as a fully functioning credit registry, collateral registry, leased property registry, etc.) for broader
acceptance to take place.
As mentioned, while credit penetration remains low, banks are starting to include SME and consumer
market segments to capitalize on credit potential and economic opportunities. A more inclusive and
healthier credit growth can be achieved based on borrower demand, competition among lenders and
through greater financial literacy of the borrowing public.
International experience has shown that as the credit market develops, other non-regulated commercial
entities will start granting credit, for e.g. retailers, mobile telephone companies, etc. It can also reasonably
be expected that consumer, SME and micro credit segments will drive growth and profitability of the credit
industry through higher volumes and value of loans granted. However, such growth will depend on
availability of complete and comprehensive credit history and adoption of automated risk management
tools (e.g. credit scoring) by financial institutions. The regulatory role of CBY will also be crucial in
encouraging the development of a solid and healthy credit market.
17
Central Bank of Yemen, “Review of Monetary and Banking Developments”, August 2009
Figure 11: Clearing Room
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2.2 MARKET PLAYERS
2.2.1 BANKS
The banking system of Yemen is comprised of 16 commercial banks and 2 special development banks
(Housing Bank and Yemen Bank for Reconstruction and Development). Four banks are state owned, the
rest are either foreign bank branches (five) or owned by local private shareholders (nine). The penetration
and the market share of Islamic banks are growing, and some banks (e.g. Tadhamon, Saba and the
Islamic Bank of Yemen for Finance and Investment IBYFI) are increasingly active in this credit sector. Al
Amal (established in 2009) and Tadhamon are operating in the microfinance sector, with the former
completely dedicated to microfinance and providing Islamic micro credit loans. All the eighteen banks are
licensed and supervised by CBY.
Table 4: List of Yemeni Banks as of October 2009
S.No. Particulars
1 Al-Amal Bank
2 Arab Bank
3 Calyon Credit Agricole
4 Cooperative & Agriculture Credit Bank
5 Housing Bank
6 Islamic Bank of Yemen for Finance and Investment
7 International Bank of Yemen
8 National Bank of Yemen
9 Qatar National Bank
10 Rafidan Bank
11 Saba Islamic Bank
12 Shamil Bank of Yemen and Bahrain
13 Tadhamon International Islamic Bank
14 The Yemen Bank of Reconstruction and Development
15 United Bank Ltd
16 Yemen Commercial Bank
17 Yemen Gulf Bank
18 Yemen Kuwait Bank for Trade and Investment
In order to boost and support the growth of the economy and in the absence of strong private sector
banks, the government set-up 3 development banks, each one focusing on a specific economic sector:
1. The Yemen Bank for Reconstruction and Development, founded in 1962, with the aim to promote
industrial development and offering products like credit guarantees and industrial loans.
2. The Housing Credit Bank, created in 1977, with the purpose of offering mortgage loans to both
private individuals and firms operating in the construction sector.
3. The Cooperative and Agricultural Credit Bank (CACB), established in 1982, with the original goal
to support farming and fishing activities in acquiring equipment and offering traditional loans as well.
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The CACB has been recently restructured, as part of the reform process undertaken by the
government, to concentrate on the retail credit sector.
The banking industry as a whole remains small
and at an early stage of sophistication, with
assets representing approximately 30% of GDP18
.
Banks’ credit volumes were YER 909.9 billion
(USD 4.46 billion), or 99.8% of total credit
outstanding as of August 2009. Private credit
represents nearly 45% of total credit in 2009,
down from 59% in 2008. Government borrowings
have absorbed 53% of banking sector credit in
2009, against 39% during the same period in
2008.
Yemen’s bank network is severely under
branched. The banking sector’s branch network is
comprised of 228 branches19
with the highest
concentration in Sana’a20
. In Yemen, 100,000
customers are serviced per branch, while in
developing countries the same number of
customers is serviced by 8-9 branches (11.6 in
Morocco, 29.8 in Lebanon)21
. The three major
public banks (Figure 13) represent the majority of
the network (53%).
A simpler regulation could facilitate branch
openings, and thereby increase branch network coverage.
Research22
has shown that requirements for branch
approval are detrimental as they correspond to a
lower branch penetration (Figure 14).
CBY maintains a separate network of 22 branches
which play an institutional role and do not offer
commercial financial services to the general
population.
18
Social and Economic Development Group, MENA’s Financial Sector Review, “Yemen Financial Sector Reform: a Proposed Action Plan”, 2008 19
Central Bank of Yemen, November, 2009 20
Central Bank of Yemen, Annual Report, 2007 21
CGAP, Financial Access, http://www.cgap.org/financialindicators, 2009 22
CGAP, Financial Access, http://www.cgap.org/financialindicators, 2009
40
29
10
3
2511
8
46
1
13
521
12
0
6
2 1
YRD NBY ABL UBL HCB CALYON
IBY YKB CACB RB YCB IBD
TIIB SIB WB SBYB W BYGB QNB
Figure 13: Banks Branch Network as of end of 2007
Figure 14: Branches per square kilometer
Figure 12: Outstanding bank loans and advances
(YER million)
2005 2006 2007 Aug-08 Aug-09
to governemnt 180,205 202,693 289,342 287,798 484,789
to public client 43 3,062 7,072 9,110 16,066
to private 225,783 266,118 359,477 431,353 409,056
Total 406,031 471,873 655,891 728,261 909,911
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
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ACRI |A joint effort by the Arab Monetary Fund and the International Finance Corporation Page 15
The ATM network remains extremely limited
despite a 46% growth since 200723
(Figure
15). One ATM services 96,600 people. This
remains considerably low if compared with
other emerging markets with an average of 23
ATM machines for 100,000 people.24
Credit cards are still rare, mainly utilized
abroad and scarcely accepted by the
commercial network in Yemen.
2.2.2 MICROFINANCE INSTITUTIONS
Microfinance institutions represent the only alternative
credit channel to the banking system. Microfinance credit
volumes compared to banks’ outstanding are only 0.2%
(YER 1.98 billion as of March 2009). The sector is gaining
importance in Yemen, and since the start of microfinance
operations, it has cumulatively disbursed credit of YER
12,759 billion25
(USD 62.54 billion).
13 MFIs are associated with SFD and 11 are fully
operational in Yemen. Most institutions operate in the
capital city of Sana’a; some have a larger network comprising branches in rural areas. Women represent
the vast majority of loan customers and in the case of
some MFIs represent 100% of the portfolio, for example,
in the case of Abyan S&C and Al-Awael MF Company.
Since inception of the microfinance sector, MFIs have
disbursed over 253,000 micro loans. This represents the
importance of MFIs, and makes these institutions a vital
finance channel, particularly for the vast sector of active,
non-bankable borrowers, that is the informal economy. It
is noteworthy, that in the case of Yemen, this comprises
most of the active population26
. As of March 2009, the
number of active micro loans in the MFIs’ books totaled
38,091, of which 45% were concentrated in the two larger
MFIs (National Micro Finance Foundation-NMFF with
12,132 loans and MF Development Program-Nama’- with 5,005) as indicated in Figure 17. It is estimated
that another 5,000 micro loans have also been granted by other NGOs, not associated with the SFD.
23
Central Bank of Yemen, Annual Report, 2007 24
CGAP, Financial Access, http://www.cgap.org/financialindicators, 2009 25
Small and Micro Enterprise Development in Yemen, SFD, 2009 26
Lenders’ estimate
2005 2006 2007
ATM 117 163 238
0
50
100
150
200
250
Figure 14: Automated Teller MachinesFigure 15: Automated Teller Machines
2.00
910.00
Figure 15: Total outstanding loans volume-YER billions (August 2009)
MFI BANKS
Figure 16: Total outstanding loans volume-
YER billions (August 2009)
742417
12,132
5,0053561
3500
3116
2365
2378
2118
1370 1378
Figure: 16 Total outstanding microcredit loans ( as of march 2009)
Al-Amal SOFD National MFDP
Abyan Aden Al-Awael Sana'a
SFSD SMEF Al-Hudaidah Wadi
Figure 17: Total outstanding microcredit loans
(as of March 2009)
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BOX 2: BANK AL-AMAL: A NEW
OPPORTUNITY FOR MICRO-ENTREPRENEURS
Al-Amal Microfinance Bank was established by
Law (23 of 2002), as the first Microfinance Bank in
Yemen. However, operations have started only
recently in January 2009. Al- Amal is a partial
undertaking of the Government of Yemen (it owns
45% of the institution through the SFD); the other
shareholders are the AGFUND (Arab Gulf
Program for United Nations Development
Organizations) with 35%, and the private sector
with 20% (Figure 18).
Al-Amal’s objective is to increase access to
finance for poor clients engaged in productive
activities (micro-entrepreneurs) as well as a
broader range of services (savings, insurance,
etc.) to help them in improving their businesses. A
challenging 5 year strategy has been drafted
(Figure 19) with the objective to enroll 100,000
active customers by the year 2013 and an
outstanding loan volume of US$ 56.7 million.
Since its roll-out, Al-Amal Bank has acquired 3,400
loan customers (2,700 are active) and 2,600
depositors (mainly voluntary savings). Women
represent 52% of the total active borrowers. New
branches have been recently opened and others
are in the pipeline for the next few years
Apart from individual loans, the bank grants
solidarity loans as well (ranging from US$50 to
US$ 4,000 with a current average of US$300).
Guarantees are generally requested, either the
psychological collective solidarity in case of group
loans, or personal guarantees, guarantors, or cash
collateral. Islamic microfinance products are
provided by the financial institutions. The
decisional chain is based on loan amounts with
equal involvement of branches, regions and HQ.
Al-Amal is regulated by CBY and must report
credit data to the CBY’s PCR. As of October 2009,
this was not the case. Al-Amal claims a very low
Portfolio at Risk (P.A.R.) ratio (nearly 0%) which
could also be explained with its very recent start of
operations.
Source: Al-Amal Management Interview, November 2009
Table 5: Staff Loans
Particulars 2009 2010 2011 2012 2013
Staff 58 142 248 379 531
Loan Officers 22 66 128 206 298
Branches 4 10 18 28 40
Clients 4,500 15,000 40,000 70,000 100,000
Outstanding (000, US$)
550 2700 7150 14150 23,400
Disbursed (000, US$)
1,200 6,200 16,900 33,900 56,700
20%
45%
35%
Figure 17: Al-Amal Bank Shareholders
Private Sector Yemen Government AGFUND
Figure 18: Al-Amal Bank Shareholders
2009 2010 2011 2012 2013
Outstanding (000,US$) 550 2,700 7,150 14,150 23,400
Disbursed (000.US$) 1,200 6,200 16,900 33,900 56,700
-
10,000
20,000
30,000
40,000
50,000
60,000
Figure 19: Al-Amal Bank 5 Year Plan (loan volumes)
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ACRI |A joint effort by the Arab Monetary Fund and the International Finance Corporation Page 17
BOX 3: MICROFINANCE INSTITUTIONS AND
COLLATERAL
A common practice of the Yemeni microfinance
industry is the frequent use of collateral; guarantees
are requested for small loans. In the case of solidarity
group lending, the “moral, social, psychological”
pressure serve as collateral as well - though this is a
more customary practice elsewhere. The anomalous
routine of requesting collateral for micro credit loans
(though the average loan amount is often higher in
Yemen than the ones granted in other regions) is
likely caused by a lack of reliable data. These issues
are symptoms of an underdeveloped credit risk
management system which can be improved by a
comprehensive, shared credit information database.
The positive impact of a PCB could be an important
factor for change, leading to increased access to
micro credit and stronger portfolio performance.
Yemeni MFIs fully agree on the information sharing
concept as well as need and are keen to participate in
the creation of a potential PCB.
Loans and savings are the two major product
offerings of Microfinance Banks (MFBs). Loans
can be viewed as two types: micro loans (average
US$ 150 – 200, up to US$ 1,000) granted to micro
enterprises with 1 to 4 employees, and small loans
(average US$ 2,500, up to US$ 20,000) granted to
small entrepreneurs that employ 5 to 50 workers.
As of March 2009, MFBs reported a depositor
base of 30,430 with almost 50% (14,856) being
customers of National Microfinance Foundation
(NMFF).
P.A.R. varies significantly across MFBs and MFIs,
ranging from 0% to 16.7% (March 2009).
Typically, the larger institutions have a better
managed portfolio and lower levels of risk,
although over-indebtedness is becoming a
significant issue based on an analysis of the basic
information maintained by SFD. The lack of information sharing may prevent reduced lending rates for
micro-enterprises and also lead to a more serious over-indebtedness problem compounding the P.A.R.
Microfinance operations are regulated by a law (No. 15/2009) which authorizes microfinance banks to
provide banking service to families, small businesses and smaller projects in the urban and rural sectors
of the country. The law regulates the role of the microfinance banks, defines the targeted typologies of
clients, and establishes that MFIs are to be supervised by the CBY. This implies that, among the many
modifications and upgrades that the MFBs will have to undertake, there will also be the necessity to
provide complete monthly information on loans portfolio to the CBY.
A major review and significant investments need to be undertaken by the MFIs to achieve the sectors
growth potential. Such changes will enable MFIs to participate in and contribute to the development of a
much needed information sharing infrastructure, which will support broader access to finance. Although
credit volumes of commercial banks will likely be higher, robust growth in microfinance can see the
number of MFI loan accounts; exceed those of commercial banks in a span of 3-5 years. To achieve this,
the following, are some of the major issues that will need to be addressed:
- Need of systems upgrade, automation, training of credit officers and improved service offerings.
- Comprehensive credit information sharing.
- Improved portfolio monitoring and P.A.R. control in some cases.
- Introduction of wider range of product offerings (e.g. micro-insurance).
- Removal of subsidy to MFIs and reduction of operational costs.
- Lack of standardized practices, processes and policies.
- Limited territorial coverage and high urban concentration.
- Lack of programs for borrowers’ financial education.
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2.2.3 MOBILE TELEPHONE COMPANIES
In the past few years, mobile connections have grown by 40%-50%. Four main operators (MTN-Spacetel
Yemen, Yemen Mobile, Sabafon, Y-Hits Unitel) are currently competing in Yemen. They have acquired
approximately 6 million customers - with MTN being the market leader, with its portfolio of roughly 2.7
million customers, as of October 2009. Market penetration remains low, and according to different
sources, it varies from 24%27
to 30%28
. According to industry growth estimates, it is expected that the
number of customers will reach 10 million active users in the next 3 years. The average air-time
consumption per contract is USD 7 per month29
. This is much lower than other comparable countries, for
e.g., in Cape Verde, the air-time per capita consumption is roughly USD 20 per month. Air time prices
remain high, and services are limited to basic ones.
The mobile telecom market in Yemen is a business characterized by elevated advanced cash flows, and
negligible credit risk for the providers. It is estimated that up to 90% of mobile subscribers in Yemen have
opted for prepaid contracts. Mobile post-paid contracts, those that have greater relevance to credit
behavior, account for approximately 600,000 - 750,000, which is 10% to 15% of the total subscriber base.
This customer portfolio represents the largest customer base in the commercial banking or MFI sectors.
One of the limitations in further expansion of post-paid contracts is the cash-collateral; typically an
amount corresponding to the credit limit requested by each new applicant. In case of corporate and
business firms (which represent 40% of total prepaid contracts while the remaining 60% are individuals),
a bank letter of guarantee is also accepted. Higher limits are automatically authorized based on good
payment performance and airtime utilization by the customer. However, each limit increase must be
supported by an additional guarantee. Best customers are sometimes authorized to exceed the credit
limit; however this is an exception rather than the rule.
Currently there is no formal or informal exchange of information, nor a collective blacklist being
maintained by the four operators in Yemen. Mobile telephone contract applications do not include the
consumer’s consent to share data with third parties. Identification is always required with new contracts,
although it is not always the new national ID number, instead, a personal identification, passport, or
student card is also accepted.
2.2.4 OTHER LENDING INSTITUTIONS
Presently, no other commercial lenders are operating in Yemen, such as retailers, supermarkets, NBFI,
NGOs. There is no stock exchange in Yemen and the money market remains limited to issuance and
negotiation of treasury bills. Money changers have a well developed network across Yemen with their
operations licensed by CBY, although they are not allowed to distribute financial services such as loans. If
efforts are made to develop alternate lending sources, such as retailers, the following benefits may
accrue:
27
MTN estimates, October 4, 2009 28
Market Research.Com, http://www.marketresearch.com/product/display.asp?productid=2384211, October, 2009 29
Market Research.Com, http://www.marketresearch.com/product/display.asp?productid=2384211, October, 2009
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ACRI |A joint effort by the Arab Monetary Fund and the International Finance Corporation Page 19
i) banks may acquire new customers, increase their portfolio volumes, limit their acquisition costs, and
strongly increase cross-selling opportunities;
ii) retailers would dramatically increase sales without maintaining high levels of working capital,
immobilized in their outlets, generating a faster sales rotation;
iii) Consumers could avoid the wait to purchase durable and semi-durable goods, until accumulating
savings over long periods.
Local retailers neither have the size, the organization, or any immediate plans to enter directly into the
credit market. They remain focused on their primary sales activity, while the Yemeni population continues
a high dependence on cash for trade transactions.
2.2.5 THE CENTRAL BANK OF YEMEN
CBY was established in 1971 as an independent authority to regulate financial and credit markets in
Yemen. In 1990, after the unification of South and North Yemen, the CBY was merged with the Bank of
Yemen as the sole regulator for the banking sector. Law 14 of 2000 establishes CBY as an independent
body, created to carry out all the functions of a normal central bank with the paramount objectives of
conducting monetary policy to keep inflation under control, stabilize the exchange rate of the national
currency and promote investment and economic growth. It is entrusted to a Board of Directors, headed by
a Governor. The headquarters of the CBY are in Sana’a while branches are operational in each of the
twenty Governorates of the country.
The missions and main objectives are summarized as follows:30
1. Monetary Policy - The CBY uses all the tools of monetary policy at its disposal to keep inflation under
control, stabilize the exchange rate of the national currency and create an environment that is
conducive to investment and high growth. Among the main monetary tools used by the CBY are the
interest rate, the discount rate, the reserve requirements, foreign exchange markets interventions,
and issuing of certificates of deposits.
2. Bank Supervision - The CBY supervises the banking system with a view to promoting its sound
functioning and protecting the interests of depositors and shareholders.
3. National Currency - The CBY is the governmental agency which issues the country’s currency (YER).
The exchange rate of the Yemeni Riyal has been floating freely since 1 July 1996, and there has
been only one single exchange rate since then.
4. Management of the Official Reserves - The CBY keeps the country’s foreign reserves, investing and
managing them in the best interests of the national economy. The official reserves have risen from
2.8 months of import cover in 1994, to 15 months in 2004. The commercial banks are free to deal in
the foreign exchange market and are allowed to keep balances in foreign currencies for their account
30
Central Bank of Yemen, http://www.centralbank.gov.ye/
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at home and abroad. There are no restrictions on the transfer of foreign currencies abroad, as the
Republic of Yemen has accepted Article VIII of the International Monetary Fund in December 1996.
5. Bankers’ Bank - The Central Bank of Yemen maintains accounts for the commercial banks and acts
as a clearing house for their transactions. The commercial banks keep statutory reserves with the
Central Bank as a ratio of their deposits. This ratio varies from time to time in accordance with the
condition and state of the economy. It is one of the monetary tools at the disposal of the Central
Bank.
6. Government’s Banker - Besides maintaining accounts for the various Government ministries and
agencies, the CBY also keeps accounts in the name of international institutions, from which it makes
payment orders to the concerned parties as instructed. Furthermore, the CBY manages the issue and
redemption of treasury bills.
7. Other ancillary functions:
- CBY acts as lender of last resort.
- CBY administers and manages the external public debt of the country.
- CBY acts as advisor to the Government.
- CBY implements economic and financial policies.
- CBY publishes financial and economic data and reports on a regular basis, reflecting the health of
the domestic economy.
2.3 CREDIT RISK MANAGEMENT & CREDIT ACCESS CONSTRAINTS
2.3.1 COLLATERAL, NON PERFORMING LOANS, REJECTION RATES
2.3.1.1 COLLATERAL AND GUARANTEES
Among the limiting factors to a faster expansion of credit is the ubiquitous requirement of collateral and
guarantees which make the Yemeni credit system highly selective and expensive. All credit lines and
loans granted are backed-up by the applicant either with physical/real collateral or with personal
guarantees, through a co-guarantor/s, using cash collateral or guarantee deposits.
Even salary may be a collateral surrogate and a pre-requisite to obtain credit. A steady salary or a
certified income is the basic condition to be considered eligible for a loan. However, this leads to
entrepreneurs (typically from the informal sector) being cut-out from the traditional credit channels. Even
microfinance institutions often request guarantees for micro loans. An example of how guarantees
influence access to credit is indicated in the table below, which has been extrapolated from responses to
the business/risk questionnaires supplied by the banks to IFC31
.
31
The name of the bank is not mentioned here for confidentiality reasons. The products not ticked are not available at the bank.
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BOX 4: REPUTATIONAL COLLATERAL VS.
COLLATERAL
Borrowers, particularly the most vulnerable segments
(individual borrowers, micro- entrepreneurs and the informal
sector), are often unable to provide guarantees. With a lack
of comprehensive and reliable credit information, lenders are
unable to distinguish good from bad customers. In turn, they
adopt two options to protect their portfolio: either increase
disproportionately the interest rate applied, or more
frequently, reject an applicant rather than take a potential
risk. “Reputational collateral” allows a significant diminution
of collateral requirements and helps to improve access to
credit. It is generated by the historical payment performance,
i.e. credit history data, both positive and negative, especially
at the consumers’ level. Accessing this data about all
borrowers is reliable, free and easy and it is much more
effective than real collateral for small ticket loans.
Table 6: Credit Products
TYPE OF CREDIT PRODUCT
COLLATERAL REQUIRED (YES/NO)
% OF CREDIT ACCOUNTS FOR WHICH
COLLATERAL IS REQUIRED
OTHER TYPE OF GUARANTEE, IF REQUIRED
(SPECIFY TYPE)
NOTES/ EXPLANATIONS
CREDIT CARDS - - -
PERSONAL LOANS YES 100% SALARY
CAR LOANS YES 100% SALARY – INSURANCE
MORTGAGES YES 100% SALARY
OVERDRAFT YES 100% ACCOUNT
RECEIVABLE
MICROCREDIT LOANS
- - -
SME LOANS - - -
OTHERS (SPECIFY) - - -
Guarantees/collateral requirement seems to
be the foundation of all credit policies in
Yemen, and the most common risk
protection and exit strategy for the banks. It
is certainly a major factor holding up a full
“credit democratization”, and one of the key
areas for improvement in the current credit
granting procedures. This issue can best be
addressed by the establishment of a full
credit information sharing system and
through the dissemination of complete credit
histories among lenders.
2.3.1.2 NON PERFORMING LOANS
No official and definitive Non Performing
Loans (NPL) ratios are available for the first 6 months of 2009. However, banks have cited NPL ratios
ranging from 1% to 12%, across various sectors and customer segments, with higher peaks discovered
with overdrafts and business loans. CBY records32
(2004-2007) show bad loans decreasing in the past
years and portfolio quality has improved, NPLs levels can be reduced through better risk management.
NPLs dropped from 17.28% in 2006 to 13.86% in 2007 (Table 7) with high levels of risk associated with
public enterprises.
32
Social and Economic Development Group, MENA’s Financial Sector Review, Yemen Financial Sector Reform: a Proposed Action Plan, 2008.
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In millions YER
Table 7: Loan Portfolio Quality of Commercial Banks in Yemen (2004-07)
CLASSIFICATION 2004 2005 2006 2007
Performing 151,680.4 186,073.2 217,545.5 309,857.3
Substandard 4,030.0 3,501.7 6,540.9 15,276.4
Doubtful 3,539.1 3,677.5 7,313.5 6,899.8
Loss 24,361.8 29,439.0 31,602.5 27,661.0
Gross loans & advances 183,611.3 222,691.4 263,002.4 359,694.5
Nonperforming loans 31,930.9 36,618.2 45,456.9 49,837.2
RATIOS (%)
NPL ratio 17.39 16.44 17.28 13.86
Coverage ratio 84.24 81.99 75.15 59.54
Open loan exposure ratio 13.51 13.06 15.86 23.32
Source: Supervision Department, Central Bank of Yemen.
Banks have recently started consumer lending, therefore the historical data of the associated portfolios is
too limited to conduct meaningful analysis of NPLs in consumer loans. Loans granted in the absence of
reliable credit information sharing among lenders and, consequently, more advanced underwriting tools,
will require close monitoring. As for microfinance institutions, their P.A.R. ranges from 0% to 16.7% as of
March 2009.
2.3.1.3 REJECTION RATES
The following are the general observations about rejection rates of credit applicants:
i. Rejections rates range from 7%-21%, with the highest percentage in those banks which are
aggressively pursuing an increased market share in retail credit33
. However, this percentage is related
to those applications that are selected for assessment by the credit committee.
ii. Rejection rates for applications that do not reach any decision stage but are discarded before being
officially filed and completed is higher, though unknown and unrecorded.
iii. The extremely low credit penetration among the population is indicative of selective credit
applications being raised for approval, as well as the low motivation of potential borrowers to file a
credit application.
The main “reasons for rejection” cited by banks in response to the IFC survey are: i) lack of information, ii)
insufficient income, iii) bad references. Insufficient income ranges from 40-80% as the major cause of
rejection (Table 8)34
. The absence of reliable and comprehensive credit information is the second reason
33
Questionnaires supplied by Yemeni banks to IFC, October 2009. 34
Questionnaires supplied by Yemeni banks to IFC, October 2009.
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for rejection. Rejection rates and biased subjective judgments can be significantly reduced through the
availability and utilization of credit information and advanced credit tools (e.g. credit scoring).
Table 8: Rejection Reasons
Particulars Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8
No information 25% 10% 20% N/A 20% 30% 10% 20%
Bad references 50% 10% 30% N/A 80% 30% 20% 10%
Insufficient income 0 80% 50% N/A 40% 70% 70%
Minimum size 25% N/A
Total 100% 10% 100% N/A 100% 100% 100% 100%
2.3.2 CREDIT UNDERWRITING & PORTFOLIO MANAGEMENT TECHNIQUES
Risk management techniques implemented at banks are still traditional. Existing credit underwriting is
characterized by long decision chains, centralized decision making by costly credit committees, excessive
reliance on collateral, high operational costs, partial automation, lack of advanced risk management tools,
and utilization of very limited credit information.
Credit scoring is mostly absent or at best in the early planning stages of development at some banks.
Application scoring is not utilized yet, apart from some elementary and internally built, generic systems (Table
9)35
. While retail focused lenders are on the verge of introducing risk assessment methodology, it will still take
some time before the first statistically built scoring system is developed and adopted by the credit industry in
Yemen. None of the financial entities who responded to the ACRI survey are using a custom scoring model
built by a leading international provider. Only one private bank has mentioned plans to introduce a custom
application scoring model, which will be based on the banks own portfolio data. Behavioral scoring models
and automated account management systems have yet to be introduced. However, this may be due to the
small size of consumer portfolios.
Table 9: Scoring utilization
Particular Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8
Scoring utilization No No No No No No Internal Internal
Automated credit application processing has not been implemented at any of the banks in Yemen (Table 10).
This may remain difficult to achieve till such time that the CBY PCR and internal bank systems are upgraded.
A typical information verification process workflow may entail separate:
i) Inquiry to CBY’s PCR, and
ii) Informal banking reference checks (with other lenders).
35
Questionnaires supplied by Yemeni banks to the ACRI team, October 2009.
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Table 10: Full Automated Application
Bank 1 Bank 2 Bank 3 Bank 4 Bank 5 Bank 6 Bank 7 Bank 8
Full automated application No No No No No No No No
These procedures are often not integrated in the lenders’ main application processing systems, leading to
delayed approvals and increased operational costs. Generally, credit decisions are taken by a credit
committee staffed with several resources. More recently, banks have adopted decisional delegation matrixes,
allowing branches to take some decisions for smaller amounts.
Banks will need to fine-tune their credit policies and portfolio strategies going forward. Additionally, the entire
lending industry will have to significantly upgrade existing systems to support strong growth and increased
volume of business. Furthermore, there remains a significant disparity between the level of technology and
internal capacity between banks and microfinance institutions, as MFIs are operating at a much more basic
level and are in need of support.
Training in advanced risk management techniques and adoption of tools will be critical to the further
development of lending. Increasing these skills inside the credit industry, would bring immense positive
results, and support the expansion of access to finance for potentially good customers.
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"Full" (information shared by banks, retailers, NBFIs)
"Fragmented"(e.g.information shared among
banks only or retail only)
Lower Predictiveness (e.g. Mexico, Kuwait)
Lower Predictiveness (e.g. Botswana)
High Predictiveness ( e.g. U.S., UK,India)
Lower Predictiveness (e.g. Australia, Switerland)
Postive & Negative Information
Negative Information
sources of information
Fig 19: Scenarios of credit information sharing
types of information
3. STATUS OF CREDIT REPORTING IN YEMEN
3.1 OVERVIEW
While CBY is operating a Public Credit Registry, there are no private sector credit information providers
operating in Yemen. Banks in Yemen typically rely on customer references that are informally exchanged on
a case-by-case basis without any regulation, and offer no protection for borrowers’ privacy or rights.
The CBY has recently received and implemented the PCR software from the Central Bank of the U.A.E. This
system will be rolled out pending the successful completion of the test phase. This will help achieve an
automated credit information sharing system, providing CBY with an effective supervisory tool to monitor the
credit growth and support the banking sector in increasing access to credit to deserving clients. The main
enhancement of the new PCR is online data reporting and inquiry processes, and inclusion of consumers
credit and small ticket loan information (after removal of the minimum threshold -YER 500,000 (US$ 2,470) -
for reporting data).
The revamped PCR system will receive and disseminate information from the sixteen regulated financial
institutions. The PCR is becoming an important tool for the evaluation and management of credit risks inside
regulated financial institutions. Moreover, the implementation of this system will lead to full sharing of positive
credit information in Yemen. Issues of data quality and quantity will persist within the PCR, as several
financial institutions are currently unable to provide the full data set in a systematic and regular manner.
MFIs are working with SFD on a pilot for collecting credit information from associated MFIs. The data is
essentially demographic information (name, ID, address) which is then being aggregated to develop a
“black list”. There is no positive information or any type of loan data being considered for dissemination.
Banks, as a major lending sector, are not participating in this pilot project. Borrowers’ consent is not
required to share customer information; this could create a potential legal issue.
With increased focus on small ticket loans by
commercial banks, a project is being undertaken
by the Yemen Banks Association (YBA) which
aims at establishing a private credit bureau,
limited to banks only. CBY has granted an
authorization to YBA to establish a PCB.
However, the development is on hold till the
launch of the new CBY’s PCR. If YBA were to
undertake the development of a PCB system, the
participation of a skilled, technological
provider/partner may be required.
Figure 20: Scenario of credit information sharing
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The development of credit information databases should seek to develop an integrated database across all
segments of borrowers and lenders. In the absence of this, the effectiveness of integrated and
comprehensive credit information would reduce the efficacy of the PCR/PCB by fragmenting the financial
profile and credit history of borrowers. Consolidated databases containing all the credit information (positive
and negative) provided by all lending sectors should be encouraged to promote quality and effectiveness of
information sharing services. All banks and MFIs in Yemen agree on the need to contribute data to a single
pooled database.
Although the PCR shares information among regulated financial entities only, the inclusion of MFIs in
information sharing will improve the breadth and depth of information. This dataset can then be used to
enhance the risk assessment available to participants. The success of the PCR will also depend on
increased awareness of credit information sharing concepts and the benefits it can accrue through a wider
range of service offerings.
CBY’s guidance, monitoring, and training of financial institutions on the PCR’s functionality and services will
be important. This will ensure that lenders: i) provide the entirety of the information included in their portfolio,
regardless of the loan amount; ii) improve the quality of data provided to the PCR; and iii) ensure regulatory
compliance.
Financial institutions will need to commit resources towards upgrading systems and aligning procedures to
enable regular sharing of consumer and corporate loan data. They will also need to provide extensive staff
training as the lack of familiarity of existing bank staff with the new technology and processes may undermine
the success of the credit reporting. Only a portion of the existing banks36
are currently able to provide the
complete portfolio data to the CBY. These efforts should be a priority for lenders with the strong support of
the CBY.
3.2 PRIVATE INFORMATION PROVIDERS
As mentioned, there are no private information providers operating in Yemen, and no positive information
sharing schemes are present yet. Black list (court judgments, derogatory information, tribunal sentences) are
neither collected nor disseminated in a formalized manner by any private information provider.
Regarding the establishment of a PCB in the future, there is no identified private sector entity with the
requisite knowledge, skill set, technology, previous experience, and business know-how to establish and offer
a comprehensive and robust credit reporting. Fulfilling the requirements of a hypothetical RFP (Request for
Proposal) and independently bidding for the establishment of a full-file, state-of-the-art PCB may be difficult
for a local vendor. Thus the direct participation of a reputed international information provider may need to be
considered.
36
As of March 2009 only 16 banks were contributing data to the CBY’s PCR, mostly alleging technical problems.
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3.3 THE PUBLIC CREDIT REGISTRY OF THE CBY
PCRs are mostly operated by Central Banks and in some instances by the Superintendence of Financial
Entities (e.g. in Latin America). They are the major aggregator of credit and loan information but are mostly
limited to information from the financial institutions they supervise, under mandate of the law or through
regulation.
The information stored in these databases is mostly used to support the prudential regulation and banking
supervision. The data is generally used as well to supply services to internal customers (e.g. monetary
policies department, statistical department, etc.) and to produce economic analysis and research (analyzing
credit sectors, credit quality, credit risk models, largest borrowers, ratios, lending concentration, statistics,
etc.).
PCRs are often set-up as the first institution to
foster local credit information sharing, instilling
a culture among financial institutions to report
this data, and disseminating aggregated
information as credit reports. This is because
information sharing is a fundamental necessity
in any financial market, and the benefits offered
by complete credit reporting systems are
supported by copious empirical evidence37
.
Few examples of such benefits are mitigated
moral hazard and adverse selection, reduced
default rates, reduced credit cost and increased
access to credit.
PCRs are more likely to remain present where
private sector information sharing
arrangements, such as PCBs, have not taken
root. Sometimes38
, PCRs also supply
information to PCBs under the Central Bank
mandate that requires all lenders to report
positive and negative credit information.
37
Jappelli, T. and M. Pagano, Information Sharing in Credit Markets: International Evidence, Inter-American Development Bank, Working Paper R-371, June 1999. Further statistical evidence for Brazil and Argentina has been found in Majnoni, G., M. Miller, N. Mylenko and A. Powell, Improving Credit Information, Bank Regulation and Supervision: On the Role and Design of Public Credit Registries, World Bank, June 2004. See also Barron J. and M. Staten, The Value of Comprehensive Credit Reports: Lessons from the U.S. Experience, Purdue and Georgetown Universities, 2003.
38 Ecuador, Morocco, Bolivia, and Peru, for example, are among the countries where the supervising authorities of banks, share
information directly with Private Credit Bureaus.
Credit Applicants(information)
Regulated entitiesBanks
Regulatedentities IBFI
Credit Bureaus(with and/ or without borrower's consent
Bank 1
1
2
3
Fig 21: Voluntary credit information sharing model
Regulated entities MFI
Non-regulated commercial
entities
Non-regulatedfinancial entities
Bank 2 Bank 3 NBFI MFI Retailer TELCO
Figure 22: Voluntary credit information sharing model
Credit Applicants(information)
Regulated entitiesBanks
Regulatedentities IBFI
Central Bank(no borrower's consent required)
PCB 1
Bank 1
1
2
3
5
4
Fig 20: Mandatory credit information sharing model
Regulated entities MFI
Non-regulated commercial
entities
Non-regulatedfinancial entities
PCB 2 PCB 3 PCB 4
Borrowers' consentis required
Bank 2 Bank 3 NBFI MFI Retailer TELCO
Figure 21: Mandatory credit information sharing model
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However, PCRs and PCBs can co-exist by maintaining complementary roles while promoting the
development, operation and maturing of the credit information market.
In Yemen, CBY established the first paper-based PCR in 1975. In 1998, the first system revision led to the
introduction of some automated functionality. In April 2009, a thorough revamp of the system was undertaken
with the new software currently being tested before roll-out. The CBY’s PCR is used for internal reporting and
monitoring purposes and, is currently, the only organized source of credit information available to the lenders
for credit risk assessment in Yemen.
All the financial institutions supervised by CBY are mandated to report all credit information on all borrowers,
without any limit on the loan amount or the customer segment39
. However, the quantity of data records
reported and stored in the PCR is still very limited. The PCR covers less than 0.2% of the Yemeni population
(Table 11)40
.
Table 11: Procuring Credit in Middle East and North Africa – 2010
Economy Year
Getting Credit
Rank Depth of credit
information Index (0-6) Public registry
coverage (% of adults) Private bureau
coverage (% of adults)
Algeria 2010 135 2 0.2 0
Bahrain 2010 87 4 0 34.9
Djibouti 2010 177 1 0.2 0
Egypt 2010 71 6 2.5 8.2
Iran 2010 113 3 31.3 0
Iraq 2010 167 0 0 0
Jordan 2010 127 2 1 0
Kuwait 2010 87 4 0 30.4
Lebanon 2010 87 5 8.3 0
Morocco 2010 87 5 0 14
Oman 2010 127 2 17 0
Qatar 2010 135 2 0 0
Saudi Arabia 2010 61 6 0 17.9
Syria 2010 181 0 0 0
Tunisia 2010 87 5 19.9 0
U.A.E. 2010 71 5 7.3 12.6
West Bank and Gaza 2010 167 3 6.5 0
Yemen 2010 150 2 0.2 0
As of October 9, 2009, the number of borrower records provided by financial institutions was 16,642 for a
total outstanding volume of YER 336 million (USD 1.64 million). Of the 16,642 records registered in the PCR,
14,893 belong to individuals, 1288 to sole traders, 8 to governmental agencies, and 453 to business firms
(Figure 23).
39
The former threshold of YER 500,000 has been eliminated by the CBY aiming at collecting consumers and other small ticket loans data. 40
World Bank/IFC, Doing Business Report: Getting Credit in Middle East and North Africa, 2010.
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The team responsible for the PCR’s operation is
composed of nine officials; three for IT and system
maintenance, and six to follow day by day activity
and the relationship with the users/data providers.
The following are the main features of the new PCR
system at CBY:
a. Online inquiry and update.
b. Positive and negative information about firms
and individual borrowers.
c. Regulated financial institutions mandated to
report all data with no minimum threshold being applied.
d. A commercial registry number generated by the PCR system automatically for each new customer
(business firms and/or consumers).
e. Regulated financial institutions mandated to get a PCR report prior to granting credit.
f. Inquiries followed by online updated transactions for newly approved loans.
g. For existing loans, every new transaction registered by the lenders generates updates on borrowers
account in the PCR system.
h. Updates are transmitted daily.
i. No fees are charged to lenders for the credit reports provided.
j. CBY issued regulation enforcing borrowers’ rights on their own information.
A comparison of the data reported by two
banks having the largest number of retail
customers (Figure 24) shows only 4.7% and
2.3% of all their active loans being reported.
This low level of reporting is due to the
inability of such institutions to capture, collect
and subsequently report data in a timely
manner to the CBY. A summary of all 16
banks’ data contributed to the PCR, as of
October 2009, reports a low level of
customers.
1
8
192
260
1,288
14,893
- 5,000 10,000 15,000 20,000
FI
Govt.
JSC
LLC
Sole
Individuals
Figure 22: Types of borrowers vs. Count (All Banks)Figure 23: Type of borrowers vs. Count (All Banks)
Bank 1 Bank 2
Loans 23,422 40,159
Contributions to PCR 537 1,884
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Figure 24: Loans provided to PCR (as of Oct 7, 2009)
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Table 12 Banks Loans Reported to the PCR - 2009
S No. Bank Name Total
Customers Used
Funded Used
Contingent Total Used YER
1 Arab Bank 1,163 49,095,705 21,006,603 70,102,308
2 International Bank Of Yemen 5,307 22,761,323 13,918,426 36,679,729
3 Saba Islamic Bank 3,748 22,622,572 13,085,237 35,707,809
4 Yemen Commercial Bank 1,061 8,110,541 18,548,795 26,659,336
5 Shamil Bank Of Yemen & Bahrain 628 9,713,003 15,790,080 25,503,083
6 Calyon Credit Agricole CIB 191 6,108,417 16,056,705 22,165,122
7 United Bank LTD 118 13,347,254 7,039,076 20,386,330
8 Co operative & Agricultural Credit Bank 1,186 9,247,972 9,878,719 19,126,691
9 The Yemen Bank for Reconstruction and Development
636 6,558,339 12,107,629 18,724,665
10 National Bank of Yemen 545 7,188,374 8,369,080 15,557,454
11 Yemen Gulf bank 235 4,220,164 8,566,365 12,786,529
12 Yemen Kuwait Bank for Trade & Investment 219 4,848,381 7,272,883 12,121,264
13 Tadhamon Islamic Bank 351 8,078,329 2,197,177 10,275,506
14 Islamic Bank of Yemen for Finance and Investment 523 5,030,683 1,899,967 6,930,650
15 Qatar National Bank (QNB) 14 610,707 2,730,534 3,341,241
16 Rafidan Bank 17 93,531 0 93,531
Total 16,642 336,161,248
While all data concerning business customers is generally provided, most banks seem less equipped to
provide data on smaller loans (below the threshold of YER 500,000), which is the category of loans
recently added to the PCR. Though this circumstance is possibly the result of persisting technical issues,
it is in contravention to the basic principle of “reciprocity”41
necessary for the success of credit reporting.
Even if one lender is not contributing the complete and comprehensive dataset to the registry, it may
prejudice the quality of the database, credit underwriting process and customer evaluation carried out by
other financial institutions.
Among the most significant issues limiting the performance of the registry are:
i) Data returned is minimal and in an aggregated form. Reports do not include historical data and
arrears (current, worst, oldest, most recent, legal status, etc.). This is reflected in the sample
business firm credit report (only six heads of information are available).The same type of report with
limited information is provided to lenders in case of individual consumer.
41
The “reciprocity principle” is a basic guideline of credit reporting, and prescribes that no inquiries to the credit bureau are allowed for users who do not contribute their credit information to the pooled database.
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Table 13 PCR’s Credit Report for a Business Firm
S No. Bank Name Limit
Funded Limit
Contingent Limit Total Used
Funded Used
Contingent Used Total Fac.
Class.
1 Saba Islamic Bank 27,468 0 27,468 27,468 0 27,468 O.L.E.M.
Total 27,468 0 27,468 27,468 0 27,468
ii) Absence of automated logic checks on quantity of records provided. The system is not equipped with
logic control/comparison with quantity of data provided, account closures, etc.
Table 14 PCR’s Credit Report for an Individual
S No. Bank Name Limit
Funded Limit
Contingent Limit Total
Used Funded
Used Contingent
Used Total
Fac. Class.
1 Co operative & Agriculture Credit Bank
810 0 810 810 0 810 Normal
Total 810 0 810 810 0 810
iii) Absence of automated logic checks on quality of records. These checks are done manually by the
PCR staff when the initial registration of a new customer is made to the PCR, through the first
lenders’ inquiry, and again when the same is returned with correct data. This time and cost
consuming process is also labor intensive and can be a source of significant savings.
iv) Weak performance of the matching algorithm based on an unsophisticated search key (name and
surname plus any available personal identification number).
v) Negligible utilization of the new National ID number (unique, definitive ID number) which would
strengthen database quality and reduce manual interventions of PCR staff.
vi) Limited data returned to lenders, under an aggregated form which is inadequate for underwriting
consumer and SME credit.
vii) System tailored to mainly service regulated-supervised financial entities.
viii) System customized to accommodate mainly business data and supply information services to
evaluate corporate and firm applicants, which may not suffice to support and serve a massive growth
of the credit system.
ix) Ancillary services and additional characteristics that can be generated by the activity of the lenders
with PCR not yet contemplated (e.g. previous searches list).
x) Absence of intensive and on-going training plan for IT and PCR staff on new system.
xi) Absence of back-up IT and telecom systems, and disaster recovery plans.
xii) Absence of clear procedures for consumers’ rights enforcement.
xiii) Erratic requests of borrowers’ consent by lenders.
xiv) Lack of clear procedures and controls on data to be carried out during on-site supervisory audits
xv) Absence of any checks on lenders’ inquiry activity and data provision to the PCR.
xvi) Non integration of unpaid checks file.
xvii) Lack of mechanism to integrate other external files/data (e.g. balance sheets, civil register,
telephone directories, public derogatory information).
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xviii) Lack of a periodical management report on PCR activity (e.g. security logs, hit-ratio).
xix) Deadlines, sanctions and violations in case of dissatisfactory compliance to be systematically
applied.
xx) Law does not clearly establish any time limit for keeping historical data stored inside the database.
3.4 UPGRADING THE PUBLIC CREDIT REGISTRY OF THE CBY
The above issues require further capacity building investments at CBY for staffing, training, IT systems,
telecommunications, etc. The CBY’s endeavor to make the PCR an effective tool for credit underwriting and
supervision should be pursued as the registry represents the fulcrum of the credit reporting system in Yemen.
In addition, it is expected that for another 2-3 years the PCR will probably remain the only available source of
information (as establishing a PCB can take 24-30 months). For the medium term, CBY’s objective should be
to support an advanced, private, integrated, full information sharing system eradicating any legal constraints
that may affect the establishment of such a scheme.
Although the PCR system source code has been provided to CBY, the IT structure dedicated to the
maintenance of the system has not received sufficient training on the system features and functionalities.
This limits the possibility of a quick implementation of the system functionalities, as well as the possibilities of
upgrade, improvement, customization to the needs of CBY and of the lenders. An on-site training conducted
by the organization which delivered the system, is definitely needed to allow the PCR team to perform the
necessary enhancements and realize its full potential.
The new national ID number introduced by the government is an important tool for the establishment of a
reliable credit reporting system. The national ID card bears a registration number that is unique (prevents
duplications) and definitive (it remains tagged with citizens indefinitely and is also useful in the case of loss or
renewal). National ID numbers are a powerful and indispensable tool for the consolidation of the PCR
database, as well as a reliable search key for potential credit registry/private credit bureaus.
However, the National ID has not been provided to all citizens, and this undermines CBY’s efforts to improve
the quality of the PCR, provokes fragmentation of credit histories inside the database, and does not permit
quality enhancement. Mandating users to always obtain the National ID number, whenever opening a new
banking relationship with a customer may substantially improve the quality of the PCR. One option may be to
mandate that no bank account should be opened in Yemen unless the applicant provides a National ID
number. A link should be set up, between the civil registry containing the National ID database (at the Ministry
of Interior) and the CBY’s PCR, in order to match online, the ID supplied by the lenders and confirm its
correctness.
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Table 15 SFD supported Microfinance Institutions and Programs, March 2009
S/N
Program
Active Number of Clients
Outstanding loan portfolio (Million YER)
PAR %
Cumulative numbers
Area of operation Borrowers
Savers
Total Women %
Total Number of loans
Loan amounts (Million YER)
1 National MF Foundation
12,132 99 14,856 266 3 52,622 1,713 Capital City,Taiz,Qa’edah and Yarim in Ibb and Dhamar
2 MF Development Program (Nama*)
5,005 33 930 170 0.1 26,131 1,121 Sana’a , Taiz , Aden
3 Abyan S & C 3,561 100 3,832 74 0 12,703 427 Abyan
4 Aden MF Foundation
3,500 92 5,731 62 0 22,060 25 Dar Sa’ad,Al-Buraikah, Al-Mu’alla, Al Tawwahi, Crater Khormaksar, Sheikh Othman- Aden,Lahej
5 Al-Awa’el MF Company
3,116 100 0 56 5 30,718 656 Taiz
6 Sana’a MF 2,365 82 1,947 57 16.7 18,516 670 Capital City
7
Social Institution for Sustainable Development (SFSD)
2,378 87 0 97 0 8,455 463 Capital City
8 Small Enterprise Development Fund
2,118 4 1,080 1 8,080 5,902 Capital City, Taiz, Aden, Al-Mukalla
9 Al-Hudaidah MC 1,370 74 0 13 N.A 30,161 729 Al-Hudaidah city and Bajil – Al-Hudaidah governorate
10 Wadi Hadhramaut 1,387 30 1849 50 10.4 6,277 365 Seyoun – Hadhramaut governorate
11 Al-Amal Microfinance Bank
742 35 1,285 49 0 766 50 Capital City
12 SOFD 417 76 0 6 14.9 9,235 195 Capital City
13 Other Activities & IGPs
NA NA NA 0 NA 27,926 753 Several areas
Total 38,091 30,430 1,980 253,650 12,316
With regard to MFIs, only two (Al-Amal Microfinance Bank and Tadhamon International Islamic Bank) are
regulated by the CBY. They are therefore mandated to supply information to the PCR. The residual 11 MFIs
supported by the SFD are not under CBY purview, but they do possess a large number of records (38,091
clients as of March 2009), which information is not yet part of the PCR (Box 5). The value of this information
for the credit system will be greater; therefore a legal and technical solution to accommodate these non-
regulated MFIs in the credit registry sharing and inquiring mechanism should be pursued.
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BOX 5: PCR’s role and challenges
In conclusion, the CBY should consider the PCR as an
important transitional tool in a medium term strategy
towards the development of a PCB in Yemen.
International experience shows that, while public credit
registries’ main purpose is being a paramount
instrument in bank supervision and prudential
regulation, they can also have an important preparatory
role in facilitating the development of the private credit
reporting industry. This role can be accomplished by
promoting the establishment of complete, efficient and
reliable private credit bureaus, by enabling a friendly
legal framework, by creating awareness among lenders
and social responsibility among borrowers, and by
enhancing the confidence of the consumers through a
deep, direct involvement in solving their complaints
related to credit reporting activities.
In the future, other sectors that are currently not
sufficiently developed will likely play a significant
role in the credit system. Retailers, supermarkets,
furniture and appliances merchants, as well as
mobile telephone companies, and other similar
lending segments, might progressively enter the
credit market directly, acquiring an increasing
share of consumer credit. They must be
considered eligible to participate with full rights to
a PCB scheme. This is a crucial issue since
capacity to predict risk is given by data
completeness (both negative and positive data)
and by the participation of all regulated and non-
regulated lending sectors. The CBY should
encourage the set-up of an effective PCB along
theses lines.
The CBY has started a project aiming at significantly revamping the existing PCR. The main areas of
improvement of the current system can be summarized as follows:
1. IMPROVE THE QUALITY OF INFORMATION
In light of the decision to eliminate the YER 500,000 threshold in the system, the quality of the
information is extremely important. Since the volume of accounts transmitted to the PCR and to be
manually checked by the PCR staff will increase significantly, it will be difficult to efficiently manage such
a growth without significant investment, and increase of staff, and resources. Therefore, to start with, the
new National ID (NID) should be introduced as the primary PCR search key utilized for inquiries in the
system. The NID is mandatory in Yemen for all citizens older than 16 years and the system can
accommodate the NID. Financial institutions should be mandated to: i) always require the NID for any
new account opened, and ii) always supply the NID for any transaction with the PCR (either incoming or
outgoing).
The PCR should refuse to store records inside the database or to answer to a user’s inquiry, unless the
NID number is part of the request (for those types of customers eligible for an NID).
These measures would strongly improve the data matching efficiency, the overall quality, and the
consistency of the database, while decreasing manual checks and corrections made by the PCR staff
and allowing the dissemination of more reliable data to the lenders. Administrative sanctions and
penalties should be established and consistently applied when these standards are not met. PCR could
suspend the service in case of recidivist users’ behavior.
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These provisions are important not only for the sake of the PCR but for a better harmonization of
information flows in Yemen. The NID database at the Civil Registry Authority (Ministry of Interior) could
be linked to the PCR, allowing cross-checking of NIDs provided by the users.
2. IMPROVE THE QUANTITY OF INFORMATION
Existing regulatory framework should be systematically enforced (Articles 71 and 72 of the Banking Law
n.38 of 1998) and/or new regulations issued to ensure the mandatory sharing of data with the PCR and
referring to the PCR database before granting credit are complied with by the lending industry. This will
warrant that the quantity of information inside the database really corresponds to the loans granted by the
credit system. As mentioned before in this report, one of the fundamental concepts of modern information
sharing is the “Reciprocity Principle”, establishing that only those users who provide the information are
allowed to inquire from the credit registry. The Supervision Department of CBY would also have to
introduce new audit procedures during on-site missions, exclusively implemented to check that lenders
are fully complying with the regulations/laws on data provisions/inquiry, and supplying the whole portfolio.
3. ENLARGE LENDERS PARTICIPATION TO THE PCR
Regulators should contemplate the possibility to enable MFIs to contribute data to and make inquiries
from the PCR. MFIs are acquiring increasing importance in the lending panorama of Yemen, and the
rising number of loans generated by this sector can constitute important information to avoid over-
indebtedness, and to define a complete financial profile of the Yemenite borrowers. For example, in the
next five years, if growth estimates are respected, one MFI, namely Al-Amal will hold a portfolio of
approximately 100,000 customers.
Legal and technical issues would still have to be solved to allow the participation of MFIs to the scheme.
However, the enlargement of the PCR to the MFIs contribution will dramatically enhance both the quality
and the quantity of the database, permitting CBY to have complete control of all the current credit flows in
Yemen.
The SFD should support the effort by issuing a directive requiring all MFIs to request the borrower’s
consent, as part of the credit agreement, with immediate effect. Consent should dispose of the initial
main legal obstacle to share data with third parties, and supersede the bank secrecy.
4. IMPROVE SYSTEM SECURITY AND TECHNICAL CONFIGURATION
The implementation of some fundamental enhancements can improve the PCR’s performance. These
are:
Set up adequate database back-up/s, sited in different location/s than the PCR main site.
Define, test, implement, a thorough Disaster Recovery Plan to protect the system and the data, and
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ensure service stability in case of catastrophic events.
Back-up the network telecommunications connection (contracting a second internet provider) in case
of failure of the existing provider, in order to ensure business continuity to the users.
Analyse system storage capacity to ensure that the system can accommodate all the information
concerning loans below the threshold of YER 500,000, as well as historical records of the country’s
financial system. The installed capacity devoted to accomplish this goal should have enough storage
space for at least a complete 5 years historical cycle.
Implement reliable and efficient security procedures, as well as regular upgrades, to prevent
intrusions into the network/system and to pre-empt external attempts to corrupt the stored data or to
interrupt the service.
Protect the system and the back-up locations by meeting the minimum physical security
requirements such as restricted entry, use of security devices (badges, passwords, biometrics, etc.)
as well as smoke/ fire detectors, humidity and temperature control, double flooring, etc.
Implement sufficient electrical operational redundancy (e.g. external generators and UPS).
Adopt procedures to control and restrict the introduction and usage of communication devices (such
as internet, e-mails, floppy disk drive units, CD writers), through which sensitive information can be
pilfered. User IDs, passwords, time-out periods, audit logs, either about users or operations carried
out within the software, must be constantly monitored.
Produce monthly management control reports (e.g. users’ activity controls, hit-ratio, number of
inquiries by users and cross-checks with accounts updates, etc.)
Implement logic controls on the quantity of updates received, against number of inquiries made -in
comparison with previous month/s.
Run training section for the lenders personnel, to improve quality of information transmitted during
inquiry, and to reduce manual checks and efforts of the PCR staff.
5. IMPROVE CREDIT REPORTS CONTENTS
The mass of information contained in the database could be exploited to improve the contents of credit
reports returned to users (currently providing minimal information in an aggregated format). Some ways
to address this information deficit are:
Historical data stored in the PCR database could be used for credit reporting purposes. Currently,
only the most recent borrowers’ information is contained in the PCR’s supplied credit reports. This
could represent a major leap forward to enhance data quality, as historical information is extremely
important to determine the true level of risk of a credit applicant.
Some of the key account performance variables that are used to determine credit risk are the past
due status and the write-off status. Debt arrears (past due) and credit write-offs should be shown in
the credit report. These characteristics provide important indications of a borrower’s credit
performance. The PCR uses only the current authorized outstanding, the credit line utilization, and
the lender’s subjective classification to measure borrowers’ performance. Showing this additional
information may probably require modification of the credit report layout and consequently, the
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necessity to intervene on the software. Furthermore, banks would have to be in a position to provide
such data.
Previous searches are currently neither stored in the PCR database nor shown in the credit report.
This information (the number of time that lenders have enquired a borrower’s record during a certain
time period) is an important indicator of risk (credit shopping) for underwriting credit. This is currently
unavailable, and could be created, as this information may also prove important to measure users’
compliance in providing updates - after the initial inquiries are made to the CBY’s PCR.
6. ESTABLISH CONSUMER’S RIGHTS TO PRIVACY OF INFORMATION
Regulators should promote and encourage the protection of credit information privacy for individual
consumers. When credit information about an individual is shared, some fundamental rights must be
enforced and granted to the borrowers, like the right of individuals to view their credit report for free (at
least once a year) and the rights to challenge and correct data within strict and clearly defined deadlines -
when the data is proved as false. Consumers should be able to ask and obtain their credit report both
from the CBY and/or the lenders to whom they have applied for credit.
7. ESTABLISH A CONSUMER RELATIONSHIP UNIT
A new Consumers Service Department unit should be set-up within the CBY’s organization. This will
have the objective of supplying advice and reviewing requests raised by consumers, while granting the
above borrowers’ rights as established by the regulations.
8. ACQUIRE BORROWERS’ CONSENT
Through a regulation, the request for borrowers’ consent on all loans, regardless of the credit typology
and amount should be made mandatory by the regulators. Consent to share own data and inquiry credit
registries should be prior, informed, open (allowing sharing/inquiries with public or private third parties),
written, part of the credit application and stored under the responsibility of the lenders. A mutual effort of
public (CBY, SFD) and private (YBA) institutions should be sufficient to encourage lenders to introduce
the consent clause in each and every credit application/agreement, with immediate effect.
9. INVOLVE THE LENDING COMMUNITY
It is evident that all the above upgrades, improvements, and enforcements will heavily involve the lending
community. Regulators should engage lenders at a consultative level, creating a Credit Reporting
Working Group (CRWG), responsible for defining future strategies to improve the information sharing
system in the country. Tasks, responsibilities and deadlines should be mutually discussed and agreed
between CBY and the lending industry. Subsequently any breach of the agreements should be
sanctioned and penalties applied by CBY.
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3.5. PUBLIC INFORMATION SOURCES
Public information (e.g. electoral roll, civil register, tribunal information, telephone directory) are not
abundant in Yemen. However, the complete register of new National IDs is available under an electronic
format at the Civil Registry Department of the Ministry of Interior. A link between the PCR and the NID
database, if established, would confer superior strength, matching capability, and more reliability to the
PCR database.
3.6. OTHER STAKEHOLDERS
3.6.1. MINISTRY OF FINANCE
The Ministry of Finance (MoF) is the authority responsible for formulating policies and strategies
concerning all financial government undertakings and all credit institutions, fully or partially owned by the
government (Yemen National Bank, CAC Bank, Reconstruction and Development Bank, Al-Amal Bank,
Housing Bank, etc.).
Among the key objectives of the Ministry of Finance are: i) efforts to offer broader access to credit to the
Yemeni population, ii) efforts to oversee and lead all the reforms concerning the credit industry -
proposing new legislation and enabling the legal framework. One of the major projects currently in
progress at the MoF is the revamp and the possible privatization of the only remaining public sector bank,
namely, Housing Bank. To this end, one of the proposals being considered is to massively increase its
network and its territorial coverage, by merging it with the Post Office network and making financial
services, (particularly retail services), broadly available to mainstream consumers.
The Ministry of Finance is also the authority concerned with Public Enterprises (PEs) development42
.
These are generally large government undertakings, for which the MoF becomes the principal vehicle of
financing, though PEs can be granted credit by private commercial banks. Generally, PEs financial result
is not extremely satisfactory - though a fistful are profitable. For this reason, different privatization
strategies are considered by the MoF for varied sectors and companies. A 1997 reform established that
PEs balance sheets should have been made healthier; the old bad debt cleaned, following which
companies should have been privatized. For several reasons, however, this process has been delayed.
The MoF is tirelessly working to achieve this objective with the support of multilateral organizations.
3.6.2 MINISTRY OF INTERIOR
The Ministry of Interior (MoI) manages the new National Identification database (containing the unique
and definitive identification numbers that should be provided to each and every adult citizen in Yemen) as
well as other public information registries (e.g. civil registry). This responsibility stays with the Civil
Registry office at the MoI. The Government aims at replacing all the old and varied identifications
currently circulating in the country, with the National ID number (NID). The NID is a unique, definitive,
42
67 public sector enterprises remain in Yemen
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more reliable, and more difficult to forge piece of identification. The NID replaces the previous system of
national identification that was not completely electronic and online, and it is the precursor to a future
identification system (smart card based), which while maintaining the same NID number, will be utilized
for broader scopes e.g. health, tax systems, etc. The MoI estimates that nearly 30% of the population has
already received the NID, and they are willing to support any joint effort allowing a quicker penetration of
the NID, for e.g., mandatory NID requirement to open a bank account. The existence of such a system is
of high relevance for any credit information process, either public or private, and should be proactively
supported by the regulators.
3.6.3 YEMEN BANKERS ASSOCIATION
The Yemen Bankers Association (YBA) institutionally represents the credit industry of Yemen. Its Board,
chaired by a rotating President, is entrusted by banks to pursue projects and implement policies for the
common good of the sector. The most essential intervention, carried out by the YBA in the domain of
credit information sharing, is a planned project to develop a Private Credit Bureau (PCB) limited to the
exchange of information among banks. The YAB, in charge of implementing the project, has requested
the CBY for an authorization to establish the first PCB in Yemen. The CBY has authorized project
implementation. However, this was delayed to ascertain whether the new announced CBY’s PCR could
fulfill the informational and technological requirements of the industry. The Yemen Association of Banks
can be the engine for the set-up of a state-of-the-art private credit information system; however, as
already discussed, it is advisable to not set-up separate systems/databases catering for the needs of only
one lending sector.
3.6.4 SOCIAL FUND FOR DEVELOPMENT
The SFD was established by the Law No. 10 in 1997. The SFD's major function is to proactively
contribute in implementing the government's economic and social plans, by means of increasing access
for individuals, households, micro-enterprises, communities, the poor and low-income groups to
employment, production and social services. The SFD aims at providing the poor with development
opportunities, using and promoting innovative participatory approaches in delivering basic economic and
social services43
. The SFD is particularly engaged in the microfinance and SME sectors. It is estimated
that the number of SMEs are around 311,000, employing roughly 500,000 workers, of which 224,000 are
individual entrepreneurs. The investments made by these enterprises represent nearly 72% of the total
investments made in Yemen44
. The SFD has become one of Yemen's main development actors; it
participates in the implementation of the national poverty reduction strategies and contributes in achieving
the national sector goals and the Millennium Development Goals. The SFD does not overlap with the
policy, planning, or implementation functions of the ministries, and its scope of intervention is limited to
43
http://www.sfd-yemen.org/ 44
http://www.sfd-yemen.org/
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national development plans and public investment programs. The SFD has become an effective tool for
the public sector to reach the poor and society's vulnerable groups45
.
3.6.5 POST OFFICE COMPANY
One of the most efficient and widespread financial services channels for small depositors is represented
by the Post Office network, with over 250 branches, widely and evenly covering the country’s territory.
The PPSC (Post and Postal Savings Corporation of Yemen), with a customer’s base of over 63,000
depositors as of June 200846
, offers simpler and cheaper procedures than the banking system does to
new customers. Its lower requirements (e.g. a postal savings account can be opened with a minimum
balance of US$1.25), facilitate the financial inclusion of the poorer and rural segments of the population.
A World Bank analysis47
shows that in 2005 the average deposit tracked at the PPSC was US$ 81.25.
The PPSC does not offer any loan or credit product yet.
45
http://www.sfd-yemen.org/ 46 Social and Economic Development Group MENA’s Financial Sector Review, Yemen Financial Sector Reform: a Proposed Action Plan, 2008 47
CGAP, Multi-Donor Mission: Microfinance in Yemen, 2005, and Social and Economic Development Group MENA’s Financial Sector Review, Yemen Financial Sector Reform: a Proposed Action Plan, 2008
Prime Minister-Chairman
Board of Director
Education
Branch Offices
Managing Director
Internal Auditing
Director Monitoring and
Evaluation Director
Programming Finance and
Administration
Information
Technology Technical Support
Cultural Heritage and Rural Road
Water and Environment
Health and social
Protection
Training and Organization
Support
Small and Micro Enterprise
development
Agriculture and rural Development
Figure 25: SFD Organization Structure
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3.6.6 MONEYCHANGERS
A long-established and commonly utilized channel for financial services is represented by money
changers and bureau de change. As per CBY’s statistics, there were 521 money changers operating all
over the territory as of end 2006, compared to 465 in 2005.The main activity carried out by these financial
intermediaries is the exchange of foreign currencies. They do not offer any other type of financial
services. Money changers are licensed and supervised by the CBY, which they have to provide with
periodical activity reports. However, in practice, it is difficult for the Central Bank to perform a punctual
supervision of this category of intermediaries. Generally, money changers hold accounts with the
commercial banks, through which they can settle their cash transactions.
3.6.7 PENSION FUNDS
Pension funds are important players in the Yemen financial market. These institutions operate in the
market with substantial liquidity - generally investing in government treasury bills - as a result of some
existing restrictions to limit and mitigate investment risks. Therefore, based on sufficiently safe
investment, and marked by interesting yields, the pension funds’ financial performance has been quite
satisfactory, and apart from some losses suffered during the 90s - generally rewarding for members.
Pension funds cover all the public employees, including the army, as well as some private employees. A
revision of the current system will probably be necessary in the short term. Currently, pension benefits
and payments correspond to 100% of last salary paid to the worker after 35 years of contributions.
However this may cause imbalances to the funds in the future, especially if coverage is expanded to
current employees not being covered, and if average life expectancy increases. A larger role and
participation of the private sector in the pension system should be considered.
3.6.8 LEASING COMPANIES
Though Islamic financial transactions are becoming quite popular and despite leasing being symbiotically
related to Islamic finance, these financial transactions are generally infrequent in Yemen. Typically, the
only deals are represented by some Ijarah transactions (a form of financial transaction similar to leasing,
but in line with traditional Islamic finance) offered by some Islamic banks48
. No appropriate legal
framework existed, and this represented the main obstacle for development of leasing - until a new Law
was passed in May 2007.
Many banks have shown interest in entering this new financial sector, however some issues still hamper
the expansion of this important financial service (e.g. the tax treatment of leasing is still unclear and
penalizing, when compared to other transactions).
48 Social and Economic Development Group MENA’s Financial Sector Review, Yemen Financial Sector Reform: a Proposed Action Plan, 2008
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3.6.9 COLLATERAL REGISTRY
No Collateral Registry is currently operating in Yemen. A collateral registry contains data concerning
movable and immovable properties which helps lenders to expand the types of collateral and
consequently increase access to credit for clients. However, certain types of collateral, such as land or
real estate, cannot be exploited. Business firms cannot utilize most of their movable assets, including
equipment inventory and accounts receivable, as collateral for obtaining financing.
3.6.10. STOCK EXCHANGE
A project to develop the country’s first Stock Exchange, enlarging financial markets as well as funding
alternatives for corporations, is under government consideration. A special unit at the MoF in charge of
the securities market is responsible for the project with international support and cooperation. The new
exchange is expected to be operational by 2011.
The securities market of Yemen is small, informal and limited to the exchange of treasury bills in the
primary market. In July 2009, the issued government bonds totaled YER 25.4 billion (USD 124.5 million),
while the total outstanding debt was YER 307.1 billion (USD 1.5 billion)49
. Bond yields in July 2009,
ranged from 12.95% to 12.97% (for three, six, and twelve month bonds). The rise of an active market for
bonds, securities, and corporate bonds, with a longer maturity, aimed at promoting individual stock
trading is desirable, and should be pursued. However, a regulatory framework will have to be developed
to enable this process, along with undertaking awareness raising amongst the public.
49 Central Bank of Yemen, Review of Monetary and Banking Developments, July 2009
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4. STATUS OF LEGAL FRAMEWORK
4.1. CREDIT REPORTING LEGAL FRAMEWORK GUIDELINES
It is advisable that credit reporting, particularly when the private sector is involved, is regulated through
specific legislation. The guidelines are based on international legal best practice for the credit market.
4.1.1 SUPERVISION
PCBs should be supervised, particularly in those markets where the traditions of data protection and
information sharing are not recent or significant. However, this gives rise to the question about who
should regulate PCBs. There are several solutions:
i. In regions/countries with Data Protection Laws (e.g. E.U., Argentina), the role is generally
performed by the Data Protection Agency, a watch-dog authority purposefully established with
oversight that is not just limited to PCBs;
ii. In countries where ad-hoc credit reporting laws/regulations have been enforced recently (such as
Kazakhstan, Russia, Kenya, Tanzania, Peru, India, Ecuador, Honduras, Ghana) the regulator is
typically the Central Bank;
iii. In those countries where neither of the above is present, and since credit reporting is usually not
prohibited by existing laws, PCBs have generally begun operations on the basis of self-regulation
(Code of Conduct), but in strict consultation with banking supervisors. For example, the Saudi
Arabia Monetary Authority (SAMA) encouraged banks to start a bureau on the basis of the Code
of Conduct, to learn from experience. Later it developed regulations that would fit practices within
the country. In this case, the critical role of the Banking Supervisor which encouraged
establishing a PCB is noteworthy.
4.1.2 LICENSING
Approaches and trends greatly vary across countries. In some countries, such as Germany and Russia,
registration and not licensing with the authority is required. In another set of countries, such as Mexico,
Morocco, Thailand and Kazakhstan, licensing is required, while in Hong Kong and Australia, credit
bureaus are not licensed but are required to operate in accordance with the Code of Conduct endorsed
by the authority in charge of data privacy. Finally, in some countries- generally those with a solid,
longstanding information sharing tradition - such as the U.S., neither licensing nor registration with the
enforcing authority is required for a PCB. However, this represents an exceptional situation, and requires
a friendly, regulated, conscious and more sophisticated environment.
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4.1.3 HOW TO DEAL WITH BANK SECRECY
Bank secrecy is frequently cited as one of the major culprits in inhibiting the establishment or the
expansions of information sharing. Often, even simple misinterpretations of the legal framework may be
detrimental to the start-up of a PCB. Nevertheless, balancing bank secrecy and information sharing is not
impossible, and the fast growth of credit reporting worldwide, fully functioning even in countries with the
most rigid bank secrecy, like Switzerland, is a manifestation of this possibility.
There are various legal approaches that regulators interested in the development of information sharing
and in the benefits deriving to the financial systems, can take, in order to comply with bank secrecy
provisions, while fostering a full, functional credit reporting industry. Following is an analysis of the most
common methods:
i. Open Consumer Consent and Code of Conduct:
This is an effective operational solution, though it is suggested as an interim step, towards the
creation of a comprehensive legal framework. It has been adopted in many countries where
neither a PCB regulation has been issued by the banking authorities, nor a specific legislation
was present. Consent must be unrestricted, allows sharing with either PCR/PCB, or other
lenders/parties and should be included in the credit application, such that, the consumer is in a
position to decide whether sharing information is a convenient option. Generally, a standard
Code of Conduct accompanies the consent utilization. In certain countries, consent is requested
for sharing data and inquiring PCBs. In other countries, where contributing information to the
PCB is mandatory, consent is required only for inquiries. Consent (written or digitized) is given
for a specific, limited purpose (e.g. credit granting), and may take several different forms. The
most common options are:
a. opt-in clause: explicit will to share information expressed by the customer;
b. opt-out clause: tacit, undeclared approval, valid unless the customer voices his/her refusal;
c. Separate clause: a separate document, expressly mentioning consent form and its contents.
ii. Banking Supervisory Authority’s Regulation:
This is a more structured solution that can combine speed of approval and enforcement, while
disposing of the impediments created by bank secrecy to the development of credit reporting.
Coupled with the compulsory customers’ consent, it proves to be a quick-win solution. Basically it
consists in an ad-hoc compendium of norms, not a law, enacted by the banking authorities
(Central Bank, Superintendence), aiming at regulating information sharing and including clear
consumers’ rights - as well as lenders and PCBs’ duties. An interesting example is the recent
regulation passed by the Central Bank of Egypt, which the PCB now reports to. In those
countries where banking authorities have the power to draft, approve, review, and amend such
norms, this solution is fast, practical and effective.
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iii. Credit Bureau Law:
The enforcement of a specific legislation regulating PCBs is another prevalent approach adopted
in many countries and leads to the establishment of well-structured information sharing systems.
A customized and succinct law represents the best foundation for information sharing, prevents
excuses and misinterpretations about its legal viability, establishes unmistakable consumers’
rights, and allows a healthy development of credit reporting. Typically, though, this solution
requires longer approval time.
iv. Data Privacy Law:
A further option, mostly
adopted in the countries
belonging to the OECD area,
is the enforcement of a Data
Privacy Law, containing clear
provisions on confidentiality of
data that also apply to credit
information and, by default,
regulate PCB activity. As can
be seen in Figure 26, this
solution is generally adopted
in countries where there is
solid experience about
information sharing, where
consumer credit is highly developed and typically, the other solutions have already been
previously and modularly implemented.
4.2 LEGISLATION IMPACTING CREDIT REPORTING IN YEMEN
In Yemen and its current legal environment, the laws/regulations that may allow, prohibit, or hold back private
credit information sharing are the following:
i) Banking Law (No. 38 of 1998)
ii) The Law of the Central Bank of Yemen (No. 14 of 2000)
iii) The regulations impacting credit reporting issued by the CBY.
There is no other legislation present in Yemen that may influence establishment of credit reporting (e.g.
Data Privacy Law). The current legislation is sufficiently clear about the duties, responsibilities and roles
of CBY and the banks to establish a Public Credit Registry for sharing and disseminating information
amongst them, and less so about the set-up of a private information sharing scheme. Therefore, the
current legislation should not be considered as an obstacle towards credit reporting among financial
26
108
10
7
Rich Middle Income
Poor
19
24
10
2
Rich Middle Income
Poor
Banking law governs credit
84
48
3
5
2
Rich Middle Income
Poor
Specific law for credit bureaus
Data protection law
13
5
2
Rich Middle Income
Poor
Code of conduct for data use
Figure 25: Growing regulation of private credit bureaus
Regulation of private bureaus (% of countries)
In force
Under development
Figure 26: Growing regulation of Private Credit Bureaus
Regulation of private bureaus (% of countries)
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institutions. Consequently, private credit reporting could be established whenever the credit industry
decides to proceed, by applying standard solutions from other markets.
Banking Law clearly establishes the authority of the CBY to request credit information from supervised
entities, i.e. banks. The latter must periodically contribute data to the PCR. Article 28 Paragraph 1 clearly
mentions that: “..all banks shall submit monthly statements to the CBY no later than the 15th of each
month…indicating their assets and liabilities…together with a breakdown of the position of loans, discounted
drafts and their assets…on the last day of the previous month…”
The mandatory character of this contribution is reinforced by Article 25 which establishes what
information must be contributed and when. Further to Paragraph 1: “…all banks and other financial
institutions recognized by the Central Bank shall submit a monthly report indicating the following:
Balance of credit provided.
A list of loans and facilities of YER 10,000,00050
and greater, with recipient’s name, maturity date
and collateral provided.
A list of overdue loans that have not been paid for more than 90 days and the amounts of
overdue payments”.
Another effect of this article is to enlarge the provisions to “other financial institutions recognized by the
Central Bank” which, if the law is interpreted in a flexible manner, can make the participation of
microfinance institutions possible and easier.
Though the information requested by law, is limited to the above categories, the law gives an unrestricted
power to the Central Bank (Article 28 Paragraph 2) to require any information, from any bank, hence
providing the opportunity, as an example, to reduce the threshold on loan amounts and request
consumers’ loan data.
Furthermore, CBY is mandated to compile information under the form of aggregated data.
Article 25, Paragraph 2, indicates that “… the Central Bank shall prepare a combined statement
of the credit facilities provided…without mentioning the name of the bank providing such
information…”.
This is reinforced by the contents of Article 28, Paragraph 3 which states that: “…the Central
Bank shall be responsible for the compilation of consolidated data combining the figures given in
the statements submitted under Paragraph 1 of same article…”
The law also clearly authorizes the dissemination of the compiled information from the Central Bank to
the supervised financial institutions; however, it places some limits and boundaries for disseminating the
data to lenders and other third parties, as indicated below:
50
This threshold has been gradually decreased and no longer applies.
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Article 25, Paragraph 3, states: “…All banks and institutions recognized by the Central Bank shall
have the right to review the combined statement on any customers requesting credit facilities
from them…”
Paragraph 4 states that “…the Central Bank may distribute monthly to all banks the list compiled
under the provisions of Paragraph 1 indicating customers with credit facilities of more than YER
10 million, that are in arrears for more than 90 days…”.
Some conflict seems to arise with Article 28 Paragraph 3, when the law states that: “…figures
incorporated into the detailed statements (prepared by CBY) shall be considered confidential
information restricted to each individual bank and the CBY…”.
The above provisions, if taken in isolation, seem to exclude the dissemination of positive information
limiting it to negative data only. In addition, apparently, it seems not to allow sharing of information among
a pool of lenders, but it restricts it to an individual relation between the Central Bank and each individual
bank.
Nevertheless, the law introduces one important exception that represents a definitive solution to the
above issues, and allows full sharing of complete information, both positive and negative, which is non-
fragmented from/to any supervised entity recognized by the CBY, dependant on the consent of the
borrower/consumers.
In fact, Article 84, Paragraph 2, clearly establishes that: “…the Central Bank may publish completely or in
part at such times it sees fit, any information or data supplied to it pursuant the provisions of this law, on
the condition that it publishes no information or data revealing the private affairs of any particular bank or
customers of a bank without the prior agreement in writing of the party concerned”.
Moreover, the law establishes in the same Paragraph 2 of Article 84 that consent is not required for all
loans exceeding the old threshold of YER 10,000,000 (subsequently reduced to YER 500,000). A
possible limitation could be the need to have both the consent of the borrower and of the bank (party
concerned) before sharing data below this threshold.
In conclusion, as long as the consent of the borrower (prior, open, written, full, and part of the credit
application) is systematically requested, the CBY and the Yemeni lenders should encounter no problems
in sharing full information on borrowers without any limitation, as is the practice with the new PCR.
Thus, based on the same principle (prior, compulsory borrower consent granted with any loan agreement)
it appears possible that private information sharing schemes, such as PCBs, could also be started among
regulated and non-regulated entities as well. In fact, this solution has been implemented in other financial
markets where credit reporting is not governed by specific legislation or regulations yet, but is purely
based on simple borrowers’ consent, allowing lenders to share data and to make inquiries through third
party agencies, i.e. PCBs. Having said that, more in depth research and analysis are required to
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BOX 6: Need for a Legal Framework
The final objective of the regulators in Yemen
should be the establishment of an appropriate
legal and regulatory framework without which the
development of a credit information industry will
be slow, particularly if considering the
establishment of PCBs. In the long run, the
absence of clear legislation can create
uncertainty for potential information providers,
end-users, individuals and authorities, and also
lead to a disorderly situation in the marketplace.
unambiguously establish the power of this norm in Yemen, and the advice of a local reputed legal firm
should be requested before any private information sharing system is considered.
A consent model solves the confidentiality concerns present in the lending system as it supersedes bank
secrecy. Borrowers’ consent is a mechanism that puts power of information in the hands of the subject of
information, permitting them to decide whether the sharing is in their interest or not. Most bank secrecy
laws are superseded by the borrower’s consent and this permits lenders to share customer information
with third parties, if the consent is present. Relevant importance should therefore be given to the
necessity of always collecting a written, open borrowers’ consent. This clause should be embedded in all
credit applications, and requested with generalized and simultaneous procedures by all lenders.
The possibility to increase participation of non-regulated MFIs in the PCR should be considered. This
could be achieved through the potential relaxation of general rules, introduced by Article 25, Paragraph 1,
regarding the possibility for “other finance institutions recognized by the CBY” to share information (with
borrower consent). This could represent an important change allowing data sharing amongst all lenders.
The main purpose of these norms would be to enable
a legal and regulatory framework that covers all
aspects from licensing to operations, shareholding
pattern, governance, data collections, security of data,
permissible purposes, etc. The legislation should
harmonize the interests of the individuals, the
intermediaries, the databases, and the users of the
information. Above all, individuals should possess a
guarantee to their privacy rights and accuracy of the
information, as well as the proper use of their
information.
The Law of the CBY (n. 14 of 2000) reinforces the contents of the Banking Law with the following norms:
Article 45, Paragraph 1: “…Any bank or specified financial institution shall provide the Central
Bank…with any information or statements it requires…”
Article 45, Paragraph 2: “…the Bank may publish…the information provided pursuant in Paragraph
1…it shall not however publish any information revealing the financial situation of any client, bank or
specified financial institution, unless it receives prior consent in writing…”.
Article 45, Paragraph 3, establishes that not providing data is a violation and Article 46, Paragraph 2,
quantifies the penalties.
In no place, other than a reference in Article 13, Paragraph 5, (“…the Board shall have the following
particular duties and responsibilities…approving all regulations, guidelines, and instructions that are to be
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issued by the Bank…”) is the Central Bank empowered to issue specific regulations like the one
necessary to establish Private Credit Reporting in the country (e.g. license, supervise PCB).
CBY has issued credit reporting regulations (n. 28877 of April 2000; n. 54064 - 55858 - 58912 of July 2006;
n. 26222 of April 2007; n. 42589 of June 2008; n. 28282 - 28270 of March 2009; n. 25000 - 25429 - 25579
of April 2009; and n. 34746 of May 2009) making the following mandatory:
i) the request of borrowers’ consent (part of the credit agreement).
ii) the enforcement of consumer’s rights to request their own information.
iii) the elimination of the threshold (YER 500,000) and the sharing of all information.
iv) the provision of all information on all loans and all customers (including retail and MFI banks’ loans)
as of June 2009, within certain deadlines and in specific format and contents.
v) the lenders’ mandatory inquiry to the PCR before granting any type of credit.
These regulations reinforce the contents of the current jurisprudence (Articles 45 and 46 of CBY Law) and
request lenders to adhere to basic norms to facilitate the deployment of an effective credit reporting
system and form the basis for a future private sharing scheme. Lenders should be required to fully comply
with the above instructions through periodical audits and applying sanctions where appropriate.
It is paramount that any legal and regulatory credit reporting framework in place provides consumers with
specific tools to manage and protect their participation in the credit reporting system. Unfortunately, these
are not in place in Yemen. Therefore, the following specific items should be explicitly addressed in the
rules and regulations dealing with credit reporting activities and/or related consumer protection:
i) The consumer protection rules for credit information registries should be clearly specified. This protection
should be equal for both the public and private credit registries. There is neither a specific authority in
Yemen, today, dealing with complaints on data privacy, nor exists a regulatory framework or specific
procedures and processes to deal with complaints related to credit reporting activities apart from CBY’s
regulation.
ii) Consumers and firms should have free access to their own credit reports at least once a year, and also in
case of dispute and adverse action. It is generally recognized by the credit reporting industry that
consumers are in the best position and have the strongest incentive to assess the accuracy and
completeness of the data contained in their credit reports.
iii) They should also be given the right to obtain a free report from the lender or the PCB, in all these cases.
Notification should include specific instructions on how to obtain their credit report (free of charge) and
consumers’ rights with respect to challenging information they believe to be inaccurate or complete.
iv) Consumers should compulsorily be notified when an adverse action (e.g. denial of credit, refusal to
renew a credit line, etc.) has been taken as a result of information contained in their credit report,
regardless of the source of information (public or private registry).
v) Clear procedures, deadlines, and responsibilities of lenders and credit registries, in dealing with
consumers’ complaints should be established. Time limits should be unequivocally indicated and applied.
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BOX 7: Borrowers Consent
The immediate implementation of borrowers’
consent clause will allow utilization of historical
information when a PCB is established. This will
facilitate the development of the PCB and also
make the exchange of historical data between
CBY and a new PCB possible.
Also, a fast mechanism for disputing and correcting wrong or false data should be immediately available
for consumers.
4.3 BORROWERS’ CONSENT
Borrowers’ consent to share data with and inquire into
PCR/PCB is not always requested by all the lenders in
Yemen, despite the requirements of Law.51
. This is
possibly due to the limited number of loans and the
culture of freely and legally sharing loan information
above the threshold of YER 10,000,000 (for which the
law does not require consent). But the scarce availability of credit to consumers, lack of an established
data privacy culture among lenders and consumers, and lack of awareness about the importance that
consumer consent can play in establishing a sufficiently reliable regulatory framework for credit reporting,
do play an important role in the scarce consideration given to borrowers’ consent by the banking system.
MFIs generally do not require this authorization from the customer. Even when consent is collected by
lenders, it is restricted to data sharing with the CBY only, and is not an open consent 52
which would allow
data sharing with third parties, i.e. PCBs.
Lack of borrowers’ consent on loan agreements, may impede the creation of a large PCB database,
preempt the utilization of payment performance data, return a very low hit-ratio, diminish the initial efficacy
of a future PCB, and delay the development of value added services. Though today consent may not
seem a crucial issue, it will become a vital necessity for inquiries on individual customers in the future.
The Banking Law is clear; consumer information can be shared only in the presence of consent.
4.4 NATIONAL IDENTIFICATION NUMBER
An effective electronic identification system, the new NID, has been established and extended to all citizens
who must request the new National ID card after completion of 16 years of age. The NID is composed of 11
digits (the first 3 digits indicate the governorate; the 4th digit indicates the sex, while the remaining 7 digits are
a serial number given centrally). No check digit is part of the NID. This identification system is a crucial asset
for the development of efficient credit reporting systems; both public and private, and an excellent foundation
for building a reliable and homogeneous database.
However, inquiries transmitted to the PCR do not consistently contain the NID number. Several pieces of
identification are used by banks as a component of the search key. This creates inconsistencies in the data
and produces extra work for PCR staff.
51
Law 38 of 1998, Banking Law, Article 84.2 and the subsequent CBY regulation n. 58912 of 22nd
July 2006, and 25579 of 28th April
2009 52
Written borrowers’ consent given to the lender to share data with any third party or lender, and not only with one party (e.g. with the CBY only).
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5. CONCLUSIONS
5.1. A STRATEGY TO ENHANCE YEMEN’S NATIONAL CREDIT
REPORTING SYSTEM
International experience has proven that the lack of a strategic approach to solve financial infrastructure
issues not only negatively influences the success of individual projects underway but also affects the quality
of the financial infrastructure to the detriment of the economy. If common strategies among the public and the
private sector are not defined and agreed, credit reporting systems may, at best, only achieve a fraction of the
results to achieve an overall national objective.
The scope and complexity of developing and successfully implementing a strategy for credit reporting
systems modernization should not be underestimated. Credit reporting systems involve a broad spectrum of
public and private stakeholders, especially when they include retailers and utilities data in addition to the
banks / financial institutions data. Thus, a credit reporting reform agenda should include stakeholders such as
consumer protection agencies, information providers, public sector entities, lenders, and banking supervisors.
Consensus on a strategic approach is crucial to develop a holistic view of all aspects of the nation’s credit
reporting system needs, and the possibility to satisfy them in an orderly and cost-efficient manner. A
collaborative approach, with the active participation of all stakeholders, is always desirable because of the
complexity of the required changes. The inputs given by service providers, users, technology partners,
legal experts, as well as a well-structured collaborative approach will create synergy, stimulate learning
and provide a basis for optimizing benefits through cooperation and consensus building.
In Yemen, the most visible and important development is the revamp of the PCR which is an indispensable
tool for credit risk management and evaluation. The enhancement has triggered the formal sharing of positive
credit information, including small ticket loans. At present, only banks are part of the sharing mechanism. The
revamp of the PCR, however, is on-going. Therefore, the positive impact has not been fully realized.
There are clear symptoms of a market where information flows are not fully effective and complete. These
include high reliance on guarantees/collateral, low credit penetration, high NPL’s, uniform interest rates not
based on individual risk, conventional risk management procedures, manual subjective decisions, crowded
decision committees, and the absence of real competition among lenders.
Furthermore, it must be considered, that in the future, other lending sectors will most probably play an
increasingly relevant role in the credit system. In the short-term, it is recommended that the current PCR
system is enhanced to accommodate the immediate needs of the lending industry. For the medium to long
term, a solution that relies on establishing a PCB should be envisaged. The PCB should be tasked to create
a private credit reporting system, totally financed, operated and managed by the private sector, thereby
reducing the massive financial and operational burden on CBY, and allowing the CBY to focus on supervision
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BOX 8: PCR’s Role in the Future
Lending institutions and CBY will benefit from the
existence of a private reporting system by getting
all the information required for supervisory and
credit assessment purposes. Without considering
that the PCR may become both the biggest
competitor of potential PCBs and the most
significant obstacle to the development of a
competitive and open information sharing
industry in Yemen, unless the implementation of
the above strategy is considered.
of the credit system.
In the medium term, the CBY’s objectives should be to:
- support the establishment of an advanced, private, integrated full-file information sharing system.
- eliminate legal constraints that may exist for the creation of a PCB.
- enforce an appropriate legal / regulatory framework.
- delegate to the private sector the service of information provision to lenders.
- continue to collect data from regulated financial entities for internal purposes and tasks.
- close the PCR to lenders’ inquiries.
- become the Supervising Authority of the PCBs based on the powers to be given to CBY under the
new regulatory framework.
In conclusion, the CBY should consider the existing
PCR as an important, preparatory step in a phased
strategy towards the development of a state-of-the-
art PCB System in Yemen.
To recap, for establishing an effectively functioning
information sharing system in Yemen, a strategy
marked by the following milestones could be
pursued:
Begin working, together with the lending
community and other stakeholders, towards the establishment and utilization of an effective national
credit reporting infrastructure that will become a vital prerequisite for responsible and reliable credit
granting.
The chosen final solution should allow the exchange of all positive and negative credit information (full
sharing system) among regulated financial entities to start, but open to eventually contemplate the
future participation of other lending sectors, non-regulated as well (non-fragmented system).
Different information sharing schemes/solutions (e.g. public / private) may be adopted, in different
phases though it is advisable that it is the private sector that operates the credit reporting system, as
amply demonstrated by international best practice results.
Given the size of its population and potential market, Yemen may be in a position to attract specialized
providers in the future - should its credit industry continue achieving a steady growth. However, this will
take place when credit volume growth can justify the significant investment required, to develop a PCB,
i.e. the presence of a solid legal environment, a culture of information sharing among borrowers/
lenders, and sufficient historical information available in the PCB’s database.
Three to five years is a reasonable time span for the above development. In the meantime, it will be the
CBY through its PCR that will serve the information sharing and credit reporting needs of lenders.
Therefore, it is advisable that a staggered approach to full credit reporting is followed, with an initial
step (Phase 1) in which the CBY continues to be the provider of information to the credit industry,
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enlarging its scope to the microfinance sector as well.
In parallel, a strategy second step (Phase 2) must be planned to attract private information providers in
the medium-long term, allowing the definitive hand-over of information provided from the public to the
private sector.
Regulators should consequently continue to pursue their existing plans to upgrade the Public Credit
Registry. Information impact will not be limited to support lenders’ risk assessment, but exhaustive and
first rate information will also be required by the regulators for supervision, monetary policy definition,
statistical purposes, and existing international reporting commitments.
In Phase 2, the establishment of an efficient and modern Private Credit Bureau should be fostered,
allowing regulators to delegate the considerable task of becoming a specialized information provider,
which is not part of its institutional role/responsibility, and which could create unjustifiable operational
and financial burdens to the CBY with regards to investments, structure, staffing, and relations with the
borrowers.
If possible, more than one PCB should be licensed, to avoid the establishment of an inefficient
monopolistic information industry. Upon establishment of the PCBs, it would be desirable that
regulations confirm the rules for lenders to: i) share information with PCBs, and ii) inquire from PCBs
before granting credit - always with borrower’s consent.
In addition, the PCR should be closed to lenders inquiries. Lenders would then have to automatically
switch to and consult the existing PCBs53
. However, the PCR should continue to collect full information
from the lenders and utilize it for the CBY’s internal purposes only.
The role of regulators in respect of PCBs and credit reporting would remain nevertheless crucial,
qualitatively more important, and determinant for the establishment of a sound, solid, reliable
information sharing system. In fact, the CBY should be the authority delegated to grant licenses, to
regulate and to supervise PCBs with a particular inclination to the protection of borrowers’ rights, while
monitoring that the sharing and dissemination of the information comply with the existing legislation
and norms.
A friendly and clear legal framework must be in place in order to give CBY effective tools to exert the
above role, but also with the objective of eradicate any impediment to a complete sharing of
information, therefore attracting foreign investment and skilled technical information providers, while
granting full privacy and protection to consumers.
Legal framework should also regulate and set guidelines for PCBs licensing and operations, consider
the minimum security standards, the data exchange responsibilities, consumer rights, the
responsibilities of PCBs and lenders, as well as eventual sanctions for violations.
Regulators should already begin to work towards enabling a sound and bespoke legal framework
clarifying the rights and/or obligations of credit information providers, users, consumers, and authorities
alike.
To facilitate the above tasks, the involvement of the YAB and the SFD is paramount, as it would allow
the CBY to deal with strong reliable partners, facilitating the decision making process and permitting
53 While the PCB/s would be able to develop and provide Value Added Services, as well as the most upgraded security systems and standards, (thanks to specific expertise, international experience, and to the vast global investment made in the credit information sector worldwide) this would be extremely difficult for the CBY, as for any Central Bank worldwide
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adherence to the general international credit industry standards.
In parallel, the diffusion of advanced credit and payment systems becomes of fundamental importance
to stimulate consumer credit. The utilization of plastic money and basic credit products, through pilot
projects with large inclusion, is one of the most effective and fastest ways to improve penetration of
new credit services, increase their utilization and appreciation, while fostering a faster propagation of a
new credit and credit information culture among consumers.
To complement, lenders should robustly invest in internal training programs, building capacity on new
risk management and up to date portfolio monitoring solutions (credit bureaus, credit scoring, scoring
monitoring, etc.). Financial education should be extended to consumers, aiming at nurturing a deeper
understanding of credit, credit products, credit concepts, credit information, and consumer rights.
Finally, it is recommended that the Credit Bureau Working Group is created with the objective to outline
the strategy for the establishment of the future national Credit Reporting System, stimulating local
interests and providing a basis for discussion with key Yemenite stakeholders, donors, international
agencies, and multilateral organizations, and facilitating the agreements on a number of policies, legal,
organizational, technical and operational issues, to strengthen the PCR activities in Phase 1 (PCR) and
envisage the components of the potential Phase 2 (PCB).
5.2 COMPARING EXISTING AND IDEAL CREDIT REPORTING MODELS
The following table emphasizes the major differences between the current PCR exchange of information and
a standard PCB built on best practices.
Table 16: Differences between PCR exchange of information and PCB
Relevant Aspects
CBY PCR (current situation)
STANDARD PCB (future potential)
Information providers
Only regulated entities (currently only banks) No retailers No credit cards No Micro credit institutions non-regulated No mobile telephone companies No utilities
The system is generally characterized by a multi-sector sharing platform that can be fed by banks, MFIs, NBFIs, and ultimately by each and every other regulated and/or non-regulated sources/users, either public or private, financial or commercial
Information contributed
Basic portfolio outstanding figures on business firms and some consumers
Lenders forced by Code of Conduct and “reciprocity principle” to share all information, on all types of loan, on all customers
Data returned to lenders
Aggregated, limited, partial
A PCB generally disseminates all information on all types of loans, on all customers, under a detailed format at a single account level (trade lines), including previous payment pattern, previous searches list, history of arrears, worst arrears, total arrears, etc.
Historical data No historical data returned A PCB, complying with local legislation, generally shares the last 3-5 years of full historical payment performance
Duties and responsibilities of users /data providers
No legal/administrative responsibility concerning the quality and quantity of the information shared No Code Of Conduct enforced No sanctions applied
Accountability for data quality and completeness Reciprocity principle enforced Penalties applied in case of misconduct and non compliance Code of Conduct enforced Possibility of service suspension Possibility of revoking service
Value added services
No internal capacity and skills to develop Value Added Services
Know-how, and international experience, vast capacity to develop sophisticated services (scores, tracing systems, fraud
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Table 16: Differences between PCR exchange of information and PCB
Relevant Aspects
CBY PCR (current situation)
STANDARD PCB (future potential)
systems, etc.)
Internal capacity / training
Relatively limited expertise Limited training possibilities
Internal capacity building to run the PCB in parallel with maintenance, support, training as a result of international expertise and know how
Support to consumers
Limited capacity/possibility to support a massive number of consumers complaints No dedicated unit/department
A PCB must set-up an operational internal Consumers Support Unit (CSU) Toll-free telephone number to be implemented Web-site to be implemented
Consumers / borrowers rights
Consent necessary to share data, not always requested Access to personal data allowed but difficult to do Right to dispute and correct the data allowed but difficult to do No possibility to recur against PCR through a specific authority Lenders’ utilization of data for purposes not permitted by the law is unmonitored
Borrowers’ consent to share data and inquire the PCB mandated by law Right of borrowers to obtain a free credit report once a year Right of consumer to dispute information contained in the PCR and to have it corrected, if proved wrong, within enforced deadlines Lenders obligation to reply to borrowers’ requests within the established deadline in case of dispute Central Bank’s paramount role in ultimately ensuring that consumers’ rights are respected by lenders Financial literacy campaigns among borrowers, about their rights, promoted by the PCB Routine Central Bank’s supervision and audits over quality and integrity of data, security, compliance with the law performed by the authorities Utilization of data only for permissible purposes monitored Sanctions applied in case of non compliance
5.3. INTERACTION WITH PAYMENTS SYSTEMS
Effective interrelations between payment systems and credit reporting operators are both instrumental to
enhance the reliability of payment instruments and to improve the quantity and quality of the data
managed by credit registries. The use of electronic payment instruments, which can capture relevant
information on the repayment of commercial and financial obligations, can support credit information
systems to further differentiate good from bad repayment behaviors.
As a matter of fact, in Yemen, the Credit Registry could already be storing some information derived from
payment systems, like information on rejected checks, and possibly some information from corporate credit
cards, or checking overdraft accounts operated with ATM cards. This data may become relevant in the future
and should be maintained since it can be used to determine clients’ payment behavior.
In Yemen, the symbiosis between credit reporting and payment systems is not effective as yet, owing to
some cultural, technical and logistical challenges. Among these are:
i. the still limited acceptance of a “borrowing culture” among average consumers;
ii. the scarce penetration of advanced payment systems (not only advanced electronic/plastic
money like credit cards and debit cards, but also the more unsophisticated checks);
iii. the still insufficient territorial coverage offered by the banking system which holds the financial
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inclusion of more potential consumers as well as the larger diffusion of credit;
iv. the insufficient ATM network and the negligible P.O.S. system coverage, not yet adequate to
support a massive diffusion of electronic payment systems (and on the way to fragmentation,
should the banks decide to opt for separate networks); and
v. the absence of pilot projects to massively introduce electronic payments systems to replace cash
(also facilitating comprehension of new financial instruments); and cumbersome procedures to
open new bank branches.
Based on the experience of how other credit markets have developed (particularly in Latin America and
South East Asia), it is possible to outline the evolutionary stages and changes that, in the medium-long term,
the credit industry might undergo. ATM, debit and credit cards, and P.O.S. will start to gradually become part
of the daily life of the Yemenite customer. These innovations, combined with the new risk management
technology that some financial institutions are timidly starting to implement (and that will become ever more
mature with the availability of complete credit information), will considerably change the way lenders grant
credit today, as well as influence and alter consumer attitudes towards credit and new payment systems.
i) A first phase of change will be characterized by the growing penetration and utilization of the on-
line ATM/POS. Cardholders will progressively shift from the conventional cash/checks methods
and increasingly pay their purchases electronically. Consumers will start to use multifunctional
debit cards to withdraw money and purchase goods with cash, and when an adequate network is
established, they will pay with the card at the P.O.S.
ii) Gradually, the needs, the demands, and the likings of the clientele will be automatically re-
oriented towards more advanced payment methodologies. The magnitude of this evolution should
be fully appreciated as well as its benefits for the system. World Bank’s research shows that the
financial impact of the full shift from a cash oriented payment system to an electronic system may
be estimated in a 0.5% to 1% GDP growth.
iii) A further stage will be the gradual migration from payment cards to revolving credit cards. Credit
cards, today a negligible presence in the financial services panorama (some lenders claim that
the only obstacle to launch real revolving credit cards is the lack of complete information on
consumers), will start to irreversibly and permanently represent the industry standard, forcing the
less proactive banks to go after innovators and clients’ demand.
iv) Retailers, non-regulated, non-financial, commercial lenders will start competing with the banks
(as it has happened in most countries) offering credit directly, and avoiding the banks’
intermediation, particularly in the lower segments of consumers, thereby acquiring a significant
share of the retail credit market.
v) This will prompt the need for upgraded technological and informational infrastructure, as well as
for state-of-the-art risk management techniques and skills that today are not commonly
developed yet within the banking system. The introduction of credit scoring models and related
technologies (monitoring, account management, collection strategies, etc.) will become
indispensable for managing the risk of retail and SME portfolios.
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vi) Instant credit as a result of the utilization of automation, credit bureau data and scoring will
become a competitive advantage.
vii) An even stronger force that will ultimately push the transformation of consumer credit from
traditional products (e.g. personal loans) towards plastic money will come from the Internet and
from online banking. In fact, e-commerce will be the successive phase of credit evolution which
traditional lenders will have to cope with, and which they will have to plan for, with serious
advance.
viii) One of the important repercussions of the new condition will be the fall of collateral dominance,
especially for retail and other small ticket loans. The new credit products and portfolios will be
managed with more advanced, automated procedures and tools, with lesser necessity of
collateral and with the transformation of today’s nearly completely secured credit portfolios into
increasingly unsecured portfolios.
ix) In the medium to long term, credit, as it is known today will cease, and customers will use their
revolving credit lines to buy goods and services online (travel and flights, books, mobile phone
services, movies, music, etc – without any intermediaries.
x) The future of credit will then go beyond traditional channels. A new payment system will emerge,
i.e. mobile telephones. It is estimated that the volume of mobile phone payments globally
increased from $ 3.2 billion (2007) to $37 billion (2008)54
.
xi) Remittances and payments are already made through mobile phones, without any physical
transfer of money. The social and business impact of this new technology and payment system
can be dramatic. Cash, to start with, will be replaced by mobile phone payments. Small shopping,
short commuting and entertainment will be particularly impacted, followed by the replacement of
other small payments currently being made with plastic money.
xii) While distribution and payment systems have traditionally been controlled by banks, mobile
telecom operators will be in the virtual position to consider becoming financiers themselves (this
is starting to happen in other markets). Needless to say the traditional lenders, i.e. the banking
sector will be impacted the most as a result.
xiii) This may be considered one of the
biggest financial evolutions. The vast
majority of the worlds 4 billion mobile
phones are already operational, and
mainly in the hands of the poorer
segments of the world population.
Experiments are under way in many
emerging markets (e.g. Kenya, South
Africa, Philippines) to start using mobile
phones for simple, non-intermediated
credit and payments.
54
The Economist, February 17, 2007. American consumers carry with them mobile phones, twice as much as cash or credit cards. This proportion is four times higher among younger consumers aged 18-34, and decidedly higher in developing markets.
43
0
500
1,000
1,500
2,000
2,500
000s
Western
Union
Bank
branches
Post
offices
ATMs ETFPOS
Source: WB 2005; VISA; UPU 2005
25m
4bn
Figure 27: Mobile Telephones: A new payment system in
the hands of the poor
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Some quick-win actions may promote a broader coverage of the territory and increase the penetration of
financial services in the less serviced regions of the country and in rural areas. While opening new
branches and enlarging the network is a lengthy and capital intensive process, interesting alternatives are
offered by:
i. Banking correspondent agent’s network or “branchless banking”. This is a tested system that
dramatically increased the availability of financial systems in Peru, Brazil and whose feasibility is
currently being examined for introduction in other countries. In a nutshell, basic financial services,
like payments, savings, and small loans can be offered through banks’ franchisees (e.g.
pharmacies, post offices, supermarkets that are generally present even in small villages55
).
ii. Balancing the branch expansion strategy of the banking sector. In some countries, for example
India- banking regulators ask financial institutions willing to open new branches in the more
populated, commercial, profitable centers to also open a proportional number of branches in rural
areas and less serviced/covered regions.
iii. Mobile banking technology56
. Pilot projects - the introduction of simple credit products, based on
plastic money and similar methodology of payments, and targeted to the less affluent and
financially educated segments of consumers, should be considered, being one of the most
effective and fastest ways to improve penetration of new credit/payment services and awareness
among the consumers. As a first step, a program of utilization of debit cards linked to the public
employees’ salary could be extremely effective. There are examples adopted by many countries
(e.g. “conta salario” or salary account in Brazil, Angola, Pakistan, etc.) showing extraordinary
results in terms of higher financial penetration rates and utilization of new services. The Brazilian
“conta salario” is an account that can be fed only by the monthly salary, it is free of charges, and
does not provide account holders with checks. Money can be withdrawn only with a debit card. In
Syria, a significant portion of the active employed population is represented by public employees.
This could represent the pilot segment on which to build an extraordinary, powerful, modernizing
program first step.
In Yemen, a significant portion of the active employed population is represented by public employees.
This could serve as the pilot segment to build a powerful program.
Introducing simple credit products can foster financial utilization and acceptance among lower segments of
customers. In the past few years, some simple and inexpensive financial products have been introduced in
other markets by regulators. These products are changing credit utilization behavior among borrowers and
rapidly enlarging the inclusion of customers previously considered non-bankable. An example is the “Credito
Consignado” or “Consigned Credit” introduced and intensively supported by the Brazilian government a few
55
A more detailed explanation of how the branchless banking agent system performs can be retrieved on the World Bank-CGAP’s
internet site http://technology.cgap.org/2007/10/25/how-do-you-spell-success-with-banking-agents-p-e-r-u/
56 Full details of mobile banking technology and benefits can be found on World Bank- CGAP site www.cgap.org.
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BOX 9: IMPORTANCE OF ATM/POS NETWORKS
There are also opportunities for improvement in the
efficiency of the ATM network and the terminal base. In
the case of terminals, many merchants are forced to
maintain two systems in order to get around
technological incompatibilities, and there are also
multiple ATM networks. The large banks have
traditionally seen private ATM networks as a
competitive tool, whereas smaller banks have been
more likely to share their networks. In 2003 there were
29 ATM networks operating in the country with more
than 137,000 ATMs, only 38% of which were linked to
an “open” network. A shared network would
substantially reduce costs. For example, at Guarulhos
Airport Sao Paulo, there are ten ATMs from six banks,
about double the requirement if a shared network were
available.
years ago. In this case, small personal loans are granted to salaried people who open a no-fee account (for
instance a Salary Account) with a bank. The monthly installment is deducted directly from the salary and paid
by the employer to the bank. The risk for the bank is minimal; consequently, the applied rate of interest must
be significantly lower than the average, making the loan more affordable and acceptable to a larger portion of
the population. Consigned credit is an effective tool to broaden credit base, while reducing risk in a
developing market. It is frequently used in many countries in MENA. It becomes obsolete when credit
culture/financial education increases, and information sharing plays a major role in identifying borrowers’ risk.
Rationalized ATM networks are important,
when banks establish proprietary ATM
networks not connected among them. This
represents a high cost for the industry which is
normally passed on to the final customers, and
inhibits a larger, cheaper, and friendlier usage
of plastic money. An enlightened example is
represented by the Brazilian payment system,
possibly one of the most expensive credit
industries worldwide in terms of interest, fees
(Box 9)57
.
57
Economist Intelligence Unit, Assessing Payments Systems in Latin America, May 2005
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ANNEXES
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ANNEX I
WORLD BANK CREDIT REPORTING PRINCIPLES
CREDIT INFORMATION SYSTEMS
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
following:
a. Legal framework. The legal environment should not impede and, ideally should provide the
framework for, the creation and operation of effective credit information systems. Libel and
similar laws have the potential of chilling good faith reporting by credit information systems.
While the accuracy of information reported is an important value, credit information systems
should be afforded legal protection sufficient to encourage their activities without eliminating
incentives to maintain high levels of accuracy.
b. Operations. Permissible uses of information from credit information systems should be clearly
circumscribed, especially regarding information about individuals. Measures should be employed
to safeguard information contained in the credit information system. Incentives should exist to
maintain the integrity of the database. The legal system should create incentives for credit
information services to collect and maintain a broad range of information on a significant part of
the population.
c. Public policy. Legal controls on the type of information collected and distributed by credit
information systems can be used to advance public policies. Legal controls on the type of
information collected and distributed by credit information systems may be used to combat certain
types of societal discrimination, such as discrimination based on race, gender, national origin,
marital status, political affiliation, or union membership. There may be public policy reasons to
restrict the ability of credit information services to report negative information beyond a certain
period of time, e.g., five or seven years.
d. Privacy. Subjects of information in credit information systems should be made aware of the
existence of such systems and, in particular, should be notified when information from such
systems is used to made adverse decisions about them. Subjects of information in credit
information systems should be able to access information maintained in the credit information
service about them. Subjects of information in credit information systems should be able to
dispute inaccurate or incomplete information and mechanisms should exist to have such disputes
investigated and have errors corrected.
e. Enforcement/Supervision. One benefit of the establishment of a credit information system is to
permit regulators to assess an institution’s risk exposure, thus giving the institution the tools and
incentives to do it itself. Enforcement systems should provide efficient, inexpensive, transparent
and predictable methods for resolving disputes concerning the operation of credit information
systems. Both non-judicial and judicial enforcement methods should be considered. Sanctions
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for violations of laws regulating credit information systems should be sufficiently stringent to
encourage compliance but not so stringent as to discourage operations of such systems.
A modern credit-based economy requires access to complete, accurate and reliable information
concerning borrowers’ payment history. Key features of a credit information system should address the
following. An effective credit information system can be integral to the operation of modern financial
systems. Credit information systems can include a number of functions, including collecting, analyzing,
and distributing information about how consumers and businesses, large and small, handle their credit
obligations. This type of information has proven to be an effective tool for a variety of purposes, including
assessing the risk faced by creditors, as past payment experience is a strong predictor of future
performance. Credit information systems also make it possible to empirically assess, in the form of credit
scoring tools, which factors are most predictive, permitting finely tuned credit decisions. As a result,
creditors can more intelligently assess consumer and business lending decisions, thus promoting the
extension of credit and economic development in the countries in which they operate. Also, creditors are
in a better position to develop numerous credit offerings tailored to the risk presented by borrowers’
unique credit histories. Credit information systems promote competition among lenders, thus reducing
the cost of credit. In fact, such systems can also increase the ability to attract foreign investment capital
by providing foreign creditors a rational basis on which to evaluate credit risk. This regionalization and
globalization of credit granting is further enhanced if consistent or at least transparent information
collection standards are employed.
LEGAL FRAMEWORK
1. Basis for Operation of Credit Information Systems. The legal environment should not impede
and, ideally should provide the framework for, the creation and operation of effective credit
information systems. Establishment and operation of credit information systems may be impeded
or prevented by legal prohibitions or uncertainties concerning the application of laws relating to
the collection, disclosure and use of financial information. For instance, bank secrecy laws may
be perceived to prohibit banks from sharing information about their customers’ accounts and
payment history with a credit information system. The existence of such laws can chill the
creation or operation of credit information systems.
2. Enabling legislation is not required for the development of credit information systems. Many credit
information systems have developed organically so long as laws did not prevent their operation.
Nonetheless, concerns about fair use of information have led to passage of legislation authorizing
and regulating the existence of credit information systems. Passage of such legislation removes
doubt about the legal viability of such entities and by creating greater regulatory certainty may
encourage entrants into the credit information systems marketplace.
3. Liability Protections. Libel and similar laws have the potential of chilling good faith reporting by
credit information systems. While the accuracy of information reported is an important value,
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credit information systems should be afforded legal protection sufficient to encourage their
activities without eliminating incentives to maintain high levels of accuracy. There are a number of
potential legal impediments to the development of credit information systems. One of the most
significant is the existence of libel laws, laws that permit legal actions based on false publications
that damage a person's reputation. The information maintained in a credit information system is
of the type likely to damage a person’s or company’s reputation if publicly known. This may
include failure to pay bills or filing bankruptcy.
While credit information systems should be encouraged to maintain high standards of accuracy,
potential exposure to libel actions -- even as a result of inadvertent mistakes -- could discourage
their operation or make them unwilling to report information unless there was no question about
its accuracy. Even with the best intentions, it can be difficult to develop certainty concerning the
accuracy of information being reported. Accordingly, some protection from libel or similar actions
can be critical to the existence of comprehensive credit information systems. Such protections
should not relieve credit information systems from the responsibility to provide reasonably
accurate information. Instead, standards more geared to the challenges of operating a credit
information system should be substituted.
OPERATIONS
1. Use Restrictions. Permissible uses of information from credit information systems should be
clearly circumscribed, especially regarding information about individuals. Credit information
systems collect a wealth of information about individuals and businesses. Much of that
information could have a serious impact on reputations and financial standing. The information
could be used in negative and potentially harmful ways, such as for purposes of blackmail or
referrals to criminal authorities for tax evasion. On the other hand, if the information is used for
legitimate, beneficial purposes, the existence of the credit information system is likely to receive
public acceptance. Legally imposed use restrictions can address these concerns.
2. Data Security. Measures should be employed to safeguard information contained in the credit
information system. To the extent information in credit information systems is sensitive, and to
avoid undermining use restrictions, such systems should employ reasonable methods to protect
the security of such information. As appropriate, these methods may include physical, electronic
and procedural safeguards to protect against improper data access.
3. Credit information services can provide valuable information for assessing repayment risk, likely
profitability of accounts, debt collection, marketing, employment screening, tenant screening,
claims analysis, insurance underwriting, market research, and economic trends. A sound
environment for managing credit and insolvency risk requires reasonable access to accurate,
reliable and current credit information on borrowers that affords adequate protection and
safeguards for the privacy of borrowers and that is governed by general rules of due process.
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4. The legal environment should provide a transparent procedure that contains incentives for
gathering and dispensing information. Access should be provided to firms engaged in credit
activities and not limited to particular types of entities, e.g., banks. While there may be arguments
to limit access to firms that furnish information to the credit information service, this could unduly
limit potentially beneficial users, especially firms that are just starting up and may not yet have
significant amounts of information to contribute.
5. Transparency and good corporate governance are the cornerstones of a strong lending system
and corporate sector. Transparency exists when information is assembled and made readily
available to other parties and, when combined with the good behavior of “corporate citizens,”
creates an informed and communicative environment conducive to greater cooperation among all
parties. Transparency and corporate governance are especially important in emerging markets,
which are more sensitive to volatility from external factors. Without transparency, there is a
greater likelihood that loan pricing will not reflect underlying risks, leading to higher interest rates
and other charges.
6. Data Integrity. Incentives should exist to maintain the integrity of the database. Credit
information systems can be used in a variety of ways. Some uses, such as evaluating credit risk,
rely on a database containing historical data on as large a number of potential borrowers as
possible. Other uses may not require that data be maintained for extended periods of time. One
such use can be as a means of collecting past due obligations by encouraging repayment to have
one’s name removed from the list. In that context, it might make sense to remove a debtor’s
name from the database when the obligation has been satisfied. However, if the database is also
to be used to make future risk assessments, removal of that information might encourage
payment of the particular debt at issue, but it would undermine the ability to identify borrowers
who have fallen behind in their payments in the past. If a database is to be used, even in part for
credit risk assessment, there should be incentives in place to keep data in the system even after
that particular creditor’s loans have been repaid.
7. Scope of Data. The legal system should create incentives for credit information services to
collect and maintain a broad range of information on a significant part of the population. Credit
information systems are most effective and enhance risk prediction if they contain data on a large
segment of the population. The more ubiquitous their coverage, the better they can serve
financial institutions in evaluating applicants for credit. Many existing credit systems work
effectively through voluntary contribution of data by creditors who recognize it is in their self-
interest to contribute information on their customers. If voluntary contributions are ineffective in
creating a robust credit information system, legal requirements to report information could be
imposed on creditors. Such requirements could avoid the problem that large incumbent creditors
may choose not to contribute information due to the concern that reporting will facilitate creditors’
competing for their existing customers.
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8. There is strong empirical evidence that systems that collect both positive and negative payment
histories permit more accurate risk assessments. Those same systems present the potential of
financial institutions identifying their best customers to competitors, thus discouraging
participation in the system. Alternatives exist to reduce the risk of losing customers, such as not
allowing credit information systems to be used to target specific financial institution’s customers.
However, it should be noted that these alternatives do potentially reduce some of the beneficial
competition that results from increased access to credit information.
9. One means of increasing demand for credit information services would be if creditors, both
consumer and commercial, were expected as part of due diligence on extending credit to
consider the borrower’s credit history. This would serve the dual purpose of improving those
firm’s risk controls and creating a necessary market for credit information systems.
PUBLIC POLICY
1. Collection and Use Restrictions. Legal controls on the type of information collected and
distributed by credit information systems can be used to advance public policies. Control of the
use of information collected by credit information systems, or even controls over the type of
information such systems are permitted to collect, can be used to advance public policy goals.
These public policy goals may often be in tension with the risk assessment functions of credit
information systems. In theory, those systems collect the maximum information they can
efficiently collect and use it to predict risk. If they were not permitted to use certain types of
information, due to public policy concerns, the ability to predict risk based on the available data
could be diminished. There are often public policy judgments made to sacrifice the predictive
value of the data in favor of advancing other social or economic goals.
2. Anti-discrimination. Legal controls on the type of information collected and distributed by credit
information systems may be used to combat certain types of societal discrimination, such as
discrimination based on race, gender, national origin, marital status, political affiliation, or union
membership. There are often legitimate societal values that call for assessment of credit risk,
either individual or business, based solely on prior credit experience, as a method of equalizing
treatment of borrowers. In some cases, this could result in a prohibition on collecting certain
types of information, such as demographic or other data about borrowers that goes beyond their
prior loan payment experience, including gender, marital status, or race. The absence of such
data collection and use restrictions might well enhance the ability to predict risk, such as by
concluding that men pose a greater credit risk than women, or foreigners are more credit worthy
than citizens of a country. However, there may be strongly held societal values calling for equal
treatment regardless of certain characteristics. These values may be deemed worth the economic
costs of reducing the ability to predict risk based on credit information system data. This may
result in prohibitions on collecting or using certain information about borrowers, e.g., race,
gender, etc.
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3. Ironically, there is another approach to combating discrimination that is directly at odds with
reducing the collection of information. Rather than excluding information concerning protected
characteristics, in some cases, lenders may be required to collect such data. The data is
collected not for its predictive value but instead to use as a basis for evaluating whether the
financial institution is making decisions based on prohibited characteristics.
4. Obsolescence. There may be public policy reasons to restrict the ability of credit information
services to report negative information beyond a certain period of time, e.g., five or seven years.
Certain types of information in a credit file have the potential of seriously impeding a business’ or
individual’s ability to get credit. One such example is the filing of a bankruptcy petition; another is
a series of loan defaults. The knowledge that an individual or company was forced to resort to
bankruptcy because their obligations exceeded their assets could lead future creditors to decline
to extend them credit. While this is quite rational, the consequence can be the lifetime of
economic destruction for an individual or company. In such cases, the government might find
itself burdened with providing assistance.
5. Yet, in many cases, late payments or even bankruptcy filings are precipitated by causes beyond
an individual’s control, such as a natural disaster, unexpected medical costs, or loss of
employment or a contract. It may not signify a permanent inability to manage financial affairs. As
a result, there can be a desire to allow borrowers who have at one time failed to fulfill their
financial obligation to rebuild their credit histories through subsequent good behavior. A credit
information service could undermine this goal by continuing to report the existence of the
negative information indefinitely. As a result, there may be important policy reasons to prevent
the reporting of certain types of negative information, e.g., late payments, court judgments, tax
liens and bankruptcies, beyond a reasonable period of time, such as five to seven years. By
contrast, there might be other types of negative information, e.g., convictions of serious crimes
that are in society’s interest to report for longer periods of time or even indefinitely. It is possible
to craft regulation of reporting practices by credit information services to address and balance
these policy concerns.
PRIVACY
1. Notice. Subjects of information in credit information systems should be made aware of the
existence of such systems and, in particular, should be notified when information from such
systems is used to made adverse decisions about them. Citizens in a country are often troubled
by the existence of secret, hidden databases that contain information about them, regardless of
whether those databases are maintained by the government or private firms. The legitimacy of
credit information systems will be enhanced, and public apprehension reduced, if there is
transparency concerning their existence and operations.
2. Aside from a general awareness of the existence of such systems, it can be critical to inform data
subjects that information from those systems was used to make adverse decisions about the
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subject. It is impossible for databases containing thousands, if not millions, of files from
numerous sources, public and private, to maintain current accurate information about a
population that may have similar or identical identifiers, who do not use their personal identifiers
in a consistent manner in all their interactions, who change identifiers over time (e.g., by getting
married), and who move frequently. If erroneous data from those systems is used to made
adverse decisions about individuals or companies, and the subject is not notified of the source of
the data that led to the adverse decision, the subject will have no opportunity to correct the
misinformation. As a result, the subject will continue to face rejections based on incorrect credit
information system data. Not only is that unfair to the subject, it cast doubts on the operation of
the system. It also means that users of the system will continue to be provided inaccurate data
that will lead to incorrect risk assessments.
3. Notifying subjects that adverse action was taken based on credit information service data can
also be a tool in policing anti-discrimination laws. If data subjects are permitted access to their
information (see below), they can assess whether there are legitimate, non-discriminatory
grounds for the denial. For example, if they have comparable credit standing to other borrowers
who were granted credit, and the only difference between the applicants is gender or race, they
might be able to establish that discrimination has occurred.
4. It would also be possible to structure a credit information system to only collect or use information
with the consent of the data subject. However, giving data subjects control over their inclusion in
the database, as opposed to process rights over the use of their data, risks allowing individuals or
businesses with poor credit to exclude themselves or limit access to their complete credit history.
These are the very people or entities creditors most need risk information about.
5. Access. Subjects of information in credit information systems should be able to access
information maintained in the credit information service about them. Access to data by subjects
can serve a number of important purposes. First, greater transparency about how the database
operates and the type of information maintained can enhance public confidence. Second, only
with access can data subjects who have had adverse action taken against them based on data in
the service, determine whether that data is erroneous. Third, in the case of distressed
enterprises, it can be helpful to have clear laws and procedures that require disclosure of, or
access to, timely and accurate financial information on the distressed enterprise. This can
encourage lending to, investment in or recapitalization of viable distressed enterprises. It also
helps support a broad range of restructuring activities, such as debt write-offs, rescheduling,
restructurings and debt-equity conversions; and provide favorable or neutral tax treatment for
restructurings.
6. In addition, the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems
call for laws that require the provision of relevant information on the debtor that could be
accomplished by a credit information service. In addition, those Principles state that corporate
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workouts and restructurings should be supported by an enabling environment that encourages
participants to engage in consensual arrangements designed to restore an enterprise to financial
viability. An enabling environment includes laws and procedures that require disclosure of, or
ensure access to, timely, reliable and accurate financial information on the distressed enterprise;
encourage lending to, investment in or recapitalization of viable financially distressed enterprises;
support a broad range of restructuring activities, such as debt write-offs, rescheduling,
restructurings and debt- equity conversions; and provide favorable or neutral tax treatment for
restructurings. A viable credit information service can advance these goals.
7. Dispute Rights. Subjects of information in credit information systems should be able to dispute
inaccurate or incomplete information and mechanisms should exist to have such disputes
investigated and have errors corrected. It is of limited value to simply make data subjects aware
that erroneous information from a credit information service served as the basis for an adverse
action concerning them. In order to make that information useful, there must be mechanisms in
place, either voluntary or mandated, to have such disputes investigated and, if information turns
out to be erroneous, have the information corrected.
8. There are often timeliness concerns about resolving information disputes, perhaps because a
business needs a financial commitment in order to sign a lease or a consumer wishes to
purchase a new home that will go to another potential buyer if funding cannot be arranged. Thus,
some requirement of timely consideration of disputes may often be critical to making the dispute
right meaningful.
9. Similarly, a cursory review of a dispute, with no real effort to investigate and learn the correct
information, can serve to make dispute rights meaningless. In some cases, the error may be
apparent on its face, such as a date of birth of an infant belonging to a senior citizen. In others,
there may be a need to contact the furnisher of the information to verify its accuracy. Oftentimes
the extent of the investigation will be determined by the nature of the dispute.
ENFORCEMENT/SUPERVISION
1. Supervisory Function. One benefit of the establishment of a credit information system is to
permit regulators to assess an institution’s risk exposure, thus giving the institution the tools and
incentives to do it itself. While the principle focus of credit information systems is to permit
financial institutions to gauge the risk posed by borrowers, those systems provide valuable tools
for regulatory agencies to supervise institutions under their jurisdiction. Credit information
systems permit efficient systematic analysis of a financial institution’s loan portfolio, including its
size, diversity, and risk levels over time.
2. Effective Enforcement Systems. Enforcement systems should provide efficient, inexpensive,
transparent and predictable methods for resolving disputes concerning the operation of credit
information systems. Both non-judicial and judicial enforcement methods should be considered. In
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light of the important financial and privacy interests involved in reporting credit information, there
is a need for a mechanism to resolve disputes relating to accuracy and proper disclosure. This
mechanism can exist in the courts, through administrative processes, government oversight, or
self-regulatory organizations.
3. Proportional Penalties. Sanctions for violations of laws regulating credit information systems
should be sufficiently stringent to encourage compliance but not so stringent as to discourage
operations of such systems. While compliance incentives serve a valuable role in maintaining the
integrity of a credit information system, there is a risk of over-deterring conduct by making the
penalties for violations too costly. At the extreme, this could deter operations of such services.
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ANNEX II
GLOSSARY
i. Code of Conduct:
The regulatory framework allowing governing the relationships between Private Credit Bureaus,
the data providers, the users, the borrowers, the other bureaus, and the supervisory authority. It
specifies, among other things, policies and procedures of resolving conflicts and borrower
complaints.
ii. Consent:
A written clause signed by the borrower or legal designee explicitly giving consent to:
Sending his data to a credit reporting company
Inquiring about his information and data
Consent may or may not be necessary for institutions (depending on local legal/social
norms or requirements).
iii. Credit bureau:
Such info providers that build up credit files by compiling, retaining, processing and analyzing
personal and credit data relating to the credit positions of borrower of banks and non bank
financial institutions, Telecoms, retailers of goods and services which provide credit. CB provides
users with credit reports and other credit reporting and scoring services while not giving any
recommendations on credit provision.
iv. Credit data:
This includes among others:
Gross amount of loan or credit facility
Outstanding balance
Type of facility
Currency of facility
Due date of facility
Due payments
Pledged collaterals
Any other data that serves the purposes of the credit reporting company.
v. Credit file:
Credit reporting companies compile, retain, and process information about borrowers in credit
files.
vi. Credit file inquiry data:
This includes: Name of User, Activity of User and Date of Inquiry.
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vii. Credit registry:
A database of personal and credit information maintained by the Central Bank.
viii. Credit report:
A paper or electronic report produced by the credit reporting company containing some or all of
the data in the credit file of a borrower or a summary thereof.
ix. Credit Scoring:
Modeling technique that uses the information contained in the credit file of a credit applicant to
arrive at a relative score according to statistical principles applied uniformly to all borrowers. The
relative score is meant to predictive the likelihood (odds) that the applicant will become a good or
poor risk customer in the future.
x. Customers/borrowers (data subjects): Individuals or institutions that apply for credit. Their
pertinent information and data are compiled in credit files at the credit reporting company and can
be shared in accordance with either the relevant legislations or the rules in the Code of Conduct.
xi. Database:
An electronic archive containing the credit files of borrowers as compiled from data providers and
retained and processed by the credit reporting company.
xii. Data providers/contributors:
All institutions that provide any form of credit as well as all institutions that have identification
data, credit data or otherwise any information or data that relate to the payment habits of
borrowers. All such institutions are able to provide the credit bureau with information and data in
accordance with the legislation or rules set out in a Code of Conduct.
xiii. Data sources:
One or all of the sources which are legally or consensually allowed to provide data to credit
reporting company. These could be:
Banks
The Credit Registry System at the Central Bank
National ID registry
Mortgage companies
Leasing companies / factoring companies
Insurance companies
Institutions providing credit to micro, small and medium enterprises
Money market companies
Retailers of goods and services that sell in installments
Credit reporting companies
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Public records: Civil Registry, Voters Roll, Property Registry, Court records, etc.
Any other institutions in possession of information or data that can serve the purposes of
the credit bureau.
xiv. Data provider information:
Including name, main activity, and address of provider.
xv. Disaster recovery site:
A location that is physically separate from the site of the credit bureau and sufficiently away to be
immune of potential physical threats to the site of bureau. The disaster recovery site would
house a continuously updated copy of all databases of the bureau.
xvi. ID (National):
A unique, definitive national identifier for all national citizens, which never changes.
xvii. Identification data:
For individuals these include:
Name
Nationality
Date of birth
Place of birth
Identity credentials
Current home address
Home address/s of past 3 years
Occupation
Current work address
Work address/s of past 3 years
Name of spouse
Any other data that serves the purposes of the credit reporting company
For institutions these include:
Name
Legal form
Shareholders with more than 10% of paid-in capital
Commercial registration number / commercial registration date
Address
Main activity
Secondary activities
Data on the financial position of the institution
And any other data that serves the purposes of the credit reporting company.
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xviii. Negative information:
Information on the failure of borrowers to fulfill their financial obligations on time. This includes
Delays
Irregular payments
Bounced checks
Default
Reschedules
Court orders, foreclosures, “protests” and bankruptcies/liquidations.
xix. Payment performance data:
This is historical information that generally goes back 5 years and reflects the commitment level
of borrower to pay on time.
xx. Positive information:
Information on the timely payment of borrowers.
xxi. Public records data:
Data available in public records such as those in the civil registry, commercial registry, property
registry, national ID and court records.
xxii. Permissible purpose:
The user should have a limited, clear, permissible, purpose to make an enquiry and get a credit
report. Permissible purposes could be:
An authorization through a court order
Considering the provision of credit at the request of a borrower whether it is for the first
time, a credit increase, credit renewal, or a change in credit terms
Considering the acceptance of any form of guarantee to a credit application
Getting a credit score for the credit applicant
Having a written consent from the borrower or legal designee.
xxiii. Reciprocity:
Basic principle of information sharing determining that users may use and see only the same type
of information they share with the other parties.
xxiv. Reporting threshold:
Minimum credit facility above which banks/lenders are obligated to report credit data of borrowers
to the credit bureau.
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xxv. Users:
Institutions having a contractual relationship with credit reporting company to request credit files
and other services for permissible purposes. Also borrowers about whom the credit bureau
retains credit files. Credit bureaus are prohibited from providing individual users with information
about others. Individual users, however, can enquire about their own information and data in
accordance with the rules set out in any legislated self enquiry process or Code of Conduct.
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ANNEX III
RECAP OF CBY’S REGULATIONS ON CREDIT REPORTING
CIRCULAR NUMBER
CIRCULAR DATE
SUBJECT
28877 26/4/2000
Instructs banks to provide the PCR with data on borrowers who did not fulfill their credit payments (credits over than 5 Million YR and over 90 days delinquency) and inquire the PCR.
54064 2/7/2006
With regards to the PCR banks are mandated to: - do not grant credit to any customer before consulting the
credit registry - do not grant credit to any customer before getting an
identifier from the credit registry - do not grant credit to any customer before ensuring that he
is not on the notification list (previous circular) - include the following information in the request, to allow the
creation of a search key: Id, Address, City, date of Birth
55858 8/7/2006
Setting up the specifications of the credit registry and in particular the reduction of the threshold to YER 500,000 (from YER 10,000,000). The deadline to provide the PCR with the data is set to the 5
th day after the end of each month.
58912 22/7/2006 Banks are asked to always request customers’ consent (provided with the circular) as a mandatory piece of the credit file.
26222 9/4/2007
Reminder to the banks regarding their obligations stated in the circular 28877 (26/4/2000) related to inserting and retrieving customers into/from the credit registry, before granting credit.
42589 21/6/2008
Reminder to the banks regarding their obligations stated in the circulars 54064 (2/7/2006) and 55858 (8/7/2006). Models to inquiry for corporate and individuals are attached to the circular. The banks are requested to use the National ID.
28282 28/3/2009
The banks are authorized to show customers their credit reports received from the credit registry. Customers have the right to get all their credit information from the banks they are dealing with.
28270 28/3/2009
Information about the initiative of the CBY to install a new credit registry (from UAE) supporting on-line exchange of data. (Required: Internet Line).
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CIRCULAR NUMBER
CIRCULAR DATE
SUBJECT
25429 21/4/2009
The banks are mandated to: - enter the data regarding their newly approved customers
according to the new structure/layout of the new system before 30/6/2009
- during the month of July 2009 banks must add all of their records/customers information and update the credit lines recording the position of 30/6/2009
- Inquiry will continue until 31/7/2009 in the OLD system - Starting 1/8/2009, the banks can perform their inquiries in
the new system. The position recorded will be as the one on 30/6/2009.
- Banks must update their customers’ positions on a daily basis.
25000 21/4/2009
The circular lists the information required in the NEW system/format, like name (English, Arabic), National Id, type of credits, etc.
25579 28/4/2009
Reminder to the banks regarding the use of the consent clause (circular 58912 of 22/7/2006).
- This consent is a part of the credit contract - The customer needs to sign the consent as part of the
contract documents.
34746 25/5/2009
Banks are reminded to: - complete data provisions according to the deadline set
for this operation in the circular 25429 of 21/4/2009 - start providing data on credits with amount lower than the
existing threshold (YER500,000).
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