IFC, a member of the World Bank Group, has signed an agreement with the Central Bank of Solomon Islands (CBSI) to improve credit reporting in the country and improve access to finance for people and micro, small, and medium sized enterprises (MSMEs).
The agreement is part of a regional effort by IFC, working with banks, financial institutions, credit bureaus and central banks in Solomon Islands, Papua New Guinea and Vanuatu to guide them through the process of moving to comprehensive credit reporting (CCR), which will require regulatory, technical and process changes.
CBSI is the first central bank in the region to sign an agreement with IFC to strengthen its credit reporting legal framework. The framework will enable the central bank to supervise the Solomon Islands Credit Bureau and will strengthen the legal standing of the bureau.
“It is important that financial institutions remain robust and make informed decisions especially at a time when we are facing a crisis brought on by COVID-19,” Solomon Islands Central Bank Governor, Dr Luke Forau said. “Shifting to Comprehensive Credit Reporting will complete the nation’s credit infrastructure, which currently only includes reporting on negative credit behavior and relies on codes of conduct, which have no legal force.”
A key benefit of enshrining comprehensive reporting into the legal framework is that regulated financial institutions will be mandated to participate in a phased approach, ensuring widespread uptake and stronger credit data.
Both lenders and borrowers will benefit from comprehensive credit reporting as it incorporates positive (payment histories) and negative (defaults) data elements, as well other publicly available data. While financial institutions will save on costs spent on reviewing loan applicants, the availability of data will potentially decrease the credit gap for individuals and MSMEs.
“This is an important development for the financial sector in Solomon Islands and the region as comprehensive credit reporting is vital to unlock credit for individuals and micro, small, and medium enterprises, increasing access to finance,” IFC Country Manager for Australia, New Zealand, Papua New Guinea and the Pacific Islands, Thomas J. Jacobs said.
“Comprehensive Credit Reporting allows borrowers to bring their data to different lenders, increasing competition in the financial sector.”
The project will also look to integrate best credit bureau practices in response to COVID-19, to protect the credit reputation of borrowers impacted by the pandemic.
“Crises like COVID-19 can impact performing borrowers’ ability to meet their scheduled payments, relegating them to the same level as existing non-performing borrowers,” IFC Financial Sector Specialist, Philippa Roberts said.
“Since these delays are not a result of the borrower’s choice, they should not be disadvantaged in their credit records.”
IFC’s work towards an expansion to comprehensive credit reporting is supported by the Australian and New Zealand governments under the Pacific Partnership. Australia, New Zealand and IFC are working together through the Partnership to stimulate private sector investment and reduce poverty in the Pacific.