30 Doing Business <strong>2009</strong>mies the repayment rate can increaseby up to 80% when a credit registrystarts operation. Small firms benefit themost: in transition economies that introducednew credit registries, their accessto credit grew twice as fast as that oflarge firms. 4Strengthening the legal rights ofborrowers and lenders allows businessesto invest more in new technologies. Onerecent study finds that economies thatscore higher on creditor protections havenewer airplanes. 5 Beyond that, their airlinesinvest in better safety and communicationtechnologies. Why? Part of thereason is that where strong protectionsare lacking, creditors offer only leasing,not loans. So in economies with weakcreditor protections, most planes areleased, and airline owners have less incentiveto upgrade their safety features.New evidence suggests that establishingstrong legal rights and new creditregistries may also reduce income inequality.6 One possible explanation isthat these changes allow more entrepreneursto expand their business. Borrowingmoney from the bank becomes moreabout their creditworthiness—and lessabout whom they know.Who reformed in 2007/08?Cambodia’s new secured transactions lawmade it the top reformer in getting creditin 2007/08. Albania was the runner-upreformer. It created a new public creditregistry with full information on loans ofall sizes, for individuals and for firms.Before the new law took effect inCambodia, business owners could useonly immovable property as collateral.With little land under private ownership,getting a loan was an unreachabledream for most small to medium-sizebusinesses. The new law changed that.Cambodian entrepreneurs can now use abroad range of movable assets to securea loan. That includes revolving assetssuch as inventory and accounts receivable.A general description of collateralsuffices in loan agreements, permittingsuch wording as “all assets” or “all movableproperty” of the borrower. Thanksto these and other provisions of the law,Cambodia’s score on the strength of legalrights index shot up from 0 to 9.Three other economies in East Asiaand Pacific—Vanuatu, China and Taiwan(China)—also made it easier forbusinesses to use movable property asTable 6.2More credit information, more access—popular reform features in 2007/08Provided online access to credit registryExpanded set of information collected incredit registryIntroduced regulations guaranteeingthat borrowers can inspect data in credit registryEstablished new credit registry or bureauExpanded range of revolving movable assetsthat can be used as collateralAllowed out-of-court enforcement of collateralAllowed maximum rather than specific amountsin debt agreementsGave priority to secured creditors’ claimsoutside and inside bankruptcy proceduresExempted secured creditors’ claims froman automatic stay in reorganizationCreated a unified registry for movable propertySource: Doing Business database.Cameroon, Central African Republic, Chad, Republicof Congo, Equatorial Guinea, Gabon, Sri Lanka,West Bank and GazaAzerbaijan, Belarus, Georgia, Kazakhstan, Mauritius,Sri Lanka, Tunisia, VietnamBelarus, Egypt, Georgia, Indonesia, former YugoslavRepublic of Macedonia, Morocco, TunisiaAlbania, Liberia, Montenegro, Ukraine, United ArabEmirates, UzbekistanCambodia, China, Guatemala, VanuatuGeorgia, Guatemala, VanuatuCambodia, Taiwan (China)Cambodia, VanuatuCambodia, Sri LankaCambodiacollateral. Vanuatu passed a new securedtransactions law, the Personal PropertySecurities Act. China revised its propertylaw to allow borrowers to use a varietyof revolving assets and a combined setof assets (such as raw material, productionequipment and finished goods) ascollateral. The new law is expected toput into circulation more than $2 trillionworth of movable assets. 7 Taiwan (China)amended its civil code to allow partiesto a pledge agreement to set the loanamount as a maximum line of credit.In South Asia, Sri Lanka exemptedsecured creditors from automatic suspensionof enforcement procedures incourt during bankruptcy.Georgia amended its civil code inJune 2007 to allow parties to agree thatcollateral can be sold without court intervention.Guatemala passed a law inOctober 2007 establishing a special regimefor registering security interestsin movable property. The law went intoeffect in January 2008.Twenty-seven economies reformedtheir credit information systems in2007/08, improving the quality and scopeof information collected and distributedby credit registries and bureaus (table6.2). Uzbekistan created both a publiccredit registry and a private credit bureau.Albania, Liberia and Montenegrolaunched new public credit registries—and in Montenegro the coverage of borrowerswent from 0 to 26% of the adultpopulation. Ukraine and the United ArabEmirates each set up a private credit bureau.Zambia is doing so.Six more economies in Eastern Europeand Central Asia introduced creditinformation reforms, bringing the totalto 10, the most of any region. Georgianow distributes a full range of information,including on-time repaymentpatterns and outstanding loan amounts.Coverage has increased 20 times. Kazakhstan’sprivate credit bureau is addingnew suppliers of information at a rate of2 a month. Prominent among them arenonbank institutions such as retailersand utility companies. Coverage has shotup by 80%. Moldova passed a new law to(c) The International Bank for Reconstruction and Development / The World Bank
(19 economies)Note: A reform is counted as 1 reform per reforming economy per year.Source: Doing Business database.FIGURE 6.3Private credit bureaus provide more comprehensive services to lenders% of private% of publiccredit bureauscredit registriesService provided0255075Lists both individuals and firmsDistributes both positiveand negative informationDistributes data on all loansbelow 1% of income per capitaGuarantees that borrowerscan inspect dataDistributes more than2 years of historical dataDistributes data from retailers,trade creditors or utilitiesSource: Doing Business database.100facilitate the creation of a private creditbureau. Azerbaijan, Belarus and the formerYugoslav Republic of Macedoniaalso reformed.The most popular credit informationreform feature was providing onlineaccess to members. The regional publiccredit registry of the Central AfricanMonetary Union made information accessibleto banks online. That led toexponential growth in coverage in Cameroon,Chad, the Republic of Congo andGabon. Sri Lanka’s credit bureau andWest Bank and Gaza’s public credit registryset up systems allowing banks toupdate information and obtain creditreports online.Many economies issued regulationsTable 6.3Who has the most credit information and the most legal rights for borrowers andlenders—and who the least?Legal rights for borrowers and lenders (strength of legal rights index, 0–10)MostLeastHong Kong, China 10 Burundi 2Kenya 10 Madagascar 2Malaysia 10 Rwanda 2Singapore 10 Afghanistan 1Australia 9 Bolivia 1Bahamas, The 9 Djibouti 1Cambodia 9 Syria 1Denmark 9 Timor-Leste 1New Zealand 9 Palau 0United Kingdom 9 West Bank and Gaza 0Borrowers covered by credit registries (% of adults)MostLeastArgentina 100 Nepal 0.24Australia 100 Algeria 0.20Canada 100 Djibouti 0.18Iceland 100 Mauritania 0.17Ireland 100 Ethiopia 0.13New Zealand 100 Madagascar 0.07Norway 100 Yemen 0.07Sweden 100 Nigeria 0.06United Kingdom 100 Zambia 0.05United States 100 Guinea 0.02Note: The rankings on borrower coverage reflected in the table include only economies with public or private credit registries (129 in total).Another 52 economies have no credit registry and therefore no coverage. See Data notes for details.Source: Doing Business database.FIGURE 6.2GETTING CREDIT 31Rankings on getting credit are basedguaranteeing on 2 subindicators borrowers access to theircredit information. Egypt issued suchRegulations onregulations nonpossessory for the private credit 62.5% bureau.33% 33%Georgia security interests amended its civil Strength code of with legalthein movablerights index (0–10)same property purpose. In the former YugoslavRepublic of Macedonia a 37.5% new law on33%Depth of creditpersonal data protection guarantees thatinformation indexborrowers can review their (0–6) data in thenew public credit registry. In BelarusScope, quality and accessibilityand of credit Tunisia information new laws through allow public individualsand firms private to credit inspect registries their credit data inall central bank offices. Morocco publisheddo not count new for the circulars rankings. See guaranteeing Data notes for details. thatNote: Private bureau coverage and public registry coverageborrowers can review their data in creditregistries—and laying the groundworkfor new private bureaus.Other economies eliminated theminimum threshold for loans recordedin credit registries. Sri Lanka’s privatebureau started using a new online systemto collect data on all loans, regardlessof value. Coverage grew threefold, toaround 1.3 million individuals and firms.Azerbaijan saw coverage more than doubleafter eliminating its minimum loancutoff of $1,100. So did Belarus, afterabolishing its $10,000 cutoff. Mauritiustoo eliminated its cutoff, of $3,000.Tunisia now collects and distributesmore detailed information—bothpositive and negative—on borrowers.Sri Lanka extended the length of timeinformation is recorded from 1 year to2—and distributes positive informationfor 5 years. Indonesia now distributes 2years of historical information. Vietnamextended the period that data are distributedfrom 2 years to 5. That helps explainits 49% increase in coverage, to morethan 8 million individuals and firms.Finland passed a new credit informationlaw that regulates the use of corporatecredit data.Two economies saw developmentsthat reduced the efficacy of their creditinformation systems. Indonesia’s privatecredit bureau closed, unable to competewith the public registry (figure 6.3). AndBurundi was forced to double the minimumcutoff for loans registered in thedatabase to around $900, to cope withtechnical limitations and a sudden increasein loan transactions.(c) The International Bank for Reconstruction and Development / The World Bank