> Posted by John Hartman, President, International, Equifax
This post is part of Financial Inclusion Week, a week of global conversation on advancing financial inclusion. This year’s theme is keeping clients first in a digital world. Throughout the week participants will share their thoughts in events and webinars, on social media, and through blog posts. Add your voice to the conversation using #FinclusionWeek.
Easy access to credit is something most of us take for granted. Getting the green light from the bank may depend on how you pay your day-to-day bills and your repayment history on any previous loans. A good credit history can create financial opportunity and is an important part of economic mobility.
Credit histories, however, are nowhere to be found or are extremely limited in a number of countries around the world, such as the rural regions of El Salvador, Paraguay, and even India. Farmers living in these regions have always operated outside the global financial system. It may not surprise the readers of this blog to learn that over 40 percent of the Indian population is unbanked, which means roughly 500 million people do not have access to financial services. In Latin America, the World Bank says this figure is even greater, with 61 percent of the population lacking access to formal financial services.
Even in the United States, one-third of the population, some 106 million people, are unbanked or underbanked according to the U.S. Federal Deposit Insurance Corporation. And in Canada, although almost everyone over the age of 15 has a bank account, only 27 percent have received a loan from a financial institution, according to the World Bank, while borrowing from informal sources has risen over time.
Equifax has made progress in India where credit reporting is still a relatively new concept, having been established in the country just 10 years ago. Microfinance plays a vital role for entrepreneurs and others, especially in these markets that lack access to traditional banking services and loans because of limited or non-existent credit histories. As microfinance is very core to the Indian economy, Equifax developed a microfinance bureau which provides reporting to capture the debt servicing history for microfinance consumers that plan to continue securing loans in this way, and that plan to pursue loans through more traditional channels. This type of information allows microfinance institutions and traditional banks to make more informed credit decisions about these consumers. Ultimately, this results in a more stable and accessible lending environment, which helps to support increased economic stability and wellbeing.
Given the various types of economies our sector works with around the world, Equifax must be flexible. In fact, at times we need to be creative with the type of data we use to complement traditional credit models. This helps make credit more accessible and aids financial inclusion efforts. And this need of incorporating alternative data is not limited to emerging markets. The Canadian economic system, for example, and other advanced economies around the world have demonstrated a need to expand credit history accessibility to all consumers in their credit systems.
This is where the innovation in our credit reporting industry comes to the forefront. To respond to the needs of particular marketplaces, we must create customized solutions. At Equifax, we have found ways to use alternative data to support financial inclusion efforts. In Latin America, we are beginning to assess creditworthiness, propensity to repay, and credit risk based on mobile phone usage data (which is provided with consumer consent). This is groundbreaking for that marketplace, particularly as the mobile penetration rate reached 126 percent in 2015, a new record high according to the research company Statista.
All of us in the consumer credit information sector recognize that the data entrusted to us comes with a responsibility – to our customers, to consumers, and to our societies. Revolutionizing the consumer credit information industry is about more than enhancing our offerings to our customers. It also is about supporting financial consumers in their ongoing quest for economic stability and success. And, more broadly, better consumer credit data helps governments accurately assess and safeguard the financial health of a marketplace.
We are proud of the contributions that our industry makes to financial stability, economic growth, and financial inclusion – helping people achieve their goals. And we take seriously our responsibility for protecting and managing this data according to the highest standards.
Image credit: Accion
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