Egypt: Strenghtening Credit Registry System

FIRST implemented two interrelated projects to strengthen credit reporting systems in Egypt. The first project was to assist in developing a strategy for widening both the content of the Central Bank’s credit registry and the eventual access to it by non-bank users of credit.  The second project was to assist with implementation of the strategy (the Board of the Central Bank having fully endorsed the strategy proposed in the initial project) and to facilitate sharing data with a proposed first private credit bureau supported by USAID.

The Central Bank of Egypt, which supervised the Egyptian banking system, had operated a public credit registry (PCR) since 1957.  In broad terms the PCR covered about 63 borrowers per 1,000 people and was used by the Egyptian public and private banks, although to what extent it was relied on was not clear. 

The PCR dealt with credit facilities over and above US$6,000 (EGP 40,000) provided by the banking sector.  One of several already-identified problems was that combined exposures above the threshold amount were not reported – borrowers might have multiple loans at different institutions and yet remained unreported on the PCR.  In addition, the threshold of US$6,000 meant that it was of limited use for applications such as consumer or small business loans.  Non-bank institutions had no access to the PCR. The system was automated and running live through the CBE network. 

The purpose of the project was to develop a strategy for the Central Bank of Egypt (CBE) to expand its public credit registry (PCR) in three ways:

• Allowing it to deal with lower transaction thresholds so that data could be captured for millions rather than mere hundreds and thousands of borrowers
• Improving the variety and usefulness of information reported by PCR, such as the inclusion of data on demographics and positive credit behavior to balance the reporting on negative credit histories;
• Eventually making information available within the PCR to non-bank financial institutions and to any new private credit bureaus that were licensed, pending amendments to the Bank secrecy laws (since amended).

The strategy recommendations of the project were adopted by the Board of Directors of the CBE and this led to FIRST funding a follow-up project to strengthen Egypt’s credit reporting system, which began in July 2005.

USAID approved a project to provide technical assistance for the establishment of a private credit bureau targeting non-bank financial institutions: sub-components of this were regulatory work and awareness campaigns. The likely time frame to have such a bureau up and running was about two years.

FIRST’s follow on project dovetailed neatly with the USAID project. The CBE’s Public Registry was able to start co-operation and information sharing with the embryonic new credit bureau. Initially, eventually both bureaux continued to co-operate but with focus on their separate segments of the financial sector. An eventual merger of the two, as part of the privatization process of the CBE’s public registry, has not been ruled out. 

Lessons learned

• Well-designed strategies for projects requested directly by recipients are likely to gain acceptance and lead to a follow-on project.
• The impact of FIRST’s technical assistance is often enhanced in well-designed follow on projects because momentum and good working relations with the recipient can be built upon. This is especially relevant where the initial project is policy and or strategy oriented and the follow-on work is implementation oriented.
• It is possible to develop a strategy to convert a public registry into a full-blown credit information system and use it to foster the development of private sector credit bureau; in many cases this can be the most pragmatic and cost efficient way to proceed since it enables existing data from the public registry to be utilized effectively in the private arena without the private bureau having to start from scratch.
• Coordination and communication between donors- in this case FIRST and USAID- facilitated efficient delivery of technical assistance in related sectors.

Reports:

• Final Report of the Phase II project