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Economic SYNOPSES
short essays and reports on the economic issues of the day
2007 ■ Number 4

Access to Credit
Luke Shimek and Rajdeep Sengupta
his year’s Nobel Peace Prize winner, economist, and
which credit information covers the population is measured
founder of the Grameen Bank, Muhammad Yunus, argues
separately for public credit registries (column 4) and for private
that credit is vital for relieving poverty. Credit allows
credit bureaus (column 5). Even an efficient and reliable credit
households to borrow against future income and firms to invest,
information system is of little use if it covers only 10 percent of
for instance, in machinery and equipment. However, a large part
the population. Notice that while public registries cover little of
of the world lives in poverty, lacking access to credit. Some,
the top five countries, private credit bureaus cover most or all of
including Yunus, maintain that a country’s institutions directly
the country. For a given country, the Getting Credit rank (colaffect the availability of credit.1 How strongly does the availability
umn 1) reflects the simple average of the percentile rankings of
the four variables in columns 2 through 5.
of credit correlate with the institutional framework in which
In column 7, private credit-to-GDP ratios are at least three
lenders and borrowers operate?
times as high for the countries with the highest credit rankings,
The World Bank’s Doing Business project quantifies business
compared with those with the lowest credit rankings. However,
regulations and their enforcement for 175 countries; it uses indices
a high correlation between higher rankings and a greater supply
for ten categories of characteristics that facilitate entrepreneurship
of credit does not, by itself, prove causation. For example, counand ranks countries by their performance.2 One of these categories,
tries where credit is more readily available might be more likely
Getting Credit, measures the ease with which a country’s instito create credit-facilitating institutions. Or a third factor, such as
tutions facilitate lending to entrepreneurs.
GDP per capita (column 6), could cause both. Still, recent research
Economic theory implies that lenders make more loans if
argues that legal and informational characteristics that facilitate
they have good information about borrowers and effective legal
loan contracting encourage the availability of credit,3 which is
recourse to protect their interests in case of defaults. The “legal
rights index” measures the ability of lenders to protect their
important for economic development. ■
interests, granting a point for each attribute in a country’s legal
1 http://nobelprize.org/nobel_prizes/peace/laureates/2006/yunus-lecture-en.html.
system that facilitates the writing and enforcement of credit con2 For details on each category and the methodology used to rank countries, visit
tracts. These attributes include the legal granting of security in a
www.doingbusiness.org.
property, the priority of
secured creditors in a bankruptcy filing, and the use of
Getting Credit
the contract to seize and sell
Public
Private
Private
collateral without judicial
Legal
Credit
registry
bureau
GDP
credit/
intervention.
rights
information coverage
coverage
per captia
GDP
Country
Rank
index
index
(% adults)
(% adults)
($ PPP)
ratio
Similarly, the database compiles a second set of measures
(1)
(2)
(3)
(4)
(5)
(6)
(7)
on the availability of informaTop 5
United Kingdom
1
10
6
0
86.1
30,436
1.63
tion on the creditworthiness
Hong Kong, China
2
10
5
0
64.5
33,479
1.46
of borrowers in each country
New Zealand
3
9
5
0
100
24,797
1.35
(columns 3 through 5). The
Australia
3
9
5
0
100
30,897
1.08
Germany
3
8
6
0.5
93.9
30,579
1.12
“credit information index”
Bottom 5
(column 3, 0 to 6 scale) measRwanda
159
1
2
0.2
0
1,380
0.01
ures, e.g., whether information
Egypt
159
1
2
1.5
0
4,317
0.32
Burundi
159
2
1
0.1
0
739
0.19
is based on at least two years of
Lao PDR
173
2
0
0
0
2,118
0.00
history and whether it is made
Cambodia
174
0
0
0
0
2,399
0.09
available from retailers and
SOURCE: doingbusiness.org (World Bank), International Financial Statistics, and IMF World Economic Outlook Database 2005.
utilities in addition to financial
institutions. The extent to

T

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