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JOBS FOR SHARED PROSPERITY
TABLE 7.1 Credit registry infrastructure in MENA Public registry only
Private credit registries
Algeria Djibouti Jordan Lebanon Oman Qatar Syrian Arab Republic Tunisia West Bank and Gaza Yemen, Rep.
Bahrain Egypt, Arab Rep. Iran, Islamic Rep. Kuwait Morocco Saudi Arabia United Arab Emirates
Source: World Bank. Note: MENA = Middle East and North Africa.
An overhaul of the current collateral regimes would increase protection of creditor rights. This measure is crucial to increasing lenders’ willingness to extend credit to the less established and smaller borrowers. Ideally, legislation would deal with all aspects of secured lending. Such legislation would facilitate broader types of credit transactions by allowing generic descriptions of assets listed as collateral, provide flexibility for secured creditors to enforce their agreements extrajudicially, and establish a clear priority scheme for secured lenders. Registries of movable collateral (such as inventory, crops, and equipment) should also be modernized and include a single electronic database that is searchable and accessible to the public. Predictability of enforcement is a pivotal precondition for lender confidence. Increase bank competition Reforms in reporting credit information and creditors’ legal rights will improve financial infrastructure and likely lead to increased competition because of a more secure lending environment for creditors. In addition, there is a need for greater supervision of competition in the banking system: an authority tasked with monitoring bank competition could both discourage anticompetitive behavior and reward good practices. When implementing licensing criteria, bank regulators should also consider sound competition to reduce the obstacles that prevent reputable banks from entering the market. Greater competition among banks will cause
prices to fall and make services more accessible to consumers, and lenders will be more likely to penetrate new markets and extend services to underserved communities. Develop nonbank financial institutions Finally, developing nonbank fi nancial institutions will help increase access to financial services and expand the range of services provided. Improvements in insurance services, which are essential for risk management, would directly contribute to development by reducing risks of large business losses and encouraging investment. Expanding contributions of private sector pension funds to capital market development could also contribute to long-term growth. Reverse factoring could be considered as a means of providing smaller enterprises with alternative sources of financing, particularly in areas with limited credit information. These enterprises can then rely on the financial standing of their customers and receive financing at a lower cost (World Bank 2011). By developing a market for small loans, microfinance could make an important contribution to increasing financial access in MENA. According to a recent study testing the impact of microfi nance in rural areas of Morocco, the introduction of microcredit in highly credit-constrained environments significantly increased access to fi nancial markets, quadrupling the borrowing power of households (Crépon et al. 2011). However, a fi nancial infrastructure that ensures sharing of credit information on small loans will be necessary for the continued success of this market. Without a mutual exchange of information on borrowers, lenders will not be aware of a borrower’s existing lines of credit with other institutions and cannot accurately assess the borrower’s creditworthiness or likelihood of default (World Bank 2011). Efforts to expand women’s access to credit are also warranted (see box 7.4).
Facilitating innovation for high-productivity employment Technological progress is the source of longterm growth, and innovation in its various