Based on the results of World Bank Enterprise Survey Data, access to finance is the most significant barrier for the expansion of their operations of firms in developing countries, like the Philippines. This is also noted among 17 percent of firms across the regions. In Sub-Saharan Africa, access to finance is the top obstacle of close to a quarter of firms.
Asymmetric information occurs when there is disparity of borrower information among the other financial institutions. This can lead to adverse selection, moral hazard, and credit rationing. Adverse selection is when the borrowers are more willing to seek out loans. Moral hazard is when the borrower has not followed the contract of the lender in good faith. Credit rationing occurs when the borrowers who are more willing to pay at a higher interest are not able to get the loan.
Credit information schemes through the private credit bureau (CB) or publicly regulated credit registry (CR) can help both lenders and borrowers overcome asymmetric information. This scheme can link the information gap through the frequent circulation of payment history, total debt exposure and overall credit worthiness. In the Philippines, credit information is shared through the Credit Management Association of the Philippines, Inc. (CMAP), Credit Information Corporation (CIC), and Bankers Association of the Philippines (BAP).
Based on the multi-year firm-level surveys (2022-2013) conducted by Singh, Peria, and Soledad among 63 countries covering more than seventy five thousand firms. There is a more pronounced effect of credit information sharing reform in CB compared to CR. It showed that if there is greater coverage of the scope and accessibility, the weaker the contractual environment. This result is also true even in smaller, less experienced CB firms.
Reference: Worldbank blogs
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