credit_card Getting Credit

This topic explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending. The most recent round of data collection for the project was completed in June 2016. See the methodology for more information.

What is Measured?

Doing Business measures 2 types of institutions and systems that can facilitate access to finance and improve its allocation:

1. Legal rights of borrowers and lenders in secured transactions and bankruptcy laws 
2. Coverage, scope and quality of credit information available through credit registries and bureaus

These institutions and systems work best together. Information is one tool to help creditors assess the creditworthiness of borrowers, while legal rights can promote the use of collateral and facilitate the enforcement of claims in the event of default.

The 2 types of frameworks are assessed by 2 indices. The first index analyzes the legal framework for secured transactions by examining whether collateral and bankruptcy laws facilitate lending (figure 1). The index captures issues such as: does the law allow companies to use future assets (e.g. crops) as collateral? Does the collateral need to be described in detail in the loan agreement, or is a general description allowed? Do secured creditors have priority rights to the collateral in a bankruptcy procedure?

Figure 1 - Do lenders have credit information on entrepreneurs seeking credit? Is the law favorable to borrowers and lenders using movable assets as collateral?

The second index examines the coverage, scope and quality of credit information available through credit registries and bureaus. The index captures issues such as: are data on both firms and individuals distributed in credit reports? Do retailers or utility companies—in addition to financial institutions—provide credit information to credit registries and bureaus? Does the law give borrowers the right to access their data?

Rankings on the ease of getting credit are based on the sum of the strength of legal rights index and the depth of credit information index.

Read the methodology