This topic covers two aspects of access to finance—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 May 2020. See the methodology for more information. Video presentations of the legal rights methodology and the credit information methodology are also available.
Doing Business measures the legal rights of borrowers and lenders with respect to secured transactions through one set of indicators and the reporting of credit information through another. The first measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. The second measures the coverage, scope and accessibility of credit information available through credit reporting service providers such as credit bureaus or credit registries (figure 1). The ranking of economies on the ease of getting credit is determined by sorting their scores for getting credit. These scores range from 0 to 20 and represent the sum of the scores for the strength of legal rights index (0–12) and the depth of credit information index (0–8).
Legal Rights of borrowers and lenders
The data on the legal rights of borrowers and lenders are gathered through a questionnaire administered to financial lawyers and verified through analysis of laws and regulations as well as public sources of information on collateral and bankruptcy laws. Questionnaire responses are verified through several rounds of follow-up communication with respondents and by consulting third parties and public sources.
The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. For each economy it is first determined whether a unitary secured transactions system exists. Then two case scenarios, case A and case B, are used to determine how a nonpossessory security interest is created, publicized and enforced according to the law. Special emphasis is given to how the collateral registry operates (if registration of security interests is possible). The case scenarios involve a secured borrower, company ABC, and a secured lender, BizBank.
The data on the reporting of credit information are built in two stages. First, banking supervision authorities and public information sources are consulted to confirm the presence of a credit reporting service provider, such as a credit bureau or credit registry. Second, where applicable, a detailed questionnaire is administered to the relevant credit reporting service provider. The questionnaire covers the credit data structure and sources, associated rules, methods of distributing credit information and applicable legislation. The responses are verified through several rounds of follow-up with respondents at the credit reporting service provider as well as by consulting public sources and reviewing sample credit reports (when available).
Depth of credit information index
The depth of credit information index measures scope, sources and accessibility of credit information available through either a credit bureau or a credit registry.