I’ve just come out of a client meeting to be met with dark clouds and monsoon rains that started just 15 min before our meeting finished. My colleague, an adventurous soul not given to bouts of nervousness, is clearly worried by the blinding flashes of lightning. Storms are a genteel affair where he hails from, but here the weather lives.

Today I learned that a major international bank operating in Indonesia does not accept loan applications from people that do not already have a credit card with another institution and a clean record in the Bank of Indonesia credit bureau.

Let that sink in …

Essentially the bank is saying “I’m not confident in my ability to manage risk in this market so I’m going to outsource my underwriting to my competitors”. And it’s using the bureau to secure that it does not make the same mistakes. If every bank were to act in the same way, how does anyone get a loan in the first place? As a result there is a lot of competition to lend to a fraction of the Indonesian market, and a large group of people disconnected from the global financial system.

The solution to this problem is to build the data infrastructure needed to support the financial system. That is usually a credit bureau. There are three projects that I am aware of to build a private bureau in Indonesia but the behavior of the banks will make it hard to gain coverage.

It’s not just the emerging markets that suffer from this issue. Banks in developed markets are also unwilling to lend to people that lack a bureau profile, so the role of building the profiles is covered by telco operators that generally have more permissive underwriting practices for their mobile phone contracts, which are a form of credit. But in this part of the world 98% of the population uses a prepaid phone, so who will feed the bureau fresh profiles?

The only way to square this circle is to find new sources of information …

By Craig Shaw, DemystData Chief Scientist

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