A Credit Bureau for Rwanda

Ok, I know I may be taxing some of you with my "importance of institutions" theme but I continue it here and, hopefully, will have your forbearance.

More specifically, I'll continue with the "law matters" theme. Strong contract rules, broadly inclusive property rights, rules against fraud, all of these are important to promote trade between willing partners. Ease of trade depends on other legal rules and institutions as well -- for example, when people are able to use their moveable property as collateral for loans this gives them another way to securitize credit which, in turn, increases the chance that lenders will supply them with the money they need to do business or meet emergency expenses.

Another legal tool that facilitates trade is the credit bureau. Credit bureaus are one of those institutions that people in the developed world take for granted. We are so used to having the benefits of these companies that we probably can't imagine what life would be like without them. Buying cars, appliances, large pieces of furniture, etc. would all be much more burdensome if vendors didn't have some way to check our credit histories quickly, easily, and cheaply.

So, I was excited to learn that Rwanda is going to get a credit bureau this year. As this news suggests, millions of people living in the developing world do not have access to credit bureaus, or have access to poorly functioning bureaus. The IFC and the World Bank have been supporting credit bureau creation for the past several years.

This change is potentially very good news for Rwandans: consumers will be able to build credit histories (though it remains to be seen if Rwanda is a large enough and wealthy enough market to support one or more private credit agencies). With a credit history on file with a dependable company, more Rwandan consumers will be able to buy the things they want without using so much collateral. Borrowing should become easier for poorer Rwandans who have less property to use as collateral (they can establish a credit history with the gas company and use that as evidence that they're a good credit risk). Vendors also benefit; they'll be able to sort good credit risks from poor ones.

Better enforcement of contract rules together with changes that permit some credit information sharing and that clarify lender/credit rights should help this new addition to the financial landscape make a positive difference in people's lives.

- Karol