Credit Information System in Albania

Abstract

The booming lending period and many lenders (16 banks and 21 non-bank financial Institutions in Albania) brought about unprecedented competition in credit markets within Albania. Economists usually view lending and competition favorably, but in Albania resulted in a number of unforeseen non-performing loans. Findings report increased problems of borrower over-indebtedness, reduced loan repayment incentives, and growing debts for lenders. The weakening performance of lenders is due in part to the absence of information sharing in these markets. Because growing numbers of lenders (banks and non-bank financial Institutions in Albania) increase the level of asymmetric information between lenders, credit information systems (often called credit reporting bureaus or credit bureaus) can play a crucial role towards improving credit market performance and, in turn, credit access for the poor. Increases in formal sector lending among the poor have created a need for credit information systems that provide potential lenders with borrower information. Improved screening affects from the system causes the level of non-performing loans to decline. In this paper we will present effects of a credit information system to be implemented in Albania. The weakening performance of lenders is due in part to the absence of information sharing in these markets. Because growing numbers of lenders (banks and non-bank financial Institutions in Albania) increase the level of asymmetric information between lenders, CISs can play a crucial role towards improving credit market performance and, in turn, credit access for the poor.