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SME Seminar Singapore March 2005 Final - Text

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        SME Credit Bureau Conference



      Achieving Business Growth with
           Credit Transparency


            Presented by Joachim C. Bartels, CEO
                Intrepid Explorers, Inc.
               On Behalf of Infocredit D&B
                 Singapore March 2005
IEI
                   Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                            2



 Achieving Growth with Credit Transparency

      • Importance of SMEs and the Problem
        of Obtaining Credit

      • Relevance of Credit Bureaus in Regard
        to SMEs

      • Benefits of Credit Bureaus for SMEs


IEI
                    Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                                           3


      Importance of SMEs                                                                     = Strong Economic Association
                                       50,000
  GDP Per Capital 1990 – 2000 in US$


                                       45,000
                                                                                                                                 Japan
                                       40,000


                                       35,000
                                                                                                      United States
                                       30,000                              Singapore                                                  Germany
                                                                                                                           France
                                       25,000                                                       Canada
                                                                                                                           Hong Kong
                                       20,000                                        Australia
                                                                                                                     UK                 Italy
                                       15,000                                             New Zealand                                  Spain
                                       10,000                                                                Taiwan

                                                                                                    Brazil           Philippines                Thailand
                                        5,000
                                                                                     Mexico
                                             0       10        20         30         40        50         60          70         80
                                                                                                                                           Indonesia
                                                                                                                                           90        100



                                                 0% 10%             20%        30%    40%           50%        60%         70%    80% 90% 100%

                                                  SME Share of Employment in % of Total Employment
IEI                                                                              (SMEs < 250 Employees)
                                                                   Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                        World Bank Report on SME Environment 2002
                                                                                                                                                             4


      Importance of SMEs                                                               = US-SBA Definition
                                       50,000
  GDP Per Capital 1990 – 2000 in US$


                                       45,000


                                       40,000
                                                  • 22.9 Million Small Businesses (2002)
                                       35,000
                                                                                                                                                   United States
                                       30,000     • SMEs Represent 99.7% of Total
                                       25,000
                                                    Employment
                                       20,000


                                       15,000     • Account for 39.1% of Jobs in the
                                       10,000       High Tech Sector
                                        5,000


                                           0       10     20         30         40        50         60         70         80      90        100



                                                0% 10%         20%        30%    40%           50%        60%        70%    80% 90% 100%

                                                United States Small Business Administration Definition
IEI
                                                                     Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                 5


      SMEs and the Problem of Obtaining Credit
                                                                                49%

      • “The Difficulty of Obtaining
       Credit is Consistently Rated                                                                     28%

       by SMEs as one of the
       Greatest Barriers to
       Operation and Growth”

       World Bank 2003 Study on Credit Reporting                          High Financing             Probability of
       Estimates Based on Data on 5000 Firms in 51 Countries              Constraints                Obtaining a
                                                                                                     Loan


IEI
              Source: World Bank         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                            6


      Relevance of Credit Bureaus
       % of Firms Reporting                                          Probability of Obtaining
       High Financing Constraints                                    a Bank Loan

           49%                                                                                      40%


                                                                           28%
                                27%




         Without             With                                       Without             With
IEI            Credit Bureau                                                  Credit Bureau

           Source: World Bank       Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                            7


      SME Characteristics in Regard to Credit

        • Very Diverse in Nature

        • Owners Mingle Business and Personal Finances

        • Difficult to Identify Clear Success Factors

        • Independent Analysis (Ratings) Not Available

        • High Cost of Traditional Risk Assessment
          Methods Make Lending to SMEs too Costly

        • SMEs are More Vulnerable to Credit Losses

IEI     World Bank Report on SME Environment 2002
                                    Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                  8


      SMEs and Credit



      Bank and Supplier                                             SME Customers
      Credit Policy and                                             Demand for Liberal
      Credit Processes                                              Credit Terms




                               Cash Flow?
IEI
                          Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                     9


      The SME and Credit Bureaus


                                       Credit
       • SME as a                      Bureau                          • SME as a Credit
         Borrower                                                        Grantor

       • Objective Credit Process                           • Access to Accurate, Reliable
       • Better Access to Credit                              and Timely Information
       • Lower Cost of Borrowing                            • Availability of Decision
                                                              Support
       • Faster Decision Process
                                                            • Accurate Loss and Fraud
                                                              Prevention

IEI
                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                              10



 Achieving Growth with Credit Transparency
      • Importance of SMEs and the Problem of
        Obtaining Credit

      • Relevance of Credit Bureaus
         • The Interaction of Credit, Credit
           Information and Credit Management




IEI
                      Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                       11


      Relevance of Credit and Credit Bureaus
                                        Credit                                 Credit
               Credit
                                     Information                             Management

         • Strong Positive Linkages between Financial
           Sector and Economic Growth*
         • A Well-functioning Financial Sector
           Provides Individuals, SMEs and Companies
           with Access to Credit
         • Strong Linkage between Greater Access to
           Credit / Higher Bank Borrowings and
           Existence of Credit Bureaus*
IEI
        * Source: World Bank
                               Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                 12


      Relevance of Credit Bureaus
                                Credit                                    Credit
          Credit
                             Information                                Management


       “One of the Most Institutional Elements Supporting a
       Well-functioning Credit Market are Credit Reporting
       Firms, which Provide Rapid Access to Accurate and
       Reliable Standardized Information on Potential
       Borrowers, Be they Individuals or Businesses”

                      World Bank Research – Credit Reporting Systems


IEI
                         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                               13


      The Relevance of Credit Management
                                Credit                                 Credit
          Credit
                             Information                             Management

          • Trade Credit: Largest Source for Short
            Term Capital
          • Accounts Receivables are often the
            Largest Uninsured Asset of a Company


          • Competent Credit Management is Essential
            for the Survival of a Company
IEI
                       Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                   14


Cost of Credit
      • A $ 750 Million Company Example
      • Cost of Credit: $ 7.5 Million [Average] = 1% of Sales


            100%
             90%                                                              Cost of
                                                                              Collection
             80%
             70%                                                              Excess DS0
             60%
             50%                                                              Bad Debt
             40%
             30%                                                              Credit Mgmt
             20%
             10%                                                              Information
              0%
IEI
                           Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                      15


      Modern Credit Management Systems
                                     Data Feed                                                    Credit
                                                                                                  Bureau
                                    Performance
                                     Standards
                                    Credit Policy
                                                                   Search

               Feedback
                                                                       Prospecting

                                         Customer
           Recovery                      Database
                                                                                     Analysis
                                 Generic and
                                  Customized                                         Approval
            Workout
                               Decision Processes

                                                                  Portfolio
                      Alert                                      Management


IEI                                  Monitoring
                              Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                     16


      Modern Credit Management Practices
      • Credit Policies              Firm Credit Policies in Place Binding
                                     all Employees Dealing with Clients

      • Credit Information           Use of External Information Important

      • Credit Limits                Established for all Accounts

      • Work-out                     Rigorous Work-out Regime:
                                       • Daily Statements
                                       • Debt Collection after Third Statement

      • Past-due Balances            Interest Charged on Past-due Balances
                                       • Strict Enforcement Involving Sales

      • Debt Collection &            Outsourced
        Recovery
IEI
                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                   17


      Modern Credit Management Practices
  • Insufficient Information       No Credit Score                     Cash Prior Delivery

  • Significant Negative           High Risk Score                     No Further Deliveries
    Information                                                        until Open Balances are
                                                                       Paid

  • Slow Payment Pattern           Moderate Score                      Set Credit Limit Place
                                                                       Client on ‘Watch-list’ –
                                                                       Constant Monitoring

  • Good Credit Behavior           Good Risk Score                     Maintain Business
                                                                       Relationship

  • High Potential Customer        Excellent Risk                      Increase Business
                                   Score                               Relationship

IEI
                           Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                              18



 Achieving Growth with Credit Transparency
      • Importance of SMEs and the Problem of
        Obtaining Credit

      • Relevance of Credit Bureaus
         • Importance, Origins and Current
           Development
         • Traditional Credit Information
         • Credit Bureau Concepts and Issues



IEI
                      Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                    19


      Commercialization of Credit Information



                     • Credit Ledgers

               • Investigation




  • Most Famous                           • Astute Use of Technology
    Investigators

                       Worldwide Acceptance of
                      Credit Information by 1900
IEI
                            Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                      20


      Regulation Spawns Rating Agencies


                                                                  §§§

                                                                  Disclosure
                    • Credit Ledgers                              §§§


            • Investigation
                                                                         Credit
                                                                         Ratings
  • Most Famous
    Investigators


IEI
                              Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                    21


      From Paper to Digital Information



                     • Credit Ledgers

               • Investigation
                                                                                • Credit Scoring

                                                                                    The Internet
  • Most Famous                              • Credit Rating
    Investigators
                                                               1970’s - 2005
                                                            From Paper to Digital
                                                                Information
IEI
                            Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                       22


      Traditional Credit Information Business

      Public Sector                                                             Private Sector
      Business      Court          News              Trade                          Company News
      Registers     System         Media             Directories                    & Information

         Compulsory             Private Sector Publications                           Voluntary

                               Press              Product                   Financial
                               Clippings          Information               Statements
                                                                                              Trade
       Register   Financial                                                                   Information
       Data       Statements
                                                            Investigation
              Suits, Liens
              Judgments

                                      Database
IEI
                               Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                23


      Accuracy, Reliability and Timeliness

          Facts          Credibility of                                  Freshness
      Versus Opinions     the Source                                      of Data



        Existing
         Data
                           Verification                                     Investigation



                              Database
                                                                            Security
IEI
                        Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                      24


      The Emergence of Credit Bureaus

       Public Sector Credit Registers
                Operated by Central Banks


                Compulsory Reporting by Financial Institutions
                 Aggregation of Major Loans from Borrowers
        Banks        Use Limited to Financial Institutions                                    Banks

           Banks                                                                    Banks
                      Banks                                        Banks
                                  Banks            Banks


IEI
                              Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                   25


      The Emergence of Credit Bureaus

       Private Sector Credit Registers
          Operated by Private Credit Bureaus


                       Wholesale                Retail             Mortgage
               Banks


 Credit Card     • Voluntary Credit Reporting                                                Micro
    Issuer                                                                                  Finance
                 • Principle of Reciprocity

                                        Finance
                 Leasing                Houses
                                                                   Utilities


IEI
                           Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                  26


      Credit Bureau Concept

 Financial Sector                            Data Providers
Commercial Sector
                      A                 B                   C                   D                    E




                                                                             Credit Bureau:
                                            Credit Bureau                    • Maintains Data Pool
                                                                             • Manages Systems
                                              Data Pool                      • Operations and Facilities
          Public Domain



 Financial Sector     A                 B                   C                   D                    E
Commercial Sector
                                             Member Users
IEI
                          Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                      27


      Overview of Credit Bureau System

 Data                             Credit Bureau                                                      Inquiries
 Input
                                                                                       Inquiry
                                                                                       Proces
                                                                                          s
   Data                                                                                             Members
 Contributor   Data Validation/                                    Accounting
      s        Maintenance                                          System




                                                                   Usage/
               Reference Table
                                                                 Management
               Maintenance
                                                                   Report


                                                                                                    Individuals
                                                                    Customer
                                                                                                     and
                  Public                                             Service                        Businesses
               Data Sources
                                   SECURED AREA

IEI
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                                                                                                                  28


      Fundamental Operating Principles
       • Principle of Reciprocity
          – Provide Data = Access to Data

       • Principle of Neutrality
          – Equal Treatment - Facts Only - No Opinions

       • Efficient Dispute Handling
          – Right to Review Information - Correction of Errors


       • Security Standards (Secured Environment &
         Authorized Usage)

IEI
                          Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                   29


      Highly Secured System
      • Contractual Obligations: Security Procedures
         • Provide Access to Data and such Data only that the
           Member / Subscriber is Entitled To
         • Maintain a Log of all Online Accesses, Amendments
           & Audit Trails
         • Regular Review of all Passwords (Members /
           Subscribers & Bureau Employees)

         • Regular Review of Patterns of Usage of bureau to
           Detect / Investigate Unusual Patterns
         • Develop Operational Guidelines & Disciplinary
           Procedures in Relation to Improper use of
           Bureau Data
IEI
                           Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                 30


      Singapore SME Credit Bureau
       • Data Elements

        • Basic Company                          • Subsidiary
          Registration Data
                                                 • Registered Charges
        • Capital Information
                                                 • Suits / Litigation
        • Change of Company
                                                 • Winding Up
          Name
                                                 • Previous Inquiries
        • Officer (s)
                                                 • Defaults
        • Shareholders
                                                 • Trade Lines
IEI
                         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                     31


      Singapore SME Credit Bureau
      • Support Functions
        • CreditScan Help Desk                           • On-line Help Desk
                                                         • Interpreting Reports;
                                                           Password; Billing etc.

        • Data Integrity                                 • Ensuring Data Accuracy and
                                                           Reliability before Loading and
                                                           Dissemination


        • Privacy Officers                               • Handling Queries about Data
                                                         • Correction of Erroneous Data
                                                         • Dispute Resolutions
                                                         • Privacy Issues

IEI
                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                 32


      Compliance Requirements
      • Bureau’s Obligations in Respect to Information

         • Ensure High Degree of Accuracy and
           Reliability of Data
         • Protect against Unauthorized Access
         • Maintain Logs on all Accesses, Amendments
           and Audit Trails
         • Regular Review of Password Controls,
           Bureau Personnel and Subscribers


IEI
                         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                   33


      Compliance Requirements
      • Members Obligations in Respect to Data Obtained
        from the Bureau Including
         • Promptly Update Information and Data Supplied to
           SME Credit Bureau
         • Inquiries to Be made for Credit Purposes only and on
           Businesses with whom the member / subscriber has a
           business relationship
         • Company’s Rights in Regards to Access to Data Stored
           on their Business
         • A Company or Business is entitled to Request a
           Commercial Inquiry Report upon Establishing its
           Identity and Payment of the Appropriate Fee

IEI
                           Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                           34

The Business of Credit Information
       Capital                             Bank &                                            Consumer
       Market                            Trade Credit                                          Credit

 Public             Large                Medium Size                Professionals                  Private
 Corporations       Privately             Businesses                  / SOHO                     Individuals
                    Owned
                                                                        SMEs
                    Corporations

                       Local                                   b2b
  Global Rating                      b2b Credit                                         Consumer
                       Rating                                 Credit
    Agencies                        Information                                       Credit Bureaus
                      Agencies                               Bureaus
  Manual Analysis                  Business Data              Data              Data-based User Groups
                                      Credit                 Sharing              Positive & Negative
  Knowledge Bases                                             Credit             Payment Information
                                      Scoring
                                                             Scoring                Credit Scoring
  Expert Systems                    Monitoring                Monit.           Automated Risk Prediction
  Software Tools                   Alert Services            Services             and Loss Prevention
IEI
                                   Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                           35

SME Credit Assessment
       Capital                             Bank &                                            Consumer
       Market                            Trade Credit                                          Credit

 Public             Large                Medium Size                Professionals                  Private
 Corporations       Privately             Businesses                  / SOHO                     Individuals
                    Owned
                                                                        SMEs
                    Corporations

                       Local                                    Merged Data
                                                               b2b
  Global Rating                      b2b Credit                              Consumer
                       Rating                                     Blended
                                                              Credit
    Agencies                        Information                            Credit Bureaus
                      Agencies                               Bureaus Score
                                                                Credit
  Manual Analysis                  Business Data              Data              Data-based User Groups
                                      Credit                 Sharing              Positive & Negative
  Knowledge Bases                                             Credit             Payment Information
                                      Scoring
                                                             Scoring                Credit Scoring
  Expert Systems                    Monitoring                Monit.           Automated Risk Prediction
  Software Tools                   Alert Services            Services             and Loss Prevention
IEI
                                   Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                           36

SME Credit Information
        Capital                            Bank &                                            Consumer
        Market                           Trade Credit                                          Credit

 Public             Large                Medium Size                Professionals                  Private
 Corporations       Privately             Businesses                  / SOHO                     Individuals
                    Owned
                                                                  SMEs
                    Corporations

      Rating Agencies         b2b Credit                          SME                        Consumer
                             Information                     Credit Bureau                 Credit Bureaus

  Manual Analysis            Business Data                      SME                        Consumer Data
                             Credit Scoring                     Data                       Credit Scoring
  Knowledge Bases
                              Monitoring                    Credit Scoring                Automated Risk
  Expert Systems             Alert Services                 Monitoring &                 Prediction and Loss
  Software Tools                                            Alert Services                   Prevention
IEI
                                   Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                               37



 Achieving Growth with Credit Transparency
      • Importance of SMEs and the Problem of
        Obtaining Credit
      • Relevance of Credit Bureaus in Regard to
        SMEs
      • Benefits of Credit Bureaus for SMEs
         • Influence of Regulators
         • Impact on Credit Systems
         • Impact on Consumers, SMEs and
           Companies
IEI
                       Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                 38

      Regulators Promote Use of Credit Bureaus

        World Bank             EBRD                            BIS                      Central
        IMF       IFC                                       Basel II                     Banks

      • Asian Financial Crisis – Mandating Credit Bureaus
      • Combating Fraud and Identity Theft

      • SME Support Programs – Improve Credit Situation

      • Initiates Changes in Legislation

      • Seminars – Conferences – Standards Committees

      • Empirical Studies on Benefits of Credit Bureaus
IEI
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                                                                                                                        39

  The Impact of Regulators: Basel II

              Country Risk
              Characteristics
                                                      11
        Industry Position –                                  Qualitative
         Future Prospects                                     Criteria

      Competence of
       Management
                              Quality and Timeliness of
  Operating Leverage          Information and Audited                                 Internal Rating
                              Financial Statements
      Capital Structure

               Quality of                                   Quantitative
               Earnings                                      Criteria
                                                      11
                Sustainable
                Cash Flow
IEI
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                                                                                                             40

      More Rigorous Information Gathering … …

                        • World-Wide Reaction:
Industry Position            • Many Countries Demanding Special
Future Prospects               Conditions in Regard to SMEs
 Competence of
  Management
                        • Outcome:
Operating Leverage
                             • 85 Exceptions Now Written into the
Capital Structure              Basel II Accord
                             • Singapore: SMEs with Exposures of
      Quality of               less than S$ 1 Million Will be Treated
      Earnings
                               as a Pooled Exposure
Sustainable Cash             • MAS Expects Banks to Implement
      Flow
                     !         Rigorous Information Gathering and
                               Timely Updating … …
                                                                                                       !
IEI
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                                                                                                                   41

  World Bank Initiative

  • Data Pooling in 55                         • 145 Countries still to Go
    Countries
      • North and South America
                                               • Legislative Initiatives
      • Europe                                 • Greater Cooperation
      • Asia in Progress                         between Government
  • Eastern Europe,                              and Private Sector on
    Central Asia and Africa                      Credit Pooling
    under Development
                                                 Encouraged

IEI
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                                                                                                                 42

      Credit Bureau Development Map
      • Information Pooling Asia / Pacific




                                                                       Concept of
                                                                       Information Pooling
                                                                                     None

                                                                          Under Development

                                                                                Established
                                                                       • Business Information
                                                                         no Restrictions
                                                                       • Consumers: Negative
                                                                         Information


IEI
                         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                 43


 Achieving Growth with Credit Transparency
      • Importance of SMEs and the Problem of
        Obtaining Credit
      • Relevance of Credit Bureaus in Regard to
        SMEs
      • Benefits of Credit Bureaus for SMEs
         • Influence of Regulators

         • Impact on Credit Systems
         • Impact on Consumers, SMEs and
           Companies

IEI
                         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                           44

      Impact on Availability of Credit

                                    High                                                                          Moderate Credit
                                                                                                 USA
      Availability of Information

                                                                                                                  Losses –
                                                                                                                  Accurate Risk
                                                                                              UK
                                                                                                                  Prediction



                                                                                                                  High Credit
                                                                                                                  Losses - Little
                                                                                                                  Transparency




                                                                                                                  Subjective Credit
                                                                                                                  Granting – High
                                                                                                                  Risk - No
                                                                                                                  Transparency
                                    None
                                           < 33%               35 - 66%                     > 66%

                                               Penetration of Credit
IEI
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                                                                                                                                                                 45

                              Impact on Availability of Credit
                                    Positive and
                                    Negative                                                                                 USA             Moderate Credit
                                    Information                                                                                              Losses –
     Availability of Information




                                    Sharing with                                                                           UK                Accurate Risk
                                    Credit Bureau                                      Japan       Taiwan                                    Prediction
                                                           Shanghai
                                                              *

                                                                                Singap.*
                                                                                   *
                                                                                                                                             High Credit
                                    Negative                                                                                                 Losses - Lack of
                                    Information                                                                                              Transparency
                                    only                                                    Korea         HK



                                                                                                                                             Subjective Credit
                                   No Information          China**                                                                           Granting – High
                                   Sharing                  India**                                                                          Risk - No
                                   No Credit Bureau                                                                                          Transparency

•Overall China Credit Penetration app.. 5%                       < 33%                     35 - 66%                      > 66%
** Under Development

                                                                       Penetration of Personal Credit
 IEI
                                     Source: McKinsey & Company 2002
                                                                         Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                  46

  Empirical Studies: “Full File Data-Pooling”
            Banks                   Credit Card                          Utilities                       Other
                                      Issuers
                                                   Critical Mass
      • “Full File” Usage                                                       • Restricted Data Usage
      • Negative und Positive Data                                        • Negative Data only
      • 30-Day Reporting-Intervals                                        • Sporadic Reporting
      • Storing of Negative Data                                          • Storing of Negative Data less
                                                                            than 7 Years
        over 7 Years


      • Easier Access to Credit                                                • Lower Availability of Credit
                                                      Borrower
      • Lower Cost of Credit                                                   • Higher Cost of Credit
      • Lower Delinquency                                                      • Higher Delinquency Rates
                                                         Lender
      • Lower Credit Losses                                                    • Higher Credit Losses
IEI         Source: Information Policy Institute

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                                                                                                                             47

 “Full File” Benefits                                                      Critical Mass

  • Easier Access to Credit:                                  • Lower Cost

• Credit Cards                                  + 61%* • Automated Decision Process
• Secured Loans
                                                + 25 %** • 50% less Administration Costs
• Mortgage Loans
                                                + 12 %** • Lower Cost per Application
• Good Credit Behavior:                                      • Loss and Fraud Prevention
      • Lower Interest on Credit Card Debt
                                                             • Lower Cost of Delinquency
      • Lower Mortgage Interest Rates
                                                $ 52bn1 • Lower Credit Losses
• Faster Turnaround:
      • Instead of three Weeks
      • Three or two Minutes

           * 1981 – 2001
IEI
                            1) 1% less in
           ** 1983 - 2003   interest – annual                                 Source: Information Policy Institute
                            savings
                                     Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                     48

 Impact on Restrictions of Data Pooling
 Three Scenarios (Information Policy Institute)
                                                                                                    Lack of
  • Lower Access to Credit                                                                        Critical Mass
  • Limited Access to Credit may Impact between 14 –                                             1.      13% Reduction in
                                                                                                         Trade Lines
    41 Million Applicants
                                                                                                 2.      21% Reduction in
  • Impact on Under-privileged Credit Segment:                                                           Trade Lines
                                                                                                 3.      Restriction of Kind
      • Young People, Senior Citizens, Poor, Women,                                                      of Data (Positive)
        Minorities
  • Variation of Credit Score in 9 to 10 Cases
  • Predictive Power of Score may Be Reduced by 1%
    to 15%

• Increase in Delinquencies: 10% - 70%;                                    • Estimated Average Cost
• Credit Losses of US$ von 3bn to 21bn                                       Increase of $ 40 to $ 240
IEI
      Source: Information Policy Institute
                                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                     49

  Value of Credit Buraus
      • Impact of Availability of Trade Data on Credit Management
        in the SME Segment

            Timeliness                             • Short Up-date Cycle

            Objectivity                            • Decision Based on Facts – Less on
                                                     Subjectivity
            Early Warning System                   • Early Discovery of Trends in
                                                     Delinquency
            Predictive                             • Accurate Prediction of Future
                                                     Delinquency and Losses
            Consistent Applications                • Non Discriminatory

            Covers Broad Spectrum                  • Delinquency, Loss Preventions and
                                                     Debt Collection
IEI         Cost Effectiveness                     • High Degree of Automation
                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                     50


      UK Example – Non-Performing Loan Provisions
                                                                 McKinsey Report on State of UK
      Pounds Sterling [000]
                                                                 Banking
  6,000                                                           • Recommending Greater Reliance
                                                                    on External Information and
  5,000                                                             Credit Scores

  4,000                                                                    • UK Banks Revamped
                                                                             Credit Systems
  3,000


  2,000                                                                                          NPL Provisions

  1,000


        0
                               0




                                                                               0

                                                                               1
      85

            86

                 87

                      88

                              89



                                   91

                                        92

                                             93

                                                  94

                                                       95

                                                            96

                                                                 97

                                                                      98

                                                                              99
                             99




                                                                             00

                                                                             00
                           1,




                                                                           2,

                                                                           2,

IEI
                                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                      51


      Achieving Growth with Credit Transparency
                                       Credit                                 Credit
              Credit
                                    Information                             Management

        • Strong Positive Linkages between Financial
          Sector and Economic Growth*
        • A Well-functioning Financial Sector
          Provides Individuals, SMEs and Companies
          with Access to Credit
        • Strong Linkage between Greater Access to
          Credit / Higher Bank Borrowings and
          Existence of Credit Bureaus*
IEI
       * Source: World Bank
                              Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                    52


      Summary
        • Credit Bureau Serves Lender and Borrower


                                      Credit
      • SME as a                      Bureau                          • SME as a Credit
        Borrower                                                        Grantor

      • Objective Credit Process                           • Access to Accurate, Reliable
      • Better Access to Credit                              and Timely Information
      • Lower Cost of Borrowing                            • Availability of Decision
      • Faster Decision Process                              Support
                                                           • Accurate Loss and Fraud
                                                             Prevention
IEI
                            Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                     53


      Economic Benefits of Credit Bureaus
                              Economy
                             • More Stable Financial Sector
                             • Economic Growth with Lesser
                               Need for a ‘Bail-out’ of Banks
    Bank                     • Stabilizes Allocation of Capital
 Supervision                                                                        Consumers
  • More Accurate
    Information on
    Health of Financial                                                    • Objective Assessment
    Sector                     Credit Bureau                               • Better Access to Credit
                                                                           • Quicker Reward for
                                                                             Responsible Credit
                                                                             Behavior
  Financial Sector
          • Accurate Risk Prediction
          • Can Lend to Broader Risk Segments
IEI       • Pricing Reflecting Individual Risk                            Businesses
                             Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved
                                                                                                                                   54


Value of Information in Credit Decisions




                 Thank You

      Intrepid Explorers, Inc. is not responsible for the use
      which might be made of the information contained in this
                                                                       Presented by Joachim C. Bartels, CEO
                                                                             Intrepid Explorers, Inc.
IEI
      presentation or report. Nothing in this presentation
      implies or expresses a warranty of any kind.
                                                                                  Singapore March 2005
                                           Singapore SME Seminar - www.Intrepidex.com - Joachim C. Bartels - All Rights Reserved

				
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