Reasonable access to affordable finance arises from a complex mixture of laws, institutions, and practices. The heart of the matter, however, is simple: lenders extend credit at affordable rates in a competitive market only when the costs and risks of extending credit permit them to do so. A high risk of default and a low likelihood of recovery on default will increase the cost of credit. If there are too many complexities involved in giving credit, then management becomes more expensive, and that, too, is reflected in the price. A critical component to a successful
global market includes painless access to affordable credit.
The Doing Business indicators explore two sets of issues—credit information registries and the effectiveness of collateral and bankruptcy laws in facilitating lending.
BizCLIR methodology takes this examination one step further by probing for the reasoning behind the successes or failures of a country's business economy via the process of getting credit. Instead of just measuring access to credit and effectiveness of laws facilitating lending via the legal framework of a country, BizCLIR's tool engages further to question the entire system of sectors affecting credit. A team of experts interview stakeholders in government, the private sector, and civil society to understand the process of getting credit. These areas are evaluated using indicators divided among the four pillars:
- Legal/Regulatory Framework
- Implementing Institutions
- Supporting Institutions
- Social Dynamics
Taking this 360-degree approach allows us to scrutinize the business environment from dynamic angles other indicators disregard. BizCLIR's qualitative assessment of the entire system helps us understand the reasoning underlying the indicator scores. For example, because Pakistani women receive the lowest percentage of microfinance loans, we can understand that this makes them more dependent on informal loans that do not offer protection. Also, if lending rates remain high, perhaps it is due to lack of dependable enforcement and insufficient credit information about the borrowers. The qualitative analysis that the BizCLIR methodology provides gives our clients a competitive advantage by quickly defining the real problems in order to find real solutions.
