The Experience of Credit System Establishment
in the International Community
The major developed countries in the world have built up relatively perfect social credit system through their practice of nearly 200 years, which provides beneficial experience to our country in establishing and improving the social credit system.
II. The body part of international social credit system establishment
The establishment of international social credit system includes credit data collection, credit rating and credit supervision system, etc.
a. The collection of credit data
Credit data, i.e. the collection of credit data, is the essence of establishing credit system. The database established in western developed countries has two patterns, one is the American pattern, and the other is the European pattern.
1. The common grounds between the American pattern and the European pattern are as follows.
(1) Market-oriented method enriches credit database. Credit agencies acquire a great deal of credit data from market-oriented technique. Equifax, Expefian/TRW and TransUnion, the three credit reporting service institutes in America, possess the database that covering the whole country. It includes over 170,000,000 personal credit records and produces over 500,000,000 credit reports annually. The D&B database covers the information globally from over 100,000,000 enterprises. It dominates and influences on the credit rating market in the United States and countries all over the world together with Moody, Standard & Poor, Fitch and Duff&Phelps.
(2) A sound legal system guarantees the authenticity of a database. It standardizes and restricts the credit data collection and utilization behavior of commercial banks, financial institutes, real estate market, consumer’s credit investigation and debt collection, etc. by legislation.
(3) Credit data industry supervised by government and its self-administration promotes the establishment of credit database.
(4) Enterprises, the body part of credit data, support the establishment of database because of their actively participating in database establishment. Consumers pay much attention to the credit status of their own. They review credit reports from the credit bureau periodically in case negative information occurred.
2. The different points between the American pattern and the European pattern are as follows.
(1) Central bank undertakes the major function of supervision and management.
(2) Credit information service institute is a department of central bank.
(3) Commercial banks must provide the required information either for credit risk office or credit information bureau.
3. Our country has some problems on establishing credit database.
(1) Credit legislation is lagged behind. Data’s publicity and utilization is deficient in specific definition by laws. Especially there are no definitions to distinguish information opening to government and national secrets, to enterprises and business secrets and to consumers and personal privacy. All these definitions are lack of legal regulations, therefore, it is hard to collect and utilize credit data.
(2) Credit database holders behave unorganized. Most of information relevant to credit is separated in different governmental departments. For example, over 90% of information and data from the field of industry & commerce, taxation, foreign-trade, customs, communications, banks, securities, insurance, public security, courts, quality inspection, drug administration and environmental protection is concentrated in government. Data and information is not flowing and sharing between governmental departments, therefore, quite a few valuable information resources are unutilized and wasted.
(3) Enterprises and consumers’ credit data is not opening up to the public yet. Most of enterprises do not open their primitive operation data to society, while forging data to the industry & commerce department or the taxation department can be found everywhere. It is already not surprising that an enterprise prepares two sets, three sets even four sets of accounts system. Our country has still not established a personal property declaration system yet. There is no clear personal / family income status and lack of first-hand data of consumer credit records.
(4) The database is primarily held and monopolized by the government. There is not much data coming from independent non-governmental organizations. In 1997, The People’s Bank of China authorized 9 enterprises to create credit rating system, therefore opening a brand-new era for credit rating. In July 2000, Shanghai took the lead in implementing personal credit inquiry system in the countrywide. A corporation which is set up by the government became the first consumer credit service enterprise starting operation. These credit service enterprises have short development history, immature market experience, good relationship with government, thus have defects in independence and neutralism. The Large-scale commercial database is not in shape yet, and the customer community is quite small. Consumer credit is still lingered in the specific region of Shanghai so that it is unable to record credit information precisely, thoroughly and entirely. And also, the production capability of credit is low, the product line is simple and there are wide gaps between service level and request.
4. The American D&B Corporation is a credit administration company which is mainly engaged in credit investigation with the longest history (over 160 years) and the largest scale (annual output US $ 2,000,000,000) in the world. It possesses 80,000 employees and 300 branch companies or offices in countries that spread almost all over the world. The D&B’s enterprises database contains 214 countries, 95 languages or dialects, 181 monetary units and over 100,000,000 global dynamic files information. It is the largest database in the world, updates 1,500,000 times everyday, and is able to provide customers with enterprises credit investigation reports quickly, precisely, completely and consistently. Its code system is a kind of enterprise standard accepted by International Organization for Standardization. The unique D&B code, which contains 9 digits, is widely used in enterprises information identification, organization and combination. Enterprises from all over the world apply D&B code to connect information with suppliers, customers and business partners, provide themselves with complete blueprint and be aware of commercial risks and opportunities.
The D&B risk index is an advanced risk administration tool and an exploitation tool for high-end and low-end products. Since the D&B risk index was introduced to China, the D&B China has been relocated. It not only takes the lead in commercial information suppliers, but also becomes a commercial consultative partner with enterprises. It provides customers with credit, expert experience, unique foresight and professional tools, assists enterprises to make commercial decisions confidently, and helps capture tremendous global opportunities both in domestic market and international market.
Credit rating (also is called credit evaluation, credit assessment), is a significant content and basis of enterprises credit rating and promotion activities. Credit rating is an economic activity made by an independent third party standpoint according to the standard rating index system and criterion with scientific rating method applied. It carries out strict rating procedure to make a synthetic judgment with symbols to denote different grades about fulfilling capability in a period time of future and any possible contribution based on thoroughly comprehending, investigating, researching and analyzing credit records, quality, capability, administration level, exterior environment, financial status and development prospect of the market participator.
Global credit rating industry is gradually developed from commercial credit rating. In 1837, the initiator of D&B in the United States, Lewis Tappan, established the first commercial credit rating institute in New York. In 1990, D&B published the first industrial rating manual in the world. In 1909, John M. Bradstreet, publicized viewpoints about debt rating and introduced credit rating to the securities market for the first time. Japan, Canada and Australia establish their credit rating institutes after 1970s. At present in the United States, enterprises financing from the commercial credit exceed the bank loans, therefore, credit becomes the biggest financing channel.
Credit rating is an efficient method for enterprises to evade risk, build up image, obtain government support and successfully improve commercial cooperation. It is of great significance to create a favorable social credit.
Credit rating is a kind of system engineering. It has to abide by laws and regulations and follow professional moralities besides thoroughly analyzing industry trend, administration quality, management structure, competition position, financial status and special risks.
Credit rating must follow the principles of independence, objectiveness, justice and science. The life of a credit rating institute is determined by the rules of criterion, trustiness, and can be verified by time and breach rates.
Credit rating is both art and science. All the authoritativeness and specialization set up by international well-known credit rating institutes are based on durability and deepening without exception.
Credit rating institutes must know about their market localization exactly and insist on specialized management. The theory, technique and method of market sales should be more knowledgeable and professional.
Although credit rating is the most powerful evidence to identify the integrated competitive capability of enterprises, it does not have enforcement strength.
Credit rating is independently executed by a rating institute which is qualified as a legal entity, and shall not be intervened by any entities or individuals. Although credit rating institute is not responsible for legal liability of the result, it undertakes the responsibility of reality, credibility and justice of the ratings.
Credit rating is the core product of credit, except rating for financial institutes and national benefits. The criterion of rating for mid-scale and small-scale enterprises is according to the credit status of the Legal Corporation and high-level administration, credit analysis of relevant financial reports and investigation of trend, administration and market prospect. While for listed corporations and big enterprises, credit rating more focus on the fluctuation of their market value (stock value), analysis of financial reports, administration and market prospect. Rating for bond is rather complex, requires relatively more completed data information. Credit information systems and credit bureaus have been booming since 1990, lots of them are civil organizations and private enterprises. They began to deal with the credit rating and investigation business of mid-scale and small-scale enterprises more and more quickly. Building up credit rating system based on customer’s information is a business hotspot in financing, consuming and service industry. Credit rating is not only a risk evaluation tool, which helps save large amount of expenses, but also can be used in market potentialities development and exploitation. It will create high profits for banks and enterprises and generate economic benefits. More importantly, credit rating will establish a long-term agency-client relationship, fully understand psychology and behavior of customers from different levels and provide best service according to the request.
Credit supervision system includes supervision and administration. A sound efficient credit administration system will promote market economic transaction transforming from primitive payment method to credit method for a region or a country. It will create and layout a good credit environment for market economy, expand and establish market requirement, maintain market prosperity, promote economy sustainable growth, improve market economy moving towards maturity, guarantee and built up social basis for the healthy and well-ordered growth of market economy.
Taking the United States as an example, the credit administration system is composed by four subsystems, the national administration, the industrial administration, the punishment system and the education system.
Subsystem one, national credit administration
The national credit administration is mainly executed by legislation and enforcement agencies. They are responsible for proposing, explaining, and supervising related credit administration acts.
Government is limited in the system of credit administration, it do not intervenes credit activity too much. All that it needs to do is creating and maintaining a fine credit circumstance.
The United States has enacted relevant credit administration laws since the end of 1960s, and now, it is almost completed. There are 16 acts about credit at present, including Fair Credit Reporting Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act, Truth in Lending Act, Fair Credit Billing Act and Credit Repair Organization Act. They are forming an integrated credit administration legislation system.
These inter-performed acts create a legal surrounding of national credit administration system running efficiently in the United States. They directly and specifically constrain credit criterion for credit opportunity equalization, personal privacy protection and reasonable debt collection.
Subsystem two, industry administration
Industry administration is self-shaped and realized through various economic activities in the credit industry.
Credit industry is composed by three types of enterprises.
-- Credit information administration institute, such as credit enterprises and databases.
-- Professional credit rating institute, such as credit rating enterprises.
-- Senior credit service institute, such as factor corporations and credit guarantee corporations.
They are the important part of modern credit activities based on social credit activities. They treat public department, financial department and enterprises as their big clients, in the way of managing and selling credit information & product and offering professional and social credit service to be successful in the society.
Subsystem three, punishment system
The punishment system for bad credit is an important part in credit administration system.
The purpose of punishment system is to avoid hurt of the society and people by dishonest legal person or natural person. A country that equips with well-running punishment system against bad credit can be called possessing completed healthy credit administration system and credit system so that ensures the market developing well-ordered.
Subsystem four, education and training
The development of the theory of credit administration and the development of credit administration education cultivate people of ability for modern credit activities. It is one of the efficient parts of modern credit activities and the foundation of credit administration system.
Credit administration is a typical inter-discipline spanning financial administration, marketing and commercial laws, etc.
There are three types of education at present.
-- The general university education
-- Vocational training
-- Distance-education of credit administration
Government of the United States pays much attention to product application, although they managing credit industry indirectly. It guides people to make use of rating results from different aspects, but would not intervene rating corporations, rating process and rating results. Furthermore, rating institutes do not undertake legal responsibility of their credit products.
In the United States, both enterprises and individuals have strong credit consciousness. Credit transaction is very popular. Credit administration system has been widely established in the American enterprises and credit administration department is specially set up in big enterprises. Generally speaking, enterprises do not want to contact with clients without credit records for the sake of evading risk efficiently. Consumers in the United States are very concern about the credit status of their own, in case any negative information occurred in credit reports.
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