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COMMENTS ON SECTION II: Session II. Fintech and Financial Inclusion for Small and Medium-Sized
Enterprises (SMEs)

Credit Risk Database (CRD) for SME Financial Inclusion

Lan Hoang Nguyen, Credit Risk Database, Japan

The Paper:

The historical background:

- The SME credit crunch: land collateral lost much of their value, not to depend on collateral
anymore, so switch to risk-based valuation for lending
- Calls for nation-wide financial database for SME
- Hence, the Credit Risk Database funded by METI and BOJ

Contribution to SME Financial Inclusion

- SME sector
- Banking sector
- SME Guarantee System

Application of Machine Learning to Credit Risk Management

Comments:

Historical background: as the economy recovers, no more going back to collateral-based lending

Contribution to SME financial inclusion:

- On the accumulated data, what percent is it of total SMEs in the country?

- Standardized financial data of SMEs: who is in charge of regularly collecting them?
- Are they audited financial inclusion?
- Are they the same FS submitted to the revenue office?
- Will they be provided to member institutions only?
- Application: Credit scoring model: Subscription-based or transaction-based
- Improvement in guarantee policy for SME: from undifferentiated to differentiated guarantee fee
based on CRD scoring

Application of Manchine Learning to credit risk management:

- FS-based to complex sources of data: ability to collect and process high frequency data
- Includes SMEs with underdeveloped FS and start-ups
- Timely and targeted monitoring
- Important take-aways: useful for those developing credit guarantee scheme for SMEs and
application of machine learning to bank transaction data

General comments:

- Who is in-charge?
- How much is the cost and does revenue cover cost
- Seems to be a program to improve credit guarantee scheme which substitutes for land
collateral-based lending, but in developing economies, SMEs have even no land nor access to
credit
- At the end of the day, it is improving the guarantee scheme as a collateral substitute, but how
does an SME build a credit history without having land and access to credit guarantee facility?
- What happened to those that defaulted? How can they rebuild their credit standing to re-access
credit from banks?
- Comparison in performance: bank own scoring model vs. CRD model?
- Credit guarantee: individual vs. portfolio guarantee