Evidence Generation
Asia
Evidence Generation
Asia
As credit bureaus expand across low- and middle-income countries, inaccurate credit reporting has emerged as a significant barrier to financial inclusion and entrepreneurship. Errors in credit records—resulting from mistaken identity, outdated data, or creditors' failure to update information—can severely restrict access to formal finance, particularly for small firms and entrepreneurs who rely on external credit for growth. High-income countries like the United States ensure credit report accuracy through regulatory oversight such as the Fair Credit Reporting Act, which holds credit bureaus liable for errors. However, low- and middle-income countries often lack such accountability mechanisms, leaving consumers dependent on overburdened court systems to resolve disputes.
In Brazil, wrongful credit blacklisting remains a significant challenge. For instance, from 2013 to 2024, São Paulo courts alone granted borrower requests in over 118,000 credit-related cases, with judges ruling in favor of borrowers in approximately 80 percent of credit bureau-related disputes—suggesting widespread and verifiable reporting errors. Previous research has shown that negative credit records reduce borrowing and limit entrepreneurship, while improved court access can increase entrepreneurial activity and investment. However, key questions remain: Does removing erroneous credit listings through the justice system improve entrepreneurs' access to finance and business growth, and how do court capacity and judicial efficiency on rulings affect these outcomes?
In collaboration with the Central Bank of Brazil, researchers are assessing whether removing erroneous credit listings through the courts improves access to finance and entrepreneurial activity, and how these effects vary with judicial efficiency.
The study will analyze 365 thousand judicial cases of credit bureau disputes filed in São Paulo courts from 2013 to 2025 involving individuals and SMEs. Researchers will leverage the random assignment of cases that takes place in Brazil’s judicial system, ensuring that case characteristics do not influence which judges hear a dispute, along with differences in each judge’s leniency. These two elements create variation in the likelihood that plaintiffs win a lawsuit to remove a wrongful credit listing. Researchers will also examine how court capacity and efficiency across different districts in handling cases impacts the effectiveness of legal redress.
Researchers will measure changes in credit availability and borrowing following dispute resolution as well as impacts on firm performance, and new business formation and expansion.
Results will be available in 2027.
