Credit for Phlilippines' small engines of growth

BIZ LINKS By Rey Gamboa

We should hopefully see a comprehensive and centralized credit information system working for Filipinos by next year, a decade after the Credit Information System Act (CISA) was passed into law, paving the way for the establishment of the Credit Information Corp. (CIC).

There have been a number of hiccups for the CIC in the past, and it seems only a major connectivity issue or a security issue, according to its president and CEO Jaime Garchitorena, would keep it from turning on the green light by January next year.

From the onset-starting with its incorporation, CIC has encountered so many travails that put to shame television’s longest running soap drama anthology. Who would have thought that it would take years for the government-controlled company to put up a measly P125 million in paid-up capital?

Under CISA, the government should come up with 60 percent of the paid-up capital required, with the balance of 40 percent coming from the private sector owners – the Philippine Cooperatives Center, the Bankers Association of the Philippines, the Credit Card Association of the Philippines, the Chamber of Thrift Banks and the Rural Bankers Association of the Philippines.

The problem involving the paid-up capitalization also affected CIC from getting a tax identification number, a fundamental requirement for any company to start operating.

There were other problems along the way. The start-up capital proved to be inadequate for the task, in the same way that its initial manpower complement was insufficient in numbers to go after the many banks and other financial institutions that would provide the data needed for the system to run.

The first attempt to bid out the contract for the IT system, the backbone to implement the central repository of credit information, failed due to procurement issues. In 2014, the job was finally awarded to the joint venture of Italian lending solutions provider CRIF and its local partner Total Information Management Corp. (TIM).

However, the initial target for full operations in 2015 had to be moved due to difficulties in getting the required data needed by the information bank. Now, with the nine-month pilot phase that started in May already up and running, things are looking more positive.

Key to MSME growth

While banks and other lending groups are looking at how the national credit information system would help them get a better grip of the credit-worthiness of individuals and companies to help them lessen risks when lending, MSMEs stand to benefit as well.

Micro, small and medium-sized enterprises have always bemoaned the unavailability of loans from banks despite their solid financial standing. This sector, especially those belonging to the micro and small categories, have had difficulties in establishing their credit standing, having little or no exposure to the formal banking network.

Often, they keep no record of their daily sales and spending, and do not have audited financial statements, the latter a standard prerequisite by any lender belonging to the formal sector when entertaining loan applications.

Then again, if ever the loan gets approved, these would have taken an inordinately long time, often coming too late for the small businesses’ needed expansion or extension of working capital. Or it would be given at higher rates that could become suicidal for a small company.

MSMEs, which make up more than 95 percent of enterprises in the country, no doubt would be able to benefit from the less rigorous criteria needed by the CIC to be able to give the interested businesses a fair and less expensive system of establishing their credit standing.

Individual borrowers’ rights

In fact, this bodes well too for individuals who have to go through fire hoops to get a loan from the bank. Establishing a positive credit behavior for a minimum of three years can already become an acceptable gauge by banks of a person’s credit worthiness.

The CISA, via the CIC, gives a better glimpse of the basic rights of borrowers. According to the law, borrowers will have the right to know exactly why a CIC-participating financial institution denied their loan application.

Borrowers may also access their own credit information. If there are erroneous, outdated, or misleading entries, the borrower will have the chance to correct or delete such from their personal data sheets.

There have been many cases where an individual seeking a loan would learn of a resolved negative credit entry (an overdue loan or outstanding credit card balance that was eventually paid off) of more than a decade old, but is still being used by the lending agency in assessing credit worthiness.

Individuals may now also rely on their prompt bill payments of utility services like electricity, water and telecommunications to build a solid positive credit history.

Similarly, other pertinent information (for example, warehouse receipt financing for agribusinesses or farmers) would later be incorporated to strengthen the data bank’s information repository, thus improving information leveraging.

Jobs for the poor

Definitely, a centralized credit information bureau will provide the much-needed boost to our economy not just by opening formal lending channels to MSMEs and individual entrepreneurs and allowing capital to circulate more freely, but also to bring down lending rates to more reasonable levels.

Much as the pilot test is proceeding relatively well, let’s hope our MSMEs will be able to see the credit information system as a tool to strengthen their businesses and contribute more to the economy.

The government’s efforts to spur inclusive growth can very well receive a boost through more capital made available to those little engines of growth that are based in the communities and are less discriminating in employing the less privileged – and often discriminated – citizens of this country.

Let’s face it, micro and small enterprises provide more jobs to undergraduates and school dropouts, or even the housewives who have to work broken hours in between doing house chores, who may have not even filled up a single bio-data sheet in their whole life.

If we want the poor, who unfortunately are still a big majority of the population, to have access to a better life, definitely giving MSMEs a better fighting chance to grow is the way to go.

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