by Bhea Baarde, Correspondent
The importance of a Credit Information System (CIS) has again been put in the spotlight recently after a group of finance experts tackled ways how to further improve the availability of credit in the Philippines, especially for the unbanked.
In a webinar entitled, “The CIC Credit Report and Potential for MSME Growth,” Vladimir Dela Cruz, Senior Vice President of Credit Information Corporation (CIC), explained the purpose of the CIS and how it can help in ensuring the growth of the MSME sector.
“Why is there a need for this central credit registry,” he asked, “and what does it mean for you? Well, the legislators who crafted RA 9510 or the Credit Information System Act (CISA) have envisioned that the CIS will help improve the availability of credit because it will make credit cheaper. Through CISA, lenders will not have to rely too much on collateral, such as land, to ensure that borrowers are creditworthy.”
The Credit Information Corporation (CIC) is the Philippines’ sole public credit registry and repository of credit information. It has recently partnered with the Philippine Finance Association (PFA) to highlight the importance of credit information and ensure the growth and bankability of micro-, small, and medium-sized enterprises (MSMEs) by enabling and improving their access to formal credit.
“The CIC aims to mainstream the use of credit information in the finance and credit ecosystem. Ultimately, our goal is to eliminate the need for collateral to qualify for and secure loans by making the CIC Credit Report a widely-accepted form of reputational collateral, especially for MSMEs,” said Ben Joshua Baltazar, President and CEO of CIC.
MSMEs currently comprise 99.5 percent of the total businesses in the country. In 2020, they generated 63 percent of total employment in the Philippines.
The CIC’s credit information and reporting systems seek to address asymmetries in lending transactions. It helps facilitate more accurate credit risk assessments for lenders so they can avoid default payments. This, in turn, results in a lower overall cost of credit for MSMEs and individual borrowers.
A more comprehensive CIS under the CISA Law
The Credit Information System Act (CISA) establishes the need for a comprehensive and centralized credit information system for the collection and dissemination of fair and accurate information relevant to or arising from credit and credit-related activities of all entities participating in the financial system.
Under CISA, the operations and services of a credit information system can be expected to:
- greatly improve the overall availability of credit, especially to micro, small and medium-scale enterprises;
- provide mechanisms to make credit more cost-effective;
- and reduce the excessive dependence on collateral to secure credit facilities
More credit opportunities for NBFIs
Asialink Finance Corporation (AFC), a member of the PFA, also joined the webinar to discuss credit opportunities for non-banking financial institutions (NBFIs) that can help MSMEs recover from the crisis brought about by the COVID-19 pandemic.
“As we persist in our recovery from the global pandemic, NBFIs will continue to stand and support the resilient Filipino,” said Kevin Cabanban, Deputy COO for Sales and Marketing of Asialink Finance Corp.
NBFIs are financial institutions that do not have banking licenses and cannot accept deposits from the public but can offer services such as loans, insurance, and currency exchanges.
In support of the BSP’s financial inclusion agenda
According to Cabanban, NBFIs serve the unbanked and underserved Filipinos (which includes MSMEs) in support of the Bangko Sentral ng Pilipinas (BSP)’s financial inclusion agenda.
“From BSP’s agenda of financial inclusion for all Filipinos, NBFIs are poised to be end-to-end economic drivers. When we help a business with their cash flow, we keep them operational and we help them grow and succeed. In turn, its employees can keep their jobs which cover their personal and family needs. And so, the cycle of economic activities from families to their communities continues,” Cabanban explained.
The BSP’s Digital Roadmap aims to onboard 70% of Filipino adults to the formal financial system by 2023.
Other initiatives to improve MSME access to financial services
In a statement, Baltazar shared that the CIC continues to explore potential areas for collaboration with various government agencies, who share the same mandate and the same goal of improving access to finance for MSMEs.
Last April, the CIC directed BSP-accredited digital banks to register as submitting entities to further accelerate financial inclusion and to contribute to the overall availability of credit, especially for the unbanked, which lack a formal credit footprint.
The CIC is also currently implementing its Direct to Consumer (D2C) program, which provides MSMEs and individuals with ready and immediate access to their CIC Credit Reports through their preferred Accessing Entities, such as banks and lending companies.