ADB, World Bank arm may invest in proposed credit info bureau

The Asian Development Bank (ADB) and the World Bank’s International Finance Corp. (IFC) are expected to invest in the proposed credit information bureau when Congress passes the enabling legislation.

The Bangko Sentral ng Pilipinas (BSP) said both the ADB and the IFC have expressed interest in the bureau although no specific terms or actual levels of participation and investments have been discussed.

Over the long term, BSP officials said the credit bureau would be allowed to go public and make an initial public offer before listing at the Philippine Stock Exchange.

"The ADB and the IFC are just the first two institutions that have expressed interest in the credit bureau if and when it is created," said BSP Assistant Governor Nestor Espenilla. "They have been supportive of this effort since the beginning when we were conceptualizing it."

Under the proposed Credit Information System Act (CISA) now being discussed in Congress, the proposed credit bureau would be created with the BSP initially owning up to 49 percent.

Espenilla said the BSP would own this much to start up the bureau while keeping it private instead of a public corporation.

"The other owners would be multilateral financial institutions, related industry associations and other entities as may be allowed by the Monetary Board," Espenilla said.

Ultimately, Espenilla said the BSP holding in the credit bureau could be reduced down to one seat in the board of directors. "This corporation could even go public in the future," he said.

According to Espenilla, it would cost at least $2 million to initially set up the bureau and both the IFC and the ADB are interested in participating. "Once the law is passed, this can be done within six months," he said.

Espenilla said the bureau would be the repository of all relevant credit information including tax and insurance history to provide a more comprehensive profile of individual and corporate borrowers.

The bureau would also be capable of dealing not only with corporate and individual borrowers but also with microfinance borrowers.

Espenilla said the information warehoused with the credit information bureau would be held for at least seven years. This means that delinquent borrowers that have maintained a clean credit history for seven years would have their older records updated and deleted.

"When this bureau is set up, the impact would be to lower the interest on borrowing, including credit card loans," Espenilla said.

Espenilla said banks and lending institutions will be able to make the distinction between good borrowers and bad borrowers, giving better terms to good borrowers and making bad borrowers pay more for their credit.

"This way, good borrowers will no longer pay for the risks created by bad borrowers," he said.

However, Congress is still sorting through a provision in the proposed law that would require the credit bureau to exercise "extraordinary diligence" in the collection of credit information on both corporate and individual borrowers.

Instead of setting severe standards for credit profiling, the BSP wants borrowers to instead have access to their own credit history and be given the recourse to correct erroneous entries.

Although there was a general agreement on the necessity of setting up a credit information bureau, there were initial disagreements over the provisions that would ensure consumer protection.

One of the proposals was the provision that would allow the proposed credit information bureau access to borrower information and to collate and organize the data to formulate individual credit profile of borrowers.

As a safeguard, however, the proposal was to require the bureau to exercise "extraordinary diligence" in its credit profiling, to ensure the quality of information.

According to the BSP however, "extraordinary diligence" was an unusually severe standard that would ultimately discourage the private sector from engaging in credit information.