Phl needs central credit bureau to sustain gains

MANILA, Philippines - Despite being touted as a “breakout nation” because of its recent economic gains, the Philippines has yet to see a “more inclusive financial system” that reaches out to sectors in society that are not being served by the formal credit system.

“How can our nation sustain its economic momentum if majority of Filipinos continue to be shunned away by formal lenders just because they do not have a good credit history and are thus seen as risky business?” Jaime P. Garchitorena, officer-in-charge president of the Credit Information Corporation (CiC), said at a workshop on credit reporting held yesterday in Makati City.

Citing the results of a consumer finance survey by the Bangko Sentral ng Pilipinas, Garchitorena said eight out of 10 Filipinos remain “unbanked” and do not have deposit accounts, keeping them outside of the financial system and with no access to credit.

This segment of society, comprising 78.5 percent, is “marginalized by formal lenders” and have to resort to informal channels, like pawnshops, borrowing from friends, and loan sharks, he added.

“Given the recent gains in the economy, just how much more will the economy grow if we have a credit reporting system in place?” he stressed.

His views are shared by Colin Raymond, principal operations officer of the IFC, who said in his presentation that a robust credit reporting system can significantly improve the ease of doing business and access to credit in the Philippines. Citing the experiences of countries such as Egypt, Raymond said having a national credit information agency usually leads to a decline in non-performing loans and cross-lending or multiple borrowings, which ultimately reduces the cost of credit.

Senior officials from the United States Federal Trade Commission (FTC), which jointly organized yesterday’s workshop with CiC, also shared their experiences in the US market, where an advanced credit reporting system is in place.

Betsy Broder, the FTC’s Counsel for International Consumer Protection, said factors that make the credit reporting system in the US vibrant and responsive include product development, ongoing dialogue with stakeholders, consumer education, and enforcement.

Principles that are crucial to such a functioning system include accuracy, privacy, and fairness, she said.

“It’s important to stress that a working system is for their benefit. That everyone has a stake in the outcome,” she added.

CiC’s Garchitorena said building a credit reporting system is a participatory process, just like voting in the elections. “The CiC is only part of the ecosystem. Every citizen is a part of the process if it were to succeed.”

The CiC, which is 60-percent owned by the government with the remaining stake held by the private sector, intends to complete building a credit reporting and database infrastructure by late 2014.

Under Republic Act 9510, the law that created the CiC, all types of banks, insurance companies, credit card issuers, cooperatives, microfinance institutions and other institutions that extend credit are required to share their credit data with the CiC.