An ABAC PH & PERC Project

Credit Information: Fuelling Inclusive Growth and Development in the Philippines

With micro, small, and medium enterprises (MSMEs) being the backbone of long-term and sustainable economic growth and development in the Philippines, it is important to fuel their expansion in markets. MSMEs need infusions of financial capital and access to credit to scale their operations and grow their businesses. Everyday Filipinos can also use credit to maintain and improve their livelihoods, namely in housing, transportation, and more. However, national programs are needed and underway for credit surplus to fully meet opportune demand from Filipino businesses and individuals (BSP, 2023). In the Bangko Sentral ng Pilipinas’ (BSP) National Strategy for Financial Inclusion Report of 2023, despite banks being the top savings institution for 56% of Filipino adults, only 25% of Filipinos access credit through banks. Furthermore, MSMEs only account for 6.27% of total business loans. This exposes a gap between lenders and borrowers and limits economic-stimulating capital that could be utilized, which may potentially slow growth and development of Filipino businesses and individuals (Basu & Das, 2023; Gonzales & Corpuz, 2021; Llanto, 2015). This is not because lenders do not have credit to give, but (among others) they lack the necessary information to effectively and efficiently allocate credit to worthy borrowers. Ultimately, credit information is a necessity to inform lenders, empower borrowers, and develop financial inclusion and inclusive growth and development in the Philippines.

Credit information conveys the ability of a person or borrower to pay debt. Information traditionally consists of data from a borrower’s financial accounts, financial statements, and payment history (e.g., whether payments were on-time or delinquent), but other sources, such as insurance, utility, and telecommunications payments, have also generated relevant information. Credit information is digested into credit scores. Credit information and scores are then used by lenders to inform their assessment of the borrower before issuing credit to them. If one’s credit score is high, then lenders will perceive them as low-risk investments, and issue credit to them at lower rates. Without apt credit information and scoring, then lenders will perceive borrowers as high-risk investments, and limit credit allocations and/or charge high rates of interest — generally curtailing possible economic activity (i.e., lack of capital) and livelihood development (i.e., lack of loans for housing, automobiles, etc.). Therefore, ensuring complete, accurate, and updated credit data of borrowers can not only incentivize responsible finance by borrowers, but also, as a result, provide them justified access to credit.

To this end, APEC Business Advisory Council Philippines (ABAC PH) and Policy and Economic Research Council (PERC) have partnered to assess and enhance the Philippines’ credit information ecosystem. They are building on their work (with the Makati Business Club) published in 2020, which contextualizes the inadequacies of the current system and outlines urgent and important recommendations to improve it. Such work is driven by APEC and the Philippines’ shared advocacies for sustainable and inclusive growth. By working to guarantee that credit reporting and lending institutions can collect complete, accurate, and updated credit data, craft sound credit information, and digest appropriate credit scores, it is the aim of ABAC PH and PERC for Filipinos, especially MSMEs and women-led enterprises, to gain fair and sufficient credit access for them to fuel their own growth and development.

Author: Don Jaime Gaisano | Editors: Patrick Chua and Froland Tajale

This post is part of a series on the ABAC PH-PERC project to enhance the CIS of the Philippines.