November 14, 2021

BSFIs should examine borrowers in a ‘holistic and responsible manner’

Getting a loan is hard for small borrowers owing to lack of sufficient documentary criteria but the Bangko Sentral ng Pilipinas (BSP) said its regulated institutions should examine applicants in “a holistic and sensible manner”.

“This entails appropriate consideration of the prospective borrower’s other debt obligations and repayment history and an assessment of whether the loan can be expected to be repaid from the borrower’s own resources without causing undue hardship and over-indebtedness,” BSP said in a reply to emailed questions from the Philippine News Agency.

Normally, borrowers are expected to produce, among others, job records as confirmation of their monthly income inflow.

However, the central bank said BSP-supervised financial institutions (BSFIs) “may carry out proper verifications of borrower’s credit applications and repayment records.”

The Philippines currently does not have a centralized credit risk database (CRD) that can assist lenders in easily checking borrowers’ credit risk levels.

But this will be rectified once the BSP, with the support of CRD Japan, has concluded with the establishment of the country’s CRD.

The BSP and CRD Japan intend to finish by December this year the year-long gathering of data needed for the CRD and the creation of the credit scoring model starting at the end of this year.

“This is believed to resolve SME borrowers’ lack of collateral or weak credit history, and support banks’ credit assessment,” the BSP added.

Sans the CRD, the central bank stated certain banks are presently cooperating with numerous private credit bureaus like TransUnion, CIBI, CRIF, and Compuscan in gathering credit data.

Banks that do not have access to these credit agencies may utilize alternative credit data sources, the BSP added.

“The BSP supports the use of alternative sources of credit data as (a) basis for credit evaluation to ensure that borrowers, including micro, small and medium enterprises (MSMEs), who have no credit profile based on credit registries, are not significantly disadvantaged from getting credit,” it said.

The central bank said BSFIs “must explicitly describe and document the process for arriving at such (a) disposition and an appraisal of how much reliance or value was put into the financial information used.”

Microloan borrowers are exempted from providing financial information if the application fits the stipulated conditions under present legislation, it noted.

Other exemptions allowed by the BSP include the submission of income tax documents on certain credit exposures like loans to registered Barangay MicroBusiness Enterprises (BMBEs), loans to individuals not required to file income tax returns under the regulations of the Bureau of Internal Revenue (BIR) or for the loans not exceeding PHP3 million, and loans to startups during the first three years of their operations or banking relationship.

Smile API chief executive officer (CEO) Jerome Eger earlier released the results of a survey they performed earlier revealing that on average for every 100 employees in a company, there are roughly three to five requests for employment certificates every week.

Although this request is part of the duty of human resource professionals, Eger stated this “takes company time that can be better employed for other business matters.”

“While they need to do this, this process has no value for the employers,” he stated in a recent virtual briefing.

Smile API is a digital platform using an application programming interface (API) that hastens loan application processes within a few seconds by supplying borrowers’ data.

Individuals need to register first through the Smile API app using the companies they usually deal with.

They need to agree for their encrypted employment data to be transmitted from their employer over the Smile API to the firm they are applying for a loan from either a bank or a vendor.

Eger claimed Smile API will not keep on to this data once it has been provided to the lending firm hence, individuals do not have to worry about data security.

“Smile is not a data firm. We are an infrastructure firm that is offering access to this information,” he stated.

Eger said their service supports the government’s financial inclusion effort by allowing borrowers access to finance despite the lack of credit rating data that lenders need.

“Employment information is something that is automatically created and gives extremely valuable information and Smile API provides this value information to new fintech firms who target the unbanked, underbanked, or those who have no access to these financing services,” he added.

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