CREDIT awareness has not yet taken root in the Philippines and most of the population still depends on informal sources of credit.
In a virtual forum hosted by the Manila Times on Monday, the chairman and chief executive officer (CEO) of Credit Information Corp. (CIC), Ben Baltazar, said that “there is still a great reliance on informal sources of credit and this is kind of fueled by this negative stigma associated with credit as synonymous with financial difficulties, poor management and vulnerability, which shouldn’t be the case.”
CREDIT LITERACY Motivational speaker Ferdinand ‘Chinkee’ Tan, Manila Times columnist Ben Kritz, Times President Dante Francis ‘Klink’ Ang 2nd, Chairman and CEO of Credit Information Corp. Ben Joseph Baltazar and TransUnion Philippines President and CEO Nina Arellano chat during Times forum business on Monday, January 31, 2022. FACEBOOK LIVE SCREEN CAPTURE
Citing data from Bangko Sentral ng Pilipinas 2019 Financial Inclusion Survey, Baltazar said of the 41% of adults with loans, 54% took loans from informal sources. Only 3% borrowed money from financial institutions.
Baltazar said this was not surprising given the perception that borrowing from formal sources can be difficult.
“We at CIC believe that to remove that stigma, we want everyone to be credit aware and also care about credit and CIC provides a framework for that,” he said.
CIC is responsible for receiving and consolidating basic credit data from borrowers and lenders.
Baltazar said CIC has 131 entities authorized to access basic credit data for credit decisions.
The Crown corporation also produces the CIC Credit Report, which contains a borrower’s consolidated positive and negative credit data for all types of lenders.
In addition to providing a comprehensive summary of credit history, the report can also be used as a “reputation guarantee” to prove that one is a trustworthy borrower.
“Borrowers with good credit ratings have a better chance of getting their loan applications approved and those with poor credit ratings are also informed and guided towards improvement,” Baltazar said.
One of CIC’s special access entities is TransUnion, which uses alternative data to assess creditworthiness.
TransUnion President and CEO Pia Arellano said the results of the survey they conducted last quarter showed that more than half of millennials and Gen Z respondents believe access credit and loans is important to their financial goals.
But because the majority of people in the segment are new to credit, they also have the least access to it, Arellano said.
“New credit consumers are limited due to the lack of traditional credit information available on them,” she continued.
This prompted the company to explore alternative data for assessing creditworthiness, which includes mobile telecommunications data, bill payments and social media transactions.
“We tested various alternative data sources and identified that reimbursements and telecom carrier behavioral data were found to have the highest predictive power,” Arellano noted.
The company’s Credit Vision Link combines traditional and alternative data to assess creditworthiness.
“Based on our testing, integrating telecom data, such as mobile recharges, payments, usage, transactions, location, and device information, can really help improve creditworthiness. ‘an individual in this new segment of credit,’ she said.
Arellano debunked the perception that having credit is bad.
“Credit is actually a good thing. It can open doors to opportunities. The sad reality is that many Filipinos usually resort to the black market…so the important thing is to really get them into the economy formal credit,” she said.
“Credit equals opportunity in the new normal, so we really need to educate Filipinos to protect and manage their finances,” Arellano added.
Renowned wealth management coach Chinkee Tan also pointed out the difference between having good debt and having bad debt.
“When you talk about good debt, you’re borrowing money to increase your income…and then when you’re borrowing money to pay it back…anything that won’t bring you income is considered bad debt,” Tan said.
He explained his concept of the wealth quadrant which is learning how to earn, manage, grow and protect.