BSFIs should assess borrowers in ‘holistic and prudent manner’

By Joann Villanueva

November 12, 2021, 5:10 pm

MANILA – Getting a loan is hard for small borrowers due to lack of necessary documentary requirements but the Bangko Sentral ng Pilipinas (BSP) said its regulated institutions should assess borrowers in “a holistic and prudent 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 required to submit, among others, employment records as proof of their monthly cash inflow.
However, the central bank said BSP-supervised financial institutions (BSFIs) “may carry out adequate verifications of borrower’s credit applications and repayment records.” 
The Philippines currently does not have a centralized credit risk database (CRD) that will help lenders easily check borrowers’ credit risk levels. 
But this will be addressed once the BSP, with the help of CRD Japan, has finished with the establishment of the country’s CRD. 
The BSP and CRD Japan aim to finish by December this year the year-long collection of data needed for the CRD and the development of the credit scoring model starting at the end of this year. 
“This is seen to address SME borrowers’ lack of collateral or thin credit history, and support banks’ credit assessment,” the BSP said. 
Sans the CRD, the central bank said some banks are currently working with several private credit bureaus like TransUnion, CIBI, CRIF and Compuscan in collecting credit data. 
Banks that do not have access to these credit bureaus may tap alternative credit data sources, the BSP said. 
“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 clearly articulate and document the process for arriving at such (a) disposition and an evaluation of how much reliance or value was attached into the financial information used.” 
Microloan borrowers are exempted from submitting financial statements if the application meets the prescribed criteria under current regulations, it added. 
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 disclosed the results of a survey they conducted earlier showing that on average for every 100 employees in a company, there are around three to five requests for employment certificates per week. 
Although this request is part of the job of human resource personnel, Eger said this “takes company time that can be better used for other business matters.”
“While they need to do this, this process has no value for the employers,” he said 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 providing borrowers’ data. 
Individuals need to register first through the Smile API app using the companies they regularly transact with. 
They need to agree for their encrypted employment data to be transmitted from their employer through the Smile API to the firm they are applying for a loan from either a bank or a vendor. 
Eger said Smile API will not hold on to this data once it has been submitted to the lending firm thus, individuals do not have to worry about data security. 
“Smile is not a data company. We are an infrastructure company that is providing access to this information,” he said. 
Eger said their business supports the government’s financial inclusion bid by providing borrowers access to financing despite the lack of credit scoring data that lenders need.
“Employment information is something that is automatically generated and provides very valuable information and Smile API provides this valuable information to innovative fintech providers that target the unbanked, underbanked, or those who have no access to these financing services,” he added. (PNA)