Upgrading the Philippine Credit Information System

UpgradingthePhilippineCreditInformationSystem

Nov24,2020

AboutUs

PERCisanon-profit,non-partisanpolicyresearchanddevelopmentinstitutiondedicatingtoincreasingfinancialinclusionthrough

informationsolutions

PERCSupporters

Foundations NGOs International U.S.G. Associations Industry

WhereWeWork

2015CebuActionPlan

Pillar1:PromotingFinancialIntegration1.APromoteanenablingfinancingenvironmentfor

MSMEs,includingtrade,supplychain&alternativefinancingmechanisms.• Establishlegalframeworksforcreditinformationsystems(CIS)basedonWorldBank’sGeneralPrinciplesofCreditReporting.

PatrickChuaisLeadStafferfortheAPECBusinessAdvisoryCouncil(ABAC)Philippines&Programs/ProjectsatMakatiBusinessClub

CISisVitalFinancialInfrastructure

• Creditinformationsharing:• Reducesinformationasymmetries• Avoidscreditrationing• Allowsrisk-basedpricing

• Djankov,McLiesh,Shliefer (2007)foundthatPCRswerenotstatisticallycorrelatedtoincreasedprivatesectorlending• PERCresearchfoundthatevery10%riseincoverageofanation’spopulationinafull-filePCBisassociatedwitha6%increaseinprivatesectorlendingasashareofGDP

PhilippineContext

CreditInformationSharingAct

• Passedin2008• Legitimategovernmentinterventiontomarketfailure• Previouslawpermitted(butdidnotrequire)entitiestoreportcreditdata,whichcreatedsilos• CreatedCICtobecentralrepositoryofcreditinformationinPhilippines

PerformancetoDateofCIC• 534SubmittingEntities• Increaseinquantityofdata• UseofCICdatagrowing• Directaccessconsumerportal• Challenges:• CICindualroleasregulator&competitor• Dataquality• Enforcingcompliance• ConflictofinterestwithCRIF

KeyFindings

CIC’s“identitycrisis”mustbefixed

GovernmentshouldboostfundingforCIC

BSPmaybebetterregulatorofCIC

CICdataqualitymustbeimproved

CICaddingvaluedespiterealconstraints

CICbestastraditionalPCR

KeyFindings

CIC’s“identitycrisis”mustbefixed

• JustwhatistheCIC?• Publiccreditbureau?

• Offerscreditreportstoconsumers• Positionedtoofferothervalue-addedservices• ViewedbySAEsas“effective”competitor

• Publiccreditregistry?• Datausefulforbankingsupervision• Datausefulforeconomicpolicy

• Regulator?• AuthorityoverSAEs(licensing)• EnforceprovisionsofCISA(reportingmandate)

Inmarkets,perceptionineverything.GreatuncertaintyaroundroleofCICcreatesconfusionandunderperformanceinmarkets.Clarificationofrole

ofCICwillincreasebusinesscertaintyandmarketperformance.

KeyFindings

CICbestastraditionalPCR

• CISAwasresponsetomarketfailure,butroleshouldberedirected• Consumercreditdataunder-reportedinfaceofstrongdemand• Mandatoryreportingwas/isessentialinCIS• Othermodelsformandatoryreporting

• ConsiderableliftfromCICastraditionalPCR• GranulardatausefulforBSPforprudentialregulation• Datausefulfordescriptivestatistics(predictive)• Datausefulforeconomicpolicy

• Regulatoryauthoritymadeclearer• BSPhasstatusasregulatorwithSEs

Needforpro-active,robustPCRheightenedby2008FinancialCrisis/GreatRecession.PCRsaroundglobebeingenhancedasresult.

KeyFindings

GovernmentshouldboostfundingforCIC

BSPmaybebetterregulatorofCIC

• OverwhelmingmajorityoftraditionalPCRshousedwithincentralbank

• FunctionsoftraditionalPCRprimarilybenefitscentralbank

• ICCRofIFC/IMFprimarilycomprisedofcentralbanksfor90%ofglobe

• NeedtogeneraterevenuedirectlylinkedtoperceivedcompetitionwithSAEs

• SystemicunderperformancedirectlylinkedtobusinessuncertaintyaroundroleofCIC

• FunctionsoftraditionalPCRevidentlyunder-developedwithinPhilippines—greatboosttoCISecosystemandfinancialsectorfromCICasPCR

• CISiscriticalfinancialinfrastructure—valuetoeconomysignificantandwarrantssecurefunding

KeyFindings

CICdataqualitymustbeimproved

CICaddingvaluedespiterealconstraints

• Reportedconcernsoverdataqualitycomplex• Affectinguptakeanduseofcreditdata• CICnottotallytoblame

• SEsmaybeunder-reporting• CICcannotreallyenforcemandate

• Otheroptions• MandatereportingtolicensedSAEs• CICunderBSPmayenhanceenforcement

• Mustrememberbaselineofpre-CICPhilippineCIS• Dramaticimprovementsinbothquantityofdatareportedandqualityofdatareported

• IncrementaluptakeinuseofCICdatabylenders• Tier3lendersnowaconsideration(e.g.MIDAS)• Increasedpublicawarenessofimportanceofcreditreportforaccesstofinance

• CICdesigninCISAallbutensuredsuboptimaloutcome(couldnotbeforeseen).

PolicyImplications

CISAmustbereformedCISsystemcannotbeallowedtocontinueunderperformingFilipinos,MSMEs,entirefinancialsectorisaffected

ReformmustbecomprehensiveIssuesinCISareinter-related&interactwitheachotherPiecemealapproachtofixingsystemunlikelytosucceed

ReformnowPhilippineslosingoutonmillionsinGDPRecoveryfrompandemicisjeopardized