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CIC and the road to bridging the credit information gap

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By Christine Joyce S. Castañeda, Senior Researcher

“THE MORE information [and] the more open the information is, then the more protection there is for both the borrower and the lender…”

These were the words of Jaime P. Garchitorena, president and chief executive officer of state-run Credit Information Corp. (CIC). He was referring to the CIC’s mandate to create a “transparent environment” for both borrowers and lenders to help address the problem of “information asymmetry” wherein an inefficient or failure of a transaction occurs due to one party having more or better information than the other.

The CIC was created in 2008 when Congress passed Republic Act 9510 or the Credit Information System Act, which mandated the establishment of a centralized Credit Information System (CIS) to provide a reliable source of borrowers’ credit standing and track record. Specifically, the CIC acts as the central repository of credit information, receiving and collating both positive and negative credit data from submitting entities such as banks, quasi-banks, investment houses, cooperatives, micro-financing organizations, credit card companies, insurance firms and government lending institutions.

CIC started collecting data from submitting entities in 2015 when it got the bid for its credit information system. As of last year, the CIC’s database has been live, receiving over three million requests for credit reports from financial firms.

Mr. Garchitorena said over the past three years, the CIC has been dealing with “subsets” that include universal banks, commercial banks, and credit card companies. However, he explained that this may not be representative of the lending population as an individual may have multiple loans in different banks.

“[J]ust because we onboard more submitting entities, that doesn’t mean we’re actually onboarding more data subjects…,” Mr. Garchitorena said.

Mr. Garchitorena explained that the concept of individual data subjects “is really premised upon the absence or presence of a super set.”

“For example, if the super set is SSS (Social Security System) because it has 15 million members… that have loans… then every other loan that anyone else has ever given [that] is predicated on the existence of a job, and therefore an SSS number, will already be subsumed in that super set,” Mr. Garchitorena said.

The CIC looks to end the year with nine million data credits, a figure which it believes is doable as they plan to onboard large government-owned and-controlled corporations (GOCCs) such as the Government Service Insurance System (GSIS) and SSS.

“We think just the onboarding of the GSIS and other lenders within the traditional lending space should be able to push us easily into that nine million…,” Mr. Garchitorena said.

The CIC database has 8,508,130 “unique individuals/borrowers” and 42,466,147 total contracts as of July 31 this year, according to CIC Senior Vice-President for Business Development and Communications Aileen L. Amor-Bautista.

“This means that one borrower may have more than 10 loan contracts,” Ms. Amor-Bautista said.

The CIC also looks to expand its credit data by including microfinance institutions (MFIs) by onboarding the members of the Microfinance Information Data Sharing, Inc. (MiDAS), a credit bureau for MFIs in the country.

“We recently signed a memorandum of renewal of support with MiDAS, and they have committed to us that all of their members will be submitting data to the CIC and that alone… is already another eight million data subjects,” he added.

According to Mr. Garchitorena, having access to microfinance data would help “complete the picture” of the country’s lending space as there “might be very little” overlap between microfinance and the more formal lending institutions.

“In microfinance, there is a lot of low-level… [and] small-value lendings… and those that borrow… are probably not customers of banks, credit cards, etc.,” he said.

PROTECTION FROM OVERINDEBTEDNESS, INFORMATION ASYMMETRY

The lack of a centralized credit registry led banks to resort to different credit bureaus, which include, among others, the Credit Measure Association of the Philippines (CMAP), which serves as repository for legal or court cases file, and the BAP Credit Bureau, which is available only to members of the Bankers Association of the Philippines.

The efforts the CIC has put in collecting the necessary credit data have started to bear fruit.

Chamber of Thrift Banks (CTB) President Cecilio D. San Pedro said that the CIC’s database has been beneficial for its member banks.

“The CIC’s Credit Information System addresses the problem of information asymmetry, which is especially true in lending to the micro, small & medium enterprises… This can then address the risk factors that exist in granting of credit and therefore allows the banks more flexibility in lending to prospective borrowers,” Mr. San Pedro said in an e-mail.

Mr. San Pedro added that the credit registry has become “more important” given financial institutions’ adoption of risk-based pricing, which is used by lenders in determining interest rates and loan terms based on the borrower’s creditworthiness.

“Having a comprehensive database will allow financial institutions to have a view of a borrower’s full credit history rather than just relying on the form that the borrower fills out and the limited information currently available. It will help eliminate doing backyard research tactics (i.e., calling each other on whether a borrower has existing loans in other banks) commonly practiced among banks prior to CIS,” Mr. San Pedro said.

“I can therefore say that the CIS has helped our members expand their markets and is an effective tool in financial inclusion, a major advocacy of both the BSP (Bangko Sentral ng Pilipinas) and CTB.”

For Bank of the Philippine Islands’ (BPI) chief risk officer Marita Socorro D. Gayares, the CIC is an “enabler to financial inclusion.”

“[The CIC] will give existing and prospective clients equal opportunity to avail of our loans,” Ms. Gayares said.

“Moreover, access to ‘on-demand, summarized and scored’ credit reports from various credit bureau systems will aid the bank in shortening the time spent on credit evaluation,” she added.

According to BPI’s Ms. Gayares, the BPI group — which includes BPI Corporate, Business Bank, Credit Cards, BPI Family Savings Bank, BPI Leasing, and BPI Direct BanKO — have been submitting basic credit data to the CIC since January 2016. Meanwhile, BPI has already accessed credit reports since April 2017.

On the other hand, 21 out of the 42 CTB-member banks have been submitting borrowers’ credit data as well as accessing the system, while another 15 are still in the process of completing their requirements as of July 24, according to CTB’s Mr. San Pedro.

CHALLENGES

CIC’s Ms. Amor-Bautista explained that the concept of a public credit registry is not a new one.

“This credit information sharing ecosystem has always been there, even in the 1950s… Organizations like the World Bank have encouraged developing economies to adopt the same practice of developed economies and have that credit information sharing data environment,” she said.

The government created the Credit Information Bureau in the 1980s to address these needs, but according to Ms. Amor-Bautista, it was not really effective as the submission of data was not made mandatory, resulting in incomplete or the lack of data.

“[There] was only negative database… as opposed to full file credit reporting, meaning you can see the good monthly payments as well as the default payments… [and] the track record of an individual or borrower because in that case, you can provide more good credit package or options for the borrower,” she explained.

Even with the CIC’s establishment in 2008, it was only in 2011 when it started on setting up logistics. Up until 2013, much of the time was spent on scoping for the system and setting up logistics.

“The CIC is required to receive data from literally all financial institutions that are covered by the law… To do that, you need three things: one is a place to do business, two is people to conduct the business and three, the technology to process and store the data properly. In the life cycle of the CIC, getting to that place where we had even enough people to begin procuring the system took a while,” Mr. Garchitorena said.

“While we receive funding from the national government, it was up to us to compete in the industry for headcount. It was up to us to find the right people.”

Mr. Garchitorena added that the system had to go through the normal procurement process, which, he said, is not the quickest way especially within government regulations.

“It took about six months to build the system when it was delivered to the CIC and then within six months of building the system, we had already issued the circular to gather data, but the issue of submitting data to a government [corporation] was not as cut and dried as the law has envisioned it to be,” Mr. Garchitorena said.

“From that point on, it became a matter of promoting… and building trust with the CIC… That time, it didn’t make sense because we didn’t have the headcount to manage that kind of activity. Those are just the internal challenges based on what might be considered a start-up business.”

Mr. Garchitorena likewise recounted the “operational stuff” that made it difficult for the data aggregator.

“All banks and financial institutions have their own processes and timings or whatever regulatory submissions they have with the BSP. For them, the CIC is just another regulatory agency that they have to deal with… [and] I consider it to be worse for us because not only were we asking for the details of their clients, we were actually telling them to change some of their practices in terms of data collection like being very specific about you must collect a TIN (tax identification number), an SSS or GSIS number that was a very crucial in the process.”

Another challenge for the CIC is ensuring the security strength of the database amid threats of cyberattacks.

Mr. Garchitorena said that hackers mostly want to hack only two types of entities: the government and a financial institution.

“The CIC falls squarely within those two best targets,” Mr. Garchitorena said.

“The CIC implements security standards to the highest degree that we possibly can and have also ways to mitigate risks in case there are, if there are breaches then we are under the obligation to report to the National Privacy Commission,” he added.

“We have services that monitor the system usage 24/7. We have threat mitigation services from various service providers around the world to help us in threat detection and threat anticipation,” Mr. Garchitorena said while adding that their system also go through multiple security audits by both foreign and local auditors.

OTHER INITIATIVES

Aside from onboarding credit bureaus and lending firms, Mr. Garchitorena said the CIC is looking to improve its distribution and internal processes.

“The CIC’s mandate is very specific and because of technology, we’d like to keep the CIC’s footprint very small. We only do one thing, one is we receive the data, we process the data and make it available, we don’t provide credit score. That aspect is done by our accredited credit bureaus,” Mr. Garchitorena said.

“Think of us as a wholesale supplier of ingredients… [and] our accredited credit bureaus as a retail seller of either raw ingredients or finished product,” he added.

Currently, there are four official credit bureaus or special accessing entities namely local firm CIBI Information, Inc., South Africa’s Compuscan, Italy’s CRIF S.p.A, and United States’ TransUnion Information Solutions, Inc. As of August 22, CIBI and CRIF had already completed the SAE Security Audit so financial institutions authorized to access data from CIC can also start transacting with them.

Nevertheless, one initiative that they are looking at focuses on assisting overseas Filipino workers’ (OFWs) credit scores in the country.

“We’re working with some of our credit bureaus to develop platforms and systems to be able to allow OFWs to get an indication of their creditworthiness from the Philippines. Whether that’s in the form of a credit report, or terms of a credit score or any type of value added service, we leave that up to the credit bureau to help us decide,” he said.

“One of their biggest problems is they are either migrating or working there, they want to buy a home or a car, but they can’t because they don’t have credit so where do they get their testimonies of credit worthiness? It should be from us,” he said.

According to Mr. Garchitorena, the CIC is looking into having a “credit score exchange” wherein one’s credit score in the Philippines has an equivalent credit score in another country

“That’s very exciting to me because if a Filipino has a good credit score here, and that there is a credit bureau that has an office here and in Singapore, for example, then he can draw his credit report and score here, bring it to that credit bureau in Singapore and get that translated or exchanged like a currency exchange in Singapore,” Mr. Garchitorena said.

The CIC is 60%-owned by the government while the remaining 40% are held by BAP, CTB, the Rural Bankers Association of the Philippines, Philippine Cooperative Center, and the Credit Card Association of the Philippines.

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