Study presses for review of credit information system

The Philippine credit information system needs to be upgraded and reformed, starting with addressing the confusion over the “dual role” of the Credit Information Corporation (CIC) as both a regulator and a competitor, according to a new research study.

The paper, jointly developed by the Makati Business Club (MBC) and US-based think tank Policy and Economic Research Council (PERC), identified the perceived dual role of the CIC as one of the major concerns affecting its performance.

Michael Turner, president of PERC, said in an online presentation that the CIC has made significant contributions to the financial and credit ecosystem despite facing real constraints. Among others, it has successfully reached out to micro-finance institutions and widened access to credit especially for micro, small and medium enterprises.

But there is still enormous potential to develop the credit information system for greater access to affordable loans and overall economic gain, he added.

He said PERC research has found that “for a 10% increase in coverage [of a nation’s population] through private credit bureaus, the lending in the private sector was able to grow by 6%.”

Joel Arzaga, lead researcher of the MBC-PERC study, said in the same e-forum that the CIC, in functioning as both public credit registry (PCR) and private credit bureau (PCB), creates the perception it is in competition with PCBs.

“This concern ultimately boils down to and reflects the apparent confusion with regard to the mission of the CIC,” Arzaga added.

The CIC’s mission, vision and mandate must be clearly defined in order for key stakeholders and policymakers to better understand its role, said the study.

A credit registry is an information repository where all information about existing as well as new borrowers is stored. A credit bureau, on the other hand, is a privately operated agency that collects and researches individual credit information and sells it for a fee to creditors so they can make a decision on granting loans.

This “identity crisis” of the CIC needs to be fixed, said Turner. “Great uncertainty around the role of CIC creates confusion and underperformance in markets. Clarification of the role of CIC will increase business certainty and market performance.”

Under the Credit Information System Act (CISA) of 2008, the main role of CIC-the government owned and controlled corporation tasked to establish a credit information system in the Philippines-is to be the central repository of credit data.

The study said that from its analysis and interviews with stakeholders, the CIC would function best as a traditional public credit registry.

The study suggested the agency focus on its core activities: closing data gaps resulting from underreporting, gathering consumer credit data, generating and publishing statistics, informing monetary policy, and ensuring the safety and soundness of the Philippine financial sector.

At the same time, the CIC should improve its data accuracy and sufficiency. Turner said concerns over data quality affect the use of credit data, but added that CIC is “not totally to blame.” Data quality is also undermined by under-reporting, the inability of CIC to fully enforce its mandate, and inadequate funding.

“There is a need to create a dedicated unit to monitor compliance of the submitting entities with a more aggressive approach in imposing sanctions for non-complying entities,” said Arzaga.

The government should likewise boost funding for CIC to be able to carry out its functions as a public credit registry, the study authors stressed.

Being forced to generate revenue by producing credit reports and offering similar products to sustain itself distracts the agency, while also feeding the perception it is competing with private credit bureaus, they pointed out.

The study likewise posits that the Bangko Sentral ng Pilipinas (BSP) “may be a better regulator of the CIC” than its current supervisor, the Securities and Exchange Commission, noting most of the traditional public credit registries are housed within the central bank.

In addition, BSP is collecting data and expanding data access in ways that seemingly overlap with the data already being collected by the CIC. BSP data can also be used to cross-reference CIC’s collected data to ensure compliance and quality of data.

And under BSP’s supervision, the result might be “a better performing” CIC with a stronger role as a public credit registry, an increased compliance because of the trust already reposed with the BSP, and reduced business uncertainty.

The issues with the current setup of the credit information system, if properly addressed, could help foster a robust credit information sharing system in the Philippines, said the study.

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