The Value of Reliable Credit Information

Credit is the oil that fuels the economy, and the ability to borrow money is largely affected by one's perceived creditworthiness or supposed ability to pay back.

In a recent meeting on microfinance, we discovered that there are hundreds of billions of money available for micro-lending, but only P43 billion has been actually lent out. Why?

At present, there is a lack of comprehensive and credible credit information. In order to assess a person's creditworthiness, lenders have to gather vast amounts of information. This is both difficult and costly. Worse, information gathered may either be incomplete or erroneous.

Lenders, as a result are constantly exposed to excessive and unnecessary credit risk. Credit becomes costly, if not inaccessible to small borrowers who are required to present valuable physical collateral first. And after a long and tedious credit application, borrowers are charged with high interest rates. This often leaves small borrowers - the masses, starting entrepreneurs and small-scale businessmen - at the mercy of unscrupulous loan sharks.

Recently the Senate enacted the establishment of a Credit Information Corporation.

The Credit Corporation will gather credit information from financial institutions such as banks, credit card companies, and government lending institutions. In effect, financial institutions will consolidate their records and contribute credit information on consumers to the system. It will cover all borrowers, and gather both positive and negative information.

Its greatest benefit is making credit more available, especially to small yet responsible borrowers, as their good track record in paying their obligations will be made known to the financial institutions.

Not only will it lower the cost of credit and reduce the reliance on physical collateral to secure credit, but it will also give lending institutions access to reliable credit information to help them manage credit risks better.