Some Observations On Consumer Credit In The Philippines

Before retiring, I worked for most of my career in the U.S. as an  accounts receivable / credit and collections specialist. Decisions in which I participated regarding credit granting and collections were heavily influenced by credit bureau reports. And although I'm no longer involved in such matters in order to earn a living, I still try to stay abreast with events in the national economy both in the U.S. and the Philippines.  I've observed for example that the role of banks in consumer lending in the Philippines, especially to the growing the middle class has become far reaching. One such area is credit cards which as a finance tool is often high risk, as they are usually  not backed by any collateral.   Inasmuch as there's no credit bureau operating in this country at present, I've wondered how in the absence of such a data source, financial institutions here determine creditworthiness of credit card applicants, not just for Filipinos, but also for foreigners who are even less likely to have local  credit histories or references.

According to a reliable source in the finance industry here, a very important consideration is the applicant's relationship with the bank, regardless of his or her nationality.  This includes such criteria  as  the length of time that the customer has had a savings and /or checking account—and the size of balance that (s)he has carried—with that institution. And  even though the party may not have a credit history (and therefore references) from another bank,  if these other conditions  are favorable, bank managers may endorse the applicant for a card in order to also meet their marketing quotas.

Another basis for granting credit is one that is very much in tune with Philippine culture: patronage. If  an account holder has a good business relationship with the bank or close ties to the manager, and  based on that client's assurance of  another individual's good character and ability to pay his/her debts, the manager may endorse the third party for a card. (As an aside, I  personally know of situations where patronage has facilitated certain banking transactions.  The customers' requests were completely aboveboard, but due to various "official" bank restrictions  and requirements that the clients didn't meet, they would have had a difficult if not impossible time completing these transactions without an inside connection to go to bat for them). Finally,  sometimes just to meet their sales quota, managers themselves will even solicit those clients who have not expressed interest in a credit card into applying for one anyway.

Fortunately, a credit bureau is scheduled to begin operations in the Philippines in 2015. I believe that when that happens,  it will be a significant step forward in the rationalization of  credit granting by local lenders in determining  consumers' and business' reliability based on their finance track records and in turn, facilitating the reporting of their pay habits in the repayment of  their debts to other prospective creditors. Also, a credit bureau will likely become  become an important source of information to lenders for locating debtors who have skipped out on their financial obligations.  IMO all these components will bring about more sensible and objective credit granting policies by financial institutions, which as a result  will ultimately benefit both lenders and borrowers alike.