Philippine microfinance has over the years developed from an emergent industry into one of the most powerful instruments against poverty. The latest data show microfinance institutions (MFIs) in the country now impact the lives of more than 30% of poor Filipinos. Other statistics illustrate that MFIs have empowered more than five million families or above 2.2 million Filipinos with the means to liberate their lives from the overwhelming grasp of poverty.

These successes would not have been attained if not for the foresight, dedication and diligence of our microfinance practitioners. However, as world events like the crisis in India show, the growth of microfinance in any country must be backed by efforts to achieve sustainability. Borrowers in India have become overwhelmed with debts as they spent money on household expenses instead of using the loans to start businesses. Hence instead of earning profits, they became burdened with loans, and they merely worsened matters by borrowing from other MFIs to settle earlier debts.

Without adequate knowledge of clients, Philippine MFIs have also experienced multiple borrowing, and likewise face the threat of a microfinance crisis. Leading Philippine MFIs are now rising up to this challenge by working together to create a credit bureau that would provide the industry with indispensible information to avoid “over-indebtedness” and serve more Filipinos in destitute circumstances.

A credit bureau collects data from different sources to provide credit information, which could be used for purposes such as assessing the credit worthiness or the borrower’s ability to settle a loan.

Leonilo G. Coronel, managing director of Banking Association of the Philippines Credit Bureau (BAPCB), which is partnering with MFIs to bring about the bureau, said: “Lending without a credit bureau is like journeying in the sea without a lighthouse.”

Dr. Aris Alip, microfinance pioneer and founder of the Center for Agriculture and Rural Development Mutually Reinforcing Institutions (CARD MRI), added: “The establishment of the credit bureau can be taken in the context of responsible microfinance to help the poor.  We must avoid over-indebtedness and credit pollution because these defy the reason for which microfinance was established, and that is to improve lives.”

Pilot test phase

The formation of the credit bureau is being organized by leading MFIs like CARD MRI, Ahon sa Hirap, Inc. Foundation (ASHI), Taytay sa Kauswagan, Incorporated (TSKI), ASA Philippines Foundation, and LifeBank Foundation in partnership with the Rafael B. Buenaventura Microfinance Center and the BAPCB.

As of this writing, the Microfinance Data Sharing System (MIDAS) is being tested with information on MFI clients in Panay Island. The pilot test phase was formally launched on May 16 at the Eco Village Resort and Convention Center in Boracay.

“We are at the laboratory stage. We are already testing,” said Coronel. “There is a technical working group that has decided what kind of data they are willing to share, and how often they are going to share. And what kind of output they will get from the credit bureau.”

Events leading to the testing started in early February this year with a planning conference. The Memorandum of Understanding for the Microfinance Credit Bureau was signed on March 18. This was followed by a meeting of the credit bureau technical working group on March 25.

The accomplishments of the credit bureau will be conclusively assessed in September this year. “If after the reports, the MFIs give us the blessings, then we can say that there is a credit bureau tailored for the needs of the MFIs. We will then invite the other MFIs (to work with us) if they share the same vision,” said Coronel.

Tailor-made for MFIs

The credit bureau was designed by a technical working group with representatives from MFIs. It has hence been customized to make sure there is “no mission drift from the mission (of microfinance).”

“There is still that reaching out in trying to help people in need—which I think is very laudable,” said Coronel.

Credit information will be voluntarily shared by participating MFIs with each other. The reports will include data elements, including the name of the client, birth date, address, loan amount, and remarks from the MFI. The report can be accessed by authorized MFI workers online through MIDAS. The participating MFIs have access codes so they can log in to MIDAS should they need more data on a client. A functionality that differentiates it from traditional credit information systems is that it allows a user to search for information on baranggays, and not only on clients.

“Aside of checking the names of the applicants, it provides the names of borrowers at risk in each baranggay. The idea behind it to get a feel as to what are the problems that some of these individuals have encountered so we can help. If you are worthy to be assisted there will probably another program to help you, not the normal microfinance product,” Coronel said.

The credit bureau does not regard defaulting clients negatively, and only classify them as “borrowers at risk” or “BAR”.  MFIs will use the gained knowledge on BAR to find solutions to help the clients.

Alip said: “The ordinary view in a traditional banking system is that delinquents are regarded negatively, but this is not consistent with our goal of helping the poor. The credit bureau provides us with an opportunity to help them so we must make best use of it.”

Rehabilitation company

Alip recognizes that the establishment of a credit bureau is not enough to be able to make sure that microfinance continues to provide the poor with financial services. He is working to bring about a rehabilitation company, which would strengthen the impact of the credit bureau by helping clients who are classified as BAR.

“We plan to establish a rehabilitation company for these clients so that they will be able to resuscitate their businesses and also learn financial literacy and credit discipline,” said Alip.

He added: “A loan default is not only because of the shortcoming of a client. It is also a shortcoming of the MFI. Perhaps we provided a loan without adequate information about a client. So the credit bureau also helps us by raising the standards of discipline and ethics among microfinance practitioners.”

Alip shared that CARD MRI already has its own rehabilitation program and “it’s working.”

“The clients are coming back,” said Alip. “So we plan to take it to the next level and make it a company. We must not merely ignore them because if this happens, then they will be disgraced by their inability to settle their loans, hide, or lead lives that would make them or their children become the ills of society. So instead of contributing to this problem, we have to help them.”

“As microfinance practitioners, our essence of being is poverty alleviation so we have to help the poor.”

[PinoyME contributed to the setting up of the microfinance credit bureau by introducing BAPCB to the MFIs during its policy conferences. It was also during the conferences when several policy issues on the mechanics of establishing a credit bureau were discussed.]