Manila Times: Better safe than sorry

The times, they are a-chan-gin,’ as the legendary crooner Bob Dylan used to sing. Well, right now, the rural banking industry is likewise in the midst of change, especially when it comes to a collective mindset among rural banks that encourages prudence to go along with the unyielding dream of expansion. These two things need not contradict each other, but should in fact go hand in hand, now more than ever.

As recent as five years ago, there were only 12 rural banks that have enrolled in the Negative File Information System (NFIS) of the Bankers Association of the Philippines (BAP) Credit Bureau. The NFIS is a computerized negative information system that provides member-banks with data of more than four million borrowers’ and clients’ adverse records. By the end of 2011, 77 rural banks are enrolled in the system, a hefty five-fold increase.

Over the last five years, the number of rural banks utilizing the Bankers Association of the Philippines (BAP) Credit Bureau’s NFIS has grown almost five-fold with 77 rural banks now enrolled and 51 rural banks actively using the system. There has also been an almost nine-fold increase in the number of credit inquiries by rural banks. In terms of the number of active users, the numbers rose from 11 to 51, with the number of inquiries jumping from 5,228 queries in 2007 to 44,909 queries as of last year. This year, the numbers are expected to further increase.

These data clearly show the great importance rural banks are placing on having a reliable access to information about bank clients, specifically about their credit history. In fact, Leonilo “Topper” Coronel, managing director of the BAP-Credit Bureau, pointed out that some commercial and thrift bank clients, with poor repayment histories, are increasingly attempting to borrow from rural banks. Suffice it to say that if it was not for the data provided by the bureau, this type of clientele might have also “made the rounds” in some rural banks. The potential risks associated with these types of borrowers would not have been exposed.

Awareness and self-protection from clients with bad credit history have always been present among companies involve in lending like banks. Their primary tool is their own credit investigation. Now, the faster and better way to do this is to have a readily available system that presents the data to all types of banks.

How does this work? Borrowers with delinquent loans with rural banks who attempt to obtain additional loans from other banks, including commercial and thrift banks, would be flagged in the NFIS. Since all commercial and thrift banks now access the NFIS, and normally require all outstanding delinquent loans to be repaid first, rural banks naturally benefit from sharing these accounts as a way to improve their loan collection efforts, according to BAP-Credit Bureau Manager Manuel Batallones.

Once a rural bank has access to the NFIS, it enjoys protection against credit applicants who have bad loan records in commercial, thrift or other rural banks, because it can verify a particular client’s record. Not only that, the processing of loan applications also becomes faster as a rural bank can approve or disapprove a loan application in just a few hours. The credit profile of a particular loan applicant would now be immediately known and the rural bank can make a quick decision on the application.

But while we have tackled the benefits of the NFIS, what about the rates? Surely enrolling and accessing such an important system would cost some. That would be understandable. But to the pleasant surprise of the entire industry, I should say, it is so cheap that it is practically offered for free! Rural banks may now enroll in the BAP-Credit Bureau for free and only need to pay a meager fee of P5 per credit inquiry. That’s the cost of a text load! The bureau also provides free training for all subscribers. The bureau only requires that all subscribers share and update their negative files with the NFIS. With all the benefits of the system, that is a cinch.

While rural banks wait for the implementation of the Credit Information System Act, the BAP-Credit Bureau has the largest database that rural banks can actively start to use.

The BAP-Credit Bureau has also enhanced their services to better support microfinance credit institutions in the Philippines through the Microfinance Data Sharing System (MIDAS). This system is already being rolled out in different parts of the country after a pilot test in Panay Island earlier.

Access to a credit bureau is one of the important tools that could improve the analysis of the credit histories of potential clients. It assists rural banks in managing multiple borrowing and over-indebtedness much better. In a co-dependent environment, this also helps bank clients overall. A healthy rural bank, unburdened with problematic clientele, is a productive rural bank. A productive rural bank can better serve its community. The community can then rest easy, knowing fully well that its bank can support its needs.

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