The Bangko Sentral ng Pilipinas and the Japan International Cooperation Agency have launched a credit risk database system to help financial institutions assess the creditworthiness of small and medium enterprises (SMEs), which generates credit scores and default probabilities using anonymized financial and nonfinancial data from participating financial institutions.
This enables faster and more accessible assessments of SME loans – to calculate their probability of default – without the need for standalone software installations.
Such information will allow lending institutions to quickly extend loans to those that are likely to pay back their loans, and at a lower interest rate because of their lower risk of default.
The BSP added in a statement that by providing an additional tool for approving and pricing SME loans, the Credit Risk Database Philippines Web-based Scoring System (CRDPh System), addresses the “missing middle” or the SMEs that are too large for microfinance but too small for traditional commercial banks.
The system is also intended to provide policymakers with benchmark statistics and data to guide SME financing measures.
JICA noted in a statement that in the past, 99.63 percent of the more than 1.2 million business organizations in the Philippines are classified as micro, small and medium enterprises (MSMEs), and yet MSMEs contribute only 35.7 percent of total economic output based on 2020 data.
The Japanese state agency said that through the project, they intended to promote financial inclusion, especially for SMEs. JICA and BSP are pushing it as an alternative to the conventional bank assessment that requires adequate collateral, which SMEs may find difficult to provide.
These efforts to make financing more accessible, especially to SMEs that need it most, will need the support and cooperation of financial institutions who must be willing to make financial inclusion a priority. This level and commitment will be necessary so the sector that needs financing the most can be given more opportunities to thrive and prosper further, fueling the progress and development that we have been searching for.*
