Wednesday, November 5, 2008

The Credit Information System Law

Last week, GMA signed into law R.A. 9510 or the Credit Information System Law. As reported in Sun Star, the law "aims to ensure the credibility of credit standing borrowers. The law also establishes the Central Credit Information Corporation that would oversee the compiling of data from all financial institutions in an effort to facilitate creditworthiness checks."
I haven't read the new statute in full, but the general idea of an institutionalized credit information system is a welcome development, especially for small and medium enterprises (SMEs).
Collectively, SMEs are a major economic force in the Philippines. They comprise about 98 percent of the country’s businesses and employs about 70 percent of the work force.
But taken singly, a small-time entrepreneur usually has a hard time obtaining capital for a business. Banks are usually loathe to grant loans to small businessmen, because the cost and the effort to process a P1 million loan is more or less the same as that of a P10 million loan. The businessman, strapped for cash, usually resorts to friends for loans (if he's lucky) or to loan sharks (if he's unlucky).
With the credit information system in place, a person can build his credit standing over time. And with the sharing of information, the banks can process the loans faster and with less risk to themselves. For the lendee, this means that he can obtain the loans more quickly, and may possibly be granted a lower interest rate if his credit standing is good. It's basically a win-win situation.
In the press release of the government website, R.A. 9510's salient features include:
* The establishment of a Credit Information Corporation (CIC) with the primary mandate to receive and consolidate basic credit data and to act as a central registry of credit information which will provide access to reliable standardized information on credit history and financial condition of borrowers;

* The allocation of 60 percent of the total common share of the corporation in favor of the national government and the remaining 40 percent to be owned and held by qualified investors such as industry associations of banks, quasi-banks and other credit related associations.

The amount of P75 million will be provided by the national government in the General Appropriations Act representing its equity share and the P50 million to be subscribed and paid up by qualified investors;

* The designation of a chairperson of the Securities and Exchange Commission (SEC) as chairman of the 15-men board of directors of the corporation. The directors representing the government shares shall be appointed by the President;

* Strict confidentiality of credit information is to be maintained by the corporation, the submitting entities, the accessing entities, outsource entities. The special accessing entities and duly authorized non-accessing entities;

* The SEC shall act as the lead government agency to implement and enforce the provisions of RA 9510 and shall submit an annual report to Congress on its implementation status;

* The law is not meant to be an exception to the Bank Secrecy Law (BSL) because confidential information under the Law of Secrecy of bank Deposits, Foreign Currency Deposit Act, General Banking Law and the Anti-Money Laundering Law are expressly excluded from the information to be shared in the system.
What are the drawbacks for the law? The sharing of information is usually a red flag as regards our right to privacy. But we still have to see if there would actually be an improper intrusion or not.

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