The Japan International Cooperation Agency (JICA) expects more small and medium enterprises (SMEs) in the Philippines to access financing more easily through its ongoing joint credit initiative with the Bangko Sentral ng Pilipinas (BSP).
JICA Philippines and the BSP on Wednesday, Dec. 11, launched the second phase of their project that established a credit risk database (CRD) in the country.
The first phase, which started in 2020, sought to bridge the SME financing gap so homegrown entrepreneurs can contribute more to the domestic economy, JICA Philippines said in a statement.
The Japanese government's aid arm pointed out that while SMEs accounted for 99.63 percent of the more than 1.2 million businesses in the Philippines, their combined contribution to the economy's total value-added was just 35.7 percent in 2020, citing the latest Philippine Statistics Authority (PSA) data.
"Through this project, JICA and the BSP promote financial inclusion especially for SMEs through the adoption of a risk-based lending approach instead of the conventional bank assessment requiring adequate collateral which SMEs may find difficult to provide," it explained.
"The CRD scoring model is based on various data points from anonymized financial statements submitted by participating financial institutions. It is developed by JICA and the BSP with the technical support of CRD Association Japan, to assist financial institutions effectively evaluate the creditworthiness of SMEs and calculate their probability of default," it added.
During the ceremonial launch graced by BSP Governor Eli M. Remolona Jr., JICA Philippines chief representative Takema Sakamoto said the next phase of this project, aimed at ensuring the CRD's sustainability, shall entail establishing a permanent "functional and sustainable" CRD operation entity (COE) to operate and maintain services related to the database.
"In particular, we have to maintain the robustness of the database through creating a secured environment and convenient data provision mechanism for our partner financial institutions. Second, we have to maintain the accuracy of the scoring model so as to gain trust from end-users, through the regular internal and third-party validation. Last but not least, all the related staff's expertise, skills, and knowledge about CRD, as an institutional capacity, should be further developed and continuously maintained," according to Sakamoto.
The JICA Philippines chief noted that while establishing a credit risk database scoring model in the country has been "challenging," this initiative has also been "very meaningful and epoch-making."
According to Sakamoto, "33 financial institutions, ranging from rural banks to universal banks, across the country, have already agreed to provide necessary data in this project to promote financial inclusion, especially for SMEs."
Building on the success of the first phase, which saw 17 financial institutions contribute to the development of a statistical scoring model for sustainable SME financing, JICA Philippines said the project had expanded to include 16 more institutions.
"This concerted action by those financial institutions signifies their strong trust and confidence in the BSP as the very reliable leader of the Philippine banking sector. Beyond that, it is a testament of great collaboration, between the public and private sectors, for addressing the pressing development challenge—financial inclusion," Sakamoto said.
"We still need to do more, to promote risk-based lending, rather than just relying on conventional collateral-based lending, to enhance financial inclusion of SMEs. Just recently, the BSP's report indicated that current overall loans to MSMEs only accounted for less than five percent of the total loan portfolio, which is far below the 10 percent mandated under the law," he added.
In this regard, Sakamoto expressed optimism that through this new project phase supported by "the wise and powerful guidance of the BSP's leaders, the CRD will make significant contributions towards a brighter future for SMEs."
JICA cited that the Philippines is "the first country to adopt Japan CRD's approach or model where the database is composed of anonymous financial information that does not contain individual information."
As such, "the JICA-BSP project is significantly aligned with the Philippine government's push for digital transformation as well, as it utilizes and stores the bank records and financial statements into a digital database," it noted.