By David Cagahastian
WITHOUT access to credit due to a lack of acceptable collateral and hopelessly exposed to many forms of risk, Filipino farmers seem entirely on their own. A possible exception is when they band together to form cooperatives, when they are more noticeably better off. But, time and again, hapless farmers incur painful losses because of devastating typhoons; they are almost always left to fend for their lonesome selves and fight their battles alone.
This is probably why farmers’ cooperatives are the most eager to provide the Credit Information Corp. (CIC) the credit histories of their members, if only to show the government-owned and -controlled corporation (GOCC) that farmers are worth the risk.
At a recent ceremony to thank financial institutions which were the earliest in submitting credit data in their possession to the CIC, one farmers’ cooperative made it to the list. Farmers’ cooperatives throughout the country are said to be more prompt than banks in providing CIC the credit data of their members.
The Taloy Norte Multi-Purpose Cooperative based in the Cordilleras can only provide small loans and death benefits to its 8,000 members, and needs the assistance of rural banks and private insurers to provide them with loans and crop insurance.
“We can provide for small loans and aid in cases of death, but most of our members do not have the financial links to banks that can give them access to credit for their livelihood, even though they are in good standing by our records,” Taloy Norte General Manager Deborah Palgue said.
Palgue hopes that the collection of the credit data by the CIC and the subsequent credit scores of their members would finally result in their members getting loans from private rural banks. She said that even the government-owned Land Bank of the Philippines, which is mandated to serve farmers and fishermen, refuses to give them loans sans qualified collateral.
Although the lands being tilled by their members already have titles, Palgue said banks remain averse to accepting these as collaterals, particularly if there are problems with the certificate of title, such as when the land is registered under the name of a deceased relative instead of the current owner.
Aggravating the problem of farmers is the lack of a crop-insurance product, which makes it harder for farmers to recover following a devastating natural disaster. The uninsured find it difficult to recoup their production cost and are forced to turn to informal lenders so they can plant anew.
At the vegetable fields of Taloy Norte’s members in Benguet province, crops were destroyed by Typhoon Lando (international code name Koppu) last October, but Palgue said the crops of their members were not insured because even the Philippine Crop Insurance Corp. (PCIC) has deemed the location of their farmlands as “too risky.” The PCIC, another GOCC, is already the biggest provider of crop insurance in the country despite notching a measly market penetration rate of about 5 percent.
Palgue said the PCIC would not insure their crops against risks because their crops, most of which are planted on terraces made along the mountainsides of the Cordilleras, are “too risky” to insure because of the threat of landslides.
“I really just hope that they can have an insurance product that will be applicable to us because, right now, our members only have our cooperative, they don’t have access to the banks, they don’t have crop insurance,” she said.
Fernan Talamayan, public information officer of the CIC, said many cooperatives are upbeat about the GOCC’s efforts to consolidate credit data, especially of their members.
Talamayan said this is the reason behind the special attention given by CIC President Jaime P. Garchiterona to cooperatives to drum up support for compliance with the submission of credit data. The data can lower risks, as well as the cost of borrowing money.
Rural banks’ compliance
According to Rural Bankers Association of the Philippines (RBAP) Executive Director Vicente Mendoza, rural banks are submitting the credit data of their clients in the hopes of lowering the cost of providing and obtaining credit.
“Hopefully, it will bring down the cost of credit. In the past, the vetting system is very small, but with the collection of credit data, we can be able to know clients not only by their negative standing but also by their positive standing in repaying debt,” Mendoza said.
“Then the efforts can be toward noncollateral lending,” he added.
Some of the bigger banks have also been complying with their submissions of credit data to the CIC, and six credit-card issuers had been recognized for their early submissions, namely, Metrobank Card, HSBC Philippines, EastWest Bank, UnionBank, RCBC Bankard, and Security Bank.
Operational by year-end
At the rate of submissions by the banks, Garchitorena said he expects the credit-reporting system to be operational by late 2016, or, at the latest, by early 2017.
The gathering of credit data is expected to be completed this year and the accreditation of special accessing entities—those which will be accredited and granted access to the CIC’s consolidated basic credit data for the purpose of generating credit scores of bank clients—had already passed the first phase. Further screenings are expected to be completed this year to come up with the initial list of special accessing entities.
This means that by 2017, the credit-reporting system would have already been operational, and banks may be able to use, through the accredited special accessing entities, the credit scores that are based from a more comprehensive and accurate database than those that banks are currently using. Borrowers may also be able to find out from the CIC their own credit standing as the banks see it.
Having the more comprehensive and accurate credit scores would then translate to lower costs for banks in their lending activities, since banks would have a better view of a particular borrower’s credit transactions and a better idea of whether he would be at risk of defaulting on a loan.
For consumers, a consolidated credit database is also beneficial, such that it would promote competition among lenders to offer a wider range of products and services, and will allow those borrowers to correct any erroneous data in their credit record which they probably don’t know about.
Image credits: Nonie Reyes
What about farmers who are not associated with cooperatives?
I think they would have to join the cooperative and use the financial services offered by that cooperative, such as small loans, so that the farmer could have a credit history with the cooperative which would in turn be given to the CIC for the purpose of generating a credit score for the farmer.