A leader of the House of Representatives on Thursday urged the Bangko Sentral ng Pilipinas (BSP) and the Palace to boost “borrower confidence” by improving credit access in the country.
In a 17-page white paper on boosting the uptake of credit during the Covid-19 pandemic, House Committee on Ways and Means Chairperson Joey Sarte Salceda identified a 5-point plan to strategy to improve access to credit amid increased liquidity.
“The right macroeconomic decisions are being made on credit expansion,” Salceda said, referring to the P1.4-trillion in liquidity released through BSP’s mopping-up moves and the P561 billion the House plans to release in credit through a stimulus proposal.
Earlier, Salceda called the recent policy cut by 50 basis points by the Monetary Board as “notional until the government can find ways to translate increased liquidity in the financial system into improved spending in the real economy.”
According to the lawmaker, government’s credit programs will only work when the public’s interest and intent to borrow are stoked.
List of loans
First, Salceda said the government needs to remove information asymmetry, which keeps most people from borrowing. “They don’t know they can borrow more cheaply. I suggest a dynamic master list of all cheap loans available in public and private financial institutions,” the lawmaker said. “The information we need in that list is already required to be given to clients under the Truth in Lending Act anyway.”
Salceda said government needs to “compile all relevant credit information.”
By doing so, the information gap is broken down “and also improves competition for clients, bringing costs down for MSMEs [micro-, small-scale and medium-scale enterprises] and other borrowers,” he added.
Include more people
Secondly, Salceda said the government should get more people included in the formal financial system.
“That means speeding up the implementation of the National ID system, and improving financial literacy and education,” he explained. “We also need to encourage businesses to register tax-free and without cost; so that they can avail of cheap loans and other forms of assistance.”
Third, Salceda said, government should digitize the country’s payments and transfers system. He said the BSP has already accelerated this process. Howeve, not all banks have caught up, he added.
Fourth, the lawmaker said the government should also make risk assessment more sensible.
Salceda said the fifth prong in his proposed strategy addresses existing debt.
“Finally, we will push for credit mediation and forgiveness strategies,” he said. “I am still pushing for the condonation of agrarian reform loans, so that farmers can start anew with the financial system.”
He is also pushing for credit mediation and refinancing, especially in MSMEs.
“Credit mediation is simply the government working as a mediator so the borrower can get the most favorable loan terms available for him or her,” Salceda explained. He noted that credit mediation was a tool used frequently in Europe during the global financial crisis.
In line with this, he urges for the activation of the Negosyo Centers.
Salceda said these interventions are “cheap and efficient and do not require additional costs to the government.”
Most important way
Meanwhile, the lawmaker also requested the economic managers to consider condoning agrarian reform loans.
In the context of pump-priming the [Covid-hit] economy and boosting credit access in the countryside, the single most important way to get agrarian reform beneficiaries included into the financial system is to condone, or devise lenient ways to restructure, the P58.62 billion non-performing agrarian reform loans, which would free up some 1.228 million hectares of land for disposition and collateral, and which would benefit some 682,000 agrarian reform beneficiaries,
according to Salceda.
“The House position is condonation. The Executive position is a combination of improvements in the Agri-Agra Law and some form of restructuring,” he added. “A possible compromise is some form of partial forgiveness, part-refinancing strategy that would allow farmers to borrow against their land for efforts to produce value-added.”