What is the vision behind CreditBPO and the SME Credit Rating Report?

LIA FRANCISCO: CreditBPO is really an initiative of ours where I've put together my experience as both a banker and a business owner. In an emergent economy such as ours, the Philippines, small and medium enterprises really face a lack of access to credit, bank loans, and financing in general. We believe this is mainly because of the asymmetrical information that presents itself both to the banks and to the small and medium enterprise owners.

In other words, the information that the bank wants in order to make a good decision, a good credit decision whether or not to lend to an SME, is just not available. So, we're working off of that and trying to put a new perspective in addressing the asymmetrical information. We believe small and medium sized businesses should know what they look like, should know their own credit profile, and should know their own credit risk rating.

What CreditBPO does is that it makes known to the SME that all that the SME does and is relates directly to their credit rating. It's not a very widely held belief that what an SME owner does and how he manages his company has a direct impact on the credit rating that he has. That is an important reason as to why keeping accurate financial records is not a widespread practice among SMEs. CreditBPO's service will make an SME realize what he looks like to potential lenders from a credit perspective.

From there, and with our recommended actions, they can now proceed in doing whatever they need to do in order to improve their credit risk rating. We provide the SME with its credit risk rating taken from data obtained from both conventional and non-conventional sources as well as intimate company data, and we run this through our proprietary software in order to generate what we call the CreditBPO Rating Report which contains the SME’s credit risk rating and, perhaps more importantly, actionable recommendations specific to their company. These recommendations can improve the SMEs access to bank loans and other financing solutions.

What challenges do SMEs have in regard to access to credit and financing?

LIA FRANCISCO: Several studies have been made showing that SMEs have very little access to credit and financing. Only about 10% are banked. So what we're trying to do is put forward a real solution for the 800,000 or so SMEs here in the Philippines.

The SMEs have very limited access to credit and financing primarily because what the banks require, the SMEs are just not able to give. Primarily, many SMEs don't realize the importance of business metrics, of actually measuring performance or keeping accurate records, or documenting vital information about their industry or about their operations.

Once the SME realizes that he needs to engage in best practice as far as putting together business information, as far as constantly recording and monitoring his operations, once he sees that - and the only way he can see that is when he sees himself in the CreditBPO SME Rating dashboard - once he sees that what his creditworthiness looks like is really the result of how rigorous he has been in implementing best practise in enterprise planning, actual results management, and financial reporting, then he will realize their true value. There will no longer be a mistrust on the bank's side when it comes to financial reporting from SMEs. Access to credit will improve and with it the potential for securing a bank loan or other financing arrangement.

How does credit worthiness change financing options for SMEs?

LIA FRANCISCO: When an SME improves its credit worthiness, whether for existing operations or for future expansion, the options for financing grow significantly. While before he might have only had access to money from family, from friends, or from his credit card for example, with an improved credit rating he would be able to access more capital from formal financing institutions such as banks. Additionally, a more favorable credit rating will give him the opportunity to borrow at lower interest rates. So this obviously lowers his cost of doing business and makes more funds available for other core operations or initiatives that the SME can pursue.

How active are banks in the Philippines in extending loans to SMEs?

LIA FRANCISCO: SME lending is really very scant. Bank lending to SMEs leaves much to be desired, and it's really because of the credit information infrastructure. The challenge here is for the banks to look at the SME in a different way, mainly because of the credit rating information that hopefully we'll be able to provide. All in all, the growth of the SME sector has lagged behind the overall national GDP growth. Growth has been 3% in the SME sector versus 6-7% in the overall GDP. So you can see that there is still a long way to go for bank lending to SMEs.

Is the access to credit situation changing for SMEs?

LIA FRANCISCO: As long as the banks are able to see an accurate credit profile of the SMEs, then increased lending from banks is not going to be far behind. Further, the upcoming ASEAN integration will open up the banking sector to many new entrants. That will challenge existing domestic banks to look into other markets, specifically to look more into SMEs because there are just so many of them. However, it is important to them to do so within an acceptable level of credit risk.

Are we seeing government initiatives to help bolster lending and financing to SMEs?

LIA FRANCISCO: The government, in its Philippine Development Plan, has included as an objective financial inclusion, especially of small and medium enterprises. So the objective of increased lending to SMEs is there in the national agenda. In fact, the government has set up support loan programs specifically for SMEs. Unfortunately, because of the dearth of credit related information on SMEs, these loan programs are not fully availed of.

What really has to happen is an improvement, and I mean a quantum leap, as far as available and reliable credit information is concerned, as well as credit ratings that the SMEs have access to and can work to improve. That would enable the government to really pursue its program of financial inclusion.

How do your initiatives with CreditBPO relate to the goals behind the SME Credit Development Foundation?

LIA FRANCISCO: CreditBPO is just a small initiative in relation to the overarching initiative of SME Credit Development Foundation. SME Credit Dev is the social aspect of it, where we develop a vibrant SME community that is a fertile exchange for best practice, and a repository of support programs given by either the government or other third parties. That will further enable the SMEs and this will also be a platform for more linkages with each other, especially between SME and microenterprises. It is meant to jump start small business growth and employment. That's the vision of SME Credit Development Foundation.

Is the CreditBPO model one that could spread to other ASEAN and emerging economies?

LIA FRANCISCO: CreditBPO is really a pioneering effort; it's first to market. There isn't a company like ours operating in the Philippines yet. Our model will definitely be replicable in other emerging economies precisely because the credit information infrastructure for emerging economies have very common traits. The solution that CreditBPO offers through the CreditBPO Rating Report is going to address not only the Philippines' credit situation or SME credit access situation, but also, those of SMEs in other emerging economies.