Insights to Inspire aims to spark ideas that empower businesses to pursue bigger goals through data and information. Read our insights on current issues and learn new ways to make an impact in your industry.
While many are distressed that COVID-19 took away some of modern life’s comforts, it’s a sad reality that in most rural areas of our country, people are still struggling to access basic financial services — and this was true even before the pandemic.
In our March 2021 nationwide Consumer Pulse study, we found that 93% of Filipinos saw their household income negatively impacted by the pandemic (65% currently, 28% not currently). Of those whose income is currently negatively impacted, 17% plan to take out a personal loan to pay their dues and address their current financial challenges. Unfortunately, it’s harder to do so in rural communities where access to credit is limited.
Latest data from the Central Bank (BSP) shows that 509 local government units nationwide remain without a banking presence as of Q2 2020. Of this, 75 have no other access points such as cooperatives offering financial services, microfinance NGOs, pawnshops, or cash agents. This gap in distribution channels hampers the central bank’s goal of expanding the financially included to 70% of Filipino adults by onboarding them to the formal financial system by 2023.
While there isn’t an instant solution, data and technology empower us to try. At TransUnion, we see data not just for what it can do but for what it can help people achieve. In line with our nation-building advocacy and purpose of using information for good, we partnered with 1 Cooperative Insurance System of the Philippines (1CISP), a federation of about 3,000 cooperatives serving hundreds of thousands of Filipinos, and its partner systems integration company TraXion Tech, to transform their capabilities and help accelerate financial inclusion in mainly rural and underprivileged areas. Membership in a credit information ecosystem is a natural evolution for cooperatives, considering that credit is among their most common lines of business.
Credit information processing enables cooperatives to better assess the creditworthiness of borrowers so they can manage risk and lend with greater confidence. The technology empowers them to move from collateral-based loan application reviews into insight-based credit decisioning so they can continue driving financial inclusion at the grassroots level. Three main benefits stand out from employing this innovation:
Faster and more accurate decisioning
A robust credit scoring technology, coupled with regular portfolio reviews, provide cooperatives with powerful insights that allow for faster and more accurate decisioning on whom to trust with credit. With a proven risk rating system in place, cooperatives no longer need to manually review applications, a system vulnerable to bias and other human errors. In the process, turnaround time for credit approvals shortens, making it more convenient for consumers.
Frequent portfolio reviews, meanwhile, enable cooperatives to stay up-to-date on the health of their portfolio especially as the overall economic situation continues to shift due to the pandemic. As recovery is not a smooth transition, it’s crucial that businesses are well-informed to quickly adjust their strategies when needed.
Wider scope
Insights from a comprehensive credit database can expand cooperatives’ scope, allowing them to achieve financial inclusion faster while doing it in a safe way. Digital solutions available today also empower cooperatives to create new services, making them more competitive in the market.
Likewise, the cooperative data contributed to us provides us with richer information on previously “non-visible” consumers, thereby solidifying our ability to score even new-to-credit consumers.
Cost-effective and sustainable
Data-based lending proves more cost-effective and sustainable for all stakeholders with its level of accuracy and efficiency alone. Bolstered by digital solutions, data helps cooperatives keep their risk flat whilst onboarding more consumers, or lower it whilst maintaining lending at consistent levels, which is critical at this time of prevailing uncertainty. As a result, cooperatives can channel any savings into their other worthy endeavors.
Financial inclusion takes a village and is not an issue exclusively for just one organization. Now that we have the technology and a concrete goal — 70% by 2023 — with proactive collaboration of all stakeholders in our ecosystem, it’s time to hit the road and make it happen!
Insights to Inspire is a regular column by Pia Arellano, CEO and President of TransUnion Philippines, a global information and insights provider. It aims to empower businesses to revolutionize their operations through data and information so they can work towards serving their customers better. For questions, email [email protected].
Pia Arellano is a seasoned financial services leader with over 25 years of industry experience across banking, payment solutions, telecommunications, and remittance services. She is instrumental in establishing TransUnion as a risk management and data solutions and insights partner of financial institutions in the Philippines.
For questions, email [email protected].