FICO brings its extensive experience in credit scoring across the globe to the Philippines, enabling credit access where it is needed most

Giving the unbanked population access to credit is something Burton Crapps takes seriously.

Having grown up in South Georgia in the United States, the current Philippine country manager of FICO knows firsthand how challenging it is for a typical household, living in a largely cash-based community, to save money. “My family lived in a very poor farming area; we didn’t have a home—we lived in an abandoned schoolhouse until I was 17. We were itinerant farmers and we got paid in cash. And because we were six kids in the family, there was no way to save enough money to buy a house,” Crapps relates.

It wasn’t until the 1970s, when the United States government mandated and funded an inclusion program that provided lending fairly to the lower income population, that Crapps’ father was able to qualify for a house loan. “It took my dad 40 years to pay for the house, but had it not been for that lending mandate and inclusion program, we would never have owned one. Because we could never have saved enough money,” he says.

It’s the same predicament an emerging market like the Philippines is facing today. While the country’s economy has been on a strong growth trajectory the last three years, the benefits haven’t exactly trickled down to the grassroots level—or, at the very least, felt. “The problem in any emerging market is that it’s difficult [for people] to save enough money, so how do you expand your middle class and grow that lower class economy? There is a need to give everybody equal and fair access to credit,” avers Crapps, adding that this has been one of FICO’s two main areas of focus for its Philippine business. Apart from implementing fraud detection and prevention systems for the banking industry, FICO works in the credit-worthiness and credit scoring business.

A centralized credit bureau

Banks, credit card issuers, auto lenders and other businesses use credit scores to determine whether they would lend to a customer. Generally, a higher score means better terms on loans. While banks in the Philippines have their own credit systems, a centralized credit system yet exists. But with the Philippine government targeting to roll out a national credit bureau by yearend 2014, the move—aimed to bring greater financial inclusion, and consequently increase the country’s global competitiveness—will have a pretty significant effect on the growth of lending in the Philippines.

According to Crapps, “The presence of a centralized credit bureau will enable lenders to have access to data that will let them make better decisions about how to give credit to everyone—not only to their current customers, but most especially to that larger part of the population who would never be recognized by a credit bureau because they don’t have credit. Your farmers, fishermen, OFWs—how do you lend to them fairly and equally?”

The challenge, he adds, would be how the government-owned Credit Information Corp. (CIC), local banks and the Bangko Sentral ng Pilipinas (BSP) would manage and moderate such a system to ensure everybody has fair access to credit and is rated on a common rating system.

It is in this space that FICO’s methodologies and analytics play a significant role. “Over the last 30 years, we have focused on bringing methodologies to the credit bureau level, as well as the central bank level and down to the lending level, which will stratify or normalize these credit scores. With all the data expected to come in once the CIC is rolled out, FICO’s role is to take that data and analytically qualify it so that everybody, regardless of their standing in life, has an equal rating,” Crapps explains.

Enabling inclusive growth

Having successfully implemented their FICO credit scoring system in over 50 countries—cash-oriented societies like Mexico, Eastern Europe and Russia, among them—and working with more than 20 central banks on their financial inclusion programs, Crapps points to three things critical in the next 12 to 24 months to the Philippines.

“One is at the regulatory or compliant level,” he puts in. “Whether at the CIC or BSP, there will be resistance in looking at these things. Because there already exists a system there that works quite well, expanding that can be a challenge. The second challenge, at a higher level, is convincing the banks to take the risk to move into that. In a country like the Philippines where most banks are family- or individually-owned, they tend to have policies around credit and opening their minds to look at new markets and new expansion is a challenge—not a problem, but a challenge,” Crapps says.

The bigger challenge in a market like the Philippines, however, is actually in convincing and educating the consumer on why, first of all, they would want credit or need it. “The first two things can be managed because the banks would want to make money and the regulators would want inclusive growth in the country. The more pressing problem is really, how do you communicate such an idea to someone who farms or fishes for a living, who doesn’t really ever think about credit, or trust credit before? That’s something that needs to be addressed—how you educate the consumer and the market,” Crapps says.

With the ASEAN moving toward integration by 2015, FICO’s country manager is optimistic about the Philippines’ prospects in the finance industry. Crapps shares that, in terms of the credit and finance space, current trends in the ASEAN are highly influenced by the Philippines. “People are talking about what’s happening here. Because a lot of the growth areas in the region are beginning or have already been saturated, more financial institutions in the region are looking at the Philippines as a place to invest. We have a strong BPO base, a strong OFW base, and with the middle class expanding, people are spending more money. Four years ago, when I joined FICO to build the Philippine market, everyone was saying, ‘Philippines…we’ll never do anything there.’ But now we’re the fastest growing market in FICO globally,” he ends.