In the Philippines, the traditional credit scoring process requires pieces of information such as the socio-demographic profile and financial history of the borrower. The socio-demographic profile includes age, gender, employment status, marital status, educational attainment, among others. According to “In the Zoom- The Use of Mobile Phone Data for Alternative Data Credit Scoring”, for traditional loan providers, extending loans means putting in mind the 5 Cs of Credit – character, capacity, condition, collateral, and capital. Having these quantifiable indicators means creating traditional credit scores that verify customers’ identity and assess their ability and willingness to pay. Thus, extending loans are limited to traditional banked and carded consumers.
But what about the unbanked–people who do not have financial records to prove creditworthiness as a result of having no bank accounts and/or have not experienced borrowing from banks or regular financial institutions? Given the reality of their financial needs in medical emergencies, making ends meet, trying to invest in education, or start a small business – their lack of option may lead borrowing money from costlier informal loan providers.
Per BSP’s 2019 Financial Inclusion survey, only 33% of the adult population with outstanding loans borrowed from the bank, while a huge 54% were from informal and unregulated channels.
Here's a sample scenario...
Maria is a housewife residing just outside a bustling central business district. One thing that she is good at is cooking ulam or Filipino main dishes. On weekdays, she cooks up three or more packed lunches and sells them from office to office, just enough to cover her kids’ school allowances. She’s the go-to vendor of the office crowd. They even wished that she could have a food stall (or Carinderia, as Filipinos call their canteens) a few blocks away from the office building to accommodate more orders, both dine-in or takeaway. An opportunity to boost her business and to earn more.
Maria has the skills and the passion to create delicious meals and knows how and to whom to sell them. All she needs is a starting capital to afford the stall rent, ingredients, and equipment.
However, there is a challenge. Maria, like 71% of the adult population in the Philippines, does not have a bank account, if she tries borrowing money from a bank or a microfinancing company, she knew that she would be rejected because of the absence of financial history. Assets for collateral is also out of the picture. Also, the funds that she needs can be financed by her financially stable friends, but the interest rate is too much for her to accept.
For Maria, these circumstances form a gap between her and the chance to rise from her current working and financial conditions. Maria’s problem is just one of the stories among other adult Filipinos who are unbanked and deemed uncreditworthy.
The Solution: Alternative Data
What Maria is not yet aware of is that she has another set of data that can uplift her credit score– her Telco data. It is accessible and dynamic, enough to provide indicators of identity, location, and financial activity. Given also the 1:1 ratio of a Filipino to having mobile phones, the volume of Telco data will continue to accumulate and increase over time. These data source has been with her since she started using her phone and prepaid SIM card.
As discussed in “How to Leverage Telco Data Scoring for Predicting Credit Scores“, Telco Data is notably the alternative data that is considered to have the most predictive power for measuring creditworthiness, in the absence of credit history. Mobile network data such as texting usage, data usage, voice usage, top-up patterns, and SIM age invaluable as a proxy for credit reliability and best of all – telco information is not self-reported and cannot be amended. Borrower’s consent to use their telco data for credit scoring purposes is obtained during the loan application process, which ensures data privacy laws and regulations are being observed.
Alternative data credit scoring companies in the Philippines are optimistic that more banks and lending companies will open their doors to the unbanked segment by unleashing the power of alternative data in their credit scoring models. FinScore is the only leading Telco credit scoring provider in the Philippines, with over 8 years of experience and more than 3,500,000 scores delivered to financial institutions in the country to date.
The potential of alternative data sources is something that the financial services sector is slowly but surely realizing, and a growing number are jumping on board to take advantage. For instance, FinScore is a leading fintech company in the Philippines that has partnered with SMART Communications, the Philippines’ largest telco provider, to provide telco-based credit scoring data to financial institutions. We continuously empower the financial services sector with flexible platforms that help make reliable and insightful credit decisions.
We would love to share to with you how Alternative Data Credit Scoring in the Philippines works, we will be posting another infographic and blog about this soon. You can also ask us anything about this topic. Just leave your contact details below and a representative will e-mail you the soonest. Otherwise, you can follow our social media channels such as LinkedIn, Facebook, and Twitter.