A loan applicant who was rejected on her application shared how frustrating her situation is, not because she doesn’t have the means to pay her supposed loan, but because lenders couldn’t see that she can easily repay for one—a difficult but common scene.

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Many Filipinos interested in loan products run with very little or no credit footprint (no prior experience in borrowing money, or at least any formal type of personal finance transaction). This leaves them challenged in accessing credit, especially in times when they need it the most. Lenders on the other hand, have been willing to extend help to those in need of cash or to finance various items, such as appliances, gadgets, cars, and even real estate, to those they know with some degree of certainty to have (or potentially have) good loan repayment behaviors.

The case, however, remains to be with a wide gap between lenders and borrowers not seeing through each other. Prospective borrowers may not know enough about products available to them in order to leverage credit for their personal expenses or business transactions, including expansion. Lenders, no matter how much they desire to lend, cannot get a hold of bases to extend credit to some members of the community in need and can make use of additional cash, e.g., those in the gig economy, or those without formal cash flow records.

For decades now, bank and non-bank financing institutions have been exploring alternative credit evaluation or scoring methods to replace direct credit investigation schemes, such as calling personal references (for individuals) or trade partners (for businesses). Some use telecommunications reference points correlating those with people’s payment behavior. Once granted with their first credit exposure, many Filipinos tend to perform well in building their credit footprint. But to get to the first step, i.e., availing for the first loan, is still the steepest hill.

In a former study of mine (Guanzon 2022), “telecommunications behavior-payment behavior alignment” (TP-BP alignment) has been concretized. Results show that the correlation between Filipinos’ telecommunications (telco) behavior and actual loan repayment behavior is significant. Furthermore, telco scoring is aligned with some credit approval methods showcasing its capabilities to predict Filipinos’ payment behavior. It simply supports other studies that previously surfaced TP-BP alignment.

Top TP-BP alignment with artificial intelligence (AI) and you get a highly efficient way of reviewing repayment capacity, and all the other C’s of credit, e.g., character. Supposedly a win-win scenario, right?

But why are some still “auto-declined” for their loan applications? Why are there still many lending institutions distrustful of alternative credit scoring methods, despite the numerous studies, and other financing companies showing them that it works?

Some lenders are on a “wait-and-see” mode, keeping tabs on the latest technology while continuing to do what they do in the ways they know best—how it worked for them in the past. They gradually adjust their operations to accommodate innovations and additional markets for their financing products and services. If you think about it, it makes a lot of sense, since it protects the very institutions they built not just for themselves but for all their stakeholders as well. It helps keep the economy more active, by mobilizing funds, while being on the lookout for new risks that may come with the application of modern technologies. They can still be much faster though in exploring trends and risks.

If you, or your business, is one of those struggling to get access to sufficient credit or funding, you may want to consider starting small. There are e-wallets and digital finance mobile applications that offer various personal finance products, typically in sachet offers, i.e., smaller amounts. This should give you more experience and footprint for future use and reference. You can also do your own research (even use AI) to look for the best loan product for you; take note, not all loan products are the same, and many might not even fit your needs or qualifications. Specific financing products might be more cost efficient for you than generic loan products, depending on your situation and purpose. For instance, if you are looking at purchasing new furniture, look for furniture financing; if you are looking at getting an e-bike, then search for e-bike financing.

Lastly, don’t wait for the right time, make the time “right” by preparing for your future loan application and planning for its use to benefit you personally or career-wise. Credit is still merely a tool, its use and returns highly depends on the user—the borrower.

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