Access to credit for small and medium enterprises (SMEs) is a challenge in many countries, but it’s particularly pressing in the Philippines. While countries like the UK and Australia have created more conducive environments for lenders—thanks to robust credit bureaus, open banking, and widespread adoption of online accounting systems—funding for SMEs remains a bottleneck, even in these advanced markets.
In the Philippines, a country of 110 million people with one of the fastest-growing economies, SMEs are the backbone of the economy. Yet, even a well-established business with a profitable history, perfect credit repayment, and a low debt-to-equity ratio can face months of delays when seeking funding. Despite the low cost of funds available to banks, interest rates for SME loans can soar above 60% annually.
Despite pressure from the central bank and lawmakers to expand SME lending, the status quo prevails. So, what’s holding back access to credit?
Key Challenges for SME Lending in the Philippines
1. Bank Priorities: Banks tend to focus on corporate clients because they present a low bad debt profile and are less expensive to originate and serve, even if they offer lower returns on equity (ROE).
2. NBFI Limitations: Non-Bank Financial Institutions (NBFIs) are more nimble but lack access to low-cost deposit funding, limiting their ability to offer competitive rates.
3. Informal Lending: Unregulated, informal lenders fill the gap, often charging predatory interest rates that cripple SMEs.
4. Credit Bureau Limitations: Credit bureau coverage is limited, with inconsistent reporting from lenders, making credit assessments difficult.
5. Manual Processes: Lenders often require borrowers to submit bank transaction statements manually, which slows down the process and adds complexity.
6. Reliability of Financial Statements: Lenders are cautious about relying on financial statements due to concerns over their age or accuracy.
7. Fraud Risks: Financial and bank statement fraud is a growing issue, with increasingly sophisticated methods used by bad actors.
How Kredit Hero is Changing the Game
Kredit Hero provides a solution that benefits both lenders and SMEs by streamlining the loan application and assessment process. SMEs can create a verified business profile that includes their bank statements, audited financials, income tax returns, and their corporate General Information Statement filed with the SEC.
Kredit Hero’s platform uses 15 AI and machine learning (ML) models to digitize, structure, score, and verify these documents. What would take an experienced credit analyst hours or even days can now be completed in as little as 5 minutes, or up to 60 minutes if a human review (Human In The Loop, or HITL) is required.
The platform also retains detailed specifications for each lender’s credit risk, product offerings, and target customer profiles, enabling a precise match between loan applications and lenders.
When an application meets Kredit Hero’s data confidence thresholds and matches a lender’s criteria, the lender is alerted and can log into the platform to review the analyzed deal. This includes financial spreading, probability of default modeling, cash transaction analysis, KYC verification, and all relevant documents provided by the borrower.
From there, lenders can make an offer directly on the platform, allowing the borrower to compare multiple offers and choose the best option.
A Global Issue, A Local Solution
The challenge of providing sustainable funding for SMEs is global, but Kredit Hero is uniquely positioned to drive change in the Philippines, helping SMEs gain the credit access they need to thrive.
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