FINANCIAL EXECUTIVE
Business World
After nine long years in the making, the Personal Equity Retirement Account bill or PERA finally sees the light of day. The Capital Market Development Council, more specifically its private-sector member organizations, have long cited the benefits of PERA - tax exempt "savings for retirement" scheme patterned after similar successful ones in many countries, including the IRA in the United States.
Individuals can contribute annually up to P50,000 to such a plan and both the contributions and its interest and dividend yield will also be tax exempt provided the individual does not withdraw it sooner than age 55.
These savings schemes will be portable and properly supervised in a coordinated way by the BSP, SEC, Insurance Commission, PDIC and the BIR. PERA promises to encourage a higher level of savings, and a redirection of such toward longer- term instruments which can aid in improving the currency and maturity profile of public debt and increase the pool of resources available for projects with long recovery period such as infrastructure. It will also prompt the development of savings for retirement, especially needed for OFW's not now mandatorily covered by traditional government-sponsored institutions like the SSS and Pag-ibig.
For this we have to give credit to the father-and-son team of Senator Edgardo J. Angara, as principal architect and chair of the Senate Committee on Banks, Financial Institutions & Currencies, and Congressman Juan Edgardo M. Angara. Other senators who supported this measure are Senators Osmena, Recto, Magsaysay, Roxas and Senate President Villar. In the House of Representatives, we also have to thank Congressmen Exequiel B. Javier, Jaime C. Lopez and Herminio G. Teves.
Credit Information System Act (CISA)
Meanwhile, pending before both houses of Congress is a proposal to establish a Credit Information System which lays the basis for the collection, maintenance and distribution of credit information as well as the establishment of a Central Credit Information Corporation. The policy objectives of the bill are: (1) to establish a comprehensive and centralized credit information system in order to improve the overall availability of credit particularly to small borrowers; (2) to lower the cost of credit to responsible borrowers; and (3) to reduce excessive dependence on collateral to secure credit facilities. Underlying these objectives is the principle that the backbone of an efficiently functioning credit market rests on a reliable and accurate credit information base.
The Central Credit Information Corporation will be established as a corporate entity under the Corporation Code, with Bangko Sentral ng Pilipinas (BSP) owning up to 40% of the corporation and the rest to be held by credit-industry-related associations. The corporation will get its information from compulsory submitting entities, such as banks, their affiliates and subsidiaries as well as other credit providers that will be identified by the MB. Under the principle of reciprocity, this credit information database may be tapped or accessed by those who submitted the information - i.e., banks, their affiliates and subsidiaries. On the other hand, Special Accessing Entities like private credit bureaus and private credit rating agencies can access the database with the conformity of the borrower, and provide value-added service to their subscribers.
Borrowers are likewise allowed access to their credit information from the corporation, the Submitting Entities and Special Accessing Entities, so that they could verify the accuracy of their information. Other entities can access information from the system only upon prior consent of the borrower.
There are different models of credit information registries in other countries. Both public and private registries can be found in developed and emerging market economies. Both models rely on reciprocity or mutual information exchange, whereby the supplier of information has access to the rest of the database available in the credit bureau. It is expected that the extensive use of credit information and credit ratings will create interest in the local capital markets, e.g., for corporate bonds, as institutional investors rely on credit ratings in making investment decisions.
But more than this, small borrowers with good credit record but have no properties to put up as collaterals for their bank loans, can borrow from banks on the basis of their sound credit record. The establishment of such a system promises to do more for SMEs where the binding constraint for lending is not money but information than all of the sometimes expensive publicly funded programs for lending to SME's.
We earnestly hope that our legislators will move this vital piece of legislation during the precious few days of the resumed 14th Congress in June.
