The rapid advancement of technology nowadays leads to wishful thinking about the future, in which lending activities by financial institutions will be easier to access, thereby achieving financial inclusion and bringing the benefits of economic growth to the community.

Banks, in conducting lending activities, use the “five C’s” of credit in analyzing the creditworthiness of prospective borrowers. This principle is trusted as a tool to implement prudential banking so that the assumption of banks as trusted institutions is maintained. The five principles are character, capacity, capital, collateral and conditions. Character evaluation is performed to determine whether the prospective borrower can be trusted to manage the funds loaned by the bank.

Capacity reveals the borrower’s ability to repay the loan. Capital provides the data for a bank to determine the condition of assets and wealth owned by the prospective borrower, which the bank will take into consideration to determine the feasibility of the size of loan granted. To mitigate the risk of default, a bank will conduct a collateral assessment to determine the assets owned by the prospective borrowers that can be taken by the bank in the event the debtor being unable to repay the loan. The last principle is conditions, an evaluation is conducted by analyzing the economic conditions at the time and in the future that will affect the business run by the debtor.

How then can technology help with the “five C” analysis, making it easier for banks or other financial institutions to decide a prospective borrower’s creditworthiness? The advancement of financial technology at this moment has made payment transactions for public service facilities easier because they are done online or electronically with various payment instruments such as internet and mobile banking.

Electricity, telephone, tax, internet and water bills can be easily and quickly resolved without the need to leave the house. The use of technology in payment transactions will have positive effects in the form of the availability of the community’s track record database in fulfilling their obligations to the public facilities that have been used. From this track record, it can reveal the character of a person and the responsibilities they have, including in terms of timeliness of payment.

Based on this, the assessment of the five C’s principles can be made and can also be strengthened with the track record of other transactions, such as credit card bills and loans that have been held. Meanwhile, the ability of a prospective borrower to repay (repayment capacity) can be illustrated from the business activities that have been conducted. The massive rise in noncash or digital transactions is expected to make a major contribution to the provision of public transaction data.

In “The Indonesia Payment System Blueprint 2025”, one of the five main areas of initiatives undertaken by Bank of Indonesia (BI) as the payment system authority is to develop a retail payment system that supports the digital financial economy. The Quick Response Indonesia Standard (QRIS), launched in August 2019, is one form of digitized retail payment by BI. The QR code standardization facilitates the digital integration of economic-finance nationally at the micro-level, so as to increase the use of QR codes in public transactions that were previously fragmented.

The use of noncash instruments such as QRIS and others in various public financial transactions generates historical data from both the consumer and seller. Specifically for sellers, transaction data will provide an overview of how the business has been performing so far, and also can be used to analyze the feasibility of granting loans in terms of capacity. For example, data on bakso (meatball) sales recorded through the use of QRIS will show the daily turnover of bakso sellers, so that banks can assess the repayment capacity if the seller is applying for a loan. 

Meanwhile, for the capital and collateral assessments, online taxation data and wealth reporting (asset reports of state officials) as currently implemented by the authorized institutions can be a source of information for financial institutions in analyzing the feasibility of prospective borrowers according to the two principles of the five C’s.

Lastly, the principle of conditions determines the economic conditions of a region or country, as well as globally. In this case, it is not that difficult to figure out, considering various applications and software that can be utilized to process data and information to create economic projections, also supported by certain theories and approaches.

All the data and information required to carry out the five C’s will be integrated and managed by a system, i.e. big data, whereby at the click of a button the entire creditworthiness analysis of prospective borrowers will be displayed. What I dream of can be made into reality if technological innovation continues to proceed and is supervised by strict regulations and public discipline in fulfilling obligations such as tax reporting.

Government policies that lead to e-government, supported by other authorities such as BI through the electronification program, will create a noncash ecosystem for transactions or relations between public and government and vice versa (P2G and G2P). In addition, BI’s efforts to encourage digital open banking and interlink with fintech through the implementation of the open application programming interface (API) are expected to facilitate and enhance the public in transacting digitally or noncash, therefore enriching the national financial and economic database.

Regulations that accommodate data and information exchange arranged in a certain way to ensure the information disclosure principle will be realized while at the same time protecting the consumer. A good prospective borrower will certainly not object in the event of a financial institution requiring information or data about them from a third party as long as it is really necessary for the process of granting a loan.

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Head of Monetary and Economic Team, Bank Indonesia Aceh Provincial Representative Office. The views expressed are his own.

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