Review of Related Literature/System

Related Literature

This section provides a critical examination of existing literature and systemic challenges that directly impact the viability and scalability of Lendrow, a decentralized peer-to-peer lending platform. The review draws upon current findings on credit history limitations, financial literacy deficiencies, and outdated debt recovery mechanisms, all of which hinder inclusive financial participation. Global financial data reveals that despite the expansion of account ownership and digital transactions, large segments of the population, particularly in developing economies—remain excluded due to insufficient credit histories and structural disparities (World Bank Group, 2017). Compounding this issue, low financial literacy rates limit individuals' capacity to manage debt and make informed financial decisions, reducing the effectiveness of lending ecosystems (Cacnio & Romarate, 2024). Furthermore, while regulatory reforms in the Philippines have introduced safeguards and mechanisms for credit access, many creditors still rely on traditional and inefficient debt collection methods, undermining borrower trust and operational efficiency (Lofranco, 2024).

Insufficient credit history for individuals with loan applications

The Global Findex Database 2017 reports that global account ownership surged from 51% in 2011 to 69% in 2017, with 515 million new accounts opened between 2014 and 2017. In high-income economies, 94% of adults now hold a formal financial account compared to just 63% in developing economies, highlighting enduring disparities in access. Digital financial services have also experienced substantial growth: 76% of account owners globally engaged in digital transactions in the past year, and mobile money account penetration in some Sub-Saharan African countries exceeds 30%. Despite these advances, 1.7 billion adults remain unbanked, with significant gender and income gaps—72% of men versus 65% of women have an account, and ownership among the poorest 40% is 61% compared to 74% among the richest 60% (World Bank Group, 2017).

The Philippines has made significant strides in advancing financial inclusion, a critical pillar for driving economic development and promoting financial resilience. Since the launch of its first National Strategy for Financial Inclusion (NSFI) in 2015, the country has continuously refined its approach to broaden access to formal financial services. The updated NSFI 2022–2028, launched in January 2022, builds on this foundation by setting specific interventions, outcome measures, and targets designed to address evolving consumer needs and leverage digital innovations. Notably, the number of Basic Deposit Accounts (BDAs) soared to 24.2 million by the end of December 2023, a 58% increase from 15.3 million in the same period of 2022, with total deposits surging by 207% to reach 36.7 billion pesos in Q4 2022. In parallel, registered e-money accounts grew by 50% in 2022, rising from 171.2 million in 2021 to 257.5 million, reflecting the robust expansion of digital financial services. Complementary initiatives, such as the co-location strategy under the Philippine Identification System (PhilSys) and the development of the Agent Registry System (ARS), further underscore the government's commitment to extending financial access to underserved populations and enhancing the overall efficiency and reach of financial services (Financial Inclusion Steering Committee, 2024).

Insufficient financial literacy among individuals with financial obligations

Debt management is an inevitable and critical component of business growth. As Houston (2024) explains, effective debt management strategies are essential for funding expansion, acquiring assets, and navigating cash flow challenges, while excessive debt can lead to high interest expenses that significantly hinder profitability and reinvestment opportunities. By developing a comprehensive understanding of their debt, creating structured repayment plans, and optimizing cash flow, businesses can mitigate the risks associated with over-leverage and maintain financial stability. These strategies enable enterprises to redirect resources from debt servicing toward innovation and growth, ultimately supporting long-term sustainability (Houston, 2024). Moreover, financial literacy is increasingly recognized as a critical determinant of sound financial decision-making and overall economic well-being. In the Philippines, for example, only 25% of adults are deemed financially literate, and merely 2% can correctly answer all six basic financial literacy questions, with 69% managing to answer at least half correctly (Cacnio & Romarate, 2024). This discussion paper examines how financial literacy influences both short-term and long-term financial behaviors across different life stages—namely, young adults (18–39 years), middle-aged individuals (40–59 years), and seniors (60+ years)—using data from the 2018 BSP Consumer Finance Survey, which surveyed 14,860 households (final sample: 7,084) (Cacnio & Romarate, 2024).

Inadequate adoption of innovative debt collection methods by creditors

The Philippine financial landscape is undergoing significant transformation, driven by regulatory reforms and evolving market dynamics. Recent legislative developments, such as the Tax Reform for Acceleration and Inclusion (TRAIN) Law and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, have reshaped the taxation framework, while the proposed Passive Income and Financial Intermediary Taxation Act (PIFITA) aims to simplify and streamline taxation on financial transactions (SyCip Salazar Hernandez & Gatmaitan, 2024). Additionally, the enactment of the Personal Property Security Act (PPSA) in 2018 and the Financial Products and Services Consumer Protection Act (FPSCPA) in 2022 has strengthened consumer protection and expanded access to credit, particularly for micro, small, and medium enterprises (MSMEs) (SyCip Salazar Hernandez & Gatmaitan, 2024). The regulatory environment continues to adapt to the growing digital economy, with the Internet Transactions Act (ITA) of 2023 establishing new consumer protection measures for online transactions. The legal framework governing debt collection includes the Civil Code of the Philippines, the Revised Rules of Court, and Republic Act No. 9510, which established the Credit Information Corporation to aid creditors in assessing borrower creditworthiness (Lofranco, 2024). Despite these legal provisions, businesses often face challenges in recovering outstanding debts due to inadequate documentation, delayed follow-ups, and non-compliant debtors. Best practices such as maintaining accurate financial records, issuing timely demand letters, and utilizing alternative dispute resolution (ADR) methods can enhance the likelihood of successful debt recovery (Lofranco, 2024). Additionally, for debts up to PHP 400,000, businesses can leverage the Small Claims Court for expedited legal resolution, while larger debts may require filing cases in the Regional Trial Court (Lofranco, 2024).

Related Systems

Insufficient credit history for individuals with loan applications

Insufficient credit history remains a barrier for individuals trying to access loans, and several mobile apps have been developed to address this issue by providing alternative credit solutions. Tala, a mobile app available in countries such as Kenya, Mexico, and the Philippines, offers small loans to underserved individuals using alternative credit scoring methods based on smartphone data. Tala’s innovative approach allows those without traditional credit histories to access financial services, helping users build a credit profile based on non-traditional data sources.

JuanHand, a micro-lending platform based in the Philippines, provides small loans to individuals and small businesses with limited credit histories. It streamlines the loan application process by using alternative credit scoring techniques.

Cashalo, another Philippine-based digital lending platform, provides quick loans and cash advances with an easy application process. It focuses on providing access to personal loans for users with limited credit history, using a simplified approval process.

Insufficient financial literacy among individuals with financial obligations

Addressing insufficient financial literacy has become critical for improving financial well-being, and several web and mobile solutions have emerged to tackle this issue. Kiva, a micro-lending platform developed in San Francisco, provides loans to underserved communities and integrates financial education into its offerings. By providing insights into budgeting and loan management, Kiva empowers borrowers with essential financial knowledge while facilitating micro-loans.

SoFi, another personal finance platform based in the United States, offers loans and refinancing options, coupled with financial literacy tools. SoFi provides budgeting calculators, credit score tracking, and personalized financial advice to help users improve their financial health.

Similarly, Zidisha is a peer-to-peer lending platform that operates in developing countries, such as Kenya and Indonesia. Zidisha prioritizes financial education for its borrowers, offering guidance on managing loans and personal finances.

Each existing solution incorporates financial education but in a limited capacity. While Kiva and Zidisha focus on underserved entrepreneurs, they lack the comprehensive financial education needed for a broader consumer base. SoFi offers more personalized financial advice, but it is more exclusive to individuals who are already financially stable. LendRow could differentiate itself by offering more inclusive financial literacy tools that cater to diverse income levels, particularly for those with lower financial knowledge and obligations, such as debt repayment and budgeting strategies. The proposed project can provide localized content and tools for financial literacy that address the unique needs of its target audience.

Inadequate adoption of innovative debt collection methods by creditors

The adoption of innovative debt collection methods remains a challenge for many creditors, but several web and mobile solutions have been developed to address this issue. Collect Plus is a secure, compliant web-based billing and collections platform developed in the United States. It simplifies the payment recovery process for healthcare practices by automating patient payment tracking, allowing professionals to focus on core services rather than manual collections. By enhancing collection efficiency through automation, it presents an innovative solution, but its scope is largely focused on healthcare.

Similarly, Upstart, an AI-driven platform from California, USA, leverages artificial intelligence to assess credit risk and manage debt collection through automation. By personalizing loan offers based on a borrower’s credit profile, it reduces human involvement in managing debt recovery. It connects consumers to banks and credit unions who leverage Upstart's artificial intelligence models and cloud applications to deliver credit products.

Finally, DebtPayPro, based in Chicago, offers a web platform designed to assist lenders with managing payment plans and tracking borrower communications. Its primary strength lies in automating the entire loan management and debt recovery process, making it a versatile tool for financial institutions. However, its focus remains on businesses with established credit systems.

Collect Plus' primary limitation is its narrow focus on the healthcare sector, while LendRow can expand its debt collection functionalities across a broader range of industries, such as retail and education. Upstart connects consumers to financial institutions with strict lending criteria, which can inadvertently exclude lower-income individuals, hindering financial inclusion in debt recovery. In contrast, LendRow offers more flexible lending criteria, allowing a wider range of consumers to manage their debts effectively. Similarly, DebtPayPro focuses on established credit systems, limiting accessibility for businesses in emerging markets. By promoting adaptable lending solutions, LendRow enhances debt collection and fosters greater financial inclusion across diverse consumer groups.

These platforms address the issue of insufficient credit history through alternative credit scoring and simplified lending processes. However, Tala, JuanHand, and Cashalo focus primarily on providing immediate credit access rather than fostering long-term credit-building mechanisms. LendRow could stand out by incorporating more comprehensive credit-building tools, enabling users to develop their credit history over time. Additionally, it could offer a more robust credit education component to guide users through improving their creditworthiness, unlike the existing platforms that focus mainly on short-term solutions.

The proposed capstone project, LendRow, aims to resolve these gaps by offering a more adaptable, comprehensive platform. LendRow will expand debt collection functionalities across a variety of industries, enhancing financial inclusion through more flexible lending criteria and user-friendly features. By providing localized, inclusive education and credit-building, LendRow will empower users to improve their financial standing over time.