Itís Your Money > Banking

Are payday loans allowed in the Philippines?

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barbaramnegron:
Hey everyone. My name is Barbara. I came to the Philippines from Lithuania. I decided to organize an online-loan comparison service in the Philippines. But I almost never met good and popular companies that give out microloans. I would like to know if online loans are allowed in the Philippines? What should a company necessarily have at registration and what conditions? Can you name a couple of popular loan companies?

I will be grateful for any useful information. Thanks

Peter:
Barbara.

Welcome to the group.

First of all, just to be clear, to conduct a loan service in the Philippines, a company or individual, must be registered as a financial institution/entity with the Banko Sentral Philippines (BSP) and have their approval to operate. That is the law of the land - which may, or may not, be followed religiously throughout the land!

A couple of years ago, the government tried to introduce a scheme to offer "micro-loans" to small businesses. Like a lot of similar schemes, this one never came to fruition.

I asked my wife about online lenders and she says she doesn't know of any western-style online loan companies operating here. Not to say there aren't though. People who may need micro-loans in the Philippines, sari-sari owners, farmers, the poorest of the poor, probably couldn't wait for an online company to decide to grant a loan. That's always assuming they have the type of secure, internet access to allow financial information to be exchanged.

Mostly, she said, those who would need a "payday" loan, would already be using local lenders - Bombay, or 5-sixers (borrow 5 today, pay 6 tomorrow) as they are called here in the Bataan/Pampanga border area. A  lot of sari-sari stores owners and farmers have some form of running credit or loan account with these informal, and I must point out highly illegal, lenders.

There are legal loan companies which do offer loans, but they may want a sizeable security on the loan, such as the title to land or owner's registration papers to a car, or something of a similar high value. Normal APR could be in the region of 35%, with no discount for early repayment.

Most banks will lend to locals in good standing, some may lend to non-Filipinos as well, but their APR's could be as high as 20 to 30%.

The best advice I have ever read regarding foreigners in the Philippines, is never, ever get involved in a money lending business. I cannot stress too much, how dangerous it is to be involved in this activity. Even on the sidelines or in the background.

There are different regulations in place regarding companies which provide goods or services on credit (white goods retailers or car dealers for example), but these are not cash loans, pay-day style.

Hope all goes well with your plans.

Just my thoughts.

Peter

FastWalk:
In addition to what Peter tells,   there is also a high usage of pawn shops.

https://www.affordablecebu.com/load/business/top_pawnshops_in_the_philippines/6-1-0-7099

It is common for ppl in the provinces to keep some jewelry (just gold,  not stones)  to be able to pawn for quick cash.  Then try to buy it back later.  It is sort of like a pay day loan in function.

You might consider to somehow integrate the pawn business into the mix,  as they have a large part of the legal market for money lending.



suzukig1:
You can get loans through GCash, the mobile wallet service from Globe, so I imagine there are other services in the PHL offering similar types of loans including online loans.

Hestecrefter:

--- Quote from: barbaramnegron on October 28, 2018, 07:57:47 PM --- I decided to organize an online-loan comparison service in the Philippines. But I almost never met good and popular companies that give out microloans.

--- End quote ---

I am trying to get the point here.

You say you want to "organize an online-loan comparison service in the Philippines."  As I apprehend it, you are not proposing to be a lender.  Rather, you intend to somehow rate lenders, so that would-be borrowers can go online and compare the offerings of various lenders.  Is that the idea?  If so, is this a free service you propose to offer out of the goodness of your heart, so that the poor, downtrodden types who might feel they have to resort to an offeror of "microloans" can quickly compare the varying degrees to which they will get stiffed?   Or, if you are not motivated by altruism as it appears on the surface, will they pay you to gain access to that information? 

I very much doubt that there are any "good and popular companies" in the distasteful business of making these kinds of loans.  They cannot do what they do and be "good".  An oxymoron.

Peter spoke well.  No foreigner should get involved in money lending in the Phils.  Not if you plan to live there and not end up with a bullet in your back.  Or, at least, ending up in jail for conduct that would attract no notice if done by a local.

As FastWalk says, the pawnshops have a lot of this stuff sewn up.  They are criminals allowed to operate in plain sight.  I am aware of one in Cebu (and I have no reason to believe it's not typical) that lends at the usurious rate of 10% per month, even when holding on to one's jewelry or whatever.  The more desperate (and with nothing to pawn) types go to the five-six lenders.  I do not think that 5/6 lenders are as bad as Peter suggests (borrow 5 today, pay 6 tomorrow, for an effective interest rate of 20% per day).  From what I have seen firsthand, they usually operate on the basis of: borrow 5 today, pay back 6 at the end of one month.  So, the effective interest rate is 20% per month, 240% per year.  Seems fair.

In Canada we have "payday" loan companies.  Here, under federal law (the Criminal Code, s. 347) a "criminal" rate of interest is anything over 60% per annum.  The sleazy payday loan companies always seek ways to get more, by such devices as charging "processing fees", "late fees" etc.  Our courts have been assiduous about characterizing those add-ons as constituting "agreements to receive interest" above the prescribed rate.  Those places still continue to operate, preying on the vulnerable.

So I would be interested to hear more of what you are proposing.

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