Substitute for ‘5-6’ loan rate
Indian nationals in the country who are engaged in “5-6” lending seem to be taking seriously President Duterte’s order to the authorities to put an end to that quasi-banking activity.
According to reports, more than 200 people who are involved in this underground business have come out in the open and applied for registration at the Securities and Exchange Commission (SEC).
If these applicants are able to comply with the capital and documentary requirements, the SEC will issue to them a certificate of authority to operate as financing or credit companies.
With the certificate, they no longer have to do business in the shadows or be obliged to grease the palms of barangay officials to allow them to go door-to-door in offering credit facilities to potential clients.
But once registered, they have to file periodically with the SEC certain documents so the latter can monitor, at least on paper, their continuing compliance with the law.
For the Indian moneylenders, registration is a small price to pay for the opportunity to engage in a business that has low operating costs but high returns, although fraught with the risk of getting mugged (or worse, killed) when they do their collection rounds.
Putting a name and a face on the people who make credit available to financially-challenged Filipinos at usurious interest is only one of many steps that have to be taken to be able to comply with the President’s directive.
No doubt, the P1 billion that the President has promised to lend to micro and small enterprises at 2-percent-a-month interest, with P2,000 as the minimum loan, will be helpful to their intended beneficiaries.
But unless the government can come up with a viable alternative to the easily available “financial assistance” that ‘5-6’ operators provide to cash-strapped Filipinos in depressed areas or public markets, the P1 billion will not suffice to drive them out of business.
In fact, it is doubtful if those moneylenders will change the manner they do business or lower the interest rates they impose on their loans simply because they registered their business with the SEC.
Like many unscrupulous Filipino businessmen, expect those informal lenders to pay lip service to the duties and responsibilities that go with a certificate of authority to operate a financing company, and instead look to the loopholes in the law that can help them earn handsome profits without incurring any liability.
The next item that should be in the government’s agenda on this matter is the resolution of the issue of what interest rates are considered reasonable and therefore permissible, and what are usurious and therefore prohibited.
Bear in mind that the Usury Law is no longer in effect and there are no officially-prescribed limits on interest rates for loans. The rule of the thumb is, the parties to a loan agreement are free to agree on the rate of interest to be paid for the credit granted.
The Supreme Court has ruled that the determination on whether an interest rate is reasonable or usurious depends on the terms and conditions of the loan, or the circumstances under which it was incurred.
There is no hard and fast rule on this issue. A 15-percent interest on a particular loan may be okay, but may be considered unconscionable in another on account of, say, the conditions it was incurred. In other words, the matter has to be decided on a case-to-case basis.
On this point, the Department of Trade and Industry, not the SEC, has to decide on the range of interest rates that moneylenders can legally impose on the loans or credit accommodations (e.g., purchase of appliances) they extend to their clients based on, among others, the amount involved, payment period, object of the loan, and paying capacity of the debtor.
There can be no one-size-fits-all interest rate for this type of moneylenders. It’s only fair that they get a fair return on their investments considering the risks they take in extending credit to people they hardly know who live in places that the police sometimes fear to enter without backup.
That’s the easy part. The bigger problem is how to effectively monitor their activities and make sure they comply with the law considering the limited manpower of the government’s regulatory agencies.
