Grassroots view of money debts

The Philippine office of TransUnion Information Solutions Inc., a United States-based business information company, recently reported that, based on its survey of 1,000 respondents, Filipinos are “credit hungry” but are averse to accessing the banking system because of the stigma that accompanies it.

The survey also showed that 72 percent of Filipinos prefer to borrow money from informal sources, i.e., family and friends, than from banks or lending institutions.

There is no question that many Filipinos, especially those in the D and E sectors of our society, are impoverished. Making ends meet is a daily struggle for them because of low wages, high cost of living and inflation.

Thus, they are forced to buy goods on credit from their neighborhood stores or borrow money at usurious interest rates from Indian moneylenders.

At the grassroots level, there is no shame in going into debt in the manner earlier mentioned because most of them, after all, are in the same financial rut. They consider the informal credit system as an inescapable part of their lives.

For Filipinos engaged in micro- and small-scale (MSE) businesses, lack of capital is also a problem. Sometimes, their continued operation depends on their earnings from the previous day or the money they have set aside for future contingencies.

Whether stigma or negative perception about credit is one of the factors that discourage or prevent Filipinos from securing credit from formal sources is a big question mark.

When MSE operators seek financial assistance from sources other than their friends or family to keep their business going, it is doubtful if what other people may say or think about that action would make them uneasy or worry about their reputation in the community.

To expect Filipinos with limited, if at all, banking experience to apply for credit from formal sources to meet their financial needs is easier said than done.

For them, going to an air-conditioned, tastefully decorated bank or lending company (with security guards manning the entrance) and dealing with elegantly-dressed staff could be intimidating.

They would feel out of place or uncomfortable in that setting and may have second thoughts about pursuing their credit application.

That’s the easy part.

Assuming the application gets preliminary approval, the applicant would have to prove that the loan is for a legitimate purpose and that he or she has the capacity to pay for it.

To ensure payment, it is standard that the loan is secured by a sufficient mortgage or cosigned by a person with sufficient financial resources to pay for it in case the borrower fails to commit to his/her obligations.

There is very little wiggle room in relaxing these requirements because government regulators require them and, most importantly, are for the protection of the bank or lending company.

Given these strict rules, credit hungry Filipinos cannot be faulted for seeking financial relief from unregistered or informal lending outlets that require, at best, a copy of the applicant’s electric, water or telephone bill to confirm his or her place of residence.

If that debtor is gainfully employed and gets paid through the ATM (automatic teller machine), he or she shall be asked to give his or her ATM card (with the corresponding password) to the lender so the latter can withdraw the payments on payroll days.

In case that scheme is not available, recourse is made to online money lenders that offer loans at varying amounts based on the information the borrower provides from his or her mobile telephone and social media accounts.

Since the loans secured through the two processes are loose and unsecured, their interest rates are often exorbitant. Worse, when repayments are delayed, the lenders have no qualms about using violent extralegal measures to get their money back.

Securing credit from formal sources is ideal, but there is still a long way to go before that becomes a reality to the unbanked majority of Filipinos. INQ

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