BSP wants to regulate 5-6 operators, lending investors

The Bangko Sentral ng Pilipinas (BSP) said lending investors, including single-proprietorship operations such as traditional 5-6 lenders, should be registered and regulated.

The BSP said the hurdles and regulatory framework would have to be adapted to the unique operation of these lending investors but they have to fall under some regulatory net.

BSP Governor Amando M. Tetangco Jr. told reporters that the BSP supported the proposed bill by Sen. Edgardo Angara Jr. that would put lending investors including single proprietorships under the Department of Trade and Industry (DTI).

According to Tetangco, the BSP itself did not have the structure or the network to undertake the task but other government agencies have the capability to regulate and monitor these operations.

Under the proposed bill, lending investors would be under the DTI instead of the Securities and Exchange Commission (SEC) which is ill-equipped to regulate them.

"At present, no one regulates these lending investors," Tetangco pointed out. "Lending investors in general are under the SEC because they are not considered banking institutions but over 60 percent of these operators are single proprietorship which fall under the DTI."

According to Tetangco, the BSP supported the Angara bill which would blanket the industry that includes traditional lenders in the countryside who have never been under any regulatory framework.

"Clearly, banks do not have the reach or the resources to retail credit the way these lending investors can," Tetangco said. "They are necessary elements in the rural economy so we can not do away with them. But they have to be regulated because borrowers have no protection without a regulatory framework."

The logic of putting lending investors under the DTI also made more sense, the BSP said, because monitoring them required less of a prudential regulation but more of a consumer protection-type of regulation to protect the borrowers from disadvantageous agreements and/or lack of transparency in their transactions.

The SEC itself has been pushing for the bill, saying it was having difficulties implementing an edict from the Department of Justice (DOJ) that directed the SEC on the laws and regulatory framework to be followed.

According to the SEC, the bill would resolve the lack of clarity on whether lending investors engaged in direct lending but are not exercising quasi-banking functions should be regulated by the SEC or by the BSP.

"This matter is further complicated by the fact that an estimated 6,000 or 60 percent of lending investors are single proprietors, which do not fall under the supervision of the SEC," the SEC said during a hearing at the Senate committee on banking and financial institutions.

According to the SEC, it was unable to implement the DOJ directive to convert lending investors into financing companies after they encountered difficulty in imposing higher capital requirements on lending investors organized as sole proprietorships.

According to BSP Assistant Governor Juan de Zuñiga, on the other hand, the responsibility of the BSP did not cover lending entities unless they fall under the category of banking institutions.

"The BSP is also not structurally prepared to handle lending investors because we do not have the network to supervise lending investors, which are distributed nationwide," de Zuñiga said.