With most people having limited cash, credit access is a boon, especially for micro enterprises. The easier the access and repayment scheme, the better. This is why informal lending under the so-called “5-6” system, which is based largely on trust rather than formal arrangements, remains popular, despite the high interest rate.
People used to informal lending may be lax in meeting repayment commitments. Lending firms are not charity organizations and naturally want strict compliance with such commitments, and any business must turn a profit.
Modes of collecting payments, however, are governed by Republic Act 9474 or the Lending Company Regulation Act as well as RA 11765 or the Financial Products and Services Consumer Protection Act. This week the Department of Justice announced that three lending firms and three other companies together with over 30 people face charges for breaking those laws.
Complaints have been on the rise against various forms of harassment employed by lending firms to collect payments. A common tactic is public shaming and posting of borrowers’ personal details online. Borrowers have reported receiving insults and even threats of physical harm. There are also outright lending scams, with Chinese based overseas reportedly behind the operations.
Loans are meant to be paid, on the date agreed upon. Lending firms obviously don’t want to go bankrupt due to bad loans. Litigation to collect debts is costly and bad borrowers can easily disappear in this country.
Credit access is critical for post-pandemic recovery and economic growth, especially among micro and small businesses that make up the majority of enterprises in this country. Monetary authorities can sit down with those from the information and communications technology and cyber security sectors to discuss ways of promoting timely repayment of loans without having to resort to harassment.
At the same time, banks can simplify loan requirements to reduce the attraction of easy credit offered by small operators. Financing is critical for economic activities to survive and thrive. Lending is intrinsically a high-risk business. But those providing lending services to entrepreneurs with limited resources can also use some help to remain viable without breaking the law.