CEBU, Philippines - Informal credit sources such as the five-six lending trade continue to thrive among small businesses despite the lending packages offered by some financial institutions to small and medium enterprises.
"Micro businesses in particular are still ‘allergic’ to formal credit because of the requirements," said PhilExport-Cebu executive director Fred Escalona.
Escalona said if banks and other legitimate financial institutions will continue to demand complicated requirements from micro-entrepreneurs, these small scale traders will continue to shy away from these institutions.
Escalona admitted that most small and micro businesses are still keen on borrowing from the informal lenders, specifically the five-six loan sharks, wherein loan proceeds are released instantly without stringent requirements.
He said despite information campaigns aimed at encouraging businesses to take advantage of the low interest rates and the banking sector’s high liquidity rate, still five-six trade remains popular.
"Although five-six loan sharks impose very high interest rates, borrowers still go to them, because they can borrow whatever amount they want, even as low as five thousand pesos," Escalona said.
In August this year, SB Corporation, a government-owned finance institution made its bold move to encourage MSMEs to borrow from the P4 billion total loanable amount from the agency.
Under the government definition, MSMEs are companies with a capitalization of not over P100 million.
SB Corporation president and chief operating officer Ma. Luna E. Cacanando said that by 2018 the agency aims to provide support to at least five thousand MSMEs.
"We are looking for small borrowers. We are begging MSMEs to join us," she said in an earlier interview.
Escalona said there is still a profound gap between the formal lending institutions and the small businesses in terms of connection.
Clearly, he said financial institutions like SBCorp., has to protect its interest to secure the government's money, the reason why they have to require some documentations from borrowers. On the other hand, micro-entrepreneurs also have their own interest to get the financial sources the soonest time possible. (FREEMAN)