The majority of Filipinos need to borrow money at some time or other, many have to do it regularly. Nearly 60 percent of borrowing is [worryingly]in order to buy food, according to a survey by the Bangko Sentral ng Pilipinas (BSP). School fees account for 38 percent of borrowing and domestic emergencies another 30 percent.
There has been a suggestion that the five-six lending market may be outlawed. Five-six represents about 10 percent of the informal lending market in the Philippines, the overall size of which may be judged from the statistic that 43 informal finance institutions have between them a loan portfolio of $351 million [P1.8 trillion] with 2.2 million borrowers. There are probably three times as many borrowers than reflected in this sample. The market size could be P5 trillion or P6 trillion. The five-six market, given that loans in this sector are generally of low value, could account for about P2 billion or P3 billion—still a significant amount. If five-six lending were outlawed, an exercise which, given the casual nature of the business might be difficult to enforce, there would need to be other sources of funding available in order to allow the sectors of the economy that depend on five-six to finance their activities. No doubt the current five-six operators would just reform themselves under some other microfinance banner.
Filipinos need access to credit. The clearing banks are not attractive propositions for the small borrower—accounts need minimum holding deposits. To get credit for buying food, microbusiness working capital, school fees, involves a tedious and lengthy process requiring many documents against a slim chance of a loan ever being approved. The BSP survey claimed that only 10 percent of Filipinos seeking loans would consider applying to the clearing banks. There are numerous informal financing organizations, including the five-six players, and it is thanks to these that the Philippine economy continues to creak along at the level of the ordinary person. Is it really such a big challenge to the clearing banks to lend more and with fewer conditions?
Government should force the banks to play a role in the further development of the national economy rather than strangling it.
Beyond the purview of the ordinary person struggling to meet his financial commitments for food, education and family emergencies are those who have no need of borrowing money from banks or anywhere else, who make their money from illegal activities such as drugs, prostitution or smuggling. Proceeds from these highly remunerative activities contribute [whether or not they are reckoned in the calculation]to the Philippines’ gross domestic product [GDP].
In Europe, proceeds from such activities form part of and are fully accounted for in the calculation of GDP. Drugs and prostitution contribute about £10 billion [P600 billion] to the national GDP. The UK’s statistical breakdown reckons that each of the estimated 60,879 prostitutes took about 25 clients a week in 2009, at an average rate of £67.16 [P4,000]! It also estimates that the UK had 38,000 heroin users, while sales of the drug amounted to £754 million [P45 billion] with a street price of £37 [P2,200] a gram. Smuggling alcohol and tobacco boosts GDP numbers even further.
The contribution of illegal activities to GDP in the UK represents slightly less than 0.5 percent—it is not particularly significant, and because it is illegal, it is not taxable. The informal lending business in the Philippines is a significant facilitator of GDP growth in legal and material ways, which will also generate taxable income for government and provide opportunities for decent wage earning, i.e. jobs, lessening the temptation for those who desperately seek work to find it in the sorts of business in the illegal world, which don’t need to borrow.
Better to find ways of lending more to create decent jobs so that people do not have to borrow to finance their food and children’s education, and the size of the consumer lending market eventually reduces.
Mike can be contacted at firstname.lastname@example.org