This we have to admit. The Indian nationals you see on motorbikes across the country are, indeed, loan sharks. The interests they charge are beyond the capacity of their borrowers (victims is another word) to pay. It is anywhere from three (3) percent to five (5) percent a week, or 12 percent a month at the very least. Their charges are inhuman but in the desperate, excluded -from-the-lending -mainstream urban and rural areas, there is no alterntive.
I know of many next of kin and sari-sari store owners from the barrio whose attempt to engage in small-time retail have turned them into cash cows for the “Bumbays.”
Why can an inhuman form of lending thrive for so long? Mr. Duterte has finally ordered a stop to loan sharking. In his usual colorful words, he asked the police to arrest the “Bumbay” loan sharks. Good move. But this question is worth asking. What next? Will the financial authorities fill up the credit slack? And we have to look at the environment that has made the loan sharks virtual birds of prey.
The phrase “credit slack” is the central story on why the “Bumbays” have thrived, and here is an explainer .
The “Bumbay” loan sharks entered the sharking scene as the old forms of usury in the agrarian areas started to take a backseat. The old form of usury involved borrowing palay and repaying in palay after every harvest season (which is two times a year). The interest charge, naturally, was in palay form and words such as “tersiyuhan” or “takalanan” were used to denote the level of interest rate. Anyway, the standard rates were mostly from one third of a sack to half a sack for every cavan of palay borrowed, the interest and the principal due after six months. The richest in an agrarian setting was mostly the barrio lender. I know of this because my tenant-father, during desperate times and after crop failures, turned to the barrio usurers for the family’s version of “bridge financing.”
No, not bridge financing. My father had to borrow from the barrio usurers, this is the whole truth, so he and his family will have something to eat until the next harvest season.
At some point in the late 1970s, the palay-based usury was rendered obsolete and borrowing in cash and repaying in cash became the norm. The usual barrio lenders lent to farmers while the growing small-scale retail sector went to new but more aggressive lenders – the “Bumbays.” From the initial market of sari-sari store owners, the “Bumbays” then expanded their lending activities, mostly to households that acquired appliances they could barely afford. The “Bumbays” also became the main source of small, usurious loans in the urban areas.
The “Bumbays” saw a credit slack, filled it with steep interest rates and a ferocious collection effort, then dominated the loan sharking of households and small retailers.
Now, they are in the eye of a potential storm. We now go back to “credit slack” Who will fill it once the “Bumba
The Philippine financial system has made it its business not to lend to the poor. Many reasons for this. Just look at this administrative aspect. A P100 million loan to one person or a single business entity is part of the banking system’s daily grind but only for premium borrowers, or new borrowers with reliable credit standings and adequate REM. The paperwork and the administrative aspect of lending is easy with just one borrower.
But what if a hundred poor borrow that P100 million? It would be messy (the paperwork) and time consuming. All the bank loan inspectors will have to work overtime.
But the administrative grind is only a skin-deep reason. The real reason is the anti-poor bias of the banks. The Philippine banking system practices its own form of apartheid. For the rich and adequately collateralized only. The banks do not lend to the poor because the poor can only mortgage their desperation and their poverty.
In a previous piece, I wrote than even when the law provides dedicated lending to the vulnerable – such as lending to farmers under the Agri-Agra Law – the banks always comply with the “alternative modes of compliance” written in the law to escape lending to small farmers.
What more if there is no law that makes it mandatory for banks to lend to the other sectors as desperate and credit-hungry as the small farmers?
The poor and the other vulnerable sectors need to be part of the formal credit mainstream to improve their lot, to fund small businesses, to ease the burden imposed on them by the loan sharks. But except for the largely inutile Agri-Agra Law, there is nothing in the financial system that makes it imperative for the banking system to lend to these sectors.
The “Bumbay” loan sharks are for real and they really bury the poor deeper into poverty and hopelessness. But they thrive because of the apartheid practiced by the financial system, which need not post its most important rule: For the rich and adequately collateralized only.
The “Bumbay” leaders are Exhibit A of a greater malaise, whether we admit this sad fact or not.