Republic Act No

Utang: A Simple Guide to the Lending Culture in Philippines
August 24, 2016 By cashmartph Leave a Comment
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Updated February 9, 2017
Need a loan?
Who among Filipinos hadnt experience borrowing money from a family member, a friend, a
moneylender, a Bombay, or a bank?
Even businessmen borrow money, let alone those who work at a minimum wage each day.
Utang is a part of Filipino culture prominent enough to have caught the attention of Pres.
Rodrigo Duterte.
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During the 2016 elections, then presidency candidate Mayor Duterte clearly stated his plans to
irradiate the 5-6 lending scheme in the country. The 5-6 lending system is known to be the
famous business of Indians, locally known as Bombays, here in the Philippines.
The Bombays are usually depicted to be wearing turbans, riding motorbikes, sometimes walking
with a long umbrella, and offering loans with daily repayments. It does not matter if the
repayments are as small as 20 pesos a day, they will diligently come at the borrowers doorsteps
everyday. Sometimes they will even offer furniture, small appliances, and other household items
and the payments will be just the same-everyday.
5-6 Loan Computation
The 5-6 lending system was brought by Indian nationals in the 70s and it has spread like a
wildfire. They didnt need any advertisements, the Indians lending business was popularized by
gossips in the neighborhood. Since borrowing money is part of the Filipinos culture, this lending
system was greatly accepted despite the staggering interest rate of 20%.
If you borrow Php500, you have to pay with the additional 20% interest: 500 x .20 = 100. You
have to pay Php600 in daily installments. Why did it become so popular? Since the repayment is
on a daily basis, the cash to be paid seems smaller than it really is. It is easier to part with a 20
peso bill each day rather than Php600 in a onetime payment. Also, there is no need to hassle
yourself with any required documents unlike in banks.
Aside from the 5- 6, there are other types moneylending in the Philippines.
Fix Rate Loan Definition
This is usually a verbal agreement between the lender and the borrower. Neighbors usually
practice this system as many Filipinos seem to have the habit of trying their luck first with their
neighbors when it comes to utang. There is no standard interest rate, they just talk about the fix
amount of money to top up when it comes to repayment. If you are lucky enough, you might
have a kind neighbor who wont ask for any interest at all.
Incremental Borrowing Rate

The interest rate increases after a certain period of time. With this system, the borrowers are
forced to pay as soon as possible or they will have to pay more. While this secures the lenders
that they will get some profit from the base principal, it is too risky for the borrower. The interest
rate may start in as small as 3%. If you fail to pay within a month, the interest rate will increase
to 4% on the next month.
Diminishing interest
How to compute diminishing balance on loan?
Many Filipinos prefer this system. The borrower will pay monthly installments and the amount
of interest will seem to decrease as it will be based on the current outstanding balance of the
capital. For example, if you borrowed Php1,000, then your outstanding balance will be Php1,200
if the interest rate is at 20%.
Php1,000 x .20 = Php200
Php1,000 + Php200 = Php1,200
If the first payment is Php300, the Php200 (20% of Php1,000) is for the
interest and the Php100 will be for the capital.
Then the new outstanding balance of the capital will be Php900.
Php900 x .20 = Php180
Php900 + Php180= Php1,080
Then on the 2nd month, pay Php300 (Php120 for the capital and Php180 will
be for the interest).
The current outstanding balance of the capital will be Php780.
Recurring interest
The lender will keep on collecting the interest as long as the lender had not paid the debt
outright, and by outright means full payment not by installment. This is the lending system used
by pawnshops in the Philippines.
Paluwagan Rules
Pool funding is also as popular as 5-6. This is commonly done within a neighborhood or close
circle of friends or workmates. A group of people will collect a certain amount from each other
then they will do a casting lots or bunutan to know which one will be the first to use the
pooled fund.
Then on the next day or week they will once again create a pooled fund with the same amount
and the next person (as decided by the casting lots at the beginning of the system) will take home
the money. The system will go on until the last person will be able to have his or her chance to
take home the same a month of collected pooled fund.
Money Lenders Vs Banks
Private lenders can offer short term loans, with least required documents- sometimes none with
the case of Bombays. On the other hand, not so many Filipinos are keen to take loans from
banks, this is due to the hassle of required documents and a long time of process. Banks also
dont usually give short term loans.
Online Private Lenders
Online lenders are private lenders willing to give short term loans at the shortest process
borrowers can ever experience. Lenders such as Cash Mart can even disburse cash within the day
of application.
REPUBLIC ACT No. 3765
The Truth Lending Act mandates all lenders, both banks and private lenders, to be transparent
with their terms and disclose all costs in the agreement contract. All costs and amounts must be
itemized to prevent lack of awareness in part of the borrowers.
If you need instant cash but you dont like the hassle of going out to lenders offices or banks,
then you can log in to Cash Marts website and start filling in the online application form. Expect
the process to be smooth and short. For more inquiries call Cash Mart now.
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Alternative to 5-6 lending
By: Raul J. Palabrica - @inquirerdotnet
Philippine Daily Inquirer / 02:18 AM December 12, 2016
Mention the numbers 5-6 to the man on the street and the first thing that usually comes to mind
is Indian nationals (or Bombays, as they are fondly called) going around the public markets or
depressed areas offering to lend money to people who need it fast. The terms of the loan are
simple. It can be in cash or as payment for a product that the borrower wants to purchase. No
collateral is needed to secure its payment. As proof of the loan, the borrower simply signs
opposite his name on a small notebook that shows the amount borrowed or product bought.
A background check on the borrowers creditworthiness is seldom conducted. Often, its enough
that he has a permanent address, not a transient of the place. The transaction can be completed in
minutes and no other documents are signed or exchanged. If the credit extended is, say, P5,000,
the borrower has to pay P6,000 after a month. The lender will come at the appointed date to
collect the payment. Once the debt is fully paid, the borrowers entry in the notebook is crossed
out and he becomes eligible for another loan.
Trade Secretary Ramon Lopez wants to put an end to this kind of transaction because it translates
to an interest rate of 20 percent a month, which is way above commercial lending rates.
ADVERTISEMENT
To meet this objective, Lopez said the government would set aside P1 billion next year to lend
money to micro and small enterprises at 2-percent-a-month interest, with P2,000 as the minimum
loan. According to reports, 98 percent of registered businesses in the country are micro, small
and medium enterprises and they employ more that 50 percent of the national workforce.
This is not the first time that the government has made plans to reduce, if not eliminate, the
lending scheme that is identified with Indian nationals. But the trade continues, and has even
expanded, in spite of the increase in the number of financing and credit firms. Its doubtful if the
proposed cut in the interest rate to 2 percent a month will wean away micro and small
businessmen from the 5-6 lending scheme.
The principal reason for the popularity or acceptability of this transaction is convenience. The
borrowers do not have to look for the lenders. The latter go to the public markets or places where
they think there are people who need quick cash and have the capacity to pay the loan. On the
other hand, if a prospective borrower wants to apply for a loan with a financing company or a
bank, he has to dress up (or at least look presentable) and visit its office, which is not only
inconvenient but can sometimes be intimidating.
Also working in favor of this grassroot-style lending is the absence of the paperwork that usually
accompanies borrowing from formal lending sources. There is no need to present copies of
income tax returns or other proof of ability to repay the loan. Its all a matter of faith. The lender
assumes that the borrower will not renege on his promise to pay the loan when it falls due. If the
borrower absconds, thats considered part of the risks of doing business.
For the lender, the 20 percent interest a month is sufficient compensation for the possibility of
failing to collect some loans or, worse, getting mugged while in the process of during his rounds.
On the part of the borrower, the exorbitant interest rate is considered a bitter pill that they have to
swallow to be able to fund their small business or enjoy the small pleasures of life.
The key to putting an end to the 5-6 lending scheme is matching the lenders advantage in
convenience or easy accessibility. The planned lending facility should have a visible presence in
public markets or in areas where micro and small enterprises ply their trade so they need not go
far if they want to secure additional funding for their business.
The documentation of the loans can be ticklish. Because public funds will be lent out, the
transactions will have to comply with existing banking and audit regulations. The loans should
be processed as fast as possible and with the minimum of paperwork without sacrificing the need
to ensure that they are paid. Collection can be a problem too. Because public money will be lent
out, the borrowers may treat them as dole-outs to which they are entitled and therefore need not
be paid.
The proposed alternative to 5-6 lending scheme should be carefully studied before its
implementation to avoid precious taxpayers money going down the drain or winding up in the
pockets of unscrupulous politicians.
Read more: http://business.inquirer.net/221209/alternative-5-6-
lending#ixzz4ZCY8n7vd
Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook
Bumbay loans sharks thrive due to our financial apartheid
31
By MARLEN V. RONQUILLO on January 15, 2017 Opinion on Page One
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Marlen V. Ronquillo
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 familys 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 systems 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.
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31 Comments
1.
aces on January 16, 2017 8:58 pm
We can enumerate many different kinds of ideas, solutions and suggestion , but every
Filipino must remember that as long as the corrupt rich and elite controls all corrupt
sitting politicians, this long-standing problem will continue and take advantage of the less
fortunate. Hopefully this current President will introduce an executive order to rid of 5/6
loan sharks practices And if Those Congressmen and Senators vetoed the bill. then do not
vote for them ,unfortunately there is one big problem ( Smartmatic sells the position to a
candidate the highest bidder, come election time).
R Ino on January 18, 2017 10:31 am

Aces, pare, Will NOT Need corrupt rich & elite in control when Poor but net-
savvy pinoy sari-sari TPS StoreOwner Members all over pinas make 500,000
pesos araw-araw by 2020.
Mindset: $0.001/day x 10m emerging middle-class red china = $10k/day

@50(forex) = 500,000 Pesos Per Day.
ANO kamo? https://youtu.be/2iSM8F8SJoQ
2.
Raul Dagul on January 16, 2017 1:33 pm
Might the solution, either temporary or permanent, be to legalize the lending activities of
the Bumbays and others engaged in the 5/6 scheme? Since the government chose to
ignore the poors needs, and we all know there IS a dire need for financing among the
poor, why not?
Waitbefore you jump into conclusionsof course stringent rules and regulations must
be adopted, as well as legalese that will govern the lending activities. Every one must be
licensed, must be made to undergo scrutinity i.e. NBI and PNP clearances etc.. deposit
requirements (each prospective lender must have a deposit in a trust account some
amount that will exclude the shady characters and operators, and whatever else is deemed
necessary for its success. Im sure readers will have their suggestions on how to make
this work.
3.
red planet on January 16, 2017 1:01 pm
The biggest 5-6 Bumbay of all is the IMF World Bank, cant you see that Mr. Duterte?!
4.

Ang solutions sa marami nating pag-durusa ay nasa puso ng bawat isa sa ating lahat na
pilipinosa buong mundo.
That PERMANENT Solution must appeal sa gustong nakaka-rami (democratic) & kung
saan, lahat puedeng kikita (capitalism).
p.s. Most, if not all, ive seen here are either problem-analysis/kwento or else the usual
band-aids, that usually lead to more complicated situateions, like having more & more
people in-the-same-room with varying motives, addressing pabalik-balik na problems.
p.s. bagong problema, naman, oh;-)
5.
New beginning on January 15, 2017 11:48 pm
This will continue as this sector of borrowers has the highest default rate. Lenders need to
cover this high risk
6.
Ompong on January 15, 2017 5:01 pm
In fairness po sa mga bumbay, marami sa ating mga kababayan ay napagtapos nila ang
mga anak nila sa pag-aaral sa tulong ng 5/6 na yan. Ang tiyaga kasi nilang galugarin ang
mga suluk sulok ng maynila at iba pang lugar para lang makapagpautang pero siyempre,
malaki rin ang risk nila (i.e. holdap/ma-1/2/3, makikilan ng mga tambay etc.) Paran na rin
masasabing necessary evil kumbaga. Tama ang analysis nyo, isipin nyo kung
amgpapautang ang bangko ng worth P100M sa mga mahihirap, ang daming paper work
at sakit sa ulo. Kumpara sa magpautang sila ng P100M let say sa SM, less ang ang sakit
ang ulo at merong collateral pa. Sa mga mahihirap, ang collateral ay tiwala, pangako at
chansa na hindi matakbuhan
o
Mike Cheng on January 16, 2017 5:29 am
Cryola, cryola at cryola pa rin.
R Ino on January 16, 2017 6:09 pm
Paperwork? Create change. Adopt proven successes (like Phase 1, below). Lots of
risks/manual sakit ng ulo are already history with Online Apps. In fact, the net is
now on the verge of the 2nd phase:
Phase 1: connects 3-7 Billion people via e-mail, fb, google, social media et al;
Phase 2: will connect 50 Billion devices thru so-called Internet-of-Things.
where the Big Boys are now re-investing their phase 1 profits.
Next Question: Pahu-huli pa ba ang pinoy? Get on-board now. Timing is

everything.
DO NOT DELAY. Bak-up d trak! ;-)
p.s. it is understoodnothing beats face-to-face/personal dealings!
7.
To the max on January 15, 2017 2:01 pm
The solution is micro financing. The late Corazon Aquino tried to implement but it was
too late, she died. In India, it was very successful. In fact the person that implemented the
process was given a Nobel a price in Economics.
R Ino on January 16, 2017 6:25 pm

To The Max, solution yan ng Mayaman para yumaman pa sila. kaya: rich always
gets richer, and rich poor gaps keeps widening. gagalit duterte, gusto tulong
mahirap.
Ang Solution DAPAT: Mahirap para sa Mahirap. Magkaroon alhat ng mahirap ng

pag-asa kumita gaya ng Red Chinese mindset. Ang pinas >100m young
population, marami naka-cellphone na puno instagram/fb APPs.
Ma-mera-mera x Volume: singko singko everyday times 10,000,000 chinese =

500,000 pesos daily!
8.
tk on January 15, 2017 11:21 am
This is very important.
If DSWD, congress and senate have huge budgets to squander, why not address this basic
foundation of the country.
Should have more articles/exposes like this.
Agree. But first, we must rely & trust ourselves. Secondary nag dswd or mga
politicos, who all have their own agendas/motives.
Ergo, Only a UNIFIED common tao/pinoy population, like EDSA people power,
each with a potential to make 500k pesos per day extra income(by say 2020), can.
9.
Judith on January 15, 2017 10:14 am

And yet I hear those poor people say that these Indian nationals were able to help them
get through with life. Can the government do the same thing they do like collecting every
day or every week and also give small loans without any background check? The middle
class is shrinking because we pay for everything and even the SSS, for example, has to be
salvaged by the members even though our contributions were used to fund businesses of
favored people. I pity the poor but because they are many hence more votes, the battlecry
is to subsidize the poors needs most of the time. When can the middle class who have no
tax shields actually experience direct help from the government through the taxes we paid
in various forms like VAT, income tax, property tax. Once the middle class diminish, the
government will have less people to tax to subsidize the poors needs. That time is
actually being felt right now as we slowly join the poor since our properties can be
auctioned off if we cant pay our property tax and our jobs cant be sustained by our
employers.
shrinking middle class? Many Practical Solutions: check TPS138 model. Dito,
bibigyan ng addl source of long term income(probabilities!) lahat ng net savvy
mobile > 100m pinoy. many can & will earn extra $10k or 500k daily, in 5-10 yrs
vs. the 5 mins it takes to sign up Free today, kasing bilist dali mag-bukas ng fb
acct.
Lifetime, no-brainer. make probable 500k pesos everyday, by 2020(?)..not asking

u 2bilib sa kakayanan ko 2create, but in YOURsobama
10.
abel adsuara on January 15, 2017 9:30 am
You are so correct in telling this Mr. Ronquillo, and not only that they do loan sharking
they are also drug dealers. If you look at the FBI files the Indian Mafia considers the
Philippines as one of their territory. They go to small apartments in QC and live there for
years and our government does not even care if they are illegal in our country.
I have distaste with this people, since Filipinos in the states particularly computer
programmer & computer engineers lost their jobs because of them. If you have any
relatives in the US ask them who controls the IT department, they do. And they will only
hire Indians like them!
I have a friend who own a Dunkin Donuts for more than 20 years and he lost it to the
Indians, only because the Indians hired a private investigator and looked if any are
working illegally in the shop, true enough he did, but that is not the point. The Indians are
known to hire illegals especially their kind. Do you know that the 3rd largest illegals in
the US are Indians?
If pres DU30 will only kick them out of here, I will be very happy!
dont hatemove on, by doing/creating something more positive 4yourself. ;-)
11.
enelym on January 15, 2017 9:11 am
Bumbays are nothing compared sa mga pinoy na nagpapa 5-6. Dito po sa amin 20% ang
patubo every 2 weeks. There are others na mas malupit pa jan kc 1 week lang tutubo agad
ng 20% ang inutang mo
short-term recurring problems like 5-6 need 2b addressed by permanent long-term

solutions. kelangan kumita ang mga pinoy middle class, well ahead of the 400
million emerging chinese middle-class now joining The Perfect Solution. See
below biz model, re: Sari-sari stores now Online.
P.S. Links to our local merchants:

Ramz Oriental Store in New Jersey:
http://www.tps138.com/index/product? snm=16382424
Chinese Food Market in New York:
Chinese restaurant in New York:

12.
Maria Stevens. on January 15, 2017 8:40 am
These so called loan sharks are providing a valuable service to small business..The
REAL LOAN SHARKS are the credit card companies who charge 32 percent per month.
Solutions come from Within Oneself.
What ur seein r the realities of Market Forces. eka ni Erap, sino bang nag-
order nyang forces of Supply & Demand? ;-)
Democratic Capitalism tayo so farhindi pa Autho-ritaRian Communism(despite

Digong & his old press & new kakilalas patins xia zi ming?)
13.
R Inocencio on January 15, 2017 8:33 am
One Possible Response to Perrenial Pinoy Malaise: Convert ALL sari-sari stores to
Online, including ALL 100m smartphone carrying pinoys. Take 3,000 million retail
considering netizens, worldwide, and then wait-to-ACTIVATE free acct at your
convenience.
Whats 5 minutes-to-register a FREE TPS acct vs. the potential probability of making
$10k daily [just say, $.001 or 0.05 centavos x 10m global netizens na lang = $10k/day or
500,000 pesos/day? eka nga Obama: not asking u 2believe in my ability 2create, but in
YOURS
14.
Solution for >100m smartphone-carrying kababayans: Front load ahead of > 3,000
million retail sales consumer netizens, worldwide. Convert ALL our sari-sari stores to
Online. Free StoreOwner Memberships provided by TPS: The Perfect Solution.
15.
Solution for >100m smartphone-carrying kababayans: Front load ahead of > 3,000
million retail sales consumer netizens, worldwide. Convert ALL our sari-sari stores to
Online. Free StoreOwner Memberships provided by TPS: The Perfect Solution.
Overview https://youtu.be/21SM8F8SJoQ
16.
aces on January 15, 2017 6:56 am
I hope this article will start to eliminate this usury practice which has driven the poor no
choice to survive financially, and I hope President Duterte and all Representatives will
introduce a law that will help the poor ,in their finances, and new banking regulations
should be instituted which will have an inclusive program assisting them to obtain small
loan to run their sari-sari store so they will not resort to no other than Bombay Loan
Sharks. and from the rich elite who are insensitive to the needs of the poor and less
fortunate.
17.
Nomer obnamia on January 15, 2017 3:06 am
But Filipino businessmen are not to be trusted so dont blame hard working bumbays.
sour-grapes? move on, whole big world out there u can trust. last i heard, global
village , naahhh! ;-)
18.
Mike on January 15, 2017 2:27 am
I agree with your assessment of the problems of the poor. The financial system is not
friendly to the poor. But, I cant lay the blame on the system entirely.
Part of the problem seems to lie within the culture as well. For example, when our kids
first started school, the practice of birthday parties for children was nothing more than
financial one-upmanship among parents. We felt pressure (granted it was in our own
minds) to provide our kids with the same level of affluence shown by other parents. Im
not even sure why the school even permitted such a practice or allowed so much time for
parties. Now, our fifth grader has been begging for an i-phone because classmates make
fun of him for his cheap cell phone. Not sure why schools even permit cell phones or
dont provide access to phones for an emergency.
Now in your article, I fully understand the need to borrow for the basic necessities of life.
Sadly, I think these days, part of the problem is that we confuse necessities (like food)
with non-essentials (like an i-phone or Jollibee birthday parties). As parents and
consumers, part of the problem also seems to lie with the well-intentioned but poor
financial choices we make for ourselves and our children.
o
Beyond analyzing mga reasons sa ting mga matagal at recurring problemas, there
must beeka ni Mayor Villegas o ni lolo JPE: ACTION AGAD! >>>
The Perfect Solution. Kinu-kuyog na ngayon ng intsek. 1m pa lang sila lahat, 3

every 1minute or 5k per day!
i-pasok o front-load natin mga pinoys, well ahead of the 400m pang middle-class
chinese naka-umang sumali sa TPS Online Mall business. FREE, quick & easy
sign-up, then keep/hold free act, waiting to ACTIVATE once magkan-darapa
silang sumali sa The Perfect Solution.
19.
Gerard on January 15, 2017 1:11 am
Mr. Ronquillo, coming from a family of farmers you understand the difficulties and
sometimes the desperation faced by small farmers in trying to feed their families.Yes the
banks need to devise effective and efficient ways to help this group of people who
desperately need assistance. The government on its part should work in tandem with the
banks so that one area of poverty may be addressed.
20.
Amnata Pundit on January 15, 2017 12:39 am
The obvious solution is to open a publicly owned bank that is dedicated to agriculture
with focus on small farmers. Never mind if it doesnt make money, it purpose is to
develop the farming sector. After all isnt the farming sector in practically all western
countries including America subsidized? All we need is the political will to overcome the
objections of the WB-IMF mafia. Duterte looks like the kind of president who will be
open to this idea.
Duterte wants discussion with Indian govt on 5-6 lenders
Published February 5, 2017 3:18am
President Rodrigo Duterte said on Saturday that he wished to talk with the Government of
India about 5-6 lenders operating in the Philippines, most of whom were allegedly Indian
nationals or migrants.
"OK lang naman yung magpahiram sila ng pera," Duterte said in an interview broadcast on a
national network. "But ang bagong style kasi nila, pahiramin nila ng pera yung pobreng
Pilipino, tapos pabilhin pa nila ng refrigerator, mga appliances. So doblado ang kalbaryo ng
mga Pilipino."
The president added that he wanted the discussions to be frank and honest, with none of the
diplomatic niceties.
Duterte also said that his government planned to provide each region of the country with P1
billion for small business loans, and thus displace 5-6 lenders.
The president has been particularly concerned about 5-6 lending. During the presidential
campaign, then candidate Duterte said he wanted to discuss the matter with the Indian
ambassador.
And such discussions have been going on, at least at the ministerial level, as Foreign Affairs
Secretary Perfecto Yasay met with the Indian charge d'affaires last January to discuss the
subject.
The Justice Department had meanwhile threatened usurious lenders with warrantless arrests,
and deportations in cases which lenders are foreign nationals.
In a less menacing and more conventional tone, the Trade and Industry Department unveiled
a lending program in which P1 billion would be coursed through micro-financing
institutions. The program's loans would have a two percent monthly interest, compared to the
5-6's 20 percent.
Senator Panfilo Lacson also said that it was unfair of the government to target Indian
nationals involved in 5-6 lending as Filipinos and Chinese nationals were also engaged in the
practice. DVM, GMA News
5-6 loans actually helped after Asian Crisis, study says

A 2003 academic paper found that Filipinos, not just Indians, were also major
providers of the costly loans
By Entrepreneur Philippines Staff | Jan 16, 2017
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When President Rodrigo Duterte railed against "five-six" loans, he also ordered the arrest, even
without a court warrant, of Indian nationals engaging in the high-cost lending scheme.
The loans entail the payment of six pesos for every five pesos lent out usually after 30 days,
implying an interest rate of 20 percent a month or 240 percent a year. (In contrast, most credit
card companies charge only two percent a month or 24 percent a year)
"President Duterte has ordered the arrest of Indians engaging in '5-6' (lending)," said Justice
Secretary Vitaliano Aguirre Tuesday, speaking in Pilipino. "The poor are suffering from the high
20 percent interest rate. (The Indians) could be arrested without any warrant. When they're
doing that, theyre committing a crime."
Unfortunately, the government has not provided any verifiable numbers on the prevalence of the
lending scheme or role of the Indians. Agriculture Secretary Emmanuel F. Piol claimed in a
Facebook post that "there are about 50,000 motorcycle-riding Punjabis involved in a money-
lending scheme where borrowers pay back a Php5,000 peso loan with a Php1,000 interest in one
month collected on a daily basis. However, the Bureau of Immigration has refused to confirm
the farm secretary's numbers, according to BusinessWorld newspaper.
There are also few academic studies looking at the impact of the "five-six" lending scheme. One
of these is a paper that came out in the Kyoto University's Kyoto Review of Southeast Asia
journal in October 2003. The paper, entitled "The 'Bombay 5-6': Last Resource Informal
Financiers for Philippine Micro-Enterprises," and written by Asian Institute of Management
associate professor Mari Kondo, was based on a case study of "five-six" lending in a public
market in Sta. Rosa, Laguna.
The study found that Indian "five-six" lenders began to increase their market share of such loans
only after the 1997 Asian financial crisis, which created money woes for many of their Filipino
counterparts. Still, in the early 2000s, bulk of the loans for most of the vendors at the Sta. Rosa
public market came from Filipino financiers. It's possible that Indian lenders' market share has
gone up since then but that still has to be confirmed by new studies.
The study's conclusion bears consideration by policy makers more than a decade after it was
made. It said: "It is notable that Indian moneylenders are considered socially undesirable people
in the Philippines. However, this study found that hosting Indian 5-6s with their different risk
diversification strategies could be an asset for Filipino society, especially during economic
downturns. The owners of micro-enterprises in a developing country are particularly vulnerable
to the external shocks of globalization, and informal financing mechanisms with global funding
sources, such as that of the Indian 5-6 lenders, may assist in alleviating such volatility."
This story originally appeared on Entrepreneur.com.ph.
* Minor edits have been made by the Esquiremag.ph editors.
Group opposes war against 5-6 lenders

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Published January 11, 2017, 4:11 PM
By Samuel Medenilla
Cash-strapped small business owners may end up as collateral damage in the governments war
against the 5-6 system if it fails to implement a replacement for the popular money lending
scheme, according to a labor group.
Partido Manggagawa logo
(Twitter / MANILA BULLETIN)
In a statement, Partido Manggagawa (PM) spokesperson Wilson Fortaleza said the lack of a
suitable alternative for the 5-6 system will do more harm to its usual clientsowners of small
and medium-sized enterprises (SME).
The labor leader is now urging the government to enforce a national lending program, which will
extend loans to SME owners with minimum requirements.
We believe an alternative program can easily replace the 5-6 systemWithout this needed
replacement, the government will only push the (clients of the) system further into the black
market where more notorious financial sharks operate, Fortaleza said.
Fortaleza also advised the government to create a national employment program to reduce the
number of workers trapped in the vulnerable sector of the economy.
On Tuesday, President Duterte ordered the Philippine National Police (PNP) to arrest and deport
foreigners, who are engaged in 5-6, for lending money without the necessary permit.
Malacaang assured the Department of Trade and Industry (DTI) has already come out with a
new program to assist those who will be affected by their campaign against 5-6.
Can Duterte stop 5-6?
By: Carlos D. Isles - @inquirerdotnet
12:08 AM June 06, 2016
PRESIDENT-ELECT Rodrigo Duterte intends to prohibit Indian nationals locally referred to as

Bombay from their money-lending practice, which is popularly called 5-6. Generally, 5-6
collects an exorbitant interest rate of 20 percent from its borrowers.
Duterte said that 5-6 is a curse that impoverishes Filipinos who are already down on their
knees in poverty. I cannot agree more.
Indeed, it is hard to contest the reason Duterte wants Indian nationals to stop the practice. But
unless he can offer a much better lending program that can match the popularity of 5-6 among
Filipinos struggling to survive their harsh financial situation, I doubt very much if his plan will
succeed.
ADVERTISEMENT
There is a principle in physics that says, Nature abhors a vacuum. In Filipino: Hindi pwedeng
palitan ang isang bagay kung walang ipapalit na mas ayos. For example, some people are
demanding that the Black Nazarenes annual procession be stopped. But unless an appropriate
and fitting practice is put in its place, the practice will continue to be observed by the people to
satisfy their spiritual and psychological needs. In short, it will be impossible to eliminate it.
And so is 5-6.
Let me count the ways why 5-6 is likely to live on, whether President-elect Duterte likes it or
not. In fact, I predict that the practice will survive the Duterte administration.
First, unlike banks, the 5-6 loan provides almost instant cash with a very short (most of the
time, one day or less) waiting period. For a family who needs urgent capital, time is essential. In
contrast, bank loans take time to obtain due to petty bureaucracylike signing documents,
interviews, obtaining a passbook, presentation of two IDs, etc.
Second, the loan that can be obtained is almost limitless as long as the borrower and the
Bombay have already established mutual trust borne out of long productive partnership.
Similarly, because of this mutual trust, renewing ones loans is automatic, wala nang maraming
kiyaw-kiyaw pa (without much ado)!
Third is the easy payment scheme of small amounts. For the borrowers, this is OK lang
because they dont feel the heavy burden of paying big installment regularly. Besides, the
amount to be paid is based on the estimated daily earning of the borrower.
There is a popular saying among 5-6 borrowers: Ang Pinoy na nagigipit, sa Bombay
kumakapit.
I fully agree with President-elect Duterte that 5-6 is a pernicious practice that tramples on
people who are already down. But he must face the painful reality that 5-6 is a multiheaded
hydra, whose head will grow back unless the main reason for its existencenamely, povertyis
stumped.
One of the world-class examples of a successful microfinance program in the world is the
Grameen Bank of Bangladesh. It was founded by Mohammed Yunus, a Bangladeshi.
Grameen Bank focuses its loan program on impoverished women of Bangladesh. It has very
wisely disqualified men from its program because it believes that men, being prone to vices like
alcohol and gambling, would most likely default on their loans, unlike the women. Grameen
Bank has a very high collection record of 96 percent.
Way back in 2005, together with several friends, we tried to replicate Grameen in three provinces
in the Philippines. The attempt failed because the majority of the women-members could not pay
their loans. Reasons: Many are addicted to mahjong, Lucky-9 and tong-its!
Any loan program the Duterte administration will introduce must reckon with the sad reality that
many Filipinos are deadbeats when it comes to the payment of loans. They reason that nobody
goes to jail for not paying loans, especially government loans!
Carlos D. Isles (carlosisles@gmail.com), a writer, poet and professional harmonica player with
a degree in philosophy from San Jose Seminary (Ateneo de Manila), was a consultant of World
Bank- and ADB-funded community development projects in Pakistan, Bangladesh, India, Sri
Lanka, Indonesia and the Philippines.
Yo
Read more: http://opinion.inquirer.net/95084/can-duterte-stop-5-6#ixzz4ZCUdlryA

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Govt bares P1-b fund to replace 5-6 lending

posted January 09, 2017 at 08:05 pm by Othel V. Campos

The government will initiate this month a P1-b lending program designed to replace the so-called
5-6 loans with an affordable micro-financing for the countrys micro, small and medium
enterprises.
The government is launching the Pondo sa Pagbabago at Pag-asenso, or P3, program in Mindoro
and Leyte islands and Sarangani, among the top 30 poorest provinces, following the directive of
President Rodrigo Duterte to eliminate 5-6, where borrowers are charged with a 20 percent
interest rate in one short transaction.
The P3 is designed to bring down the interest rate at which micro-finance is made available to
micro enterprises, said Trade Secretary Ramon Lopez.
Trade Secretary
Ramon Lopez
The 2017 budget has included an initial funding of P1 billion for the program, part of the planned
P19-billion financing initiative for micro and small businesses in the next five years.
The programs fund will be lent out in the business centers of the poorest provinces, chosen
based on poverty incidence, where the participating microfinance institutions and Small Business
Corp. can operate.
An attached agency of the Trade Department, SB Corp. will administer the P3 program,
including the creation of a program management office, which will open a separate back account
for the P3 program to oversee the fund.
Fund delivery to micro-enterprises shall be carried out in either by wholesale lending to non-
bank financial institutions like MFI-NGOs, and cooperatives which shall on-lend the fund to
beneficiaries or by direct lending by SB Corp., Lopez said.
Priority beneficiaries include micro-enterprises and entrepreneurs that do not have easy access to
credit, such as, micro-entrepreneurs, market vendors, agri-businessmen and members of
cooperatives, industry associations and co-operators.
Loanable amount per end-borrower starts at P5,000 for start-ups to a maximum of P300,000,
earning an interest rate of 26 percent per annum with no collateral requirement.
The proposed rate is significantly below the 20 percent per day/week/month charged by 5-6
lenders. It is also lower than what is charged by most micro-finance institutions.
MFIs may opt for portfolio guarantee cover of up to 15 percent of their P3 loan portfolio from
SB Corp. at a guarantee fee of 0.4 percent. The guarantee feature is seen to help MFIs address
the P3 Programs inherent risk. The guarantee fund will be secured from the P3 fund.
P3 allocates P100 million for direct lending by SB Corp., in which the target loan beneficiaries
are the small enterprises in priority and emerging industries, start-up businesses and technology
innovators.
This alternative funding dedicated for micro and small enterprises is meant to discourage the 5-
6 money lending system in our country, said Lopez, adding that through the established MFIs,
the government would reach even the smallest of entrepreneurs in the country.
SMEs in the Philippines: Going beyond survival
Many Philippine SMEs remain too small, only meagerly augment household incomes, and are
unable to take advantage of opportunities brought about by ASEAN integration
Ronald U. Mendoza and Monica Melchor

Published 10:54 AM, November 11, 2014
Updated 10:54 AM, November 11, 2014
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Mendoza and Melchor
In ASEAN, small and medium-sized enterprises (SMEs) account for more than 90% of all enterprises,
employ 50-99% of the domestic workforce and contribute around 32-77% of total domestic output in their
respective countries. In the Philippines, the number of SMEs grew by 66% from 492,510 in 1995 to
816,759 in 2011. Similarly, the numbers of those employed by these firms have grown by 45.7% from 2.7
million in 1995 to 3.9 million in 2011.
These growth figures mask a wide array of challenges faced by these firms, notably with the
onset of economic integration in ASEAN. Many Philippine SMEs remain too small, only
meagerly augment household incomes, and are unable to take advantage of opportunities brought
about by ASEAN integration.
Overall, SMEs face numerous constraints to further growth and productivity, including credit
constraints, cumbersome registration procedures and strict regulatory environments, and other
challenges related to an economic playing field that is not level between large and small firms.
SMEs, especially start-ups, have lower probabilities of survival than larger firms, leading to high
rates of market entry and exit across nearly all economic sectors.
To go beyond survival and actually compete, SMEs will need to undergo successful business
transformation in various dimensions of their operationsspanning enhanced entrepreneurial
skill, innovation in process and product development, more successful collaboration across
SMEs and with larger firms, and improved crisis resilience among other factors.
At the forthcoming 52nd Annual Philippine Economic Society Conference to be held on Friday,
November 14, the AIM Policy Center and the AIM Dr. Stephen Zuellig Center for Asian
Business Transformation, in partnership with the Department of Trade and Industry and De La
Salle University will feature three recent studies on SMEs, examining some of the factors
affecting their performance and growth, such as entrepreneurial skills and backgrounds,
competitiveness in the business environment, and crisis resilience to climatic shocks like
typhoon Yolanda.
Streamlining regulations
In Toward Competitive and Innovative ASEAN SMEs: Philippine SME Policy Index 2012,
Professor Fernando Aldaba of the Ateneo de Manila and Assistant Secretary Rafaelita Aldaba of
the DTI examine the Philippine policy environment for SMEs, compared to its ASEAN
neighbors. They attribute a weak performance of SMEs to the large number of barriers prevalent
in the countrys business climate, notably limited access to finance, technology and skills; the
persistence of information gaps; and difficulties with product quality and marketing. In spite of
substantial trade and investment liberalization, penetrating the export market and making SMEs
internationally competitive remain persistent challenges.
The Philippines receives mediocre scores barely average in ASEAN on the eight policy
dimensions measured by the ASEAN SME Policy Index developed by the Economic Research
Institute for ASEAN and East Asia (ERIA). This index spans the key aspects of the policy and
business environment for SMEs, spanning institutional framework; cheaper and faster start-up
and better legislation and regulation for SMEs; access to information and supporting services;
access to finance; technology and technology transfer; international market expansion;
promotion of entrepreneurial education; and developing stronger, more effective representation
for SMEs interests.
Hence, simplified and streamlined registration processes as well as broader governmental

support for business start-ups could be further enhanced in the Philippines.
Supporting women entrepreneurs
In Meeting the Challenge of Corporate Entrepreneurship: The Entrepreneurial Employee

Activities among Micro, Small, and Medium Enterprises in the Philippines, Dr. Emilina Sarreal
of De La Salle University assesses levels of employee engagement by drawing from the results
of the 2013 Global Entrepreneurship Monitor (GEM), an international survey which includes the
Philippines and measures Entrepreneurial Employee Activity (EEA). In an examination of the
extent of corporate entrepreneurship, or entrepreneurial behavior in established mid-sized and
large organizations, this study finds evidence of a shortage in the number of employees taking on
leadership roles in the entrepreneurial activities of their respective organizations in the country.
And by evaluating EEA rates according to demographic characteristics, it confirms the potential
of SMEs to foster womens empowerment as they consistently show greater involvement in
leadership capacity for both new idea development and the implementation of these ideas across
both full-time and part-time categories.
Boosting crisis resilience of SMEs
In a case study of the recovery efforts of a handicrafts enterprise in Eastern Samar, in the wake of
Super Typhoon Yolanda in 2013, AIM Policy Center researchers find that limited access to
government-issued credit, and the numerous procedures and fees required of firms to secure
government aid are among the factors that slowed (and in some cases may have prevented) the
recovery of enterprises in the typhoon-hit areas. The paper brought to light how aid efforts of
international organizations and non-governmental groups in the form of relief goods and cash-
for-work programs could be helpful to households; yet these need to be coordinated throughout
the crisis response process and into the recovery period.
Support, when poorly phased-in, could end up competing with enterprises for inputs such as
labor (by bidding up wages, and exacerbating labor shortage), inadvertently delaying the
recovery process for SMEs. If this persists, then it could result in dependence rather than
resilience.
Stronger crisis resilience could also be bolstered by holistic support mechanisms that do not just
focus on helping households (as important as this is). Support to firms could also be provided in
a timely manner, to enhance the recovery of investments, jobs and economic activity that is not
aid-driven.
Only when firms get back up into operation could entire communities find their income sources
restored. Policymakers and donors must keep this crucial element in mind, when phasing-in their
interventions so as not to frustrate the recovery of SMEs. - Rappler.com
Ron Mendoza is an Associate Professor of Economics at AIM, and executive director of the AIM
Policy Center. Monica Melchor is an economic research associate at AIM Policy Center. For
more details on the PES Conference, please
Goodbye Bombay!: 5-6 lending scheme new focus of Duterte govt
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Posted on January 11, 2017
MEETING WITH HIS Cabinet on Monday night, President Rodrigo R. Duterte

took up the 5-6 money lending scheme and ordered the arrest and
deportation of foreigners involved in this usurious scheme, especially
Punjabis from India, according to a Facebook post by Agriculture
Secretary Emmanuel F. Piol.
PHOTO
Mr. Piol, in his Facebook post on Tuesday titled Goodbye Bombay!, quoted Mr.
Duterte as saying: Sobra na yan. Pautangin ng 5-6 (interest rate) tapos bentahan
pa ng mahal na mga appliance. Patay talaga ang pobre dyan (Thats too much.
Lending money at 5-6 and then even selling to borrowers expensive appliance. That
will really kill the poor).
They are violating Philippine laws by indulging in a money-making business without
the necessary permits, Mr. Piol also quoted Mr. Duterte as saying.
The agriculture chief also claimed, There are about 50,000 motorcycle-riding
Punjabis involved in a money-lending scheme where borrowers pay back a P5,000
peso loan with a P1,000 interest in one month collected on a daily basis.
Mr. Piols post, which was accompanied in part by a Googled photograph of an

Indian man on a motorcycle, had 12,000 likes and other reactions as well as more
than 7,000 shares as of Tuesday night. Comments in response to the post included
such remarks as Patay kang bombay ka (Youre dead, Indian), Alsa balutan na
mga bombay hehehe (The Indians will now leave hehehe), and Paano po yung
mga pinoy na may 5-6 rin po? Pde rin b sila i reklamo? (What about Pinoys who are
also into 5-6? Can they be reported, too?). Others in the comments thread were
tagging their fellow nationals, at least going by their users names.
The Bureau of Immigration was sought for comment regarding Mr. Piols numbers --
in view of the agencys mandate to document and monitor the estimated 50,000
Punjabis, none of whom have presumably become Filipino citizens.
But BI Spokesperson Antonette I. Mangrobang said in response: Given that the

information came from Sec. Piol, kindly direct the queries to him, regarding the
facts and statistics.
Asked if the deferral to Mr. Piol meant that the BI has not provided him records of
Indian nationals in the country, Ms. Mangrobang replied: I personally do not know
his source Maam so I apologize I cannot answer that question categorically.
She added that the bureau is awaiting an official directive in connection with Mr.
Dutertes order for the arrest and deportation of these money lenders.
Mr. Piol also said in his post that President Duterte asked Foreign Affairs Secretary
Perfecto Yasay, Jr. to inform the Indian Ambassador of his decision to stop the
usurious lending scheme in the Philippines. As of this reporting, the Indian
Embassy has not responded to a request for comment on Mr. Piols post.
Mr. Piol also wrote that DTI Sec. Ramon Lopez said the proliferation of the 5-6
lending is mainly due to the inability of government lending institutions to provide
an easy access facility for small businessmen.
Sec. Lopez said DTI has already designed a scheme on how to extend soft loans to
small businessmen with an interest of 20% every year, payable in one year, Mr.
Piol wrote.
Mr. Lopez was sought for comment to clarify if the proposal attributed to him does
not itself qualify as a 5-6 scheme, but he has not responded as of this reporting.
For his part, Justice Secretary Vitaliano N. Aguirre II in his briefing on Tuesday said
Indian nationals engaged in 5-6 could be arrested without any warrant because
when they are doing that, they are committing a crime. -- with Ian Nicolas P.
Cigaral and Kristine Joy V. Patag
Loan sharks remain popular among low-income Filipinos
By
Cai Ordinario
October 21, 2015
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Filipinos continue to seek credit from loan sharks and other informal lenders than go to banks for
their financial needs, according to the results of a World Bank survey.
The World Bank also found that Filipinos still use piggy banks and other informal means to save
money for the proverbial rainy day.
Data show that 38 percent of the surveys respondents rely on informal sources of credit such as
a money lender, a family member or a friend as sources of financing.
Further, some 34 percent of respondents resort to informal savings such as those kept in
households.
Largely, Filipinos rely mostly on informal sources of financing and informal savings, Nataliya
Mylenko, World Bank senior financial sector specialist, said in a briefing on Wednesday.
Mylenko added that when they look at the data closely, some 56 percent of those surveyed said
they used informal credit and the remaining 44 percent used a mixed of formal and informal
sources of credit.
Data show that 13 percent used microcredit only; 4 percent used formal sources of credit only; 5
percent combined informal, microcredit, and formal sources; 10 percent used combined informal
and micro credit; and 12 percent used both formal and informal credit sources to borrow money.
In terms of savings, some 61 percent of respondents use informal savings, while 19 percent used
only formal savings. Around 20 percent said they used both formal and informal savings.
There are no major differences by income among those who rely on formal and informal credit
and savings products, though those earning P20,000 to 50,000 are more likely to have access to
formal credit, the bank said.
There are no differences in the use of formal and informal financial services by employment
type, it added.
Meanwhile, to better improve Filipinos use of formal financial services, the World Bank said
mobile technology can make a significant contribution.
Mylenko said the Philippines is actually one of the pioneers of mobile cash technologies.
Through GCash and Smart Money, Filipinos are able to transfer funds to loved ones wherever
they are in the country.
However, there is a slow uptake in the use of these mobile-payment systems. Mylenko said one
of the ways to improve this is to allow sending money across mobile networks.
Mylenko said there is a need to work on inter-operability of the systems used by the two major
telecommunication service providers. This will not only entail cooperation between the two firms
but also the banks and the Bangko Sentral ng Pilipinas. It takes two to tango but in this case its
much more than two so its not just the telcos, its not just the banks, its not just the regulator,
its not just the technology providers, a whole bunch of people have to come together and agree
on things, Mylenko said. And that I think has been difficult but, at the same time, I see change
is coming in these conversations.
The survey also revealed that about six of 10 Filipinos, or 59 percent, say that they plan how they
spend the money they earn or receive.
Some 57 percent of those who plan or budget their expenses say that they have money left after
paying for basic expenditures, compared to 42 percent of those who do not plan their spending.
Financial inclusion refers to the ability of individuals or families to access banking and other
formal financial services.
The survey found that about 20 million Filipino adults report that they save money. Of this
number, only 10 million have bank accounts.
The survey on financial inclusion and capability in the Philippines conducted from February to
September 2014.
It aims to assess peoples financial literacy or capability in managing their day-to-day finances,
as well as their access to formal financial institutions like banks.
'5-6' lending? Symptom of a larger problem
Government ought not to mistake symptoms for our problems. We wont achieve 100% financial
inclusion just because we arrest and deport all 5-6 lenders.
JC Punongbayan
Published 1:56 PM, January 14, 2017
Updated 4:04 PM, January 14, 2017
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In his latest effort to fulfill his campaign promises, President Rody Duterte recently
ordered a crackdown on people involved in so-called 5-6 moneylending.
5-6 involves lenders many of them Indian nationals issuing small loans at a 20% interest rate
or so. Payments are typically collected on a daily or weekly basis.
In last Mondays (January 9) Cabinet meeting, Duterte ordered the arrest and deportation of such
5-6 lenders. Although their high interest rates are not illegal per se, they were deemed by the
President usurious and burdensome to the people.
This directive has resulted in a flurry of government actions. For instance, Justice Secretary
Vitaliano Aguirre claimed that such arrests could, in fact, be executed without warrants.
Meanwhile, Foreign Affairs Secretary Perfecto Yasay Jr has already discussed the matter with the
top Indian diplomat.
In this article we put the 5-6 lending scheme in context by situating it in the countrys broader
financial system. We show that its enduring popularity stems from its ability to address certain
limitations of our formal credit markets. In other words, 5-6 is but a symptom of a larger
problem at play.
Overview of lending in the PH
First, lets review some facts about Filipinos ability to access credit. Data from the Bangko
Sentral show that as of 2015 around 47% (or nearly half) of all Filipino adults had an outstanding
loan.
But a vast majority of them did not borrow from formal sources like banks or cooperatives (see
Figure 1). Instead, they borrowed more from informal sources: 62% borrowed from family
members, relatives, and friends, while 10% borrowed from informal lenders like loan sharks and
5-6 lenders.
Figure 1. Source: 2015 National Baseline Survey on Financial Inclusion (BSP)
Why is informal borrowing so popular? Although 84% of adults acknowledged the importance of
loans in their daily lives, only 56% said they wanted to borrow from formal lenders.
One key reason for this is that borrowing from formal lenders remains to be costly and
inconvenient. Among those who said they had difficulties obtaining credit from formal lenders,
28% cited high collateral requirements as their main problem, while 20% cited the numerous
documentary requirements.
Credit market failures
Filipino entrepreneurs have an especially difficult time obtaining loans from formal lenders to
start or expand their businesses.
Today around 99.6% or nearly all business establishments in the Philippines are classified as
micro/small/medium enterprises (MSMEs). These are firms with less than 200 employees or
assets less than P100 million. Of these, 90.3% are micro enterprises, or those with less than 10
employees or assets less than P3 million.
The small scale of these businesses hinders entrepreneurs from easily accessing credit from
formal lenders. One study found that, indeed, high collateral requirements have become a major
impediment for the development of MSMEs. Many MSMEs are also unable to satisfy other
requirements, such as business plans and proofs of financial recordkeeping capabilities.
For their part, lenders are also reluctant to issue loans due to inadequate information about
borrowers credit history and creditworthiness. As long as lenders and borrowers cannot be
brought to the same page (and trust between them is hard to establish), then lending will become
near-impossible and formal credit markets may fail altogether.
Enter informal lending
These difficulties give rise to informal lending mechanisms, which have their own pros and cons.
One advantage is that informal lenders accept non-traditional forms of collateral (such as retail
goods or labor services) or even no collateral at all (as in the case of 5-6).
A second advantage is that trust is easier to establish between informal lenders and borrowers.
For instance, in rural settings loans are often tied to existing economic relations, such as those
between sari-sari owners and their suki (patrons), landlords and their tenants, and traders and
farmers. When borrowers fail to repay their loans, they jeopardize their other important
economic ties.
But to compensate for the larger risk they are taking, informal lenders usually impose higher
interest rates and monitor payments more frequently. Most people are familiar with the 20%
interest rate in 5-6 arrangements. But in Nueva Ecija, for instance, informal interest rates as high
as 60% are not unheard of.
It is therefore no wonder that informal lending schemes are often accused of causing further
financial distress to the poor who rely on them the most.
Microfinance revolution
In the presence of credit market failures, the government has taken several steps to help increase
peoples reliance on formal credit.
For example, in 2007, Congress passed the Magna Carta for MSMEs which required banks to
allocate at least 8% of their loan portfolio to micro and small enterprises, and 2% to medium
enterprises.
However, Figure 2 shows that compliance with this law has been mixed: banks have
underprovided loans to micro and small enterprises, but at the same time have overprovided
loans to medium enterprises. This attests to the continuing difficulties in bridging the information
gaps between banks and small borrowers.
Figure 2
Another way to improve access to formal credit is by promoting the growth of community-based
microfinance institutions (MFIs). By making use of existing community relations, MFIs can
afford to lend with minimal requirements. This model, pioneered by the Nobel Prize-winning
Grameen Bank, has been particularly successful in South Asia.
President Dutertes support for this type of microfinance through the DTIs new program called
P3 or Pondo sa Pagbabago at Pag-asenso is a welcome development. However, such
programs will work best when complemented with comprehensive financial literacy programs.
Finally, new technologies can improve the growth of microfinance. Latest innovations include
credit scoring (which helps lenders distinguish between good and bad risks) and digital
microlending (which makes use of SMS messaging and social networks to expand the reach of
formal credit).
Conclusion: Lets not mistake the symptom for the problem
5-6 lending is but a small part of the countrys informal credit system, which is essentially a
reaction to the difficulty of accessing loans from banks and other formal credit institutions.
Worldwide, the role of informal credit generally diminishes as countries progress. With the
continued growth of microfinance in the Philippines, our people will come to rely less and less
on informal schemes like 5-6. In fact, the Philippines is already making impressive strides in the
pursuit of greater financial inclusion.
But moving forward, the government ought not to mistake symptoms for our problems. In the
same way that a cold wont go away instantly just by sweating it out, we wont achieve 100%
financial inclusion just because we arrest and deport all 5-6 lenders.
As in many other aspects of development, shortcuts and magic formulas are often a poor
substitute to careful thought and hard work. Rappler.com
The author is a PhD student and teaching fellow at the UP School of Economics. His views do
not necessarily reflect the views of his affiliations. Thanks to Kevin Mandrilla for helpful
comments and suggestions.
What is the Truth in Lending Act?
It is Republic Act No. 3765, which is an act requiring the disclosure of finance charges in
connection with the extension of credit.
What is the policy behind the Truth in Lending Act?
The declared policy behind the law is to protect the people from lack of awareness of the true
cost of credit by assuring full disclosure of such cost, with a view of preventing the uninformed
use of credit to the detriment of the national economy.
Who are covered under the Truth in Lending Act?

The law covers any creditor, which is defined as any person engaged in the business of extending
credit (including any person who as a regular business practice make loans or sells or rents
property or services on a time, credit, or installment basis, either as principal or as agent) who
requires as an incident to the extension of credit, the payment of a finance charge.
In that definition, what is meant by credit?
It means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract;
any contract to sell, or sale or contract of sale of property or services, either for present or future
delivery, under which part or all of the price is payable subsequent to the making of such sale or
contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or
leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery
of, property or money; any purchase, or other acquisition of, or any credit upon the security of,
any obligation of claim arising out of any of the foregoing; and any transaction or series of
transactions having a similar purpose or effect.
In the same definition, what is meant by a finance charge?
A finance charge includes interest, fees, service charges, discounts, and such other charges
incident to the extension of credit as may be prescribed by the Monetary Board of the Bangko
Sentral ng Pilipinas through regulations.
What are the information required to be furnished to the debtor or borrower?
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in connection
with the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.
When and how should these information be furnished to the debtor or borrower?
The information enumerated above must be disclosed to the debtor or borrower prior to the
consummation of the transaction. The information must be clearly stated in writing.
What is the effect on the obligation in case of violations to the Truth in Lending Act?
The contract or transaction remains valid or enforceable, subject to the penalties discussed
below.
What are the penalties in case of violation?
1. Any creditor who violates the law is liable in the amount of P100 or in an amount equal to
twice the finance charged required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any
credit transaction. The action must be brought within one year from the date of the occurrence of
the violation.
2. The creditor is also liable for reasonable attorneys fees and court costs as determined by the
court.
3. Any person who willfully violates any provision of this law or any regulation issued
thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment of not less
than 6 months, nor more than one year or both.
However, no punishment or penalty under this law shall apply to the Philippine Government or
any agency or any political subdivision thereof.
(Heres the full text of the Truth in Lending Act)
REPUBLIC ACT No. 3765
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN

CONNECTION WITH EXTENSIONS OF CREDIT.
Section 1. This Act shall be known as the "Truth in Lending Act."
Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of
the national economy.
Section 3. As used in this Act, the term
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of
property or services, either for present or future delivery, under which part or all
of the price is payable subsequent to the making of such sale or contract; any
rental-purchase contract; any contract or arrangement for the hire, bailment, or
leasing of property; any option, demand, lien, pledge, or other claim against, or
for the delivery of, property or money; any purchase, or other acquisition of, or
any credit upon the security of, any obligation of claim arising out of any of the
foregoing; and any transaction or series of transactions having a similar purpose
or effect.
(3) "Finance charge" includes interest, fees, service charges, discounts, and such
other charges incident to the extension of credit as the Board may be regulation
prescribe.
(4) "Creditor" means any person engaged in the business of extending credit
(including any person who as a regular business practice make loans or sells or
rents property or services on a time, credit, or installment basis, either as principal
or as agent) who requires as an incident to the extension of credit, the payment of
a finance charge.
(5) "Person" means any individual, corporation, partnership, association, or other

organized group of persons, or the legal successor or representative of the
foregoing, and includes the Philippine Government or any agency thereof, or any
other government, or of any of its political subdivisions, or any agency of the
foregoing.
Section 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations prescribed by the Board, the following
information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person
in connection with the transaction but which are not incident to the extension of
credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in
carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain
such classifications and differentiations as in the judgment of the Board are necessary or proper
to effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the
enforcement of this Act, or any rule or regulation issued thereunder.
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable
to such person in the amount of P100 or in an amount equal to twice the finance charged required
by such creditor in connection with such transaction, whichever is the greater, except that such
liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be
brought by such person within one year from the date of the occurrence of the violation, in any
court of competent jurisdiction. In any action under this subsection in which any person is
entitled to a recovery, the creditor shall be liable for reasonable attorney's fees and court costs as
determined by the court.
(b) Except as specified in subsection (a) of this section, nothing contained in this
Act or any regulation contained in this Act or any regulation thereunder shall
affect the validity or enforceability of any contract or transactions.
(c) Any person who willfully violates any provision of this Act or any regulation
issued thereunder shall be fined by not less than P1,00 or more than P5,000 or
imprisonment for not less than 6 months, nor more than one year or both.
(d) No punishment or penalty provided by this Act shall apply to the Philippine
Government or any agency or any political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal proceeding under this Act
to the effect that a defendant has willfully violated this Act shall be prima facie
evidence against such defendant in an action or proceeding brought by any other
party against such defendant under this Act as to all matters respecting which said
judgment would be an estoppel as between the parties thereto.
Section 7. This Act shall become effective upon approval.
Approved: June 22, 1963
The Lawphil Project - Arellano Law Foundation

Fearing Duterte's wrath, some Indian
nationals abandon '5-6' lending
ABS-CBN News
Posted at Jan 17 2017 04:42 PM | Updated as of Jan 17 2017 05:00 PM
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MANILA - Mere months after President Rodrigo Duterte blasted the "5-6" lending scheme,
several Indian nationals have stopped giving loans to Filipinos and are now looking for
alternative businesses.
Indian businessman Rocky Singh said many money lenders like him have become afraid of being
arrested arbitrarily following Duterte's pronouncement that exorbitant 5-6 interest rates are
killing the Filipino entrepreneurs spirit.
"Siyempre takot baka harassment kahit wala namang kasalanan, sabihin no warrant," Singh, who
has lived in the Philippines for 37 years now, told radio DZMM.
(Of course we are afraid of harassment even though we've done nothing wrong, of being arrested
without a warrant.)
Singh said he hopes Duterte will give Indian money lenders a chance to continue their trade
because they are ready to pay taxes to the government.
But he also stressed that Indian businessman will voluntarily leave the country if the President
decides to launch a crackdown on the 5-6 scheme.
"Kung talagang gustong aalis kami dito, wala namang problema, basta bigyan ng time... Kung
gusto nilang magbayad ng tax, kung anong gusto nila, sundin naman ang sabi ng President," he
said.
(If they really want us to leave, there's no problem, as long as they give us time... If they want us
to pay taxes, we will obey what the President says.)
These sentiments were shared by his friend, Ranjit Singh, who urged the government to issue
permits for 5-6 businessmen, whom he said have contributed to the growth of Philippine
economy.
"Hindi naman kami gumagawa ng masamang bagay. Actually, we're helping the community and
the economy sa Pilipinas," said Ranjit, the son of an Indian money lender and a Filipina.
READ: Gov't takes on '5-6' loan sharks in wet markets
Justice Secretary Vitaliano Aguirre noted last week that while the high interest rate in the "5-6"
scheme is technically legal because the Usury Law has been repealed, those involved may still be
arrested for operating without permit.
Pwedeng hulihin iyang mga iyan. They are operating without any permit or license. Very
stringent ang requirements dyan, it is lending. So, bago ka makapagpatayo ng lending activity,
katakot-takot na papeles at application ang gagawin mo, Aguirre said.
(They can be arrested for that. They are operating without any permit or license. Building a
lending business has requirements.)
The Duterte government is pilot-testing the "Pondo Para sa Pagbabago at Pagasenso (Change and
Progress Fund)" which offers loans with zero to little interest, to help the poor start businesses
and wean them off loan sharks.
-- With a report from Dennis Datu, DZMM
Mga Indian national na nagpapa-'5-6,' nais

ayusin ang kanilang negosyo at manatili sa
Pilipinas
Published January 13, 2017 12:10am
Umalma ang ilang Indian national sa alegasyon na labis silang magpatubo sa kanilang
negosyong pautang na tinatawag na "5-6." Kasabay nito, inihayag nila ang kahandaang
makipagtulungan sa gobyerno para maging "ligal" ang kanilang negosyo.
Sa panayam ni Mariz Umali para sa GMA News "24 Oras" nitong Huwebes, sinabi ni Goldy
Kumar na pagpa-"5-6" na ang kaniyang ikinabubuhay mula nang manirahan siya sa
Pilipinas, pitong taon na ang nakararaan.
Paliwanag sa naturang ulat, ang "5-6" ay sistema ng pagpapautang na may tubo kaagad na
beinte porsyento sa singil. Halimbawa, ang inutang na P5,000, magiging P6,000 kapag
siningil.
Ikinagulat daw ni Kumar at iba pa niyang kababayan na nagpapa-"5-6," nang ipag-utos

umano ni Pangulong Rodrigo Duterte na ipaaaresto kahit walang arrest warrant o ipadedeport
ang mga sangkot sa ganitong negosyo na walang lisensya o permit.
Sa Facebook post ni Agriculture Secretary Manny Piol, na may kataga pang "goodbye,
bombay," partikular na tinukoy nito ang isang pangkat ng mga Indian national na sobra raw
magpatong ng interes sa "5-6."
Pero paglilinaw ng mga Indian national na nakausap ng GMA News na nagpapautang, hindi
raw totoong nananaga sila ng tubo sa mga pautang.
Hindi rin daw sila naniningil ng 20 porsiyentong tubo sa loob ng isang buwan. Anila,
naniningil lang sila kung kailan lang makaluluwag o kayang magbayad ang kanilang
pinautang.
Ayon kay Hardeep Singh, nagpapautang sila kahit sa mahirap at kung minsan ay umaabot pa
umano ng 60 hanggang 90 araw ang kanilang paniningil at hindi lang 30 araw o isang
buwan.
"Na-type cast na kami na '5-6' we can't change that," ani Singh. "Hindi kami masama, very
helpful naman kami."
Hiling ni Sukhvindee Singh, bigyan sila ng panahon at tulungan na maayos ang kanilang
papel para sa kanilang negosyo.
Dagdag ni Hardeep Singh, handa silang sumunod sa gobyerno at ayaw nilang umalis sa
Pilipinas.
Sa isang text message, sinabi ni Senador Ping Lacson na maganda raw habulin ang mga
nagsasamantala sa pagpapatong ng malaking tubo sa mga pautang.
Pero hindi raw dapat targetin lamang ang mga Indian national dahil mayroon din umanong
mga Pilipino at Chinese na sangkot sa ganitong mapang-abusong negosyo. -- FRJ, GMA
News
Govt should not target Indian nationals over
5-6 scheme Lacson
Published January 13, 2017 11:39am
Updated January 13, 2017 4:04pm
By KATHRINA CHARMAINE ALVAREZ, GMA News
Senator Panfilo Lacson on Friday said the government should not target Indian nationals in
its campaign against the so-called 5-6 money lending scheme.
In a text message to reporters, Lacson said that while he supports the Duterte
administrations campaign against loan sharks, the government should offer alternatives
through banks and other lending institutions.
Tama lang yun pero dapat hindi lang mga Bumbay ang target. Sumusobra na rin kasing
pahirap sa mga nagigipit at nangangailangan ng pera na kapit sa patalim, Lacson said.
Lacson noted that there are also Filipinos and Chinese nationals involved in such lending
scheme.
Dapat may pamamaraan ang gobyerno na buksan ang credit facilities ng mga bangko at iba
pang lending institutions sa pamamagitan ng mas simpleng pamamaraan tulad ng mga
requirements at mga qualifications para mangutang, he added.
Justice Secretary Vitaliano Aguirre II had warned "5-6" operators, or those who lend cash at
a hefty 20-percent interest a month, that they could be arrested any time even without a
warrant.
Agriculture Secretary Manny Piol earlier disclosed on his Facebook account that President
Rodrigo Duterte, during a Cabinet meeting, moved for the arrest and deportation of
foreigners involved in 5-6.
During the campaign, Duterte talked about the experience of common folk who fall prey to
loan sharks especially Indian citizens, who allegedly sell appliances and other items to the
borrower on top of the cash loan.
To address the usurious lending scheme, the Department of Trade and Industry said that it
would implement a P1-billion micro-lending program for small and medium enterprises
(SMEs), which makes up more than 90 percent of the country's businesses.
Indian nationals' reaction
In a Balitanghali report on Friday, several Indian nationals defended their business.
Goldy Kumar, who has been involved in such lending scheme for the past seven years, said
their families will be affected by the administrations pronouncements.
Siyempre una, mahirap kasi 'yung tanggapin mo bigla na sinabi tigil 'yung trabaho na 5-6.
Iyan na talaga trabaho namin eh. Buhay namin 'yan. Wala naman kaming ginagawang
masama. Pa'no na ang pamilya namin? Kumar said.
Hardeep Singh, another Indian national, said borrowers are typically given 80 to 150 days to
pay their debts.
Tapos depende sa tao kung magkano [ang kaya] ibigay, Singh added.
He said it was unfortunate that Indian nationals have been typecast as those involved in 5-6.
We cannot change that. Pero hindi naman kami masamaAyaw namin umalis dito sa
Pilipinas, Singh added. RSJ/KG, GMA News
- See more at: http://www.gmanetwork.com/news/story/595652/news/nation/gov-t-should-not-

target-indian-nationals-over-5-6-scheme-nbsp-lacson-nbsp#sthash.BrBgOvrg.dpuf

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Utang: A Simple Guide to the Lending Culture in Philippines

August 24, 2016 By cashmartph Leave a Comment

Updated February 9, 2017

5-6 Loan Computation

Fix Rate Loan Definition

Incremental Borrowing Rate

How to compute diminishing balance on loan?

Php1,000 x .20 = Php200

Php1,000 + Php200 = Php1,200

Then the new outstanding balance of the capital will be Php900.

Php900 x .20 = Php180

Php900 + Php180= Php1,080

The current outstanding balance of the capital will be Php780.

Money Lenders Vs Banks

Online Private Lenders

REPUBLIC ACT No. 3765

Corporate Securities Info

By: Raul J. Palabrica - @inquirerdotnet

Philippine Daily Inquirer / 02:18 AM December 12, 2016

Bumbay loans sharks thrive due to our financial apartheid

By MARLEN V. RONQUILLO on January 15, 2017 Opinion on Page One

aces on January 16, 2017 8:58 pm

R Ino on January 18, 2017 10:31 am

Mindset: $0.001/day x 10m emerging middle-class red china = $10k/day

ANO kamo? https://youtu.be/2iSM8F8SJoQ

Raul Dagul on January 16, 2017 1:33 pm

red planet on January 16, 2017 1:01 pm

R Ino on January 16, 2017 1:59 am

p.s. bagong problema, naman, oh;-)

New beginning on January 15, 2017 11:48 pm

Ompong on January 15, 2017 5:01 pm

Cryola, cryola at cryola pa rin.

R Ino on January 16, 2017 6:09 pm

Next Question: Pahu-huli pa ba ang pinoy? Get on-board now. Timing is

DO NOT DELAY. Bak-up d trak! ;-)

p.s. it is understoodnothing beats face-to-face/personal dealings!

To the max on January 15, 2017 2:01 pm

R Ino on January 16, 2017 6:25 pm

Ang Solution DAPAT: Mahirap para sa Mahirap. Magkaroon alhat ng mahirap ng

Ma-mera-mera x Volume: singko singko everyday times 10,000,000 chinese =

tk on January 15, 2017 11:21 am

This is very important.

Should have more articles/exposes like this.

R Ino on January 16, 2017 1:23 am

Judith on January 15, 2017 10:14 am

R Ino on January 16, 2017 12:38 am

Lifetime, no-brainer. make probable 500k pesos everyday, by 2020(?)..not asking

abel adsuara on January 15, 2017 9:30 am

R Ino on January 16, 2017 1:11 am

dont hatemove on, by doing/creating something more positive 4yourself. ;-)

enelym on January 15, 2017 9:11 am

R Ino on January 16, 2017 1:34 am

short-term recurring problems like 5-6 need 2b addressed by permanent long-term

P.S. Links to our local merchants:

Chinese restaurant in New York:

Maria Stevens. on January 15, 2017 8:40 am

R Ino on January 16, 2017 1:45 am

Solutions come from Within Oneself.

Democratic Capitalism tayo so farhindi pa Autho-ritaRian Communism(despite

R Inocencio on January 15, 2017 8:33 am

R Inocencio on January 15, 2017 7:43 am

R Inocencio on January 15, 2017 7:41 am

aces on January 15, 2017 6:56 am

Nomer obnamia on January 15, 2017 3:06 am