DTI seeks to stop ‘5-6’ lending

Starting 2017, the government will set aside P1 billion for lending to micro and small enterprises

By Chrisee Dela Paz, Dec 5, 2016

MANILA, Philippines – The Department of Trade and Industry (DTI) will set aside P1 billion starting next year to implement an alternative lending scheme with an estimated 2% interest rate for micro and small enterprises.

This is to discourage borrowers from turning to exorbitant “5-6” lenders, DTI Secretary Ramon Lopez said on the sidelines of a forum in Makati City last week.

“There are borrowers who want to receive loans the day itself so that is where the 5-6 lenders enter. Accessibility is what most lenders want that is why they agree even if the interest rates are exorbitant. This 5-6 is an activity we don’t want to proliferate,” Lopez told reporters.

Instead of applying at micro finance institutions (MFIs), the DTI chief said most small businesses turn to 5-6 lenders because of accessibility. (READ: Is Nanay Tess’ bagoong ready for ASEAN integration?)

“MFIs also give also collateral fees and take a little more time. But they are legitimate. There are many MFIs around the country. But they want something fast,” Lopez said.

“Offhand, we are looking at between 20% and 26% annually. It depends on the admin costs required to implement this. We are still finalizing it. It’s a big difference,” he added.

In a 5-6 lending scheme, borrowers will incur 20% interest rate per month. But with the DTI’s alternative lending program, they will only incur about 2% per month.

Asked where the funds would come from, Lopez replied: “From the Office of the President.”

“We are looking at a minimum loan of P2,000 for small businesses,” Lopez told reporters.

After the initial year of implementation, the DTI chief said his office will test the market demand for his office’s funding program and check if there is a need to eventually increase the budget “to P1 billion per region.”

During his campaign last May, then-Davao City Mayor Rodrigo Duterte vowed that loan sharks under the 5-6 system would not be allowed to operate under his administration.

In the Philippines, micro, small, and medium enterprises account for about a third of the gross domestic product, represent 98% of all registered businesses, and employ more than 50% of the entire domestic workforce. – Rappler.com