Addressing a great need

Just a few days ago, the National Privacy Commission ordered the operators of 26 online lending applications to immediately take down their operations, and make sure that their apps are no longer available for download, installation, or use.

This was after these online lending companies were found to have violated provisions of the Data Privacy Act. These companies were also the subject of complaints from users who said these lenders resorted to shaming the borrowers just to collect on the loans.

The NPC also directed these 26 apps to stop all activities that involve processing of personal data obtained from the borrowers, mainly from their mobile phones, including their contact list.

Meanwhile, the Securities and Exchange Commission (SEC) has cracked down on illegal online lenders, issuing cease-and-desist orders against several online lenders who have engaged in lending activities without the necessary licenses. It was discovered that these companies are either not incorporated entities or have no certificate of authority to operate as lending or financing companies.

According to the SEC, the operators of these online lending apps have likewise used abusive collection practices which constitute unfair debt collection practices under a recently issued SEC memorandum circular.

SEC investigations revealed that these online lending operators who have gained access to personal information of the borrowers used such information to exact prompt payment by sending text blasts to the borrowers’ contacts to inform them of the borrowers’ alleged refusal to pay. In some cases, the borrowers were threatened with legal action or public shaming, the SEC said.

Let’s face it, every industry, sector, or business has its bad eggs. While it may have been prudence on the part of the NPC and SEC that led their officers and public relations people to warn the public about these bad eggs, there are those who say that this same prudence should have been used in making sure that an industry that has been serving an unfulfilled need of many Filipinos is not unjustly, though unintentionally, judged. For the good eggs, the harm caused by this over zealousness on the part of some of our government people may be irreversible.

Our regulators should use the benefit of their long experience to make sure that they don’t throw the baby out with the bath water. Otherwise, the NPC and the SEC would doing a disservice to the hundreds of thousands of Pinoys who rely on online lending to get them out of a money jam.

While microfinancing isn’t a new concept in the country, online lending apps, which one can download on their mobile phones, are your next generation microlenders, catering to a specific set of people, much like your neighborhood pautang. 
These companies have mushroomed in the past two years or so, and why not? Most of them just require a government-issued ID and a selfie to prove that you are a real person, along with your contact number. No personal appearance is required. There is also no collateral required for these microloans.

Compare this to your loan sharks, more commonly referred to as 5-6 lenders who usually conduct an ocular of your home in the guise of a friendly visit, just to check if you really live there and what kind of appliances you have which they can use to gauge your ability to pay back your debt. Fail to make a payment and the 5-6 will diligently knock on your door every single day until you pony up the cash. 

More complex still is the process of trying to take out a loan from a bank, no matter how small. Aside from the voluminous documentary requirements, formal lenders conduct credit checks and character investigations, look at your employment history and financial capability, among others, to ensure that they will get their money back. Even if they approve your loan, it will take time before you actually get the proceeds. All these and more are but a few of the reasons why Pinoys shy away from formal banking, and why informal lending still flourishes in the country.

Informal lending is risky, not only on the part of the borrower, but also the lender as well. Default rates must be higher because no collateral is required. Borrowers can also easily disappear, leaving the lender empty-handed, which may be the reason why these informal lenders impose higher interest rates.

The clientele of these online lenders are mostly daily wage earners, and those who live from paycheck to paycheck. It should also be no secret that incurring debt to survive and raise one’s family is already a fact of life among many Pinoys, with rising costs of living.

These same people, many of who are unbanked because they cannot qualify for bank loans nor do they have bank accounts, have no choice but to approach these informal lenders to survive. Let’s not even pretend that the banks will even bat an eyelash to lend P1,500 pesos to a jeepney driver to help tide him over until he makes boundary. Or to a lady selling basahan on the streets who immediately needs P3,000 to buy medicine for her child who has dengue. Not even one who earns minimum wage (around P15,000 a month) can just walk to the nearest bank and ask for a P1,000 loan to be paid in the next two weeks.

Online lending is still in its infancy in the country. There will certainly be birthing pains as the industry takes off. While borrowing from formal lenders such as banks and other financial institutions is desirable, nevertheless, it is an impossibility for many. Our regulators should therefore be very careful in making sweeping generalizations or policies without taking into consideration this reality on the ground.

This business, when done right, can greatly help many Filipinos who have nowhere to go.

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