(Updated March 22, 2017)
On January 10, 2017, Justice Secretary Vitaliano Aguirre II shared President Rodrigo Duterte’s orders to arrest money lenders who use 5-6 lending schemes.
This has received mix reactions from the netizens, however, do we know what brings the president into such significant decision?
Since his presidential campaign, President Rodrigo Duterte has been slamming the 5-6 money lending practice in the Philippines. He sees the scheme as a tool which further pulls the poor Filipinos into a financial nightmare.
Nobody can’t deny that 5-6 money lending has been deeply encrypted into our culture. Micro-vendors and even simple housewives borrow money for various reasons. Why not? The loan is flexible. They can use it in any way they want and they don’t even have to present a lot of legal documents to get approved. Most 5-6 borrowers even choose to pay daily as it seems more convenient. Paying P100 a day surely seems smaller than paying P6, 000 at the end of two or three months. Sure, it may seem helpful, but what's the catch?
Most 5-6 borrowers even choose to pay daily as it seems more convenient. Paying P100 a day surely seems smaller than paying P6, 000 at the end of two or three months. Sure, it may seem helpful, but what's the catch?
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How did the 5-6 money lending started?
When we hear “5-6,” we usually think of “Bumbays” wearing turbans on their heads and riding a motorcycle. Sometimes they visit their borrowers by walking with a long umbrella used as a cane. Either “Bumbay” is coined from the city in India called Bombay or Mumbai, nobody can be certain. A lot of Filipinos in Metro Manila grew up seeing them in markets, “sari-sari” stores and “carinderias” to collect payments.
Indian traders started migrating to the Philippines in the nineteenth century. Their first shops were a chain of retail stores in the metro. They hire their families and those in their caste groups to work for them. This is why they seem close knit. By 1902, Punjabis came in the Philippines due to rumors that there are a lot of job opportunities. Nearly 85% of them lived in Manila and a lot of them worked as watchmen since they are known to stay awake all night.
Soon, Punjabis started to get known in retail enterprises of textiles, dry goods, garments, jewelry and of course household appliances. Some Filipinos were even fond of mimicking them while selling fans, DVDs and TVs. After some time, Bumbays started lending money with 20% interest. If you borrow P500, you have to pay P600. This is why it’s called “5-6”.
Why is it so popular if it was never advertised? It spread only through word of mouth. Apparently, a lot of Filipinos go through financial gaps every once in a while, and approaching a Bumbay is one of the easiest ways to borrow money albeit the high-interest rate. After all, they do not require any paperwork. The loan approval is fast and you can receive the funds in no time.
5 Reasons Duterte Wants to Arrest 5-6 Loan Sharks
- Exorbitant Interest Rates
After the Usury Law has been declared legally inexistent in 1982, the ceiling interest rate of 12% has been taken down. Supreme Court at that time reasoned that the lender and the borrower can form a mutual agreement for the interest rate. Unfortunately, this has been the reason why 5-6 loan sharks can charge their 20% interest rate. However, according to Justice Secretary Vitaliano Aguirre II, though it may not be deemed illegal to charge such high rates, this is still unacceptable. When you look at the bigger picture, you can see how unfair it is for the borrowers who just want their businesses to thrive. it is not even 20% interest rate per annum, it is either 20% a week or 20% a month. that is a huge amount of money which you could have saved for your family.
- No Permit
Here in the Philippines, businesses are required to be registered with appropriate government agencies. They need a barangay or a mayor’s permit. As for money lending businesses, they have to be licensed by DTI. Unfortunately, 5-6 loan sharks violated the Philippines law because they do not have these necessary permits according to our President.
- Forced buying of Appliances
There are 5-6 loan sharks who force their borrowers to buy appliances from them before they will approve any loan requests. If you have no other source of funds, then you’ll have to go by the loan shark’s rule. Then you are borrowing more than you can afford to pay. Let's say you borrowed from another loan shark to pay off the first debt to avoid penalties, then you have put yourself in an endless cycle of debt.
- 5-6 Scheme is Anti-Poor
Loan sharks do not care if you can revive from your financial problems. They just want to milk money out of you. They know where you live and you can’t stop them from coming every day to collect payments from you. There are aggressive loan sharks who do not hesitate to use violence or take some of your valuables.
- The Government can Create a Better Alternative
Amidst the shock of the news that the president wants 5-6 lenders to be arrested, Department of Trade and Industry (DTI) Secretary Ramon Lopez introduces the government’s Pondo sa Pagbabago at Pag-asenso (P3). P3 is designed to lend funds to micro-enterprises. Worth of P1billion, the program caters to micro, small and medium enterprises (MSMEs) with the focus in the 20 Poorest Provinces in the Philippines.
The loanable amount ranges from P5, 000 to P300, 000. Note that this loan does not require any collateral and the maximum interest rate is 26% per year. This is considerably lower compared to 20% interest rate per week as offered by 5-6 loan sharks.
Lending has been deeply engraved in our Filipino Culture, however, getting a loan from a loan shark is a sure way to spiraling debt. Find a registered money lender which gives a flexible loan with competitive interest rates.
Borrow from a licensed money lender to protect yourself from the further financial crisis. After all, you are supposed to get a loan to regain financial stability and not dig deeper debts. You deserve a responsible money lender.