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Utang: A Simple Guide to the Lending Culture in Philippines

Filled under: Borrow 

(Updated March 30, 2017)

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Who among Filipinos hadn’t 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 borrower’s doorsteps every day. 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 70’s and it has spread like a wildfire. They didn’t need any advertisements, the Indians’ lending business was popularized by gossips in the neighborhood. Since borrowing money is part of the Filipino’s 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 fixed amount of money to top up when it comes to repayment. If you are lucky enough, you might have a kind neighbor who won’t 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 instalments 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 a payment not by instalment. 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 lending companies in Philippines 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 processing.

Banks also don’t 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.


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 don’t like the hassle of going out to lenders’ offices or banks, then you can login to Cash Mart’s 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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