RECENTLY, our dear President made pronouncements that the 5-6 lenders, a.k.a. Bumbay, pertaining to the lenders who are mostly Indian nationals, would be the next in his crackdown (after drugs).
Historically, 5-6 lenders they were called because they charge high interest rates, like when one borrows P5, he’ll have to pay P6 back, a 20% interest rate, thus the term, “5-6”.
These lenders are informal in nature, being unregistered, and usurious, having exorbitant interest rates. The President, through neat-haired Justice Secretary Vits Aguirre, made pronouncements that these lenders can be arrested and deported citing strict laws regarding the lending business here in the Philippines.
Arguably, when people, mostly the poor, borrow from these informal lenders, the tendency is that they will have difficulty of paying it back because of its high interest rates. Leading them to borrow more, from the same lender or other lenders, digging a deeper debt hole which they will have more difficulty in getting out of.
The crackdown is not really on the high interest rates, since it has been made legal since the Usury law was repealed, but more on the illegal operations without being registered and issued appropriate permits.
It reminded me of the question I had while writing one of my researches several years back, “Why do people resort to these informal lenders even with the knowledge that they are charging exorbitant interest rates?”
There are many people who still borrow from these lenders because there are relatively lesser requirements to borrow from them. Formal lenders, even those from of the government require a bunch of requirements from borrowers which turns off those who need it the most.
What is worse is that when lenders, especially those of the government, when funds remain unborrowed it become so hot to their eyes. One concrete example is the Fertilizer Fund. It became a scam when corrupt government workers started hullabaloos in order to make use of the unused funds.
I found out in my research that (agricultural) credit does not have an economic impact to the productivity of the country, mainly because it is not used correctly.
We can only have economic growth when funds that is for these purposes are really used for these purposes. Ease some unimportant requirements from borrowing from government financial lenders so that the poorest and marginalized sectors can have access to fund devoted for them.
Anyway, if push comes to shove, our brother Bumbays are ready to leave just to appease our dearest President. They are afraid to be killed, especially that they will not also fight back.