THE Department of Trade and Industry (DTI) is confident of eliminating the “5-6” lending scheme in the country with the implementation of affordable financing for small businesses.
DTI Secretary Ramon Lopez said after President Rodrigo Duterte ordered the crackdown on loan sharks that some illegitimate lenders have either stopped their operations or lowered their interest rates.
“We will kill the 5-6 scheme slowly. At present, they’re compelled to bring down their interest rates because of available micro-financing to small enterprises,” Lopez told reporters on Thursday, January 26.
“The new program is very attractive to potential borrowers because the process is also simple and interest rate is only two percent monthly, comparatively lower than the 20 percent daily under 5-6,” he added.
The 5-6 scheme, popularized by Indians, issues small loans at a 20 percent interest rate. Payments are collected on a daily or weekly basis.
Lopez said the government will not arrest or deport 5-6 lenders; instead, they are encouraged to register and legalize their business.
“We talked with the Indian Business Chamber and they are committed to help legitimize the lending business of Filipino-Indians. The transition period is about three to six months,” he added.
Lopez was in Tacloban City to turn over initial funds to six micro-financial institutions (MFIs) identified as partners in the new lending program officially named as Pondo sa Pagbabago at Pag-asenso (P3) program.
The National Government earlier identified 30 poorest provinces in the country as priority areas for the micro-financing program, which include Leyte, Samar, Eastern Samar, and Northern Samar.
For its pilot phase, it will be launched in Tacloban City for the Visayas; San Jose, Occidental Mindoro for Luzon; and Alabel, Sarangani for Mindanao. The kick-off is scheduled within this month or early February.
Priority beneficiaries include microenterprises and entrepreneurs that do not have easy access to credit, or are accessing credit at very high cost, such as micro-entrepreneurs, market vendors, agri-businessmen and members of cooperatives, industry associations and co-operators.
Loanable amount per end-borrower can range from P5,000 for start-ups to P300,000, with maximum interest rate of 26 percent every year with no collateral requirement.
“With lower interest rates, borrowers can spend their income on expansion of their businesses instead of paying for the interest,” Lopez said.
The program’s fund will be lent out in the business centers in selected provinces, where the participating MFIs and the SBC can operate.
The 2017 General Appropriations Act has included an initial funding of P1 billion for financial assistance, a part of the planned P19 billion financing initiative for micro and small businesses in the next five years. (PNA)