Guidelines to formalize ‘5-6’ lending out next month

The government is finalizing the guidelines to formalize the ‘5-6’ lending scheme and is set to release the document by March, Federation of Indian Chambers and Commerce (Philippines) Inc. (FICCI) President Rex Daryanani told reporters. (Photo: Philippine News Agency)

MANILA—The government is finalizing the guidelines to formalize the ‘5-6’ lending scheme and is set to release the document by March, Federation of Indian Chambers and Commerce (Philippines) Inc. (FICCI) President Rex Daryanani told reporters.

Daryanani said the Department of Trade and Industry, Security and Exchange Commission (SEC), Bangko Sentral ng Pilipinas, Small Business Corp., Department of Justice, Department of Foreign Affairs, Bureau of Immigration, National Intelligence Coordinating Agency, and the Philippine National Police are crafting the guidelines.

Daryanani mentioned that he already met with President Rodrigo Duterte to explain the system used by ‘5-6’ lenders, a number of whom are Indians, and “appealed to him to legalize the money lenders”.

“In the olden days, you borrow five (pesos), then you pay six (pesos). That happened in a span of one week. That’s why it’s called ‘5-6’. It’s 20 percent interest rate,” he explained.

“That doesn’t happen now,” he stressed.

Under the present arrangement, the amount borrowed is payable in 60 to 120 days with a cumulative interest rate of 20 percent.

He cited that if one borrows PHP10,000, he will pay PHP12,000 in four months, in effect paying the lender PHP100 per day.

“That’s an effective rate of 5 percent per month,” Daryanani pointed out.

He noted that the ‘5-6’ lending scheme is attractive to micro borrowers as it does not require any document and does not give any penalty for late payment.

“No documents. It’s trust. Lenders give consideration if a borrower can’t pay on that day. No interest, no penalty if they can’t pay for that day,” he explained.

“If you talk about pro-poor, if you talk about poverty alleviation, with all due respect, these guys are helping the Filipinos.”

Moreover, Daryanani said the initial guidelines to formalize the money lenders include getting a permit for their lending business with a minimum capital of PHP1.0 million.

To acquire a lending permit, one shall have at least PHP1.0 million in capital.

The lenders shall also issue receipts and pay taxes to the government.

Daryanani estimated that 25,000 to 30,000 money lenders are engaged in the scheme. If a lender has an initial capital of PHP1.0 million, some PHP30 billion would be circulating in the market for this lending model, he said.