The SEC lending rate cap, PhilHealth fund transfer

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Among the occasional issues endured by the poor is the need for emergency borrowings, small amounts like P15,000 or lower that are supposed to be paid within a few months. Now with many online apps, micro lending has “democratized” but these include some lenders who have the explicit goal to bleed dry their borrowers and victims.

I checked stories in The STAR, and I was surprised that there were many last November alone:

“SEC moves to tighten interest rate caps for lenders” (Nov. 1), “SEC warns against illegal lending on Facebook” (Nov. 4), “Tougher rules ahead for online lenders – DOF” (Nov. 6), “GCash expands livelihood opportunities with the new GCash Pera Outlet Plus, bringing financial access closer to Filipino communities” (Nov. 7),  “Loan rate cap may drive Filipinos to loan sharks” (Nov. 26), “Loan rate cap risks hurting borrowers” (Nov. 30).

This is a problem of financial exclusion among ordinary Filipinos who cannot borrow from formal institutions like banks that demand various papers and requirements, as banks are also strictly monitored by the Bangko Sentral ng Pilipinas.

I checked the BSP’s Financial Inclusion Steering Committee that includes many other departments and agencies of the government as members. The Annual Report 2024, “National Strategy for Financial Inclusion,” has a number of interesting statistics.

One, only 56 percent of Filipino adults had a formal account in 2021, mostly with e-money. Two, reasons for not having account ownership are: 45 percent do not have enough money, 40 percent have no documentary requirements, and 22 percent do not know how it works. Three, microfinance by the banking sector is limited with only two million borrowers and P33 billion in loans while microfinance by the NGOs has 6.8 million borrowers and P80 billion in loans and microfinance by the cooperatives has 9.9 million member-depositors and P367 billion in loans.

The huge gap in borrowers among the three formal lenders — banks registered with BSP, NGOs registered with SEC and cooperatives registered with CDA — points to an even larger gap between these formal lenders and informal ones.

The Securities and Exchange Commission (SEC) issued a ruling supposedly to protect poor borrowers from predatory online lenders. The SEC has imposed (a) a six-percent-per-month maximum nominal interest rate, (b) a 10-percent-per-month maximum effective interest rate (EIR) to include other charges like processing, handling, service and notarial fees, (c) a five-percent-per-month penalty for late payment and (d) a 100-percent total cost cap on total amount borrowed to cover all interest, fees and penalties.

These lending interest caps will apply to unsecured, general-purpose loans of P20,000 or less with a term of six months or less — short-term credit used by people who cannot qualify for bank loans due to strict documentation and income requirements.

The intention of the SEC is good, but its lending cap or interest rate control is wrong.

Why? Because the cost of various services before lending and then collecting the amount after lending is high. Lenders may have to dispatch collectors on foot to go to the houses or stalls of borrowers, look after them if they are hiding and their people are exposed to possible threats and harassment.

If formal lenders are not adequately compensated for their services, they will pull back. The vacuum will be quickly filled by real predators; “5-6” or 20 percent per month (some charge per week) is a joke for them — they will charge 30 percent per month or more, publicly shame on social media the poor borrowers who are late in payment, and the borrowers who are supposed to be protected by the SEC are now exposed to even larger harm: financial and personal harm.

And the SEC will not have enough resources to go after these informal and predatory lenders. Many are anonymous, have no verifiable address and are initiated or backed by organized criminal gangs and possibly protected by some corrupt government personnel themselves.

SEC should reconsider the lending cap. SEC should remove interest rate control, which, similar to price control, only leads to illicit and illegal lending practices with more pernicious effects on the public. SEC should not discourage law-abiding lenders outside the three formal lenders mentioned above.

PhilHealth fund transfer

Recently, there have been plenty of attacks against PhilHealth and former Finance Secretary Ralph Recto for the transfer of P60 billion in PhilHealth idle funds back to the National Treasury in 2024. The attacks are based on emotion and not reason.

First off, that money did not come from direct contributions by members. That money came from taxes paid by smokers, vapers, alcohol and sugar-beverage drinkers; from gamblers and bettors of PAGCOR and PCSO. The health activists double-talk when they want to end smoking and drinking but are so hungry for billions of pesos from smokers and drinkers.

Two, the P60 billion in 2024 funded, among others: P27.5 billion for the Public Health Emergency Benefits and Allowances for Health Care and Non-Healthcare Workers during the lockdown; P10 billion for Medical Assistance to Indigent and Financially Incapacitated Patients and P7.5 billion for the procurement of various medical equipment for DOH hospitals, LGU hospitals and the construction of three DOH health facilities.

Three, the President ordered last Sept. 20 the restoration of the P60 billion in 2025, mainly to support the Zero Balance Billing policy in DOH hospitals, and PhilHealth has expanded the benefits this year.

Meanwhile, correcting a portion of my column last week, “Japan visit and Phl economic challenges.” I wrote there, “Our interest payment… was already P868 billion last September.” It should be “… was already P665.8 billion last September.” The P868 billion was for allocation to LGUs. My apology, dear readers. My projected interest payment alone by December would be about P965 billion, not P1 trillion.