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Friday, May 31, 2024

Bill aims to save small businesses from 5-6 lending scheme

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A BILL filed at the House of Representatives seeks to rescue micro entrepreneurs from predatory ‘five-six” money lenders by offering them a better way to gain easy access to low-interest loans.

House Bill (HB) 7363, authored by Rep. Brian Raymund Yamsuan of the Bicol Saro party-list group, aims to provide a “better way” for small businesses by authorizing the Department of Trade and Industry (DTI) to extend credit to micro and small enterprises (MSEs) without collateral and through easy-to-pay, low interest terms.

HB 7363 or the proposed ‘Pondo sa Pagbabago at Pag-asenso Act’ (P3) is intended to benefit small sari-sari store owners, carinderia operators, market vendors and other marginal community-based entrepreneurs, he said.

“The proposed P3 program under this measure will free micro entrepreneurs from the clutches of   ‘five-six’ money lenders and loan scammers and offer them the opportunity to expand their businesses through easy-to-pay, low-interest credit,” Yamsuan said.

“If they are able to expand their businesses, then they would have to hire more workers. This means more jobs, more investments and more consumers spending money. The long-term gains under the P3 will make the program a prime driver of our economic growth,”   he added.

Yamsuan pointed out that the bill   would benefit more than 90 percent of businesses classified as MSEs.

MSE owners   usually resort to ‘five-six’ lending schemes that only drive them deeper in debt because of usurious interest charges and other hidden fees. ‘Five-six’ lenders usually charge an interest rate of 20 percent per month. This means that a P5-loan gains P1 interest a month.

Under HB 7363, the Small Business Corporation (SBC),   DTI’s financing arm,   is tasked to extend no-collateral loans the amount of which   will be set and regularly reviewed by the   Micro, Small, Medium Enterprises Development Council (MSMEDC).

The usual loanable amounts offered to MSEs ranged from P5,000 to P200,000 when the DTI was still operating a similar program in the past.

To ensure that P3 would be easily accessible to MSEs, the bill authorizes the   SBC to accredit Partner Financial Institutions   (PFIs) to extend loans under the program. These include rural banks, thrift banks, development banks, cooperative banks, cooperatives, non-stock savings and loan associations, microfinance institutions and other qualified lenders.

The effective interest rate imposed on P3 loans as proposed under the bill   shall not exceed 1 percent per month for direct lending, and 2.5 percent per month if borrowed from accredited PFIs.

Interest earnings from the program shall accrue to the P3 Fund to be created under the measure. The initial amount deposited to the   Fund will come from the SBC.

“With the goal to achieve greater outreach to all provinces and barangays of the country, financial technology-enabled systems and processes can be utilized in the implementation of the P3 program,” the bill states.

HB 7363 was passed on third and final reading by the House in March last year. Its counterpart bill in the Senate is still awaiting plenary approval.

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