Micro-financing works and any attempt to alter the rules mid-stream should be weighed carefully.
Low-income individuals have benefited from micro-financing after being long excluded from the traditional banking system. Small entrepreneurs, too, obtain micro-loans for their working capital and are able to grow their business.
Micro-financing works and any attempt to alter the rules mid-stream should be weighed carefully.
The Securities and Exchange Commission (SEC) is considering new rules on interest rate caps for micro-loans, presumably to protect consumers. The regulator, however, should be cautious on crafting a new policy that could inadvertently harm the very people it aims to safeguard.
Micro-loan providers ranging from financing companies and digital lenders to fintech-enabled credit platforms have been serving millions of Filipinos who cannot gain access to traditional bank loans.
These private entities stepped into a space long underserved by government financial programs, building systems that allow first-time borrowers, micro-enterprises, women and low-income families to tap short-term credit for essential needs.
These are companies that pay taxes, comply with regulation, invest in technology and cybersecurity, and operate under stringent reporting requirements.
In a very real sense, they perform functions that should have been part of a more robust public financial safety net.
The SEC’s draft rate cap of 6 percent per month for loans under ₱20,000 is well-meaning. But micro-loans are fundamentally different from larger, lower-risk loans.
They involve higher default risk, intensive fraud controls, identity verification costs, and more complex operational safeguards. A cap that does not take these realities into account could make sustainable micro-lending unviable for responsible players.
Thus, if legitimate lenders are forced to pull back, the vacuum will be filled quickly and aggressively by illegal and abusive loan operators. These loan sharks charge astronomical rates, sometimes 20 percent per day or week, and are notorious for coercive collection tactics.
Driving borrowers back toward these predators would reverse years of progress in financial inclusion and undermine the country’s broader objective of bringing more Filipinos into the formal financial system.
Effective policy cannot be reduced to headline-friendly caps that fail to consider operational realities and market behavior. It should be two-fold: protect consumers and preserve access to regulated, fairly priced and transparent micro-loans.
It is best for the government to work closely with the private sector, especially the entities that have long shouldered the work of serving underserved communities.
These companies have built infrastructure, developed risk models and invested in safeguards that government financial programs have not been able to match at scale.
Instead of constraining responsible lenders, a more constructive approach would be to support them and take decisive, sustained action against illegal lending operators who have operated with impunity for years.
If the country is serious about financial inclusion, then policy must focus not only on regulating rates but also on strengthening enforcement against loan sharks.
It should reduce barriers to formal credit, and create an environment where responsible lenders can continue to serve the people who depend on them.
Anything less risks pushing millions of Filipinos back into the shadows of predatory lending.
Recto: A compleat Cabinet official
Having been a lawmaker and the country’s finance chief, new Executive Secretary Ralph G. Recto is a compleat Cabinet official.
Mr. Recto is sure to redefine the role of the “Little President” by driving economic reform and governance in the Philippines.
He brings fiscal expertise and political resolve at a crucial time when the country faces an infrastructure corruption scandal and a laggard economic growth. In sum, his appointment signals a shift toward proactive accountability and disciplined crisis management.
Recto is expected to serve as an economic reform strategist, public trust rebuilder and political stabilizer.
His expertise in economics and fiscal policy through his past roles in the Cabinet cannot be ignored. He played a key role in passage of the Expanded Value Added Tax law and steered the National Economic and Development Authority (NEDA) during the 2008 global recession.
These feats position him to revitalize stalled government spending and restore investor confidence.
More importantly, Recto’s breadth of experience—from the legislative branch to local governance—equips him to reconcile political divisions and foster coordination across government sectors.
At 61, Recto blends seasoned public service with the urgency needed to implement strategic reforms. His leadership will transform the Executive Secretary’s office from passive advisorship to an active driver of economic stability and government efficiency under the current administration.
Recto’s deep understanding of fiscal policy and governance, combined with his dedication to transparency and accountability, make him a strategic asset to the administration’s efforts to restore stability, rebuild public trust and drive inclusive economic growth in this critical period.
E-mail: rayenano@yahoo.com or extrastory2000@gmail.com
