“If we want real consumer protection, we cannot adopt measures that will feed people to loan sharks”
The proposal to cap the effective interest rate on small unsecured loans at 10 percent per month may appear to offer quick relief to small borrowers, but it risks pushing millions of Filipinos back into the jaws of loan sharks.
As I have warned in my statement as Lead Convenor of CitizenWatch Philippines, this decision “strikes at the core of the small credit system that millions of Filipino families rely on every single day.”
It also overlooks clear global evidence showing that interest caps, when set without regard for market realities, often harm the borrowers they intend to protect.
Cambodia’s experience is one of the clearest warnings.
When the National Bank of Cambodia imposed an annual interest ceiling in 2017, microfinance institutions responded in ways regulators did not expect.
The IMF Working Paper Impact of Interest Rate Cap on Financial Inclusion in Cambodia found that “the number of borrowers declined immediately, amid an increase in credit growth, as microfinance institutions targeted larger borrowers at the expense of smaller ones.”
The paper also cautioned that enforcing caps out of line with market conditions “risks reversing the financial inclusion efforts to date, and creates incentives for unregulated entities to emerge and grow.”
For a country like ours, where small loan providers face similar cost pressures and serve similar customer profiles, these findings are directly relevant.
Servicing tiny, short-term loans is labor-intensive and costly.
That is true in Cambodia, and it is true in the Philippines.
Millions of workers, vendors, riders, and microentrepreneurs rely on small loans to manage daily cash flow and sudden expenses.
Nearly 90 percent of loans from licensed digital lenders fall below ₱10,000, showing how concentrated the Philippine market is in the smallest and most expensive-to-service loans.
If legitimate lenders cannot cover operating and risk costs under a 10 percent cap, they will scale down or withdraw products, tighten approvals, or shift toward larger, safer borrowers.
Those living closest to the edge, who depend on quick, accessible credit to keep their livelihoods afloat, will feel the impact first. The outcome will not be lower borrowing costs. The outcome will be exclusion.
Global research reinforces this pattern.
The World Bank’s Interest Rate Caps Around the World: Still Popular, but a Blunt Instrument notes that caps have led to “the withdrawal of financial institutions from the poor or from specific segments of the market, an increase in the total cost of the loan through additional fees and commissions, among others” (Maimbo and Henriquez Gallegos).
In West Africa and Nicaragua, lenders reduced outreach or exited rural areas when caps made small loans unsustainable. In Japan, caps contributed to “a contraction in the supply of credit, a fall in loan acceptance rates, and a rise in illegal lending.”
Across countries, the pattern is consistent: when regulation disregards cost structures, low-income borrowers lose access.
And when legal credit dries up, needs do not disappear.
People turn to “5-6” operators whose rates and collection practices exist outside any regulatory boundary.
As I have stressed, these lenders “work with fear, not fairness.”
They thrive when formal options shrink. It is already happening in communities where regulated lenders have limited reach and financial literacy remains low.
Consumer protection cannot be achieved by weakening responsible lenders.
Protection comes from targeting abusive, unregistered operators, improving enforcement, and building financial education so borrowers can make informed decisions.
It also requires responsive regulation that supports the sustainable provision of small loans rather than destabilizing it.
A cap that ignores cost realities may generate good headlines in the short term, but it will cause lasting damage to the very borrowers it aims to help.
International studies point toward a better approach.
The IMF paper recommends “enhancing the borrower protection framework, fostering healthy competition, and promoting efficiency of the microfinance industry” instead of relying heavily on caps.
The World Bank echoes this, urging stronger consumer protection rules, financial literacy, credit information systems, and transparency requirements.
These measures, it emphasizes, “should be implemented in an integrated manner” because caps alone are “a blunt instrument” with serious unintended consequences.
This is the approach we urge the SEC to take. A single ceiling applied uniformly across lenders, borrowers, and loan types ignores the wide differences in risk and operating conditions across the small-loan sector. It also undermines the administration’s goal of strengthening MSMEs, which rely on quick, flexible financing to stay afloat.
If we want real consumer protection, we cannot adopt measures that will feed people to loan sharks.
Protection means understanding how Filipinos borrow, how responsible lenders operate, and how each regulatory shift can either reinforce or weaken the fragile system that keeps millions financially afloat.
