After the first cabinet meeting of the year held last Monday, Jan. 9, both the Justice and Agriculture secretaries spoke about the president’s expressed directive to do away with what was labeled the “Bumbay” practice of “5-6”.
Secretary Emmanuel Piñol mentioned the word “Bumbay” to describe the informal lending practice which used to be dominated by Indian nationals for a long time.
Actually, both the President and Secretary Piñol do not use the word “Bumbay.” Rather, in our part of the country, and in the Visayas as well, Indian nationals are called “Turco,” which is even geographically remote. Turkey where the Turks (turco) come from is quite a distance from India, which in Tagalog patois, is labeled Bumbay, after Bombay, now Mumbai.
But Turko or Bumbay, and pejorative meanings aside, informal money lending, “un-registered” as Secretary Vit Aguirre charged, has been with us since pre-independence days, as old as when the hacienderos of old would oppress their debt-ridden tenants with a “tercio” of their harvest to repay lifelines extended by the “patron,” who was a feared taskmaster.
In our farmlands, as haciendas dissipated due to reform legislation such as several tenancy and agrarian reform acts, middlemen stepped into the picture. Since farmers had to eke out survival for their families out of the small patch of land awarded to them through certificates of land ownership, and they could not access the banking system for loans, they pawned their would-be harvests to buyers who in turn are part of a network of ex-farm buyer, to middleman, to consolidator to the so-called “cartel.” Give or take one or two layers, this goes true for the rice and corn farmer and the coconut and vegetable planters as well. The so-called cartels soon went into milling cane, or controlling the coconut oil mills, and for the most part, they were controlled by mono-syllabic names. Not the “bumbay.”
Unlike the cartelists who have access to huge loans from big banks, the informal lending sector once dominated by Indian nationals (at least in the big cities), started out small, riding a bicycle, thence a motorbike, lending small amounts to market vendors, sari-sari store owners, even marginally employed poor Filipinos. But as poverty entrenched itself in our society, the informal lending also grew by leaps and bounds.
Market vendors would borrow a thousand pesos, and pay two hundred pesos more as interest in the 5-6 formula. The informal lenders were always ready to provide, and were always considerate when it came to rolling over unpaid debts. No paperwork, no tedious qualifications, just face.
In the days when an Anti-Usury Law was in force, the whole informal lending system was underground though not so sub-rosa because everyone knew it existed. But as lifeline is lifeline no matter what, it thrived.
It expanded into consumer lending, first through pawnshops or “agencia de empenos,” where jewelry, later appliances were pawned at 3.5 percent, maybe more, discounted monthly interest. But the pawnshops were registered and somehow, though loosely, regulated by government.
There were lending facilities for teachers and employees through payroll deductions as well. Some of the biggest are so filthy rich they now “own” congressional seats and have graduated into politics. Interest earnings could buy votes come election time.
Meanwhile, what did government do?
First, it promoted cooperatives, both agricultural and consumer coops. There are coops for almost all forms of small and medium economic scale activity. But for every 10 coops registered, perhaps no more than three survived a democratically fashioned economic activity in a “capitalist” dog-eat-dog world. The saga of cooperativism in the Philippines is an entire book of few successes and a myriad of failures.
Government also put up the Land Bank for farmers. And Marcos decreed the Agri-Agra Law, which required that the banking system reserved a quarter of its loanable funds for agriculture, particularly agrarian reform beneficiaries. Good on paper, noble in intent, but a failure in implementation, with the banks opting to buy treasury certificates for compliance, the easy way out, more cost-efficient, as well as risk-insulated.
There were small- and medium-scale lending institutions funded by big government banks, but they hardly made a dent in the capital-hungry poor and middle-class sectors.
Even before Agri-Agra and Land Bank, there were rural banks, mostly controlled by local politicians or former hacienderos themselves. But because of mismanagement and second-generation scoundrels in the largely family-owned banks, again, there were monumental failures.
After the fall of Marcos, NGOs or non-governmental organizations came into the micro-financing picture. Some truly dedicated and well-managed ones, such as Dr. Jaime Aristotle Alip’s CARD stand out as being truly successful, to the point that the Bangko Sentral has accredited them to operate as a rural bank. But the networking, the training, the motivational aspects of the CARD expansion has taken an entire generation to fulfill.
Dr. Alip’s CARD can be the model upon which the Duterte crusade against abusive informal lending practices can be patterned. But it cannot be achieved overnight.
DTI Secretary Mon Lopez has discussed viable alternatives with Dr. Alip in a meeting initiated by Senator Alan Cayetano months ago, and we hope this would lead to a workable, functional and widespread micro-finance system that helps upward mobility and inclusiveness in the economy.
Another possible model, for market vendors, are the defunct “moneyshops” that the closed PCI Bank once established in key cities. One could learn from its successes as well as its mistakes.
It’s all too good to rant and rail against the abusive practices of unregistered informal lending operators, be they Bumbay or Chinese or Filipino, but the more important thing is to have a viable alternative. Otherwise, no matter what government does, and no matter how government threatens, informal lending will persist. After all, there is no longer an anti-usury law, and even if there still were, it would be honored more in the breach by the natural workings of the law of supply and demand. Just as power abhors a vacuum, demand creates its own supply.
CARD takes inspiration from the Grameen model, which started in Bangladesh. Ironically, to many a Filipino perception, Bangladeshis are wrongly described as “Bumbay” as well.