Anatomy of Philippine loans

FINEX FOLIO REYNALDO C. LUGTU, JR.

Borrowing money is a common practice among Filipinos, deeply rooted in their culture and traditions. Known as “Utang,” borrowing to meet daily needs or financial goals has become a norm in Filipino society. Despite economic challenges, borrowing remains a viable option for many Filipinos to manage their finances effectively.

One of the primary reasons Filipinos take out loans is to manage existing debts. While it may seem counterintuitive, obtaining a loan to pay off existing debts can provide temporary relief from imminent payment obligations. This practice is common among individuals striving to maintain financial stability amidst fluctuating economic conditions.

Another prevalent reason for borrowing is to venture into business opportunities. Despite initial skepticism about the risks involved, many Filipinos see loans as a means to overcome capital limitations and pursue entrepreneurial endeavors. Starting a business, no matter the scale, is seen as a step towards financial independence and growth.

Preparing for significant life milestones such as weddings, welcoming new family members, home repairs, or renovations also drives individuals to seek loans. These events often require substantial financial resources, and loans provide a practical solution to meet these expenses without significant disruptions to daily life.

Medical emergencies can arise unexpectedly, and not everyone has sufficient savings to cover such expenses. Loans offer a lifeline in these situations, ensuring access to necessary medical treatments without compromising financial stability.

According to a survey on consumer expectations during the fourth quarter of 2023, more than 50% of surveyed households in the Philippines took out loans to purchase basic goods. Additionally, about 27% applied for loans to start or expand their businesses, highlighting the diverse reasons behind loan acquisitions.

When it comes to borrowing money, Filipinos have several options to consider. 5/6 lending, a practice that originated in the 1970s, remains popular despite its high-interest rates, reflecting the accessibility and convenience it offers for daily financial needs. Paluwagan, a traditional community-based lending system, provides an informal yet effective way to pool resources among peers. Private lenders, especially online platforms, have emerged as go-to sources for quick and hassle-free loans with minimal requirements.

The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as FINEX.

REYNALDO C. LUGTU, JR. is the founder and CEO of Hungry Workhorse, a digital, culture, and customer experience transformation consulting firm. He is a fellow at the US-based Institute for Digital Transformation. He is the chair of the IT Governance and Digital Transformation Committee at the FINEX Academy. He teaches strategic management and digital transformation in the MBA Program at De La Salle University. The author may be e-mailed at rey.lugtu@ hungryworkhorse. com