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Loan sharks, or informal lenders, exploit small businesses with exorbitant interest rates.
In this B-Side episode, Baasandorj Davaasuren, chief business development officer of fintech solution company AND Global, discusses with BusinessWorld reporter Aaron Michael C. Sy some learnings from Mongolia’s experience with loan sharks, aiming to guide micro, small, and medium enterprises (MSMEs) in the Philippines. AND Systems, the R&D subsidiary of AND Global, is based in Ulaanbaatar, Mongolia.
The archipelagic nature of the Philippines makes it difficult to track and regulate loan sharks, especially in rural and underdeveloped areas, Mr. Davaasuren noted.
He said that the situation regarding loan sharks in the Philippines is currently more severe than in Mongolia, but there is hope to address it.
Low financial literacy makes individuals and businesses more vulnerable to loan sharks.
Many do not fully understand the financial products offered and may mistakenly view high interest rates as acceptable, Mr. Davaasuren noted.
“They think a 5% [interest rate] per week or per month is okay.”
Potential solutions, he said, include tailored interest rates where private institutions can offer MSME-specific loans at lower interest rates than general retail loans; involvement of major stakeholders, which means encouraging bigger financial institutions to engage in MSME lending to diversify financing options for small businesses; improved credit data access to facilitate better decision-making by banks during loan approvals; and offering uncollateralized loans.
In order to properly lend to small businesses, there is a need to deeply understand the MSME market in the Philippines as the country’s economic growth significantly relies on this sector, he also said.
“In terms of the real economic drive and financial impact on the country itself, it really comes down to small and medium enterprises… These businesses are the key driving indicators in terms of sustainable growth in the country’s economy.”