Small entrepreneurs urged to shun loan sharks

By Edg Adrian A. Eva, Reporter

FILIPINO small entrepreneurs should not be afraid to borrow from banks for their business capital needs because they offer more reasonable interest rates and safer payment terms compared with unregulated lenders, according to UnionDigital Bank’s chief executive officer.

Many micro, small and medium enterprises (MSME) continue to rely on informal lenders, known locally as “five-six,” because of misconceptions that bank loans are difficult to access, said Danila “Bong” J. Mojica, president and CEO at the country’s first digital lender.

“Where do they go? To five-six lenders who are unregulated,” he told BusinessWorld in Filipino on the sidelines of the launch of its financial products on Saturday. “The interest rates are no joke — 20% a month. I even know one that charges 180% per annum. But many entrepreneurs still borrow because they have no choice.”

He said UnionDigital, the digital banking arm of Union Bank of the Philippines, Inc., aims to offer alternatives by providing loans of as much as P50,000, which can be paid in terms ranging from one to 12 months.

These loans carry a one-time processing fee of no more than 10%, which is deducted from the loan amount upon disbursement, according to the digital bank’s website.

A July report by the Boston Consulting Group found that 55% of 3,000 surveyed MSMEs in the Philippines had never applied for a loan, citing fear of debt and perceived high interest rates.

As a result, most small enterprises continue to rely on personal savings to fund their operations, even though formal MSME loans typically carry interest rates of only 1% to 5%, it said.

Mr. Mojica said UnionDigital follows a strict approval process to ensure that loans are extended only to borrowers with the capacity to pay. This safeguards both the bank and the entrepreneurs, he added.

Addressing concerns about collection practices, he stressed that they don’t resort to harassment or threats.

“We anticipate that there are people who won’t pay, so we put provisions in place,” he said. “But in our current system, nonperforming loans have been drastically reduced because of the discipline we’re putting in.”

UnionDigital’s “Kaya Mo” (You Can) campaign is part of a broader effort to bridge financial services to unbanked Filipinos, particularly small entrepreneurs.

At the launch event, Lincoln “Cong TV” Velasquez — a popular content creator, business owner and UnionDigital’s brand ambassador — urged MSMEs to practice financial discipline when borrowing.

“It’s okay to be afraid,” he said. “But always calculate the risk in the things you get into. Before you borrow money, make sure you know how you’re going to pay it back.”