Business, Personal + Finance

Thursday, January 14, 2016

Credit Sources in the Philippines

Thursday, January 14, 2016 Posted by Vernon Go , , , No comments


Money you need to start and run your start up small business can be raised in various ways. But when your own savings or cash on hand, friends, family and stranger sources are simply not enough, you can seek external credit sources. In the Philippines, there are various credit sources to choose from.

When I was starting to learn about loans and credits, I told myself never to engage in those based from horror stories I've heard about debts, credit card debts and the like credit mishap. But I was wrong, because if you have a good credit history, it means you can borrow, loan or get a high credit amount compared to first time borrowers.

The credit sources in the Philippines (formal/informal):
Credit cooperatives - Cooperatives in the rural areas take advantage of this credit source. These are popular because it is easy, anyone can be a member should they fit the criteria set by the coop. My mom was able to join one, and I'm also a member of it too. If they are technologically savvy, you can have auto-deducted contributions from your bank account to have some forced savings.

Usually, a coop will lend an amount up to five times bigger than the money a member has deposited in or it could be a minimum deposited amount per amount to be lent. Interest charges are often minimal as well, which makes this not only a popular but also easy source of credit.

Formal Sources of Credit - The most obvious choice are the banks, financial institutions and even certain government agencies as well as development oriented non-government organizations. They are classified as formal because they have the legal authority or mandate to lend money to individuals and businesses.

NGOs such as foundations have dedicated grants or even micro-credit or financing departments dedicated to this especially targeted for women (stay-at-home nanays).

Money Lenders (loan shark and/or Turko) - These are people who lend quick money without collateral but charge crazy (but daily payments) interest rates. They are also known as "Five-Six" operators for they charge about a peso interest per month for every five pesos they lend or something like that.

Lending Investors - These are specialized business enterprise engaged in money-lending operations. They fill the gap between banks and money lenders who offer credit mostly to the middle class. Interest rates are higher than banks (although requirements are much less) but lower than those charged by money lenders. Small enterprises also rely on this type of credit source.

Pawnshops - You can get quick cash by pawning jewelry and other valuables!

Image source: http://www.philstar.com/business/2014/09/03/1364678/phl-gets-another-rating-upgrade
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