As provided in the website of the National Statistical Coordination Board (NSCB), the annual per capita poverty threshold in 2003 for the Philippines was P12,267 and for NCR at P16,796. More critically is that in 2003, 30.4 percent of the entire population is below the poverty line. Surprisingly, in NCR only 7.3 percent of the population is below the poverty line. Given the number of NPA (No Permanent Address) residents and informal settlers we have in this Metropolis, I would have thought that the figure would be much higher, but who am I to question government statistics. Of course, a number of Regions in the country have close to or more than 50 percent of the population living below the poverty line.
With this sorry situation, it is really good that economically disadvantaged people try to help themselves through their own initiative, rather than waiting for help from a fiscally challenged Government or a job from near comatose industries. What is sorely needed is some seed money to start a small enterprise and this is where microfinancing comes in. Based on BSP Circular 409, the maximum principal for microfinance loans is
P150,000 which are normally short-term and unsecured. However, they would normally require a joint and several guarantee of one or more persons and amortized on a daily, weekly, semi-monthly or monthly basis.
At this point, microfinancing institutions are only starting to emerge, either as NGOs or commercialized operations including units within existing banks. It will be a while before there are enough institutions and infrastructure in place to service this market and given the gravity of the situation, can we really afford to wait? This is where pawnshops can fill in the gap and I would think that informally this is already taking place.
Pawnshops with 10,000 branches nationwide are literally everywhere and are registered with the Bangko Sentral Ng Pilipinas. They all operate on a commercial basis without relying on government incentives or subsidy. They service the whole market spectrum of clients from A to E and can provide amounts from a few hundred pesos to hundreds of thousands of pesos, with a normal term of one month, renewable monthly by just paying the interest. Processing time normally takes no more than a few minutes and documentation is minimal with just a pawn ticket.
It can be argued that the big difference between microfinancing and a pawnshop is that the latter requires an acceptable collateral, while the former does not. It is true that pawnshops require some form of collateral but they are very flexible in what would be acceptable. All types of gold jewelry/items in whatever condition is acceptable by all pawnshops, most will accept cell phones, and a number will take cameras, watches, appliances and other electronic goods. However, in microfinancing a guarantor(s) is always required in granting a loan. Therefore, to address the issue that the borrower will not have any assets to pawn, perhaps in lieu of asking for the guarantee of another person(s) he could borrow an acceptable asset that can be pawned. I am certain in a lot of cases it will be more difficult to get a guarantor than finding something to pawn.
Even microfinancing institutions will do a background check on the guarantor(s) who must also meet certain credit standards. We can assume that the guarantor(s) who is acceptable to the microfinancing institution would own some assets that can be pawned. With pawnshops, the tremendous advantage is that all the time, money and effort needed in evaluating the loan via microfinancing can be dispensed with. All that is needed is the proper appraisal of the item(s) to be pawned.
Interest rates for microfinancing would normally be 2.5 percent to 3.0 percent per month, which is similar to credit card interest rates. However, people in the D and E market segment will never qualify for a credit card. Pawnshops would normally charge between 3.0 percent to 5.0 percent per month. While this may seem more expensive, if you consider the time and cost of loan evaluation, monitoring, collection and documentation, pawnshops are a much more efficient operation, even for the borrower.
Rather than reinventing the wheel, our Government should work even more closely with pawnshops to fill in the gap in providing microfinancing. Pawnshops already have an active organization in the Chamber of Pawnbrokers of the Philippines, Inc. and the Government can simply work more closely with the industry to encourage its growth and the local government units in simplifying its requirements and reducing the cost in getting a mayors permit. Pawnshops should be properly recognized and appreciated for the vital role it plays in providing financing not just for consumers, but also for microenterprises.
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(Comments may be sent to george-chuaph@yahoo.com)
