Best Posts in Thread: ATM Loans Or Sangla

I have spoken to people who lend money within the country - not necessarily loan sharks doing very short loans at 20%, but people who charge 2 t0 5% per month.

Seems like a good business on the surface but anyone thinking about it needs to consider the following:

1. If there is conflict with established lenders then the new lender might end up in a very sorry state.
2. These are usually unsecured loans as they are for people who cannot get bank loans - so getting the capital back is OFTEN an issue. Loans can be seen as gifts! At 2% per month it would take 50 months to get 100% back (i.e. the capital) and in that 4 years (of constant pleading to get your money back) the chances of getting the 2% interest paid on a regular basis is near to zero. At 5% it would take 20 months to get the capital back and, again, it is unlikely even the interest will be paid regularly. The chances of getting the capital back AND making some money on interest payments is quite low. It pays people to take a loan, keep the capital, pay some of the interest (actually paid from the lender's capital!) and hope the lender gives up.
3. The borrower might use the money to 'reinvest' either with other borrowers at a higher rate (so now your money is at risk with other people) or in some daft scheme where it is all likely to be lost. After all, it is not the borrowers money so the psychology here would be that risks can be taken with it - 'If you have enough money to lend then you are rich and can afford to lose it!'.
4. Perhaps a borrower might think an outstanding loan of P50,000 is cheaper to 'repay' with a gift of P10,000 to a local thug! If you get my point.

High interest loans seem unfair to people who are poor and morally that is correct. But from a business point of view it would make sense to charge high interest for a short period until the capital has been recovered (not repaid, as that often will not happen, but recovered from interest payments) and then massively reduce the interest. For example: 20% per month for 6 months (capital recovered and a profit of 20% over the 6 month period) with the interest then reduced to a fairer 1% per month. But, as stated above, the chances of getting the 20% for 6 months is very low.

My research into lending is that it is very high risk, the capital will often not be repaid, little can be done to reclaim it, the interest will be paid on an irregular basis and only for a period of time and that overall the lender will probably lose out. The type of lenders who make money are often quite aggressive types and the borrowers would be scared of them - but that is not most of us!

If you have money then the best place for it is in your own hands.

 

for those interested in this topic; an interesting article in Manila Inquirer from today
https://opinion.inquirer.net/125013/unconscionable-lending-rates
seems people who do not need to lend money are aware of this problem, people who need money have no knowledge about rampant interest rates. a common problem in this country, I guess.