Microlending Is a P22 Billion Industry. Here's How You Can Tap Into It
While the Philippines was one of the fastest growing economies in Asia in 2019, it’s undeniable that we’re still a long way from truly eradicating poverty and unemployment. Yes, we have hundreds of skyscrapers filled with workers from various industries, but on the other side of the coin, we have struggling communities deprived of the chance to rise up.
It’s good to know, however, that there are ways in which the poverty gap can be bridged, from government assistances to livelihood programs to financial services. A great example is microlending, which is a brilliant form of financing that allows a win-win situation for both the lender and the borrower.
Goal to help the small and fledgling
In 2018, the Department of Trade and Industry reported that 99.52 percent of all businesses here in the Philippines are micro, small, medium entrepreneurs (MSMEs). To put into simpler, more vivid terms, these MSMEs are the carinderias, sari-sari stores, local drugstores, vulcanizing and motor repair shops, and other small-scale businesses.
Imagine if a sari-sari store owner just needed to borrow P10,000 to buy inventory for the following week. Big banks are not an option and they may not have enough relatives to borrow from. One option is to turn to lenders who charge very high fees, but this can radically eat into their profits. This is where microlending has been helping bridge the gap.
“The practice of providing very small loans to the poor, often with group liability, is an increasingly common tool intended to fight poverty and promote economic growth,” as stated by the Innovation for Poverty Action (IPA). The Bangko Sentral ng Pilipinas (BSP) meanwhile says, “the clients of microfinance are the economically active, entrepreneurial poor. Some examples of these are shopkeepers, ambulant vendors and household-based entrepreneurs. These are the clients who have a stable economic activity and will be able to sustain and enhance these if they are provided with even a small amount of readily available funds.”
You may be wondering whether microlending is a profitable business or not if its main purpose is to help the underprivileged. The good news is yes, it’s a business that earns while it helps.
Booming microlending business in PH
The demand for microlending is clearly there. In fact, the BSP recorded more than 32-percent increase in microfinance loans, from only P17.11 billion in 2017 to P22.61 billion last year. With the increasing size of the market, numerous players have come into the industry and amidst high competition with big & traditional lending companies, microlending businesses rake earnings from the massive volume of loans processed and approved.
While creating an atmosphere of trust and reliability, microlending businesses are, most notably, helping the sector in need to “increase income, build viable enterprises, reduce vulnerability to external shocks, empower the client, and improve the quality of their lives,” according to the BSP.
While traditional microlenders tend to have only a handful of stores, some players have started to tap franchising as a way to create wider presence, share critical lending information and create stronger systems that allow them to increase profitability, while helping more MSMEs.
LT & G Credit Line Corp. is the first microlending company in the Philippines that entered the world of franchising. It was founded in 2013 by CEO and President Marco Antonio Soliman, an entrepreneur in Bicol, with the mantra “Better Loans. Better Lives.” Soliman once shared on a news article that he is glad that LT & G is growing together with its clients.
“We actually consider them partners,” he said. “We want them to succeed in their business. Our interest rate is very friendly. We know that if we charge more, they will not earn from their business.”
From just four stores in Bicol in 2018, LT&G is on it’s way to hit over 80 stores this year.
EQGRANT Lending Corp., meanwhile, was officially established in 2014 in Cavite and later expanded to Laguna, Batangas, and Quezon Province. “Our advocacy is providing fast and hassle-free business loans for MSME’s needs for additional capital or expansion of business,” the company says in its official website. Due to its profitable operations on microlending, EQGRANT has ventured into macro-lending, petroleum dealership, and fast-food business.
Ermay Lending Corp. started out in Ozamiz City back in 2008 as an informal micro-lending business. Then in 2016, owners Capt. Eric and May Sheil Rasonable formalized the business and offered salary loans, seaman allocation loans, business loans, and pensioner loans.
"Our mission is to help empower Filipinos by giving them access to the capital they need...In every community, we envision that there is always an Ermay Lending present to serve their needs," the company says.
Payday lending companies have also sprouted across the country because of their reliability and speedy processing. Payday loans are short-term loans acquired by workers or MSME owners typically amounting to portion of their next paycheck.
With deep experience in doing proper credit investigations, a strong system to track loan repayments and proven ways to partner with MSMEs to ensure win-win partnerships, the microlending industry is transforming from small mom and pop operations, to larger more established franchise brands with multiple locations across the country.
Francorp is the Philippines’s largest franchise consulting company and conducts regular seminars and events. For more information on microlending franchises, contact (+632) 8638.31.42 / 0917.835.55.30 / www.francorp.com.ph or email [email protected]
Sam Christopher Lim is the CEO of Francorp Philippines; Co-author of 12 Strategies for Franchising; President of U-Franchise Sales & Management; and Chairman for ASEAN Integration of the Philippine Franchise Association.