Philippine Microfinance Loan

Microfinance Loan as the name implies, refers to lending small amounts to those whose incomes fall short of the minimum required by more traditional commercial and savings banks. Typical borrowers of the loan are small variety store owners, buy and sell businessman and road or market side eatery owners. The loans are much smaller than those offered by bigger banks. Loaning small amounts of money to entrepreneurs allows banks and financial loan institutions to do earn a decent profit and help fellow Filipinos have a better life. By helping small Filipino entrepreneurs, microfinance proves to be a potent tool for social development ability and to alleviate poverty in a financially sustainable manner.

The interest rates on microfinance loans are slightly higher than that of commercial banks because these types of loans are usually character loans, meaning there is no collateral required but rely more on cash flow of the individual applying for the loan. The interest rate is typically pegged at about 2 to 3 percent a month, less than the average rate of 3.5 percent a month charged by credit card companies, and much lower than the 20 percent a week charged by the loan sharks or five six loans.

One of the biggest lenders in microfinance in the Philippines is Planters Bank. But more banks are getting into the act due to the demand for the loans and profit in the business but they have to take extra effort in educating borrowers, many of whom are borrowing money from a bank for the first time. Most of banks that offer microfinancing are rural banks not the mainstream ones. Microfinance is a very expensive venture for most banks because a lot of expense goes into servicing and collections because the borrowers typically do not have the time or the energy to go to the banks to pay their loans. But repayment figure was at the high 90 percentile level, with bad loans at a minimum because microfinance institutions go the extra mile to collect from the borrowers, weekly if they have to.