• Sam Christopher Lim, U-Franchise President

Microlending Is a P22 Billion Industry. Here's How You Can Tap Into It

Updated: Aug 3, 2021

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