In the past few months our team has been busy collecting primary data from three different ASEAN cities: Jakarta, Manila, and Hanoi. Between April 9 and April 14 2012 the Asian Trends Monitoring team conducted a survey among Manila’s poor. We collected a total of 352 responses from nine different locations in Manila with the help of 14 researchers from the University of the Philippines, Diliman. This blog post is inspired by face to face interviews and some exploratory data analysis of the Manila data set.
Filipino communities stand out through their extraordinary community spirit, social events, and close family ties. Helping out family members and neighbours is part of the culture in the Philippines. Therefore, it is not surprising that 55% of our respondents say that their primary source for loans are relatives and friends. However, a close relationship comes with personal accountability and thus family is not always an option. The other commonly used loan service are informal money lenders, the so called “Bumbai”. Since the informal lending business in Manila is dominated by Turban-wearing Indians who drive by on their motorcycle on a daily basis, locals have given them the nickname “Bumbai” (a mix of the old Bombay, which is now officially Mumbai). Even though we asked around a lot, no one could tell us for sure when the man on the motorcycle would make his round. Attempts to find out where the Bumbai lived were (of course!) futile.
Our survey results confirm what people told us over and over again. Cheaper (supposedly “fairer”) alternatives for shop owners and small businesses are rarely available or unwilling to lend without collateral. 42% of our respondents use the “Bumbai” to take loans without collateral. These money lenders are willing to give loans for all kinds of purposes under the condition that the borrower makes daily repayments (hence the collection routine on a motorcycle). The portfolio of services is restricted to a simply rule called “five-six”. The 5/6 rule simple and extortionate at the same time – Borrow 500 pesos today, then you have to repay 600 pesos within 30 days (20 pesos each day). The 5/6 rule in other words translates into a 20% monthly interest rate.
Unfortunately, people fall victim to the tempting offer of easy money, only to get caught in a spiralling debt trap. Combined with the lack of financial management skills and a de facto monopoly for the “Bumbai”, we get an explanation why the Bumbai service is so frequently used. However, awareness about the exorbitant lending rates is rising and some NGOs actively educate communities about prudent borrowing and saving strategies resulting in shrinking markets for the Bumbai. One of our interviewees, the wife of a construction worker, aptly describeb the cost-benefit situation of Manila’s informal money lender system. She says ”the only thing you achieve by borrowing from the Bumbai is that you are making him richer, now we don’t use his services anymore”. In another community the men successfully threatened the Bumbai to leave their neighbourhood alone – not a recommended strategy, but in this particular case it proved successful.
(Financial) education could go a long way in protecting Manila’s poor from falling for the tempting services of the informal money lender, but until the current generation is able to lead by example and alternative services become more readily available, chronic indebtedness among the poor will remain a huge challenge. We will get back to this in our upcoming bulletins.