According to the World Bank, 50.2 percent of the 82 million Filipinos aged 15 and over had financial accounts as of 2024.
This means that nearly half of the adult population remains unbanked with tens of millions of Filipinos not having formal access to credit. For them, Online Lending Platforms (OLP) often serve as the only practical solution when emergencies strike or capital is needed to keep a microbusiness afloat.
OLPs have become a fixture in the Philippine credit landscape. With just a few taps on a mobile phone, a person can borrow money in minutes. This speed and convenience make them attractive, especially for those who cannot easily open a bank account or access traditional lending channels.
But while the technology solves a real problem, the terms under which it operates often create new ones. Under current Bangko Sentral ng Pilipinas (BSP) regulations, OLPs are allowed to impose a nominal interest rate of up to six percent per month, which can translate to an effective rate of 15 percent per month when fees and charges are factored in.
Simply put, the monetary regulator has practically allowed an interest rate equivalent to almost 180 percent a year for loans below P10,000 and a period of less than four months, although there is supposed to be a cap of 100 percent.
Lenders have justified these rates by pointing to high default rates, the unsecured nature of the loans, and the operational risks of serving a broad, unbanked market. But these explanations overlook an important principle: risk management is the lender’s responsibility. Passing the entire burden of that risk onto the borrower, through exorbitant interest and hidden charges, turns a financial service into a debt trap.
Predatory lending doesn’t just harm individual borrowers, it also undermines trust in the entire financial system. People burned once by sky-high interest are less likely to seek credit again, even from reputable institutions. Worse, to collect from their borrowers, many lenders resort to abusive debt collection practices, harassment, public shaming, and intimidation that in tragic cases have driven people to take their own lives.
To address this, three key actions are needed.
First, lenders must implement robust know-your-customer (KYC) processes, verifying a borrower’s identity, capacity to pay, and loan purpose before approving loans. Blanket approvals for “anyone and everyone” would naturally lead to abnormally high default rates, which in turn is used to justify the excessive interest. Better screening means healthier loan portfolios and less need to recover losses through punitive charges.
Second, lenders must exercise extraordinary diligence in client selection and risk assessment. Technology now allows for sophisticated credit scoring models, even for people without formal bank histories. Data from utility bills, mobile phone usage, and e-wallet transactions can be used to assess risk more accurately, removing the need to rely on blanket, high-interest pricing.
Third, regulation must step in where market discipline fails. The Securities and Exchange Commission (SEC), under the Financial Products and Services Consumer Protection Act, is empowered to determine the reasonableness of the interest, charges, and fees. This authority should be exercised decisively to set fair caps that protect consumers without stifling innovation. The SEC must lower rates and strike a healthy balance between borrower protection and lender sustainability.
OLPs have the potential to be a force for good, bridging the gap for millions who remain outside the formal financial system. But if left unchecked, they risk becoming yet another predatory force that deepens poverty rather than alleviates it. Exorbitant interest rates cannot be justified by the unwarranted and reckless propensity of the lender. The lender has the responsibility for its wanton discretion in lending, even to the point of encouraging the borrower to use the easy credit for online gambling.
(The views and opinions expressed in this article are solely those of the author. This article is for general information and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion.)