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No To 5 6 Loan

Crissy Taruc By Crissy Taruc on
Badge: Advisor | Level: 19 | Workplace & Operations Expertise:
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In the Philippines we have what we called 5-6. It is a kind of loan being offered first by "Bumbay" (Indians) among households and even to business owners. Later even Filipinos who have money lend it with the same terms as the "Bumbay".

The terms go like this: any amount of principal loan is charged with a 20% interest thus it is famously known as 5-6. If you borrow $5 you will return $6. The paying period runs from 100-120 days and they will collect on a daily basis. For a loan of $500 you have to pay for a total of $600 (principal of $500 and interest of $100). If you agreed for a 100 days period then you have to give them $6 per visit of them. They usually ride in a scooter as they collect the debtors individually.

Why people especially business owners avail such loan? Bank loans especially business loans requires many documentation especially Income Tax Return (ITR) which is usually not possible among small businesses. Given the documentation there is no assurance that the bank will grant the loan and as to how much. On the other hand, 5-6 is an easy, no documentation and non-collateral loan. If you have a good credit record with the Indians most likely within 24 hours the money (loan) is already in your hands and not only that. With one Indian you can establish several loan accounts as long as you are a good debtor.

Sounds very easy and convenient, isn't it? Partly yes as to the ease of availment but not to the terms. Such a loan makes business owners in deep indebtedness and worst bankruptcy. Imagine paying a loan with a high interest at a very short paying time, kind of suicidal. It is where bank's business loan can be praised. Yes there might be many requirements but the terms are friendly and workable to the business and its owners.

It is really quite hard for some businesses not to feel the government's support for such loan. But I guess one option to consider is to use the ITR of any qualified member of the family for a personal loan, if business loan is not possible, so a much reasonable terms can be availed of.