Skip to main content

Banks are only for the rich


For the last half of 2012, I was desperate to find a decent bank willing to lend me money to finish my house at an interest rate that I can afford.  My wife, another Certified Public Accountant in the house besides myself, went through an options analysis including the Home Development Mutual Fund (HDMF) and a few commercial banks that promise interest holidays, or low interest rates, or fast processing and so on and so forth.  She found out that when one borrows from HDMF at an amount beyond Php750,000, the interest rates converge with that of commercial banks so we decided to apply a housing loan from both PS Bank and Bank of Commerce. 

The experience was not that pleasant.  Both banks were slow at responding to request for information and failed several times to get back to us as to the status of our applications.  PS Bank, for example, treats us as miserable clients, not worthy to be lent some money despite our positive and highly liquid cash position, because our access road is not yet developed though it exists.  In an age of cash-flow lending, its lending system is stuck to collateral issues that despite our explanation, our application got disapproved twice.  They told us we need to pave our access road so that our loan will be approved.  That time they did this assessment, our house was already 60% complete.

Bank of Commerce, on the other hand, eventually lent us the money, but not without making us feel miserable as well.  They said that after application, we will be able to get the approval we need and the first release in a month’s time.  After two months and after exhausting our savings, nothing happened.  All promises and a string of requirements; not until I burst in anger towards the close of 2012 did we get a positive response.  Both my wife and I felt that the bank employees enjoyed our powerlessness; they enjoyed hearing our pleas for consideration.  It made us realize that banks exist not for financially insignificant people like my wife and me.  But we continued pleading to almost the point of losing our sense of dignity.  Had we the choice, we would not go through the same experience again. 

Banks, or financial access to banks, are just for the rich. I should say. Or with our case, the persistent poor who got angry towards the end.

In Abhijit Banerjee’s and Esther Duflo’s book, PoorEconomics, they posited the argument that “credit constraints are likely to be much tighter for very poor borrowers than for somewhat richer ones”.  However, they also presented cases, where capable, educated people, with strong business models were never trusted by banks.  They also presented cases that those that lent to the poor are not your banks – these are micro-finance institutions like Yunus’ Grameen in Bangladesh, Padmaja’s Spandana in India, or TSKI in the Philippines.  Banks are not for the poor.  When the world’s largest micro-finance institutions start to behave like banks, they might also start to lose the advocacies that in the first place, gave birth to their existence. Microfinance institutions then, are the options for the poor, as these institutions offer lesser interest rates than usurious money lenders, but less stringent in terms of requirements as compared to banks. 

But where will those in the middle range of the income spectrum, like me, go?  Surely, banks find us less bankable and more risky.  Microfinance institutions will also find us ineligible.  There are limited options for us, as there are limited options for the poor.  In one study we conducted at the end of December 2012 in 11 agricultural barangays in Batuan, Duero, Guindulman, Pilar, and Sierra Bullones, we found out that the poor could not access banks, not even microfinance institutions as indicated in the graph below:
When I talked with a friend who teaches at a local university here in Tagbilaran as to her sources of credit, she mirrored the results of the community study as depicted in the graph above.  Banks have not granted her loan.  If she needs immediate cash, she goes to her friends and family.  For bigger requirements, she borrows from the employee’s cooperative to which she is a member.  But at one time in her life, she wanted to put up a business venture but failed to do so because no single bank would finance her business and she was rated “not credit worthy”.

Banerjee and Duflo’s book, while not necessarily referring to the middle income group said that these borrowers “run the risk of being too large for the traditional moneylenders and microfinance agencies but too small for the banks”. Funding this set of people with financing needs will remain a challenge.

So you’re planning to go to the bank for your financing needs? Think again.

Comments

glenn said…
unya kanus-a manta magpablessing? ako pa nimo Mik inig 3rd week March na lang kay uli ko... hehehehe -inyong
Anonymous said…
you're right about this:

"She found out that when one borrows from HDMF at an amount beyond Php750,000, the interest rates converge with that of commercial banks...."

That's why yung loan ko sa HDMF is exactly P750,000. :)

- gremil
Milagring said…
The problem with banks is that they promise to be your friend when the weather is good, like offering you an umbrella when you don't really need one. But when it rains, they're not even there, not really even there.
Miko Cañares said…
glenn, pohon. pohon. pero murag layo na kaayo na da. gremil, such a good decision. mel, i like that kind of an analogy. well, even economic organizations play or make political decisions. luck will be on your side when apart from being good or bankable, you also know the right people. such is life.

Popular posts from this blog

10 Lessons from Loay, Bohol on How Local Government Leaders Should Fight Decisively Against the COVID – 19 Pandemic

“Some people ask me why I was very quick to deliver social assistance to people during this crisis. It’s simple. I have experienced myself having nothing. I can easily empathize with what people are experiencing on the ground.”
     - Atty.  Hilario “Lahar’ Ayuban              Mayor, Loay, Bohol

The COVID-19 crisis that plagues the world is impacting adversely every sector and every individual globally. In the Philippines, the rate of infection has been steadily increasing, partly brought about by the availability of test kits, and the lack of compliance with strict preventive measures. The ability of the country to combat and survive this pandemic is put to the test.  Despite the missteps on the part of the national government, local government officials all over the country have been facing the crisis head-on, with some local chief executives finding creative ways to stem the spread of the virus through preventive measures while at the same time temper the economic impacts on the li…

4 Reasons Why Following Bishop Abet on FB is a Good Thing To Do in this Time of Crisis

I met Bishop Abet Uy for the first time online.
Some three years ago, at the suggestion of a good friend of mine, Fr. Harold Anthony Parilla, I sent Bishop Abet a direct message via FB messenger. He replied, within a day or two and told me how I could proceed with something I wanted to do.I did as was instructed, and some few weeks later, he sent me, via messenger again, a thank-you note.
Such tech-savviness impressed me, especially for a prelate his age. I was not surprised that some weeks later, I learned that the Bishop was using social media to spread God’s message, in very accessible terms. I also personally witnessed events he presided where online footprint was created almost in real-time (or at least a few hours after the event concluded), making us aware of where he was, what he was doing in building God’s Kingdom here on earth.
Currently, his various Facebook accounts have thousands of followers (Teba Yu has 11,744 followers, Abet Uy has 63,337, while the Bishop Abet page h…

5 Ways to Build a Resilient and Sustainable Business: Lessons from Balai Cacao

The COVID 19 pandemic has significantly changed the way we live.For more than two months now, most of us, by force of governmental regulation, have stayed at home, avoided public and even social gatherings, set aside various recreation activities, and abstained from going to religious services.  These new patterns of behaviour, regardless of the involuntariness of its nature, have altered not only how we think and do things; they also significantly altered the way we produce and consume things.Businesses are severely affected by this pandemic.Mall sales had gone down, not only because they were closed for a while, but also because many people can no longer go there, including children and the elderly, (and those without quarantine passes) even when lockdown rules were relaxed. When religious celebrations were halted, sales for flowers and candles went low.When borders were locked, revenues of car rental companies, tour guides, and tourism-related establishments plummeted to nothing.Bu…