Indian group working to legalize ‘5-6’ scheme

The notorious “5-6” scheme associated with Indian traders will soon become a legal financial scheme with some changes here and there, and the government is completing the guidelines for it, according to Rex Daryanani, president of the Federation of Indian Chambers and Commerce (Philippines) Inc. (Ficci). 

The documents containing the rules to engage in the scheme will be released next month, Ficci said.

Daryanani said the Department of Trade and Industry (DTI), the Securities and Exchange Commission (SEC), the Bangko Sentral ng Pilipinas, the Small Business Corp., the Department of Justice, the Department of Foreign Affairs (DFA), the Bureau of Immigration, the National Intelligence Coordinating Agency (Nica), and the Philippine National Police (PNP) contributed to the crafting of the guidelines.

Daryanani said he met recently with President Duterte to explain the scheme while appealing to him to allow the legalization of the mobile money lenders.

Last Jan. 11, Mr. Duterte ordered the arrest and deportation of foreigners involved in the money-lending scheme which is known for its usurious terms.

“That’s enough. (The lenders) engage in “5-6” (with a high interest rate) then they also sell expensive appliances. The poor are the ones victimized,” Agriculture Manny Piñol quoted the President as saying in ordering the government to end the scheme.

Daryanani, however, said that the operators of the lending scheme have ceased charging usurious rates.

“In the olden days, you borrowed five (pesos), then you paid six (pesos). That happened in a span of one week. That’s why it was called ‘5-6’. Now, it’s 20 -percent interest rate,” he explained.

“That doesn’t happen now,” Daryanani said.

He said under the present arrangement, the amount borrowed is payable in 60 to 120 days with a cumulative interest rate of 20 percent.

Daryanani said if one borrows P10,000, the payment would be P12,000 in four months, or an effective rate of 5 percent per month.”

He noted that the lending scheme is attractive to micro borrowers as it does not require any document and does not give any penalty for late payment.

“No documents. It’s trust. Lenders give consideration if a borrower can’t pay on that day. No interest, no penalty if they can’t pay for that day,” he explained.

“If you talk about pro-poor, if you talk about poverty alleviation, with all due respect, these guys are helping Filipinos,” he said referring to the mobile lenders.

Moreover, Daryanani said the initial guidelines to formalize the money lenders include getting a permit for their lending business with a minimum capital of P1 million.

The lenders will also be required to issue receipts and pay taxes to the government.

Daryanani estimated that there are about 25,000 to 30,000 Indian money lenders in the country today. If a lender has an initial capital of P1 million, some P30 billion would be circulating in the market for the lending model, he said.

Ficci is also seeking closer economic cooperation between Manila and New Delhi, Daryanani said.

Daryanani said there is a need to strengthen people-to-people relations between the Philippines and India that would result in advancing the two nations’ economic relations.

“We are far away from where it needs to be,” he said.

“Indians in India know about the Philippines, but not as much as we want them to know. Filipinos, in general, know India exists, but as a destination, do Filipinos choose India as a tourist place to go for a holiday? Not yet. Because we’re lacking people-to-people interaction,” he added.

The Ficci chief said India has invited President Duterte to hold a state visit to the country.

“We spoke to the President if he would like to visit India on a state visit. He has given the go signal to explore possibilities,” Daryanani said.

Moreover, Daryanani said the business group is in talks with the Philippine Airlines (PAL) to bring back direct flights between the Philippines and India.

PAL halted direct flights to New Delhi in 2011 due to “commercial reasons.”

“As we increase people-to-people interaction, and as people get to learn what India or the Philippines has to offer, stronger economic ties will follow,” he noted.

He added that the two countries could boost partnership in the sectors of information technology, business process outsourcing, and pharmaceutical.

Daryanani mentioned that Indian businessmen are optimistic with the growth of the country under the Duterte administration.

The Ficci recently partnered with the Department of Trade and Industry (DTI) for Go Negosyo, under which the business group will mentor micro, small, and medium enterprises (MSMEs).

The organization has also donated P3 million worth of projects in Sulu, a 20-unit “Kapatid Village.”

“We heeded the call of President Duterte to help people in Sulu,” Daryanani said.