Narrowing Asia's financial inclusion gap

Nearly a quarter of the APAC population still lacks access to traditional banking services, according to Statista. Translated, this is hundreds of millions of people who are either unbanked or underbanked, with no access to savings accounts, loans or formal credit.

However, the regulatory environment in many Asian countries is rapidly changing as governments come to grips with the digital revolution.

For example, India's Unified Payments Interface is making digital payments accessible to people of all socioeconomic backgrounds. The benefits support the growth of fintech companies, improve the efficiency of government services, and boost the growth of e-commerce and digital businesses.

In Indonesia, Bank Rakyat Indonesia (BRI) has been leading the charge. Its BRILink network uses local banking agents, allowing people in remote areas to access banking services without visiting a physical branch. Millions have gained access to financial services.

As a result, the thirst for modern payment infrastructure is exploding for existing banking customers. In the Asean region, for example, banks and fintechs increasingly see the need to improve their products to better meet customer needs; digital, hyper-personalized, instant and embedded payment experiences.

However, the emerging policy and innovation initiatives across the region will also create the impetus for tech companies to finally and meaningfully drive significant change for the large swathes of the region's unbanked populations.

It's now up to the industry to respond.

To be clear, financial inclusion is more than just a noble goal — it is a strategic imperative that can significantly boost economic growth, prosperity and stability.

For technology companies, this is a means to tap into substantial market potential.

In our view, the role of tech companies is to provide the tools and infrastructure necessary for financial institutions to offer more accessible services — solutions not only technologically advanced but also culturally and economically tailored to specific markets.

For example, by 2023, more than 480 million bank accounts were opened under India's Pradhan Mantri Jan Dhan Yojana (PMJDY), drastically reducing the number of unbanked individuals, and enabling direct benefit transfers from the government.

Tech innovations like mobile banking, microloans, and digital payment solutions offer services that are both affordable and accessible.

However, these solutions aren't going to magically emerge or reach those who need them.

If fintechs are going to develop solutions that will help to narrow the bankable gap, they need to understand and meet the unique needs of Asian consumers and the commercial landscape more broadly. It also requires fintechs to be alive to the megatrends facing the region.

First, Asia's diverse and large population demands solutions that can scale and be tailored to local needs. This dynamic is pushing fintechs to innovate quickly and efficiently.

Additionally, the competitive landscape in Asia is intense. Startups and established financial institutions are competing for market share. Competition fuels initiative, as companies strive to differentiate themselves with superior products and services.

Asia's relatively young population, like digital natives worldwide, is open to adopting new technologies, especially in digital payments. The demographic trend creates fertile ground for experimenting with new payment solutions.

Asia's continued shift away from cash increases the need to deliver digital payment reliability as the growth trends deepen and accelerate. There's still work required to build confidence and ensure systems are robust enough to handle the rising volume of transactions. This is crucial in Asia, where the stakes of any system failure are high.

Reliability isn't just about transaction success rates; it's about making sure every stakeholder — consumers, merchants and financial institutions — can have faith in the systems.

Security is critical. As more people and businesses rely on electronic payments, the systems supporting these transactions must be secure against external threats and internal vulnerabilities. One breach could destroy carefully built reputations.

This is where reliability goes beyond technology. It's about building trust with consumers new to electronic payments, giving them confidence to use new products and methods. Tech companies can work closely with regulators, financial institutions and stakeholders, invest in consumer education, and continue to develop technology to underpin these systems. The benefits will be felt by everyone.

The future of fintech in Asia is bright, with strategic expansion, innovation and reliability at its core.

As governments continue to prioritize financial inclusion, and as the shift away from cash accelerates, the role of tech companies will only become more crucial. By focusing on these key areas, we can ensure that Asia's financial revolution not only continues but also thrives.

Source: Manila Times

Loan Default Consequences in the Philippines: Legal Obligations and Lender Actions

 Introduction

In the Philippines, taking out a loan is a common practice for individuals and businesses to finance various needs, from personal purchases to business expansion. However, when a borrower fails to meet their repayment obligations, this results in a loan default. Defaulting on a loan has serious legal and financial consequences that borrowers must understand. This article provides an overview of the legal obligations that borrowers face, the possible consequences of loan default, and the actions lenders can take to recover their money.

 What is Loan Default?

A loan default occurs when a borrower fails to make payments on a loan as per the terms of the loan agreement. It could happen if the borrower is unable to pay a single installment or if they fail to repay the loan in full by the due date. The consequences of default vary depending on the type of loan, the terms of the contract, and the legal rights of the lender.

In the Philippines, loan agreements are governed by the Civil Code and relevant financial regulations. The loan contract itself typically defines what constitutes default and specifies the actions the lender can take in case of non-payment.

 Legal Obligations of Borrowers in the Philippines

When a person takes out a loan, they enter into a contractual obligation with the lender. Under the law, this contract binds the borrower to certain responsibilities, including:

1. Repayment of the Loan: Borrowers must repay the loan amount, plus any interest, on the schedule agreed upon in the loan contract. This is a primary legal obligation.

2. Payment of Interest and Penalties: Most loan agreements include interest and provisions for penalties or late fees in case of delayed payments. The borrower is legally obligated to pay these fees as per the loan contract.

3. Compliance with Loan Covenants: Borrowers are typically required to meet certain conditions, such as maintaining insurance for collateral or providing financial statements (for business loans). Failure to comply can trigger a default.

4. Notification of Financial Difficulties: In some cases, borrowers are required to notify the lender if they experience financial difficulties that could affect their ability to repay the loan. This can sometimes allow the lender and borrower to renegotiate the loan terms to avoid default.

If the borrower fails to meet these obligations, the lender is entitled to enforce the loan agreement through legal or extralegal means.

 Consequences of Loan Default

Loan default can lead to various legal and financial repercussions for borrowers. Some of the consequences include:

 1. Accrual of Interest and Penalties

Upon default, the loan typically continues to accrue interest and penalties, further increasing the total amount owed by the borrower. The exact rates for penalties and interest in case of default are specified in the loan agreement. These additional charges can significantly increase the debt burden.

 2. Demand for Full Payment

In many loan agreements, defaulting on a payment can trigger a demand for full payment of the outstanding loan balance. Lenders may exercise this option, requiring the borrower to pay the entire remaining loan amount, including accrued interest and penalties.

 3. Damage to Credit Rating

Defaulting on a loan can severely damage a borrower’s credit score or rating. In the Philippines, this information is reported to the Credit Information Corporation (CIC), which maintains a centralized credit database. A poor credit rating can make it difficult for borrowers to secure future loans, mortgages, or credit cards.

 4. Collection Efforts

Lenders often take aggressive steps to collect overdue debts. These efforts may include:

- Demand Letters: The lender will send formal demand letters, asking the borrower to settle their obligations within a certain period.

- Collection Agencies: The lender may assign or sell the debt to a third-party collection agency, which may resort to persistent calls or letters demanding payment.

- Harassment and Public Shaming: While this is illegal, some unscrupulous lenders resort to harassment or publicly shaming borrowers, particularly in the case of smaller loans like online loans. Borrowers should be aware of their rights under Republic Act No. 10173, the Data Privacy Act, which protects them from such abusive practices.

 5. Foreclosure of Collateral

For secured loans, such as home mortgages or car loans, the lender can initiate foreclosure proceedings if the borrower defaults. This allows the lender to take possession of the collateral (e.g., real estate or a vehicle) and sell it to recover the unpaid loan balance.

- Judicial Foreclosure: Involves filing a case in court, where the property is sold through a public auction. This process can take time due to court proceedings.

- Extrajudicial Foreclosure: If the loan agreement includes a power of sale clause, the lender can foreclose the property without going to court, but they must follow specific legal requirements such as notifying the borrower and publishing the foreclosure notice in a newspaper.

 6. Legal Action (Civil Case)

If the borrower defaults and does not cooperate with the lender’s collection efforts, the lender may file a civil case for collection of the outstanding debt. The lender can seek a judgment from the court requiring the borrower to pay the loan balance. If the court issues a favorable judgment, the lender can enforce it by garnishing the borrower’s bank accounts or seizing assets.

 7. Attachment of Assets

Under certain circumstances, the court may issue an attachment order on the borrower’s assets, which allows the lender to seize assets such as property, vehicles, or business interests. This usually happens in cases where the lender can prove that the borrower is fraudulently trying to hide assets or has no intention of repaying the loan.

 8. Garnishment of Income

For salaried individuals, a court may also order the garnishment of a portion of the borrower’s wages to satisfy the loan balance. This requires the borrower’s employer to withhold a portion of their salary and remit it to the lender.

 9. Imprisonment (for Special Cases)

The Philippines does not have a debtor’s prison, and imprisonment for debt default is prohibited under the Constitution and Revised Penal Code. However, there are exceptions, such as when the borrower commits fraud or issues a bouncing check (in violation of the Bouncing Checks Law or Batas Pambansa Blg. 22). In such cases, the borrower could face criminal prosecution, which may result in imprisonment or hefty fines.

 Lender Actions When a Loan Goes into Default

Lenders have several options for recourse when a borrower defaults on a loan. Depending on the circumstances, they can take the following actions:

 1. Restructuring the Loan

In some cases, lenders may be willing to negotiate with the borrower to restructure the loan. Loan restructuring can involve extending the repayment period, reducing the interest rate, or temporarily deferring payments. This allows the borrower to manage their finances while avoiding default. However, restructuring is typically granted only if the borrower communicates with the lender before the situation escalates.

 2. Demand Letters and Collection

The first action a lender typically takes is sending demand letters to the borrower, formally requesting payment of the overdue amounts. Lenders may then refer the debt to collection agencies if the borrower remains unresponsive.

 3. Filing a Civil Case

If the borrower continues to ignore repayment obligations, the lender may file a civil action for collection with the court. A favorable court judgment allows the lender to enforce the debt through various legal means, including garnishment or seizure of assets.

 4. Foreclosure of Collateral

For secured loans, lenders can initiate foreclosure proceedings to recover the unpaid loan by seizing and selling the collateral. The proceeds from the sale will go toward satisfying the outstanding debt.

 5. Assigning or Selling the Debt

In some cases, lenders may sell or assign the defaulted loan to a third party, typically a collection agency or a debt purchaser. This allows the lender to recover at least a portion of the unpaid loan, while the new owner of the debt assumes the responsibility of pursuing collection.

 Borrower’s Rights and Remedies

While lenders have significant recourse in cases of default, borrowers also have rights that must be respected:

- Fair Debt Collection: Lenders and collection agencies must follow ethical practices. Harassment, public shaming, and threats are prohibited by law. Borrowers can file complaints with regulatory bodies like the Bangko Sentral ng Pilipinas (BSP) or the Securities and Exchange Commission (SEC) if they experience abusive collection practices.

- Debt Restructuring: Borrowers may negotiate with lenders to restructure or re-amortize their loans to make repayment more manageable.

- Bankruptcy Protection: Under Philippine insolvency laws, borrowers who cannot repay their debts due to financial distress may consider filing for bankruptcy or insolvency to restructure their debts or liquidate assets to settle obligations. However, this is a complex legal process that requires court intervention.

 Conclusion

Loan default in the Philippines can lead to serious legal, financial, and personal consequences, ranging from damaged credit scores to the loss of assets. Borrowers must understand their legal obligations and take proactive steps to avoid default, such as communicating with lenders or exploring debt restructuring options. At the same time, lenders are empowered to take legal action to recover debts, but they must comply with legal procedures and respect the borrower’s rights.

Source: Ziggurat Real Estate

Banks’ exposure in real estate down to 4-year low

The exposure of Philippine banks and trust entities to the volatile property segment eased slightly to 19.92 percent of total loans as of end-June from 20.31 percent as of end-March, data from the Bangko Sentral ng Pilipinas (BSP) showed.

The ratio was also down from the 20.8 percent seen in the same period last year. It marked the lowest in more than four years or since the 19.84 percent in December 2019.

Based on central bank data, investments and loans extended to the property sector inched up by 3.6 percent to P3.16 trillion in end-June from P3.05 trillion in the same period a year ago.

Broken down, lending went up by 7.7 percent to P2.79 trillion from P2.59 trillion a year ago. Commercial real estate loans rose by 6.1 percent to P1.74 trillion, while residential real estate loans grew by 8.9 percent to P1.04 trillion.

Likewise, past due real estate loans increased by 7.1 percent to P141.25 billion. This came after past due commercial real estate loans grew by 16.4 percent to P43.36 billion, while past due residential real estate loans inched up by 3.5 percent to P97.88 billion.

The gross non-performing loans (NPLs) from the real estate sector stood at P110.86 billion as of end-June, five percent higher than the P105.63 billion in the comparable year-ago period.

Despite the pick-up in soured loans, the gross NPL ratio went down to 3.98 percent in end-June from 4.07 percent a year ago.

Meanwhile, real estate investments in debt and equity securities fell by 18.4 percent to P371.11 billion from P454.86 billion the previous year.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the easing exposure to the real estate sector was due to high denominator effects, with faster growth in overall bank loans.

Separate BSP data showed credit growth accelerated for a second straight month to 10.9 percent in August from 10.4 percent in July. It marked the fastest in 20 months or since the 13.7 percent expansion in December 2022 despite the high interest rate environment.

“The adoption of credit risk management based on global best practices also led to more prudent management of real estate/property exposures in view of prescribed limits/ceilings set by regulators also partly led to the decrease in the said exposures to the sector,” Ricafort said.

Source: Philstar