Formal vs Informal Financing - Battle of DAVID and GOLIATH

Financing in the Philippines comes in two forms. Formal and informal financiers are abundant in the market and the demand for loans is part of the everyday life of every Filipino. Formal financiers can be a large, medium or small enterprise while informal financiers are micro enterprise. In a way we can see formal vs informal as a battle between David and Goliath.

Formal Financier

Banks, lending companies, cooperatives are examples of formal financier. Obtaining a loan from this institution is not that easy. Qualification and required documents make it difficult for the below average Filipinos to avail loans from these formal financier. The criteria are set by the institution and if qualified the necessary documents should be submitted for the approval of the loan.

Above average Filipinos, those with a stable job and earning a minimum of PHP 10,000 and those who are members of cooperative can avail loans from formal financiers. They are qualified and can produce documents to support their loan application.

Terms and interest rates vary from one formal institution from another but can go from as low as 14% to 28% depending on the term and the amount of the loan.

Informal Financier

Informal financiers are known as 5-6. There are two kinds of informal financiers; Filipino and Indian or more popularly known as Bombay. Indian

Qualification is easy and no requirements at all thus it is the alternative choice for the below average Filipino.

Those Filipinos who are earning less than PHP 10,000, vendors, small store owners and those with unstable jobs are the usual clients of informal financiers.

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