Bombay 5-6 informal credit systems for small-scale enterprises in Metro Manila: a case study.

Abstract

The Philippines has a large informal sector composed of small-scale enterprises. According to the latest data from the Department of Trade and Industry (DTI), there are 780,437 business enterprises operating in the Philippines in 2009 and 99.4% (774,351) of these are comprised by micro and small enterprises. Small-scale entrepreneurs depend heavily on capital to establish and sustain their businesses. Be that as it may, many of these small-scale entrepreneurs are living with impoverished conditions, having no capital or assets to be used collateral to start their small business venture. In addition, these people often are unaware of the processes involved in having formal access to credit. As such, they are more susceptible to seek assistance from informal credit markets.

An example of such informal credit system is the Bombay 5-6. The terms “bombay” or “5-6” are used interchangeably or together to denote the Indian immigrants residing in the Philippines. This develops a negative stigma for these people, as they are assumed to always engage in a lending business with usurious rates. Bombay 5-6 is a scheme of money lending which simply means that the amount a person borrowed must be paid back with 20% interest added.

Kondo (2003) puts forward that the lack of a strong industrial sector in the Philippines is a setback to its coveted economic growth. The sector could not absorb the migrants from rural areas to the cities, which resulted to either unemployment or underemployment. As joblessness and population growth become unabated, people tend to resort to small businesses in the informal service sector in the hopes of making their lives better. Though impractical, some people will patronize these 5-6 loan sharks as they think of it as an easy way to have money or capital. This unlikely development of small-scale enterprises and informal credit markets hence seriously needs to be addressed. This research inquires about the “Bombay 5-6” phenomenon as an informal credit system for small-scale enterprises in Metropolitan Manila. It will also embark on weighing the pros and cons of that system.