Money News | by Excel Dyquiangco, Correspondent | Why Putting A Hard Cap On Credit Interest Rates Is Not The Answer
Let’s face it — getting credit in the Philippines is tough. The Bangko Sentral ng Pilipinas (BSP) reports that about 40 million Filipino adults still lack access to formal financial institutions, and only a fraction have a registered financial account. The situation is even worse in rural communities, where many people can’t meet the collateral requirements or don’t have a credit history that banks recognize.
Some policymakers suggest imposing a hard cap on interest rates to make credit more affordable. The logic sounds simple: lower rates mean more borrowers can manage payments. While the goal of protecting consumers is valid, this approach often backfires, limiting credit availability and pushing borrowers toward informal or illegal lenders.
The Core Problem
The core problem is that lending isn’t a one-size-fits-all industry. According to the Industry Daily Observer, a healthy credit market sets interest rates based on risk. Lenders charge higher rates to borrowers with greater risk. Such as freelancers with unstable income or small rural businesses, and lower rates to stable, salaried workers.
However, a uniform rate ceiling forces lenders to treat all borrowers the same. When they can’t charge rates that match the risk, lenders don’t offer cheaper loans; they stop lending to high-risk borrowers entirely. For decades, experts have warned that this leads to credit rationing, where those meant to benefit most from rate caps end up excluded from credit access altogether.
A Dangerous Paradox
This creates a dangerous paradox. New online lending platforms are finally reaching micro-entrepreneurs and rural families long ignored by banks. But if rigid rate caps make operations unprofitable, these lenders will pull back and focus only on “safe” borrowers in major cities, widening the urban-rural gap.
Worse, when legitimate lenders retreat, loan sharks and predatory apps rush in to fill the void. These bad actors harass borrowers, exploit personal data, and use intimidation to collect debts. A rate cap doesn’t stop them, as it pushes desperate borrowers straight into their hands.
Rigid regulations also scare off the very investors needed to strengthen the Philippines’ financial system. The country aims to become a fintech hub, but when rules feel unpredictable, investors and the jobs they bring move to more flexible markets like Vietnam or Indonesia.
A Smarter, More Transparent System
Instead of imposing blunt rate caps, policymakers should build a smarter, more transparent system. Strengthen the national credit database so lenders can accurately assess risk. Expand financial literacy programs to help borrowers make informed decisions. And focus enforcement on the real threat — illegal, unregulated loan sharks — while rewarding compliant digital lenders that follow the rules.
The goal isn’t artificially cheap credit, but sustainable, fair access to credit. With evidence-based policies and smarter regulation, the Philippines can build an inclusive financial system that protects consumers while attracting innovation and investment.
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Excel V. Dyquiangco is an editor, writer, and a dreamer. He writes for leading business magazines and newspapers and has published two children’s books that are available locally and personally.
