Executive Chronicles | Should the Philippines Cap Online Loan Interest Rates? Here’s What We Might Be Overlooking
In a country where millions still don’t have access to traditional banking, online lending has become more than just a convenience — it’s a lifeline. But now, a familiar debate is back on the table: Should the government cap the interest rates charged by digital lenders?
The Securities and Exchange Commission (SEC) is currently seeking public input on this issue, giving stakeholders until November 14 to weigh in. The goal? To protect borrowers from excessive interest rates. On paper, it sounds like a win for consumers. But in practice, the story is far more complicated.
Why Capping Interest Rates Sounds Good—But Might Backfire
Let’s be honest: nobody likes paying high interest. For borrowers already struggling to make ends meet, a cap seems like a no-brainer. But interest rates aren’t just numbers pulled out of thin air—they’re a reflection of risk.
Lenders charge more when they’re unsure if a borrower can pay them back. That includes people with irregular income, no credit history, or those living in areas where collections are harder to manage. If the government imposes a strict ceiling on rates, lenders may simply stop offering loans to these higher-risk individuals.
This is what economists call credit rationing, and it’s not just theory. It’s been observed in countries that tried similar policies. Ironically, the people most in need of credit are often the first to be shut out.
Who’s at Risk of Being Left Behind?
The Philippines still has a long way to go when it comes to financial inclusion. According to the World Bank, nearly half of Filipino adults remain unbanked. That includes a huge number of freelancers, gig workers, side-hustlers, and micro-entrepreneurs—many of whom rely on online lending platforms to keep their businesses afloat or cover daily expenses.
These are the people who don’t have payslips or formal credit scores. They’re the sari-sari store owners, the delivery riders, the online sellers with seasonal income. They’re also the backbone of the country’s economy. If a blanket interest rate cap pushes legal lenders to focus only on low-risk urban borrowers, these groups could be left with nowhere to turn.
Kenya Tried It, and It Didn’t Go Well
If we want a glimpse into what could happen, we can look at Kenya. In 2016, the country introduced a cap on lending rates to make credit more affordable. But instead of helping, it hurt.
Studies by the IMF and World Bank found that banks pulled back from lending to small businesses. Many shifted their focus to large corporations, where the risk was lower. Meanwhile, illegal lenders filled the gap by charging hidden fees, violating privacy, and using aggressive collection tactics.
The policy, though well-intentioned, ended up doing more harm than good.
The Consumer Protection Paradox
Here’s the tricky part: when legal lenders are squeezed by regulation, they don’t just disappear—they adapt. But not always in ways that help borrowers.
They might shorten loan terms, add upfront fees, or tighten eligibility requirements. These changes can make borrowing more expensive or exclude people with unstable incomes. And when legal credit dries up, people don’t stop needing money — they just look elsewhere.
In October 2025, the SEC flagged 19 illegal lending apps for operating without licenses and violating data privacy laws. The PAOCC received over 13,000 complaints in just two months—many involving harassment, fake legal threats, and extortion. If legal lending becomes harder to access, these numbers could climb even higher.
What Can We Do Instead?
Rather than a one-size-fits-all cap, we need smarter, more targeted solutions. Here are a few ideas:
- Improve credit data systems so lenders can better assess risk and offer fair rates to more people—even those without traditional credit histories.
- Reward ethical lenders with lower compliance costs or access to funding support, encouraging them to serve more high-risk borrowers responsibly.
- Invest in financial literacy, so borrowers understand loan terms, avoid scams, and make informed decisions.
- Crack down on illegal lending apps through stronger enforcement, app store coordination, and public awareness campaigns.
Regulation Should Protect and Empower
The Philippines is at a turning point. We can choose quick fixes that sound good in headlines but risk long-term damage. Or we can build a financial system that’s both safe and inclusive.
If we truly want to make credit affordable and accessible for all Filipinos, especially the unbanked, the self-employed, and the small business owners, we need to go beyond caps. We need smart regulation, strong enforcement, and a commitment to financial empowerment.
Because protecting consumers shouldn’t mean cutting them off from the credit they need to survive and thrive.
