A news article on GMANews.TV speaks of a lawmaker wanting to resurrect a government-administered loan program that had failed in the past. What a terrible idea!

MANILA, Philippines – A congressman pushed on Tuesday for the enactment of a bill that seeks to institutionalize a credit program for overseas workers, replacing a P100-million loan facility that failed in previous years.

Rep. Juan Edgardo Angara of Aurora said the proposed Overseas Credit Workers Assistance under House Bill No. 161 intends to provide a loan of up to P50,000 to an overseas worker even before he leaves the country for posting abroad.

The loan facility is proposed to be coursed through the Overseas Workers Welfare Administration, which administered the P100-million borrowing program that was suspended in 2005 after just two years in operation.

“We had to suspend it kasi 70 percent ng umutang hindi nagbayad. Nauubos ang pondo dahil walang umiikot na pera. It should be a revolving fund,” explained Marianito Roque, administrator of OWWA.

Read full article on GMANews.TV >>

There you have it, stated in plain English (este … taglish pala). The loan program failed because borrowers weren’t repaying the loans to the government.

It’s a simple principle of human nature. The government as a lender is not effective. The government is expected to “take care” of their citizens. Citizens abuse this by not paying loans which they had sworn to re-pay. People will treat this “loan” as a dole-out, especially if the method of loan administration is not strictly upheld.

The better way for government to administer loans is through private/commercial bank or a microfinance institute.

When a borrower takes a loan from the Government, the government loan will be at the bottom of the “to pay” list, way below the cellphone load, below the payment to the 5-6 bumbay, below the payment to the next door sari-sari store. The thinking is: “Gobyerno yan, ang sama naman nila kung parusahan nila ako sa hindi pag-bayad.”

When a borrower takes a loan from a commercial bank or a microfinance institution, the borrower knows that this group will uphold the loan. The borrower will be penalized one way or another if the loan is not repaid. In the borrower’s “to pay” list, their loan to the bank/microfinance institution is on top. In fact, sometimes it is the loan facility that holds the borrower’s paycheque (e.g. salary loan).

This is just an explanation of why government is not a good loan-administrator. It doesn’t help either if the loan facility is revived without the necessary controls to ensure re-payment. It doesn’t help when the government gives a chance to borrowers to “loan” without upholding the discipline of loan re-payment.

Message to government: Leave loan administration in the hands of banks, microfinance institutions, pawnshops and other credit facilities. At least these groups teach borrowers the discipline of loan re-payment.

ka edong

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