I’m pretty sure most of us market watchers have heard and read about the diverse views on the Securities and Exchange Commission’s (SEC) proposal to limit interest rates of lending and financing firms.

In this risk-averse environment, with the financial market trying to stay relatively afloat as political tensions with competing interests prevail—causing extreme pressure on the peso against the mighty green—the SEC proposal was received with much displeasure rather than appreciation.

Orlando O. Oxales, CitizenWatch Philippines lead convenor, lamented during Monday’s Circle Forum held at the posh Westin Manila Hotel that such a “well-intentioned policy can have unintended outcomes if it does not align with the economic dynamics of the market it seeks to regulate.”

He went on, saying that otherwise, “this increases the likelihood that borrowers will seek credit from unregulated lenders.” It’s fully understandable that big banks’ exposure to small borrowers is at its minimum since administrative costs are at par with those for large borrowers.

I subscribe to Mr. Orlando’s view that the corporate watchdog should align the interest rate cap with the market’s economic dynamics: the forces that impact prices, supply and demand, and the behavior of consumers and businesses—in this particular case, the borrower and the lender or the financing firms.

However, the reality on the ground is that a good number of our people, particularly in the D and E sectors of society—the financially constrained—cling to unregulated lenders, the loan sharks, the predator lenders for small loans.

As CitizenWatch pointed out, “millions of Filipino borrowers depend on small, short-term loans to keep their households and livelihoods stable.”

Yes, Virginia, the harsh reality for those facing limited financial options and who have no access to regulated borrowings is that they will go for predatory lenders.

Although the macroeconomic numbers are looking good with a seemingly benign inflation rate and tapering interest rates, those financially constrained have to resort to “kapit sa patalim.”

Literally meaning holding on to a blade, this is a metaphor for the desperate decision one makes when there’s no other choice. For economists, this painful decision mirrors extreme poverty and is a mode of survival.

And loan sharking and predator lenders have mushroomed online. Studies showed the Online Lending and Digital Credit market, based on a five-year historical analysis, is valued at P56 billion. It’s called loan sharking because the lenders employ the same ruthlessness as the ocean’s great predators—the sharks.

Just for clarity, for me there’s a thin line, a filament, that differentiates predatory lending and the so-called 5-6 lending. Predatory lending refers to a lending practice where the borrower is taken advantage of by the lender through the imposition of lending terms that are unfair and abusive.

Lenders under this category utilize strategies such as excessive fees, prepayment penalties, and unclear loan terms to disguise their products as helpful to people in dire need.

On the other hand, the 5-6 moneylenders charge a nominal interest rate of 20 percent over an agreed period of time. Simply put, a borrower has to pay ₱6 for a loan of ₱5 over a period of one week, including a peso in interest.

My view from this corner of the business corridor is that the SEC proposal is not altogether a policy intervention on interest rates but rather one to provide more teeth in regulating these predator lenders with their usurious interest rate charges, ruthless collection mechanisms, and unlawful credit practices.

As Development Bank of the Philippines President and Chief Executive Officer Michael de Jesus points out: “I generally prefer the free market and not regulations to determine price. However, I think the proposed SEC regulations, capping the lending rates finance companies can charge, is good to protect our consumers who are poorer, have limited choices, and are not financially sophisticated.”

Let’s see how this will pan out.