SEC urged to monitor impact of interest cap on small loans

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The Philippine Star

January 1, 2026 | 12:00am

MANILA, Philippines — The Securities and Exchange Commission should closely monitor how lending companies comply with its new memorandum circular on interest rate caps, warning that the real test of the policy will be whether small loans remain accessible to ordinary borrowers in the months ahead, a consumer advocacy group said.

CitizenWatch Philippines said the newly issued cap on interest and fees for loans of up to P10,000 raises important implementation questions that regulators must track carefully, particularly whether formal lenders respond by tightening credit, withdrawing products, or shifting away from small borrowers altogether.

“Regulation does not end with issuance. It begins there,” said Orlando Oxales, lead convenor of CitizenWatch. “The critical question now is how the industry adjusts, and whether borrowers on the margins will still be able to access small, short-term loans through formal channels.”

Under the SEC memorandum circular, lenders are required to observe a six percent monthly nominal interest rate cap and a 10 percent monthly effective interest rate ceiling on small unsecured loans, inclusive of most charges. The policy is intended to strengthen consumer protection and curb abusive lending practices.

CitizenWatch said it supports the goal of protecting borrowers, but stressed that close, data-driven monitoring is needed to detect early warning signs of unintended effects.

“Small loans are not the same as larger consumer loans. They involve higher risk, higher servicing costs, and shorter repayment periods,” Oxales said. “If compliance leads lenders to quietly pull back on small-loan offerings, tighten approvals, or stop serving higher-risk borrowers, the policy may unintentionally reduce access rather than improve outcomes.”

The group noted that most loans issued by licensed digital lenders in the Philippines fall below P10,000, making the segment particularly sensitive to regulatory changes. Even modest shifts in pricing rules can influence whether products remain viable, especially for borrowers without formal income documents or collateral.

CitizenWatch urged the SEC to actively track indicators such as approval rates, loan volumes, average loan sizes, and product withdrawals following the circular’s implementation.

“These are measurable signals,” Oxales said. “If we see declining approvals for small loans, longer processing times, or the disappearance of certain products, regulators should treat that as red flags that prompt immediate reassessment and remedy.”

The group also recommended that the SEC engage regularly with lenders, and micro-borrowers to understand how compliance is unfolding on the ground.

“Policy works best when regulators listen not just to complaints, but to patterns,” Oxales said. “Are borrowers being offered fewer options? Are lenders shifting to larger loans only?”

CitizenWatch emphasized that protecting consumers requires both strong rules and continuous oversight.

“Consumer protection is achieved by making sure rules deliver real benefits without closing the door on legitimate credit.”