WED | Why Hard Interest-Rate Caps Could Hurt — Not Help — Financial Inclusion in the Philippines
Getting credit in the Philippines remains one of the biggest financial hurdles for millions of Filipinos. According to the Bangko Sentral ng Pilipinas (BSP), nearly 40 million adults still lack access to formal financial services, while the World Bank’s Global Findex 2025 report shows that only 50.2 percent of Filipino adults have a bank account. In rural areas, access to formal lending falls even lower, leaving many families dependent on informal credit sources.
Amid this reality, some policymakers propose setting a hard cap on interest rates to make borrowing more affordable. The logic appears sound: lower rates equal lower cost for borrowers. But analysts and industry experts warn this approach may backfire, shrinking credit availability, discouraging investment, and pushing vulnerable borrowers into the arms of unregulated lenders.
The Core Problem: Credit Is Not One-Size-Fits-All
Lending is built on risk-based pricing: lenders allocate higher interest rates to borrowers who present greater risk (for example, micro-entrepreneurs or freelancers with irregular income) and lower rates to those considered more stable (such as salaried employees in major cities). When a flat rate ceiling is imposed, risk-based pricing becomes impossible. As a result, lenders often choose to stop lending to higher-risk clients altogether.
This phenomenon, commonly known as credit rationing, was described by economists such as Joseph Stiglitz and Andrew Weiss, who observed that interest-rate ceilings often lead to exclusion of those they meant to protect.
In a recent article for Money News PH, Excel Dyquiangco noted:
“By setting an artificial limit, regulators unintentionally price out the very people they aim to protect—micro-entrepreneurs, freelancers and rural borrowers.”
This reinforces the fundamental argument: when lenders can’t adjust rates to match risk, they shift focus to “safe” urban borrowers, leaving underserved segments further behind.
The Dangerous Paradox: Well-Intentioned Caps Trigger Unintended Consequences
When regulated lenders retreat, underground lending platforms and predatory apps fill the void. These unlicensed operators typically charge hidden fees, exploit personal data, and use aggressive collection practices. Both the IMF and the World Bank have linked strict rate caps to surges in illegal lending and data privacy violations.
Dyquiangco’s commentary highlighted the trend in local media, pointing to how rate ceilings may fuel a dual problem: legitimate lenders withdraw, and borrowers gravitate to riskier alternatives.
“What starts as consumer-protection ends as market-exclusion,” he wrote, drawing parallels to the Philippine situation.
This illustrates a dangerous paradox: instead of protecting borrowers, interest-rate ceilings may push them into more exploitative credit environments.
The Investment Chill: Losing Fintech Growth to Neighboring Markets
The Philippines has been positioning itself as a regional fintech hub, yet rigid regulations may be holding it back.
According to BSP data, the country attracted only US$50–60 million in fintech-related foreign direct investment, far behind Indonesia’s US$4 billion. Investors prefer markets like Vietnam, which allows rates to adjust by risk tier, balancing consumer protection with sustainable profitability.
As one industry observer noted:
“Regulatory certainty and smart flexibility are key to attracting technology partners. Rigid interest ceilings discourage innovation and drive away venture capital.”
This investment chill doesn’t just affect fintech. The broader lending ecosystem employs more than 100,000 Filipinos, from app developers and credit officers to customer-support staff. When lenders retreat, jobs disappear, innovation stalls, and rural communities lose access to new financial tools.
Global Lessons: Kenya’s Costly Experiment
Kenya implemented a lending-rate cap in 2016 to protect borrowers. Instead, SME lending dropped by 38 percent, forcing a policy reversal in 2019. This case serves as a cautionary tale for the Philippines, reminding regulators that artificial rate limits don’t solve the root problem; they shift it.
Excel Dyquiangco, in his Money News PH piece, referenced Kenya’s experience in his op-ed:
“The Philippines cannot afford to repeat Kenya’s mistake; we must invest in data-systems and consumer education, not blanket controls.”
A Smarter Path: Adaptive, Inclusive Regulation
Experts agree: the key is not suppression, but smart regulation—frameworks that protect consumers while keeping credit flowing. Here’s a roadmap:
Support compliant lenders: Recognize digital platforms that follow ethical collection and transparent pricing.
Enhance borrower literacy: Expand national programmes to educate on real borrowing costs, rights, and risks.
Build robust credit-data systems: Strengthen the Credit Information Corporation (CIC) and link risk-tiered pricing models so lending can expand responsibly.
Crack down on predatory lending: Synchronize BSP, DICT, and NTC efforts to remove unlicensed apps and protect consumer data.
Dyquiangco emphasised this path:
“Instead of asking ‘How low must rates go?’ policy-makers should ask ‘How do we price risk fairly yet keep credit accessible?’”
Toward a Sustainable Credit Ecosystem
The ultimate goal isn’t to make credit artificially cheap, it’s to make it sustainably fair and accessible. That means developing a credit market where legitimate lenders thrive, borrowers are protected, and regulators focus on inclusion over restriction.
“The real solution lies in smarter, adaptive regulation,” says a financial inclusion advocate. “By balancing consumer protection with innovation, the Philippines can create a credit system that serves everyone — not just those who already have access.”
With data-driven policies, open consultation, and a commitment to financial literacy, the Philippines can achieve both consumer protection and innovation. Policymakers must look beyond caps and focus on pricing risk fairly while ensuring responsible lending and borrowing practices.
The Bottom Line
Interest-rate ceilings may look like a quick fix, but history and data show they can backfire, reducing credit supply, stifling innovation, and excluding those who need help most.
The better question regulators should ask is: “How do we make credit safe, fair, and accessible for all Filipinos?”
The answer lies not in restriction but in reform: accurately pricing risk, educating borrowers, enforcing responsibly, and empowering innovation.
With this approach, the Philippines can move closer to true financial inclusion, rather than widening the credit gap.
