The Philippines attracts less interest from foreign investors than its Southeast Asian neighbors, but its robust economic development and low digital lending penetration are fueling Philippine FinTech growth.
MD Finance’s new report on the Philippines takes a close look at the country’s consumer finance market and its opportunities in 2024.
Economic background
Once known as a poor and struggling nation, the Philippines has dramatically improved over the past decade.
The country is the world’s 32nd-largest and 13th-largest economy in Asia, with a projected 2024 GDP of $471 billion.
The Philippine economy is also one of the most dynamic in Asia, with average GDP growth of around 6% YoY over the past decade.
Despite the effects of the pandemic, poverty is down from 23.3% in 2015 to 18.1% in 2021.
With GDP per capita reaching $3,720 in 2023, the Philippines is on the way to becoming an upper-middle-income country. A population of 109 million and smartphone and internet penetration of 78% indicate strong potential for the Philippine online services market as the nation grows wealthier.
FinTech market
Statistics highlight considerable room for growth in Philippine FinTech.
Lending from digital financial services in the Philippines doubled in 2022, reaching $2 billion in loans.
Non-banking lending is expected to reach $7 billion by 2025 and $20 billion by 2030.
With just over 400 FinTech companies, the Philippines lags behind Vietnam and Malaysia in terms of market players, but this situation will likely change as more new players enter the market.
The growth of the Philippine FinTech market is fueled by booming demand and foreign investments, and Q1 2024 alone saw a number of large deals. For example, Salmon, a platform offering business and consumer loans, raised $25 million from IFC and Northstar Group in its Series A.
Asialink, a fast-growing company providing online financing services, also raised $71.3 million from Creador in private equity. These cases suggest the openness of Philippine companies to foreign funding.
Consumer finance market
The Philippine consumer finance market is regulated by the Central Bank of the Philippines and the Securities and Exchange Commission (SEC). The banking sector is represented by
44 universal and commercial banks
42 thrift banks
6 digital banks
386 rural and cooperative banks
1 offshore banking unit
55 non-stock savings and loan associations
13 non-bank entities with a quasi-banking system
32 non-bank entities with no quasi-banking system
10 representative offices of bank and non-bank lenders
The Philippine banking sector has an estimated value of $430 billion and has issued $237 billion in loans.
Non-bank lenders
An alternative to bank loans is provided by the robust non-banking sector, which is made up of
600 financing companies
3,281 lending companies
140 recorded online lending platforms
16,200 pawnshops
The non-bank loan market remains highly fragmented, with a large number of small players holding insignificant market shares. As a result, there is plenty of opportunity for smaller players to expand and dominate. This can be seen by the fast growth of the online lending segment, whose value doubled in 2022 and increased by 50% in 2023 to reach $3 billion.
This demand for P2P digital lending has stayed healthy despite high interest rates. The average annual rate is 30%, with some providers charging massive annual rates of between 182% and 365%. However, rates like these will likely become less common due to a recently introduced interest cap.
Regulations
In March 2022, the Philippine Securities and Exchange Commission introduced an interest rate cap for non-bank lenders, including online lending platforms.
The nominal interest rate is capped at 6% per month
The effective interest rate is capped at 15% per month for unsecured, general-purpose loans under PHP10,000 ($171) with maturity within four months
Penalties for late payment or non-payment cannot exceed 5% per month
Effective March 3, 2022, these new regulations were introduced to combat exorbitant interest rates that have driven many Filipinos deep into debt. Their enforcement has not been particularly stringent so far, but this may change.
In August 2021, the Central Bank of the Philippines issued a three-year moratorium on digital bank licenses. Still in effect, the freeze has contributed to the rapid growth of non-bank digital lending — since new players couldn’t get licensed as digital banks, they registered as non-bank lending platforms instead.
Opportunities and challenges
Ranking below Malaysia and Vietnam in terms of FinTech development in the ASEAN top 6, the Philippine market still offers many attractive features to new arrivals:
Large market size
Considerable unmet demand, reflected in the low penetration and recent robust growth of non-bank digital lending
Limited competition from banks due to the three-year moratorium for new digital bank registration
High growth potential
High interest rates
Easy access to foreign investment
Less stringent regulatory framework compared to developed nations
English as an official language for easier paperwork and marketing communications
In contrast, the major challenges faced by companies entering the Philippine market are
A predominance of small loans (mostly within PHP2,000-25,000, or $34-$428), which entail higher administration costs
Cultural and operational differences
A closer look at top Philippine digital lenders reveals that smaller players might get an edge over larger counterparts due to their agility.
Top loan companies
The largest digital loan companies in the Philippines ranked by net interest income in 2022 are
Home Credit: PHP14,043 million ($240 million)
Tala: PHP2,577 million ($44 million)
Digido: PHP2,477 million ($42 million)
Online Loans Pilipinas: PHP1,565 million ($27 million)
MoneyCat: PHP984 million ($17 million)
CashExpress: PHP33 million ($0.6 million)
PesoRedee: PHP22 million ($0.4 million)
In 2023, most of these companies reported considerable interest income growth. PesoRedee (2390%) and CashExpress (1230%) reported the most impressive growth rates.
By net profit, the loan companies rank as follows:
Home Credit: PHP2,576 million ($44 million)
Online Loans Pilipinas: PHP335 million ($5.7 million)
Tala: PHP209 million ($3.6 million)
PesoRedee: PHP13 million ($0.2 million)
CashExpress: -PHP39 million (-$0.7 million)
Digido: -PHP74 million (-$1.3 million)
MoneyCat: -PHP348 million (-$5.9 million)
Openings for agile players
PesoRedee ranked fourth in net profit despite being the smallest operator in net interest income. For 2023, the company reported PHP143 million ($2.4 million) in net profit, demonstrating twelve-fold growth. This case highlights the lucrative opportunities available to small but agile players.
Cheat sheet: Opening a FinTech loan business in the Philippines
Setting up a lending business in the Philippines involves a fair amount of paperwork, but the process is clear. Here are the main points.
Understand the legal framework.
The minimum paid-up capital requirement in the Philippines is remarkably low at PHP1,000,000 (about $17,000). 100% foreign ownership is permitted, but you may be required to hire Philippine nationals in certain positions.
Under the Truth in Lending Act, you have to explicitly disclose the following to your borrowers:
The true cost of the loan
Interest rate
All applicable fees
Payment terms and conditions
Late payment penalties
2. Choose your business structure and name.
Registering as a corporation is suitable for most lending businesses in the Philippines. This structure establishes your business as a separate legal entity while limiting your personal liability.
The business name must include “Lending Company” or “Lending Investor.”
3. Register with the Securities and Exchange Commission.
Every lending business in the Philippines must obtain a Certificate of Authority from the SEC. As a first step, you need to register with the SEC as a business entity. Your application must include
Articles of incorporation and by-laws
A notarized treasurer’s affidavit confirming paid-up capital
A statement of assets and liabilities
A list of stockholders, directors, and officers and their tax identification numbers
Bank certificate (as proof of paid-up capital deposit)
Clearance from the Bangko Sentral ng Pilipinas (BSP)
Other supporting documents as required
After registering with the SEC, you must submit a separate application for a Certificate of Authority and wait for approval.
4. Register with other governmental agencies.
To start operating as a lending business in the Philippines, you also need to register with
The Bureau of Internal Revenue (BIR) to get tax identification numbers and manage tax obligations
The national Social Security System (SSS), Home Development Mutual Fund (HDMF or Pag-IBIG Fund), and PhilHealth for employee benefits
Local government units to obtain the necessary local business permits and licenses
With these steps complete, you’re ready to start lending money to Philippine customers.
Key takeaways: Entering the Philippines as a FinTech business
With its large yet underdeveloped digital lending market, the Philippines offers attractive opportunities for loan businesses.
Significantly low capital requirements, lax regulation enforcement, and limited competition from banks create a favorable environment for new entrants.
A high national cap on interest rates means you can command good returns.
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