The Informal Salary Loan and the “Prenda”.
The Filipino Teachers Vicious Problem.
Contracting loans is one of the most inevitable occurrences that will happen to a teacher in the Philippines. A teacher jumping into debt such as one linked to his/ her salary to guarantee repayment is as common as the elementary school itself, that can be found in every barangay of the country.
With the teachers often acting as the sole or primary breadwinner in a family and sometimes spending personally for the purchase of school supplies and amenities inside the classroom, the situations leave them with little choice but to apply for teachers loans or salary loans.
The borrowing is often provided by an informal, unregistered lender called a “loan shark” who is not connected with the Department of Education (DepEd), the state agency where most teachers are employed. Sometimes, the principal, district supervisor or some other higher official himself/herself could be the lender.
Other times, business people who own groceries, drug stores, hardware stores and similar establishments in the city/ town would provide the loans to these teachers.
These lenders often get a double serving of undeserved benefits with the set-up – they often charge between three to 20 percent in monthly interest on the loans and they do not pay taxes to the government since their lending businesses are not legitimately registered with the proper regulating agencies.
When the teacher salaries were still paid using government-issued checks, the loan instalments (the whole loan itself does not usually have a fixed due date, the borrower executes a promissory note which says the loan is payable upon demand) have to be paid during the teachers’ monthly pay day.
The loan shark would show up to the division office when the payroll-in-charge arrives with the checks and payslips, and the teacher in turn hands over the check after receipt to the shark in exchange for the repayment receipt slip and promissory note if lucky enough to be pay the total loan.
Nowadays when the teachers are being paid through their own Automated Teller Machine (ATM) salary bank accounts, the indebted teacher are often asked to surrender the ATM cards with their personal identification numbers (PINs) to the lender BEFORE the loans are granted. Thus, the teacher would just have to receive the remaining money, after the loan principal and interest are withdrawn by the lender, by showing up to the lender’s place and requesting the remaining amount.
It is common to encounter teachers who are mired in this vicious cycle of seemingly insurmountable debts. For example, a pre-service teacher/ education major student or his/ her parents may have already incurred several thousand pesos of loans even before graduation from college.
A P20,000 loan at three percent monthly amounts to P 7,200 in 12 months, in just interest alone. The same principal at 20% (called a five-six loan, meaning a loan of five pesos becomes six pesos upon repayment for an interest of one peso or 20% of five pesos) monthly earns an unconscionable P48,000 in annual interests. If the borrower is fortunate enough, the lender may offer a diminishing interest if the loan principal is paid gradually.
This bad situation a teacher can find themselves in, ends up in unpaid loan principals since the teacher has almost always concurrent loans with the legal lenders such as government institutions Government Service Insurance System (GSIS), and Home Development Mutual Fund (HDMF, also known as PAG-IBIG). The borrowing teacher has to be ok with paying interests only, leaving the principal loan untouched and even growing with any unpaid interest added to it because the salary is just enough or even short to pay the interest.
This has a further negative, sometimes very bad outcome: making the teacher resort to the “prenda” (literally meaning “to pawn”) or the “advance withdrawal” of other non-salary remunerations such as the mid-year and year-end bonuses, and the clothing allowance.
The loan shark again provides the “advance withdrawal” of the not-yet due-to-be-received compensation by the teacher, of course, with interest in the form of advance deduction on the amount. For instance, if a teacher who is low on much-needed cash wants to advance the next year’s mid-year bonus, he/ she can obtain the P19,000 bonus minus the interest, so they won’t actually get all the P19,000, they will get P15,000 for example. And the lender will get the P19,000 in full when it arrives.
The informal salary loan and the “prenda” have their advantages because they are easy and convenient for a borrowing teacher who even may or may not have a derogatory credit reputation can avail of them from the approachable loan shark.
Lower Interest Rates
Because other lending firms with lower interest rates, with the exceptions of GSIS and PAG-IBIG and until recently the private Manila Teachers Savings and Loans Association (MTSLA), have requirements that need to be submitted, resorting to the loan sharks can be a go-to move in times of desperate need (but they shouldn’t! Keep reading for other options).
As a whole, the two types of teacher loans discussed are best to be avoided by the novice teacher. These loans should be figuratively put in cases labelled “break glass in case of emergency”. It is also better to be friends than enemies with the loan sharks, however doomed you think their souls are.
With the lack of viable alternatives, one should think of them as the credit equivalent of the accessible and quick-serving fast-food chains – gives delicious servings and a quick-fix but has grave long-term consequences when consumed regularly and in great doses.
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