The UnionDigital Bank Inc. sees a huge business and social opportunity in introducing a sachet loan product—“high-frequency lending” as executives call it—in the Philippines.
UnionDigital CEO Henry Rhoel R. Aguda told reporters at the “Singapore Fintech Festival 2023” last week that the company, the digital banking unit of Unionbank of the Philippines, will launch the “configurable” loan product in 2024. The product will target micro-entrepreneurs that typically fall victim to loan sharks, or what is colloquially called “five-six,” Aguda said.
“We’re moving to more frequent lending and shorter tenors,” he said. “Imagine a day where you want to borrow, you can say that you only want it for six weeks and you want to pay for it weekly. We want to make it configurable.”
The service will be introduced in the UnionDigital app in 2024. Aguda said it will allow borrowers to configure the tenor of the loan based on their capacity to pay—from weekly to as short as a day.
UnionDigital Bank Chief Commercial and Revenue Officer Mike Singh noted that the mass market will benefit from being “included” in the financial system through the high-frequency loans.
“As opposed to a 20-year mortgage, a five-year auto loan, the mass market lives day to day,” he said. “They want to know: how can I put food on the table at the end of the day? It’s the same thing with lending. It’s all about: how do I meet my needs this week?” These include typical Filipino households, sari-sari store owners, wet market vendors, fisherfolk, and farmers.
“For instance, you are a vendor that needs money to buy some fish in the fish market to sell in the afternoon. And you need to take out a loan. [With this product] you can take a loan in the morning and pay it off in the evening,” Aguda explained.
Borrowers can take out micro-loans of P500 and the interest rates will be determined by the bank’s artificial intelligence solution that calculates risk based on alternative data and spending patterns.
The UnionDigital executives believe that there is a huge business in the said product, with rates “slightly above credit card rates.”
They added that there is also a social implication as this could help include more Filipinos in the financial systems —beyond savings.