How to get a lending license in the Philippines

Entering the lending market in the Philippines offers exciting opportunities but comes with regulatory requirements that can be both intricate and demanding. As one of the largest emerging markets globally, the Philippines has seen its GDP increase by 7 percent over 2023 and is expected to grow 6.5 to 7.5 percent in 2024. This steady economic expansion is fueling the rise of the country’s consumer lending sector. According to Fitch Ratings, household consumer lending has been on the upswing throughout the past year, reflecting a growing demand for financial services.

However, capitalizing on this growth requires a clear understanding of the regulatory landscape. Navigating the process to secure a lending license in the Philippines involves several key steps, including meeting the requirements set by the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas (BSP) and ensuring compliance with anti-money laundering (AML) regulations.

Whether you’re a newbie lender with big dreams or an established lender looking to expand, This guide will walk you through the essential steps to obtaining a lending license in the Philippines.

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What defines a lending business in the Philippines?

Under the Lending Company Regulation Act of 2007 (RA 9474), a lending business in the Philippines is defined as a corporation that provides loans using its capital or funds sourced from no more than 19 individuals. Typically, these are smaller joint-stock companies that offer consumer loans, with many focusing on payday loans and other short-term loans with high interest rates that are in high demand.

The RA 9474 definition excludes several financial entities, such as:

• Savings and loan associations
• Banking and investment institutions
• Financing and insurance companies
• Pawnshops, cooperatives, and similar organizations

The Securities and Exchange Commission (SEC) regulates lending businesses. It is responsible for certifying and overseeing them to ensure they operate within legal and regulatory frameworks.

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Why start a lending business in the Philippines?

Starting a lending business in the Philippines offers several advantages:

Legal and regulated environment: Lending is a legal and heavily regulated sector in the Philippines. The Securities and Exchange Commission (SEC) enforces stringent regulations to ensure a fair playing field, reducing competition from illegal operators. The SEC maintains a publicly accessible list of licensed lending companies, which you can use to demonstrate your business’s credibility to potential customers.

Attractive interest rates: Despite legal limits on interest rates, you can earn up to 6 percent per month, not including additional charges.

Growing industry: The lending industry has been experiencing steady growth over the years, and this upward trend is expected to continue in the foreseeable future.

Opportunities for foreign investors: Foreign citizens can legally establish and own a lending business in the Philippines, opening up opportunities for international entrepreneurs.

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What tech stacks are required to lend in the Philippines?

As the lending industry moves beyond traditional manual processes, an effective loan management system is essential for optimizing operations, managing risks, and enhancing customer service. 

Two of the foremost providers of this technology — Loandisk and Lendsqr — offer distinct loan management solutions. Loandisk, launched in 2015, is geared toward microfinance with features like SMS reminders, basic loan tracking, and a calendar view. However, it has limits on loans and users and relies on manual risk profiling. It offers a double-entry accounting system and allows for basic integrations via API.

Lendsqr, on the other hand, launched in 2018, provides a more comprehensive platform with no limits on loans or users. It includes advanced features like Oraculi for detailed risk assessment, automated payment processing with direct debit, a myriad of high-level API integrations, and extensive customization options. Lendsqr also supports multiple channels, including web and mobile apps and offers integration with various messaging services for enhanced functionality. See how Lendsqr’s advanced features and broader capabilities compare with Loandisk.

An overview of the Philippines’ lending legal framework

Understanding the legal framework is essential when launching a lending business in the Philippines. Here’s a deeper look at the fundamental laws and regulations you need to be aware of:

Lending Company Regulation Act of 2007 (Republic Act No. 9474)

This law forms the foundation of the regulatory framework for lending businesses in the Philippines. It outlines:

• Registration requirements: All lending businesses must register with the Securities and Exchange Commission (SEC) and obtain a Certificate of Authority.
• Minimum paid-up capital: Lending companies must have a minimum paid-up capital of one million pesos (PHP 1,000,000.00).
• Foreign ownership restrictions: While 100% foreign ownership of a lending investor is allowed, foreign nationals holding specific positions within the company might be restricted.
• Interest rate caps: The law sets limits on the interest rates that lending companies can charge.
• Disclosure requirements: Lending companies must comply with the “Truth in Lending Act” to ensure transparency for borrowers.

Truth in Lending Act (Republic Act No. 3765)

This law focuses on protecting the rights of borrowers. It mandates that lending businesses in the Philippines must clearly disclose the following to potential borrowers:

• Interest rates
• Actual cost of the loan
• All applicable charges
• Payment terms and conditions
• Late payment penalties

Other regulations and laws include:

• Anti-Money Laundering Act
• Data Privacy Act
• Bangko Sentral ng Pilipinas (BSP) Circulars

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Licensing a lending business in the Philippines

Here’s a breakdown of the key steps involved in registering and licensing a lending business in the Philippines:

Choose a business name

Your chosen business name must include the terms “Lending Company” or “Lending Investor” to clearly signify the nature of your business. You must submit it to the Securities and Exchange Commission (SEC) for verification and reservation.

Pay the minimum paid-up capital requirement

The Lending Company Regulation Act of 2007 mandates that newly established lending companies have a minimum paid-up capital of one million pesos (PHP 1,000,000.00), which must be deposited in a bank account under the business’ official name. Proof of this deposit is required by the SEC during registration.

Prepare your articles of incorporation and by-laws

The articles of incorporation outline your corporation’s basic information, such as its name, purpose, duration, principal address, capitalization, and the names of the incorporators and directors. By-laws set out the internal rules for operations, covering areas like shareholder and board meetings, officers, and conflict resolution. It’s advisable to seek legal assistance to ensure both documents are accurately drafted and meet legal requirements.

Register with the Securities and Exchange Commission (SEC)

To complete the formal registration process, ensure you are prepared to pay the necessary registration fees to the SEC and submit the following essential documents to the SEC:

• Articles of Incorporation and By-Laws
• Notarized Treasurer’s Affidavit (verifying the paid-up capital)
• Statement of Assets and Liabilities
• List of stockholders, directors, and officers (with their Tax Identification Numbers)
• Bank certificate (confirming the paid-up capital deposit)
• Clearance from the Bangko Sentral ng Pilipinas (BSP)
• Any additional supporting documents required

Obtain a certificate of authority from the SEC

Registering your lending company with the SEC establishes it as a corporation, but you must submit a separate application for a Certificate of Authority; the SEC will then review your application and supporting documents to ensure compliance with the Lending Company Regulation Act and other relevant regulations, and upon approval, will issue the Certificate of Authority, officially licensing your business to offer loan services.

Register with other Government agencies: You must also register your lending company with the following government agencies:

• Bureau of Internal Revenue (BIR): To obtain tax identification numbers and handle tax obligations.
• Social Security System (SSS), Home Development Mutual Fund (HDMF or Pag-IBIG Fund), and PhilHealth: To enroll your employees in social benefits programs.
• Local Government Units (e.g., City Hall, Barangay): To acquire the required business permits and licenses at the local level.

Ready, set, go lend!

Getting a lending license in the Philippines might feel overwhelming, but it’s a necessary step to enter this fast-growing market. It’s a bit like getting your paperwork sorted before starting a new job. It is important and sometimes tedious but essential for success. By understanding and following the requirements, you’re not just ticking boxes but setting up your loan business to thrive and serve your future clients better. It’s all about ensuring you’re compliant and ready to make a real impact. With the right approach and patience, you’ll be on track to turn your loan business vision into reality. Start here