The 5-6 Problem.

When I first arrived in Manila as part of my job relocation from India to Philippines, friends and colleagues quizzaciously called me 5-6 once or twice. At first I didn't care and thought they are probably referring to either the average height or "length" (if you know what i mean) of an Indian man.

A few months later I was celebrating my birthday on 2nd of May last year, at a resort in Nasugbu, Batangas. I was in the pool with my glass of whisky watching the match of the century Pacquiao vs Mayweather Live! Of course I was supporting Pacquiao and shouting c'mon Pacquiao when another guest at the resort gave me a dirty look and said "YOU 5-6". I was offended by the way he said it and after the match I was standing next to a couple of ATVs and was planning on renting one for the day when I saw that man again and I smiled at him and said hello. He looked at me and said hello back with a poker face and asked me a question, you do 5-6? To which I said, No! I don't know what 5-6 is, he smiled, sat on the ATV and disappeared.

Few days later I was in the smoke zone and someone from work said the words 5-6 again and now I was really interested in learning what it's all about and why the hatred towards my people. So I asked and looked around and here's what I saw and experienced.

4 AM on a Friday the wet markets of the city are open for their customers. Vendors selling a variety of things from different parts and provinces of the Philippines. Endless chains of sausages, tables laden with the freshest seafood, baskets filled with exotic fruits, mountains of rice. Many small and big restaurants buy their daily supplies from these wet markets as they are 3 times cheaper in comparison to any hyper or super market.

Friday mornings are usually overly crowded as people shop for the weekend and weekend is a big deal in the Philippines.

By 8 AM most of the vendors at these markets would have sold 70% of their merchandise and made a healthy profit for the day. Of course they're gonna stick around till the end of day but it is the initial 4 hours from the time the market opens and before everyone start heading to work when the business is booming.

As the noises of people shouting "magkano" slowly fade away, the noise of automobile and traffic is all that is heard and in the midst of the pollution and smoke from the 1975 Jeepneys and old broken Tricycles, you see Indian men usually with their turbans and beards riding on a motorcycle approaching the markets. Almost every vendor in the market, the traffic enforcer outside and the security guard at the entrance recognize these men from a distance and greet them with a smile though they hate the sight of them.

These men are called the "Bumbay" aka "5-6", they are moneylenders in a lot of cases operating illegally, who Filipinos see as Loan Sharks. Why? because of the high interest rate which can range from 10% to 30%.

Two types of 5-6 financiers are found in Philippines public markets, each with a distinctive lending mechanism, Filipinos and Indians. Yes, there are Filipino 5-6 financiers too! 90% of them are Filipinas (women).

Five-Six so-called because of the manner in which they lend, five-six (5-6) moneylenders charge a nominal interest rate of 20 percent over an agreed period of time. A person who borrows 5 pesos from a 5-6 moneylender over a period of one week repays 6 pesos, including 1 peso interest. 

The time spent on daily collection visits provides the lender an opportunity to assess the whether the client will pay daily without delay and in what manner. Upon receipt of goods, some clients insult, malign, or shout at the “Bombay” 5-6 when he comes to collect. When this happens, especially with a first-time client, the Indian lender is often quiet and tolerant. He tells the client that he will come back the next day. 

A customer who does not want to pay the Indian 5-6 usually hides. She asks her storekeepers or neighbors to “Tell the ‘Bombay’ we are not here,” and when he comes back the next day, they say the same thing. Though the moneylender may be aware that the borrower is at the back of the store, he cannot do anything but return the next day. If the borrower’s store is located along his regular route, the lender tries to visit every day for one or two months. If the borrower still does not appear, the lender gives up. 

From the moneylender’s perspective, it is important for them to maintain a good image and relationship with others, it is good for the business. I spoke with one of them and this is what he had to say: “We are becoming beggars. Before giving money, we are good to them. Once we lend the money, we are bad to them. We have to have patience in collecting.”

But I am not here to explain how this business works nor am I going to write about the difficulties the lender or the borrower goes through in these transactions.

I am here to ask bigger questions and conduct a high level root cause analysis and understand the potential points of failures in the socio-economic life styles of Filipino people that created this opportunity for moneylenders or loan sharks (whatever you like to call them) to do business here.

Let us understand somethings before we begin, the lack of money is the root of all evil. Today, globally people spend completely unnecessarily on things they want but they really don't NEED them.

The Love that we've developed for things over the last decade, thanks to the smart-asses with a MBA in Sales & Marketing, they have created this idea that we want that fancy phone and those two bags and that watch and those branded shoes and perfumes. But, think about it, you really didn't need them but you wanted them. 

One of the most basic concepts of economics is want vs. need and Psychology tells us that we always want more than we actually need. This is a universal behavior and it is found in almost every person on this planet however some can control their urge to spend and wait for the right time or a sale, while most of us have becomes slaves to their ego and aren't willing to wait or save up before they make that dead investment.

You wished and hoped you had that iPhone 6 and as soon as you got yourself a job and an unexpected 13th month pay or an incentive the first thing you did is got yourself that phone you always wanted but you really didn't need it and to be honest with the exception of the initial satisfaction or the sense of achievement that you got the phone you wanted nothing else really changed, after a few weeks it's just another phone and you're probably thinking about what features iPhone 7 has, let me tell you something, you don't NEED it.

As of 2015 an average house hold in the U.S has a $15,000 credit card debt. 

	Total owed by average U.S. household carrying this type of debt	Total debt owed by U.S. consumers
Credit cards	$15,762	$733 billion
Mortgages	$168,614	$8.25 trillion
Auto loans	$27,141	$1.06 trillion
Student loans	$48,172	$1.23 trillion

What is the difference between a Bank and a illegal moneylender? Nothing! Except an Air-conditioned branch office and a customer care toll free number...

I have not met, heard or even read about one person who never borrowed from anyone... We all do and sometimes that is the only option and it is absolutely fine to do so however borrowing should be the last resort and only be done when nothing else is going to work.

Having said, I want to talk specifically about the spending habits of the people of the Philippines. Well, you all know that you spend a lot, I mean a LOT! And most of you are always paying back your debt as soon you get paid and you have no money left and you borrow again and you payback. You my friends are stuck in this infinite loop of borrowing and paying back and if there is any one responsible for putting you in this situation it is you yourself.

Of course you know where you went wrong, you could not afford that Laptop or Videoke Box, but you got it, you fell short on your rent and utility bills but you wanted that phone or that bag or whatever that you got for yourself that thing that you didn't need. Yes, that one!

It is not the purchase that is costing you, it is your decision to intentionally default on some other more important expenses that you had to take care of but you did not. That is exactly what put you in trouble and you may have regretted it but it was too late.

Although I may sound like I am asking you give up on the things that make you happy and become a Monk and live a simple life but I am not saying that. There is a difference between "Dead Money" and "Material Wealth". Here's an example of this, a rose gold iPhone is dead money but a 22 Carat Gold ring with a 4 carat diamond is an asset. Just so you know they both cost almost the same, in fact the ring is actually a few thousand pesos cheaper than the phone.

Kin Hubbard an American Journalist who died in 1930 once said "The safest way to double your money is to fold it over once and put it in your pocket." but that is not completely true anymore this is 2016 not 1930, in the last 86 years a lot has changed. In my opinion the first law to get rich is save the second is to save a little more and the third is to invest it wisely.

The socioeconomic problem of this country or any country are not the high interest rates on loans or credit cards, it's not the banks, moneylenders or loan sharks. The problem really is the spending habits and we want better things because we want to look good in the eyes of other people.

Will Smith says "Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like." And that is basically everyone's problem.

As the saying goes "Necessity is the mother of all inventions", when you don't save and spend without thinking you create the opportunity for someone to become a lender and turn yourself into a borrower. It is a fact that lenders usually dictate terms that are unfair and deceptive but guess what Beggars can't be choosers and you can't steal from Paul to pay Peter all the time.

You created this mess for yourself and there is nobody else to blame. Indians are extremely good at numbers but they are better at opening the door when the opportunity knocks and that is exactly what they did. Your need is seen as a business opportunity and we don't hesitate in grabbing that opportunity. It is not just us, everyone does that, let me give you an example, you need a nice place to spend your weekend with your friends and family and you need it to be air-conditioned, Henry Sy saw that as a business opportunity and made SM Malls, now you spend your weekend over there and you eat at Jolly-Bee or go to Starbucks or some other place and that is Business, so is 5-6.

And here's another thing you need to keep in mind, this has nothing to do with the Nationality. If it wasn't the Indians it would have been the Chinese, Korean, Vietnamese, Japanese, Malay or someone else who would do 5-6 or probably 4-7 for all you know, and they can do it because you are giving them a Business opportunity. They'd be fools if they don't take it and you'd have nowhere to go too...

There is a proverb in my country, "Sabb ganda hai, parr dhanda hai yeh!" means "It's dirty but that's business."

In conclusion my friends, don't blame Indians for 5-6, cut down on your expenses, get what you NEED not what you want and SAVE.


References:
Growth: The Philippines and Thailand. Kuala Lumpur: Oxford University Press.
Paralkar, R. 2000. The World Bank’s Role in the Fight Against Poverty in the Philippines. Washington, D.C.: World Bank.
Economic Crisis: Policy Choices, Social Consequences, and the Philippine Case. New York: Asia Society.
Wikipedia
Image Courtesy: GMA Networks