A study by PayNXT360 forecasts a surge in the digital lending in the Philippines, expecting a substantial growth trajectory to reach US$931 million by 2027.

The surge of fintechs in the Philippines has become a game-changer for consumers and business owners alike. A report published in August 2023 revealed that the growth in consumer credit services is driven by the payments and transfers segment with a 17.6% increase this year following the adoption of fintech services such as e-wallets, digital banking, and digital investments. The findings indicate the progressive movement toward the “fintechisation” of digital lending in the country.

As technology continues to reshape financial landscapes globally, a recent study projects an unprecedented upsurge in the digital lending sector in the Philippines.

A study by PayNXT360, a research and consulting firm based in the United Kingdom, United States and India, forecasts a remarkable surge in the digital lending (alternative lending) landscape in the Philippines. It anticipates a substantial growth trajectory reaching a staggering USD 931 million (or almost PHP 52 billion) by 2027.

The analysis foresees an annual growth rate of 33.6%, propelling the market to reach USD 448.8 million in 2023. This robust growth trajectory is expected to continue steadily, demonstrating a compound annual growth rate (CAGR) of 20% from 2023 to 2027.

The report has emphasized the strong medium to long-term prospects for alternative lending adoption in the Philippines. Fueling this expansion are the escalating demand for credit among consumers and a high percentage of unbanked individuals within the country.

Fintech and the Digital Lending

One of the outstanding trends driving this surge is the rapid adoption of digital lending applications, particularly among the younger demographics. Fintech startups like Salmon and established entities like Tonik have launched innovative lending products aimed at catering to the credit needs of unbanked and underbanked customers.

Salmon, a fintech startup, recently announced its foray into the lending sphere, unveiling a point-of-sale lending service in partnership with 30 merchants. Similarly, Tonik, a key player in the fintech space, introduced Flex Loan and Big Loan in November 2022, designed to offer diverse lending options. Flex Loan enables consumers to make purchases without collateral, whereas Big Loan functions as a home equity loan.

“High percentage of unbanked population, coupled with the growing demand for credit amid the current macroeconomic environment, has resulted in more and more consumers turning to alternative lending providers in 2022,” says PayNXT360 in the report.

The competitive landscape in the Philippines’ alternative lending sector is set to intensify further, attracting foreign players seeking expansion into the Southeast Asian region. This rise in competition is anticipated to propel digital banking transformation forward, fostering the industry’s expansion in the upcoming five years.

Impact on MSMEs

The alternative lending market in the Philippines is poised to have a significant impact on micro-, small-, and medium-sized enterprises (MSMEs). In fact, according to a 2022 study by the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School and the Asian Development Bank Institute (ADBI), the benefit is evident in terms of net profit, revenue, employment and performance.

“Most MSMEs reported that the financing had a positive impact on their business, primarily through increased productivity and an expanded customer base,” the study said.

Amid the rapid growth of alternative lending platforms, MSMEs stand to benefit from enhanced access to credit, a crucial factor often limiting their growth potential. These platforms cater to segments traditionally overlooked by conventional financial institutions, providing an avenue for MSMEs to secure funding without stringent requirements or extensive credit histories.

Further, the diverse funding sources brought on by the emergence of alternative lending platforms enables MSMEs to explore additional avenues beyond traditional bank loans. This minimizes dependency on a single funding source, providing MSMEs with a broader spectrum of financial options to fuel their growth and expansion plans.