THE adverse impact of the Covid-19 pandemic has spilled over to 2021. The Philippine economy has fallen into a deep recession. The key economic sectors like services and Industry continue to suffer. Many businesses find themselves struggling to stay afloat. Unemployment and underemployment levels remain high.
All of these developments imply a strain on the personal finance situation of many Filipinos. Making ends meet becomes more challenging to achieve. In the context of the “New Normal,” what can be done?
In tough times, the value of having an emergency fund proves to be highlighted for an individual or a business. The emergency fund is money that is put into a liquid instrument, which is used for emergencies such as those related to poor economic conditions.
Ideally, the emergency fund is equivalent to around six months or 1-year worth of the monthly lifestyle expenses of a family. However, since the effects of the pandemic have been lingering, it is therefore possible that the emergency fund may simply not be enough.
If the situation can be bad for those who have an emergency fund, then it can even be worse for those who do not have an emergency fund. Hence, borrowing may really be the interim solution to deal with financial challenges. In the Philippines, popular sources of loans will be the banks. However, banks have standard “know-your-customer” programs that try to determine credit-worthiness of loan applicants. Thus, not everyone may qualify for a loan due to stark differences in financial conditions and credit history.
In the Philippines, if the banks will not be able to provide loans, citizens can still borrow as there are various available alternatives. One example would be government agencies. One such government agency is the Social Security System (SSS).
The mission of the SSS is to manage a financially-stable social security system, which shall promote social justice through savings and provide meaningful protection and exemplary service to members and their families. Part of the services would be the provision of loans.
A cash loan can be granted to an employed member or to a currently-paying self-employed or voluntary member. The loan is meant to meet short-term credit needs; 1-month loans and 2-month loans are provided. For 1-month loans, the borrower must have 36 monthly contributions with six of which having been posted in the last 12 months prior to the month of application. A 1-month loan is equivalent to the average of the member’s last 12 monthly salary credits or the amount applied for, whichever is lower.
For 2-month loans, the borrower must have 72 monthly contributions with six of which having been posted in the last 12 months prior to the month of application. A 2-month loan is equivalent to twice the average of the member’s last 12 monthly salary credits posted and rounded to the next higher monthly salary credit or the amount applied for, whichever is lower. An interest rate of 10 percent is charged per annum until fully paid based on diminishing principal balance and shall be amortized over a period of 24 months.
The applications can differ among employed members, self-employed members and voluntary members. In the case of employed members, applications can be done through the SSS website and the loan application must be certified by the employer. In the case of the self-employed members and voluntary members, applications can also be done through the SSS website and also through the various SSS branches. Online applications prove to be practical especially given the reeling effects of Covid-19.
When the economy is not in good shape and the personal finance situation of Filipinos would be adversely affected, income streams and assets might not be enough to meet living expenses. In this light, debt can be an option to bridge the gap. Hopefully, the loan is used wisely so that financial recovery is achieved.
Gemmy Lontoc is a registered financial planner of the RFP Philippines. To learn more about personal financial planning, attend the 90th RFP program this June 2021. To inquire, e-mail [email protected] or text <name><e-mail> <RFP> at 0917-6248110.
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