Meet Ate Rosa, a sari-sari store owner in Parañaque. For years, she’s worked tirelessly to keep her small shop running, selling canned goods, rice, and snacks to neighbors who rely on her store for their daily needs. But every month, Ate Rosa faces the same struggle: she doesn’t have enough capital to restock her inventory, and with no financial records, banks refuse to lend to her. Desperate, she turns to informal lenders, agreeing to sky-high interest rates just to keep her business afloat. The cycle is relentless: every peso she earns is swallowed by repayments, leaving her trapped in debt with no way to grow her business or improve her family’s future.
Ate Rosa’s struggle is one that millions of Filipinos know all too well. It is no secret that financial literacy is a pervasive problem in the Philippines. Over 58.5 million Filipinos, which is more than half of the country’s population, lack access to proper financial education and training, making it a daily challenge for them to manage their finances effectively. This gap is largely driven by limited financial education in schools and a lack of accessible training programs. In 2022, the Bangko Sentral ng Pilipinas cited a global financial literacy study by Standard & Poor’s (S&P Global Ratings), stating that only 25% of Filipino adults are financially literate, placing the country among the bottom 30 of 144 nations. To address this gap, the Department of Education has integrated financial literacy into the K to 12 curriculum, while Senate Bill 479 seeks to mandate economics and personal finance courses across all educational levels. These efforts aim to improve financial literacy rates and equip Filipinos with better financial decision-making skills.
However, limited financial literacy is only one side of the problem. Micro, small, and medium enterprises, which make up 99.5% of businesses in the Philippines, struggle to secure loans due to stringent collateral requirements, high interest rates, and bureaucratic lending processes. Many traditional banks have steep minimum loan amounts, burdensome documentation requirements, and interest rates ranging from 12% to 30%, making formal borrowing inaccessible for small business owners who lack substantial assets or credit history. Without access to affordable credit, many entrepreneurs are unable to expand their businesses or even sustain day-to-day operations, forcing them to turn to informal lenders.
This lack of financial awareness and education has created a fertile ground for loan sharks, commonly known as "5-6" lenders, to thrive. These informal lenders offer quick, unsecured loans—often without requiring collateral or documentation—but at exorbitant interest rates. These predatory lending practices can trap borrowers in cycles of debt, as the high interest and frequent repayment schedules strain their financial resources. Access to formal credit is extremely limited in the Philippines, especially for low-income individuals and micro-entrepreneurs. A significant barrier is the lack of reliable credit data repositories, which hinders lenders' ability to assess creditworthiness and make informed lending decisions. This gap in financial infrastructure, combined with limited financial literacy, forces many Filipinos to turn to informal lenders. According to the 2021 Bangko Sentral ng Pilipinas (BSP) Financial Inclusion Survey, 14% of adult Filipinos with outstanding loans borrowed from informal lenders, including loan sharks.
Thus, despite their exorbitant interest rates, these lenders remain the only lifeline for many Filipinos in urgent need of cash. With no access to formal credit, borrowers are left with little choice but to accept exploitative terms, often plunging deeper into debt with each cycle. This financial vulnerability not only traps individuals and families in poverty but also reinforces systemic barriers that prevent upward mobility, keeping millions from achieving long-term financial security. The tragic reality is that many Filipinos are unknowingly caught in this cycle of debt that feels impossible to escape. This points us to a deeper, systemic issue: the need for inclusive financial services that can offer a safer option for those left behind by traditional banking systems.
This is where Datung comes in.
Datung, co-founded by Kasper A. Svendsen, Charan Uttamchandani, and Lakshay Badlani, is tackling one of the biggest barriers confronting MSMEs in the Philippines: access to credit. By building smarter ways to assess creditworthiness, they are creating an alternative credit scoring system that looks beyond traditional financial records. Their AI-driven approach analyzes key business metrics, alternative data sources, and even in-person credit investigations to get a clearer picture of a borrower’s ability to repay. This allows them to offer fairer financing options to business owners who have long been overlooked by banks. With an estimated $221 billion MSME financing gap in the Philippines, unlocking capital for this sector isn’t only about financial inclusion but presents a market opportunity as well.
Beyond their adoption of innovative credit scoring methods, Datung introduces a hybrid lending model inspired by community-based microfinance. Small groups of businesses, otherwise known as Joint Accountability Groups, are brought together in pods of 3 to 10 people to ensure collective accountability. Leveraging an innate Filipino trait of “bayanihan” as a risk mitigation tool, this structure increases the incentive fort group members to help each other maintain good standing by sharing responsibility for any defaulting borrowers within their group. This peer-driven model is paired with financial literacy training and assessments before loan disbursement to empower borrowers and improve loan repayment rates.
While the challenge of financial literacy remains daunting, Datung proves that access to fair credit doesn’t have to be limited to those with traditional financial records. By building a new way to assess creditworthiness – one that looks beyond banking history and incorporates real-world business performance and alternative data – Datung is giving MSMEs a fighting chance. Unlike traditional lenders that rely solely on financial statements or credit scores, Datung’s AI-driven model combines data-driven insights with in-person assessments, ensuring that even cash-based businesses and first-time borrowers aren’t automatically excluded.
This approach is a game-changer in a market where rigid banking requirements have historically locked out millions of business owners. By combining technology, trust, and a deep understanding of informal economies, Datung is creating a sustainable alternative to predatory lending, offering real financial mobility to those who need it most.
This investment aligns with Kaya’s 2025 investment theme of “Embedded Credit”, where we seek to back high-impact ventures tackling credit gaps across different customer segments with novel and scalable lending solutions. Datung represents exactly the kind of foundational infrastructure investment needed to chip away at the MSME credit gap, as they build a system where small businesses aren’t just assessed at face value and taken advantage of for short-term gain, but where value creation and service orientation lie at the heart of their lending model. At scale, we see Datung enabling thousands of entrepreneurs to access fair, transparent financing, fueling job creation and economic growth in one of the most underserved segments of the market. Our ambition is to help turn Datung into a key pillar of financial inclusion in the Philippines, where safe and fair credit can become the norm. We’re proud to partner with them on this journey.
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Written by Gabrielle Rodriguez at Kaya Founders, Illustration by Patrice Lecaros
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