Dangers of Lending Money to Your Filipinas Family. What Could Go Wrong?

[MatureDJ]

https://www.youtube.com/watch?v=pzc15tFw9Ds

[MrMan]

What's the worst that can happen? You lend and don't get it back. If you lend to your in-laws from a developed country, just think you are probably giving it away.

We've invested, actually, in little things for family and friends and acquaintances in Indonesia. With family, we've never gotten a positive return. With an aunt, we lent some amount, say $3000 or something like that to plant a field of peppers on the farm, then get $2500 back.... not return, but at a loss. She said it rained too much. Years later, I learned peppers do not need to be replanted the next year, and she didn't give us a return on it during a subsequent year. Her son in law was telling us a high yield investment shipping the seeds for palm oil. Maybe we should have done it. He had someone who could testify that he'd paid off an investment early.

We invested in fish ponds at a house that is actually my wife's where her sister lives. Our brother-in-law just lost interested in trying to raise the fish with the market was flooded with fish. No follow through.

We bought an in-law a motorcycle with a delivery platform attached. I think he sold it for drugs. They say only users lose drugs. Some of them will lose motorcycles also.

We've got some investments through friends and acquaintances. One we have been waiting on for years. He's supposed to finally pay in a few days, not really the return on the investment, but just paying us back for not finishing up the deal I guess on a troubled land deal. He might give us both jobs over there, maybe enough to draw me away from my potentially 'cushy' safe-sounding job in the US, back to the adventure of Indonesia. We'll see if the payment comes through. We've actually gotten a lot more money through this guy than we lost, so I don't feel that bad about waiting for years for this investment to return.

You've got to be willing to take a loss, especially with family. If I do a real investment with relatives, someone has to really monitor it. There need to be some specific calculations. My wife had a cousin who lived in the city, an Indonesian also, who talked about the same issues when doing deals with relatives back on the farm at the ancestral village. There have to be some really specific metrics used, and it has to be explained. I should probably treat it more like social impact investing, but with some thought-out business metrics, rather than charity, and maybe these things would be more successful and more relatives would invest.

[Yohan]

There are some 'golden rules' you have to consider when you as a Western foreigner try to live with a woman from Thailand, Philippines or similar destinations.

1 - Never expect anything in return, whatever you give to somebody - consider it as lost from the very beginning on.

2- Never transfer all your money into such developing countries, always keep an escape route open for you, either to move on to another country or to move back to your own native country. Keep a good part of your money in your own country in Europe, Japan, USA etc. etc.
In case of serious trouble, just leave immediately. Do not overstay your visa, do not work without permit etc.

3 - In case of buying some property as a foreigner, never sign anything what you cannot read, and if your name is not in the land title, you own NOTHING. Never believe what the relatives tell you or promise you - consult a lawyer alone, without any relative coming with you.
There are often restrictions, foreigners cannot buy everywhere and any kind of house/land in their own name.

4 - Listen to overseas Filipinos, Thais etc. - they will tell you similar stories.

I know about horror stories, but often I have to say, the foreigner who lost all what he had is also responsible for his own mess.

The worst stories in Thailand what I remember from Thai news were 2 foreign men, cheated out of 80 million baht and 60 million baht.
Both of them had not even enough money to pay for their return flight....
80 million baht is approx. USD 2.3 million for constructing a palace in a rural area for his girlfriend, after he had no money anymore, he was kicked out and nothing - neither the land, nor the huge building on it was in his own name.

I know also plenty of small loss stories personally, not only from the Thai news, like a bargirl (my bargirl is different) asking her foreign boyfriend for more money, (I promise to live you forever) which he refused, so she was asking him to buy her a motorcycle and he did it in HER name. Next week she was gone, the motorcycle was given to a pawn shop....

[publicduende]

@MrMan, @Yohan

There's a problem I see with "helping family and friends" in countries like Indonesia or the Philippines. Most of this "investment money" ends up benefiting neither party.

See, if I lent $3,000 or $5,000 to, say, my wife's cousin, knowing that he would start a successful business and get a steady income out of it, or at least a steady benefit (like a supply of fresh fruit or fish every month), I would be more than happy to expect no personal return. The fact that I managed to improve the life of a loved one would be a reward in itself.

The issue I take is with the fact that, invariably, these "investments" end up fuelling the person's worst bad habits, or vices. In the best case scenario, a half-baked attempt to set up something profitable ensues, only to fail miserably due to the simple fact that...most of these people have zero business skills, zero common sense. Let's also add that having easy money from someone else, without having poured blood and sweat for it, is massive moral hazard: this "family and friends" will feel entitled, encouraged, even, to spend this money on Ponzi schemes and very dubious investment schemes. After all, they say, I am not putting any of my skin: if the deal is as good as they say, here's a fat return for me. If it's not, no loss, it's not my cash!

All the above is why, after so many disappointing attempts, I have stopped helping. The only exception is a small woodworking and furniture making business, which I started with the sole purpose of helping a deserving family I know. And even for this one, after investing more than $40,000 on renting and fitting out a workshop, equipping it with decent machinery and tools, and buying plenty of mahogany for these 2 guys (dad and son) to experiment with (all at my expense!), I had to "take the wheels off" and threaten to abandon the business if they didn't get their shit together.

Then the unexpected happened: I was brutal, they spent two weeks scrambling for Customers, working as hard as they should have done from day one (after all, it's *their* business, I kept saying), and they found a first one, then a second. They now have a pipeline full until March, they even built some furniture for some famous movie director, and I told them that they can keep all the profits. Finally, they're getting the memo that working hard as businessmen is more lucrative than being labourers doing minimal work for minimal wage.

By the way, not sure if it's the same in Indonesia, but this is exactly why the Filipino-chinese community in the Philippines is, on average, far more successful and wealthy than Filipinos of native ancestry. They might be an unpleasantly cynical, pragmatic and materialistic bunch. But, like most Chinese around the world, boy if they know the meaning of working hard for their businesses and saving to improve and expand them.

[MatureDJ]

Do not overstay your visa, do not work without permit etc.

I was reading that in Singapore, if you overstay your visa, you could get CANED!

[Yohan]

@MrMan, @Yohan

There's a problem I see with "helping family and friends" in countries like Indonesia or the Philippines. Most of this "investment money" ends up benefiting neither party.

.....

All the above is why, after so many disappointing attempts, I have stopped helping.

I agree I saw a while ago a report from a charity which tried to help poor people living in slums in the Philippines with some money and goods to open a small shop or doing some work paying for their tools etc...

The result was that 99 % of these actions ended in failure within 2 or 3 years out of various reasons. All gone - Just a waste of time and money.

-----------

Personally, I was lucky. I was helping a mistreated and very sick girl from Mindanao out of poverty and she is always grateful to me - she is now 29, living in Cebu, married, reasonable job and still keeps very frequent contact with me.

I am also still in frequent contact with a former co-worker from Philippines since more than 30 years and he is also retired now and I visited him in his home city Bolinao, neither he nor other family members, despite quite poor when I met them the first time, were ever asking me for anything.

[publicduende]

I agree I saw a while ago a report from a charity which tried to help poor people living in slums in the Philippines with some money and goods to open a small shop or doing some work paying for their tools etc...

The result was that 99 % of these actions ended in failure within 2 or 3 years out of various reasons. All gone - Just a waste of time and money.

The way I see it, it's all about giving cash in the hands of these men or women after, and I mean ONLY AFTER, giving them some basic business education.

Most Filipinos are totally oblivious of the steps to take to start a business, let alone make it sustainable, let alone make it successful. Of course new businesses do pop up and thrive. Yet, I have the impression is that they are all, inevitably, created by the well-educated elite...sons or daughters of established businessmen who have both the education (private universities, often abroad) and the capital to start.

Yes, there are a few cases of self-made entrepreneurs but, from what I could see, most businesses are born out of elite and wealth and trade with other businesses born out of elite and wealth. The "masa" (majority) is only ever accounted for as a market and a source of labour for menial to non-executive positions.

Filipinos know this and avoid feeding the poor with opportunities. The few who do, the odd foreign individual or organisation, are in for a surprise.

Personally, I was lucky. I was helping a mistreated and very sick girl from Mindanao out of poverty and she is always grateful to me - she is now 29, living in Cebu, married, reasonable job and still keeps very frequent contact with me.

I am also still in frequent contact with a former co-worker from Philippines since more than 30 years and he is also retired now and I visited him in his home city Bolinao, neither he nor other family members, despite quite poor when I met them the first time, were ever asking me for anything.

Ah, your famour foster daughter. I have to say, you have been indeed lucky with her because I can think of half a dozen typical outcomes after your tender for help. She could have gotten your cash pretending to use it to pay her college tuition, when in fact she would be spending it to drink with her friends. Or her family would have seized that money with the excuse of "managing it" and then diverted on other expenses. Or she would have ended up with an abusive "bf" who kept the money, etc.

Not to diminish your effort in helping her and the moral reward that came out of it. It's just that I have come to conclude that, with the very few outliers of the case, a poor yet smart and ambitious kid will find ways to get out of poverty and succeed in life anyway, even without external support.

University of the Philippines is a decent university and has thousands of full scholarships for deserving students of any background. Kids who come from poor background yet are smart know that their best shot is to get good grades and enter UP, rather than go to one of the many useless diploma factories posing as colleges and then complain because they have to give up because they ran out of money, or their TAs won't let them pass unless they sleep with them.

[MrMan]

One thing to keep in mind is that saying, 'Only users lose drugs.' Well, they will lose money too if you invest in something to help them out.

My wife had an idea for the sister-in-law we invested in fish tanks for. She sells stuff at a kiosk at a bus station. My wife suggested she sell 'oleh-oleh'-- the local snacks that people visiting a place take back home and to the office for family and friends to eat. If you go to one city, you take back dried fruit. There are certain cakes you take back from another city, and other places you just get fresh fruit. The bus station is actually a good place to sell that. But there was flooding recently, which messed up what they had started doing. We will see if they can work it out.

Back 15 years ago or so, microfinance was being touted as a solution to poverty. Muhammad Yunis believed that poor people knew a way to make a buck if they had some capital. So people were lending out money to people. One of the problems with nonprofits that lent out microfinance funds is that poor people usually do not know how to run businesses if they have no background in it. But if these charities coached them, then the borrowers might feel like their coaches shared in responsibility if they did not succeed and did not feel as obligated to pay them back. Another thing they do is have meetings and build a group and community among borrowers to help them feel more of a sense of responsibility to pay back. Telling them the money they pay back goes to help someone else can help.

In Sri Lanka, microfinance has a bad name because private lenders were doing it at very high interest rates.

I think investing together with someone in a small business, along with coaching, could be a successful model. If you do business with in-laws, give them tasks that they can understand.