Fintech Unlocks Financing Opportunities for Filipino Tricycle Drivers

Tricycle drivers are self-employed workers belonging to the micro, small, and medium-sized enterprises sector. Photo credit: ADB.

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A financing scheme using Internet of Things gives tricycle drivers access to credit without collateral and promotes discipline in loan repayments.


The tricycle is a three-wheeled vehicle popularly utilized by people in the Philippines for short distances. It is a motorcycle with a sidecar although there are increasingly single-unit tricycles on the road as well, including a few battery-powered types.

Tricycle drivers typically belong to low-income groups and to the micro, small, and medium-sized enterprises (MSMEs) sector as self-employed workers. They have little access to formal financial services and survive with small daily earnings from a community-based transportation business.

Breakthroughs in financial technology (fintech) can help low-income people to start a new business, improve their living standards and social welfare through increased income, and potentially support the development of local economies by enhancing financial inclusion.

A study published by the Asian Development Bank (ADB) examined the fintech loan program for Filipino tricycle drivers that was marketed by Japanese fintech solution provider Global Mobility Service. It assessed the new financing scheme’s impact on a driver’s well-being and on regional economic development in general.

The ADB study was conducted in cooperation with Global Mobility Service and the tricycle operators and drivers’ associations in the Philippines.

Impact of Fintech on Drivers’ Welfare

The new loan program uses Internet of Things (IoT) technology to reduce moral hazard and to enforce loan repayment. The technology also enables tricycle drivers to access auto financing without collateral.

The scheme uses a remote control IoT device that can safely deactivate the motorcycle engine should the driver fail to repay on time, giving a clear incentive to repay the loan on schedule. With this IoT device, the fintech firm (lender) can significantly reduce the cost of monitoring borrowers by tracking relevant data through the global positioning system (GPS), such as distance traveled by the tricycle, time traveled, battery information, speed, and engine oil level. These data provide insights into the drivers’ work behavior and help the lender lower the risk of nonpayment.

The baseline survey received responses from 2,487 tricycle drivers, consisting of conventional drivers and fintech drivers.

The study found that fintech drivers have more risk appetite, more rationalized working hours, and earn much higher incomes than conventional drivers. They have relatively better access to financing sources and have good financial plans and goals but face large loan repayment obligations.

Debit card bank account ownership is higher among fintech drivers, but credit card and mobile banking as well as online shopping are rare. They have a savings habit but mostly use cash kept at home and at informal savings groups.

The study’s regression analysis also indicated that fintech loans stimulate drivers’ work habits with more work-days per week, higher overall income, and improved money management with financial goals, and these create a savings habit for business operations.

Overall, fintech drivers are more disciplined financially and behaviorally despite having slightly lower cognitive skills than conventional drivers and low education level. This suggests that the Global Mobility Service fintech program has been successful in selecting their clients and/or the program nurtured "discipline."  This merits further investigation to uncover mechanisms of this fintech scheme.

Challenges to Maximizing Fintech Benefits

While fintech loans would drive more people to open bank accounts, the burden of loan repayments reduces the incentive to borrow for non-tricycle purposes. Fintech drivers were more likely to have missed a payment during the past 6 months at the time of the survey. Traditional motorcycle dealers (lenders) normally penalize drivers by adjusting payment amounts, while the fintech firm would simply shut down and confiscate the tricycle. The technology can impound the motorcycle remotely as penalty. However, according to the survey, this system did not seem to encourage borrowing for non-tricycle purposes due to strict repayment experience on tricycle loans. Given that fintech drivers are relatively good at financial planning and goal setting, receiving appropriate advice from the fintech firm could increase their interest to use other types of fintech loans.

Financial education or financial literacy training—including on digital finance—is critical for tricycle drivers to access more, new, and better financial tools. They will need appropriate knowledge and understanding of the benefits these tools provide. Although most tricycle drivers in the Philippines are male, financial literacy training for wives or female partners is essential to help promote fintech loans or other digital finance opportunities as their spouses hold an almost equal degree of decision-making power over household budgets according to the survey. Financial education will also create new customers for fintech loans and the digital finance industry as a whole.

Implications for the Post-COVID-19 Scenario

As the survey was conducted in November–December 2019, it does not reflect how the coronavirus disease (COVID-19) pandemic impacted fintech loans to tricycle drivers. Nonetheless, the results emphasize the importance of fintech for tricycle drivers or the self-employed in adapting to the post-COVID-19 "new normal." COVID-19 triggered a shift in MSME business models from conventional ways that require personal contact to contactless digital transactions. The tricycle drivers operate in a community-based relationship market across the Philippines and may not naturally or easily adapt to digital transactions. However, mobile-based ride-hailing services modeled on the Singapore-based Grab and the Philippine-based Angkas, for example, may help make digital operations attractive to the tricycle-driving sector post-COVID-19.

At the very least, tricycle drivers will need to ensure the safety of their customers to retain business under the new normal, such as placing protective partitions in the customer compartment and enforcing face mask and/or face shield mandates. Customization of tricycles to protect customers from the virus may require additional funding. However, the popular community-based lending and/or informal financing traditionally used by tricycle drivers involve physical contact. Given the high penetration of smartphone use among tricycle drivers, the COVID-19 situation offers a good opportunity to promote no-contact fintech lending and other digital financial services, including savings and insurance for drivers. Financial education is key to promote such services.

This study will continue as a full-scale randomized controlled trial intervention study that addresses the impact of fintech on tricycle drivers’ welfare as well as on regional economic development in the Philippines before, during, and after the COVID-19 pandemic.[1]

[1] The baseline study team comprised Hyuncheol Bryant Kim, associate professor in the Economics Department at Hong Kong University of Science and Technology in Hong Kong, China; Syngjoo Choi, professor of economics at Seoul National University, Republic of Korea; Shigehiro Shinozaki, senior economist at ADB’s Economic Research and Regional Cooperation Department (ERCD); Siho Park, PhD student at University of Illinois at Urbana-Champaign in the United States. It benefited from the advice and inputs of Yasuyuki Sawada, chief economist and director general of ERCD; and Takashi Yamano, senior economist at ERCD. A full-scale RCT intervention will be implemented by the impact evaluation team led by Takashi Yamano.

Yasuyuki Sawada
Former Chief Economist and Director General, Economic Research and Regional Cooperation Department, Asian Development Bank

Yasuyuki Sawada was chief spokesperson on economic and development trends, and led the production of ADB’s flagship knowledge products and support for regional cooperation fora. Before joining ADB, he was Professor of Economics at the University of Tokyo and has led numerous large-scale development policy evaluation projects for various institutions. His key research areas are development economics, microeconometrics, economics of disasters, and field surveys and experiments. He obtained his PhD in Economics from Stanford University.

Shigehiro Shinozaki
Senior Economist, Economic Research and Development Impact Department, Asian Development Bank

Shigehiro Shinozaki supports ADB’s developing member countries in improving small and medium-sized enterprise (SME) access to finance through various technical assistance projects. His advisory and research expertise includes policy issues in SME development, inclusive finance, and financial sector development, especially in developing Asia. Prior to joining ADB, he held several expert positions at Japan’s Ministry of Finance, OECD in France, and as JICA expert in Indonesia. He holds a PhD in International Studies from Waseda University in Japan.

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