The secret price of exclusivity and limited supplies

AR e you familiar with the saying in psychology that we want something we cannot have?

The economics theory of the law of supply and demand states that demand will fall if supply is abundant, whereas demand will rise if supply is limited.

People perceive immense value in something to which is beyond their reach. Thus, they are more swayed to respond if something is exclusive, prohibited, or limited.

Our curiosity is a compelling force that drives us to act irrationally. The more mysterious it is, the higher the likelihood we want to participate in it.

rosemarie Gases

Personal Finance

By Cai U. Ordinario @caiordinario

eLeCTRONIC transaction platforms can help reduce nonperforming loans (NPLs) and prevent them from undermining bank lending and the recovery in developing countries, according to experts from the Asian Development Bank (ADB).

In an Asian Development Blog, ADB e conomic Research and Regional Cooperation Department Director for Regional Cooperation and Integration Cyn-Young Park and e a st Asia Department Finance Sector Specialist Peter Rosenkranz said NPLs in Asia’s developing countries were “persistently high.”

Park and Rosenkranz said NPLs held by banks in Asia totaled $794 billion at the end of 2021, according to official figures. This increased from $766 billion in 2020 and $692 billion in 2019.

“To avoid rising non performing loan ratios, diminishing bank lending capacity and worsening economic performance, it is important to strengthen the way nonperforming loans are repaid or resolved,” the authors said.

Potential policy support, the ADB experts said, could lead to the establishment of a nonperforming loan transaction platform in the region—or a network thereof—that features common standards.

“Setting regional standards to support cross-border transactions could maximize the reach of the nonperforming loan transaction platform and enhance its effectiveness,” they said.

Park and Rosenkranz said etransaction platforms can reduce impediments when resolving or repaying NPLs. Some of the known impediments include a limited number of active investors and scarce information around market prices and volumes.

The authors also said the institutional environment plays an important role, with poor legal framework legislation, weak collateral enforcement and insolvency proceedings adding to the market imperfections. These impediments create gaps, e - transaction platforms for nonperforming loans can address some of these market impediments more efficiently. Such platforms would create an online marketplace, bringing together buyers and sellers in the digital space, and help information flows,” Park and Rosenkranz said.

Park and Rosenkranz said, between the price investors are willing to pay and the price banks are willing to accept for NPLs.

The authors explained that etransaction platforms can improve information flows since sellers would have more knowledge about the value of assets being sold.

This can be done, the ADB experts said, through data review, validation, and warehousing functions. Standardized NPL data templates, they said, can help enhance granularity, quality, transparency, and comparability of NPL information accessed by potential investors.

Park and Rosenkranz also said e-transaction platforms can also make resolving NPLs more efficient and less costly. They said anecdotal evidence estimates that e-platform operators could offer a 55 percent to 90 percent reduction in processing time.

“Small investors could also find it easier to join this marketplace, helping broaden the investor base. Pricing mechanisms can also be facilitated through e-platforms, improving pricing efficiency,” they said.

The ADB experts also said etransaction platforms can attract foreign investors. There are etrading platforms in the european Union that facilitate both domestic and cross-border trades of nonperforming loans.

However, the authors said, existing nonperforming loan markets in Asia remain dominated by domestic players. There are legal impediments such as restrictions of foreign ownership.

The authors said there is a need to create the enabling legal framework and infrastructure to use e-transaction platforms in resolving NPLs.

This type of promotional tactic is extensively used in a number of ways: “members only,” “limited edition,” “introductory price,” “3-day sale,” “only 3 rooms left,” “limited seats only,” and “until supplies last.” ex perts have revealed that human beings hate the feeling of missing a good bargain. And while some merchants are aware that such customers are highly price-sensitive, they dissuade them from buying in a normal situation—items carry its regular price and there’s no time limit to purchase these.

Sometimes the pitch “limited supply” is legitimate; typically it’s not. Who knows? e x clusivity or the scarcity of supply propels the sellers to dictate a premium price on their goods or services. (Onions, anyone?)

The best example of this is the tactic used by the late Bernie Madoff, the securities fraudster who was said to have operated the largest Ponzi scheme in the world. To get access to this secret fund manager to manage your money and invest it, you will have to know someone who knows someone who knows him. Do you see how exclusive it is? And once you get the opportunity to speak to him, he will steer you to take your money with you initially and find someone else to manage your funds if you are not convinced of his investing prowess in the securities markets. He posed to his investors as if he was not interested in their money primarily. It took decades for regulators to unravel what his investment company was: a Ponzi scheme. This cunning and manipulative scheme made his victims crave more to be admitted into his investment company. This cognitive bias is called psychological reactance. It refers to a person’s unpleasant motivational reaction when their concept of freedom is threatened or eliminated.

Microfinance NGO bags loan from Citibank PHL

THe Citibank N.A. Philippine Branch (Citi PHL) announced it has extended a $20-million loan (nearly P1.1 billion at current exchange rates), to ASA Philippines Foundation Inc. to help support women entrepreneurs. Through the loan, ASA will provide financial assistance to low-income women for entrepreneurial ventures in the Philippines. The loan aims to support nearly 70,000 women entrepreneurs in the Philippines.

The loan extended to ASA Philippines is part of Citi’s global commitment to provide $1-trillion towards sustainable finance by 2030, a statement from the lender said. It has committed to investing in opportunities for 15 million households, including 10 million women by 2025.

“It is inspiring to meet these hardworking Filipino women who have shared their personal stories of triumph over adversity. Amid their many hardships, they have a ready smile and have welcomed us all with warm hospitality,” Citi PHL Corporate Bank Head Fernando Fleury said.

“They have overcome many challenges and have even managed to grow their business in a tough economic environment. We are happy to support their entrepreneurial efforts through this landmark social facility loan,” Fleury added.

Citi PHL first partnered with ASA in 2010 with a loan of $1 million. With the $20 million in 2022, ASA will be able to provide their client base, composed of 20 million clients, the means to establish or improve their own mi- croenterprises.

All of ASA’s clients are women micro-entrepreneurs and majority or 71 percent are married and are between 31 years to 50 years of age.

Through their respective microenterprises, these women are able to support their families, as well as their communities.

“Our mission is to deliver the highest value for money, client-responsive microfinance as well as supplementary products and services to the poor through the enterprising women of each Filipino family,” ASA Philippines President and C eO Kamrul Hasan Tarafder said.

In 2019, the Department of Trade and Industry (DTI) recorded a total of 630,688 business name registrations (new and renewal) of which 55.8 percent or 352,181 were women-owned, according to Citi PHL. When the pandemic hit in 2020, the lender said the majority of these businesses were adversely affected and needed help.

ASA Philippines is a non-stock, non-profit microfinance organization that offers financial services such as microloans and microsavings.

It is a microfinance NGO accredited by the Microfinance NGO Regulatory Council (MNRC) that serves more than 2 million entrepreneurially poor women across the country.

As part of its client community services, ASA Philippines offers additional programs, such as business development, scholarships for the children of deserving borrowers, disaster relief, burial assistance and other health care services. Cai U. Ordinario

When dealers create an illusion of scarcity, it boosts the demand for their goods or services as the buyers’ behavior is unconsciously stimulated by their fear of losing or what we call as the loss aversion bias.

In their book “Marketing” (7th edition, 2003), Roger Kerin, et al. defined ethics as the moral principles and values administering the actions and decisions of an individual or group.

For that reason, if business strategies, such as the scarcity principle, are employed to influence the buying decisions of the public unwittingly, would it be considered an unethical practice of doing business?

In Robert B. Cialdini’s book, “Influence: The Psychology of Persuasion,” he described the scarcity principle as those opportunities seem more valuable to us when their availability is limited.

Why do you think some manufacturers or sellers limit the number of productions of their goods in order to serve only a few of their customers? Don’t they want to sell more? The answer to that question lies in the cognitive biases discussed and the theory of the law of supply and demand.

The same principle applies to collectible items such as art pieces, vintage cars, old coins, etc. The perceived value of those items is formed in the collectors’ minds, their desire for ownership. The rarer it is, the better for them, and they are more than willing to pay a premium so as to have it.

In addition, the “deadline tactic” is also applied here in which the opportunity is offered on a time limit, which makes this tactic even more effective. Because time and stocks are limited, customers find themselves grabbing the chance thinking there will be no other time to act but now.

So, the next time you like to shop for a limited-edition item or join an exclusive club, before you part with your money, sincerely ask yourself this question: “Do I really need this, or am I slyly persuaded to buy or join in this?”

If your answer is the latter, it will be better for you to walk away from the establishment and save that hard-earned money for your big financial goals—like securing your and your family’s financial future.

Rosemarie Gases is a registered financial planner of RFP Philippines. To learn more about personal-financial planning, attend the 100th RFP program this March 2023. To inquire, e-mail info@ rfp.ph or text <name><e-mail> <RFP> at 09176248110.