FM 105: Credit and Collectio

NATURE AND FUNCTIONS

FM 105: Credit and Collectio

BASIC CONCEPTS
Credit
- came from the Latin word creditum which means TRUST. - refers to the ability to acquire something of value, such as goods, services, securities, or money, at present time in return for a promise to pay at some future time. + parties involve in credit transactions + - Moreover,creditor transaction usuallydebtor either a promise a credit involves $ to pay a definite sum of money in the field of banking and allied institutions. receives and BIGGEST - It is obvious therefore that the most-important it and - provides the thing credit involve the use of MONEY. borrowed transactions are those which assumes the obligation to pay.

FM 105: Credit and Collectio

BASIC CONCEPTS
Note:
- Whenever DEBT is mentioned, it also means CREDIT. - Same thing taken from two different points of views. - Both are obligations to pay in the future.

The obligation is: CREDIT - If it refers to a person/institution to whom the future payment is to be made. DEBT - if it refers to the person/institution who is obliged to pay in the future.

..before we go deeper, lets first discuss about:

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

The credit system reflects in many ways the degree of economic and social values and institutions pervading in a particular society at a given point in time. Credit, being a tools of development and progress of people and society, has, since ancient times to the present, served the specific and relevant needs of the society. However, nowadays, credit has been improperly used by both individual and institutional barrowers. They utilized their loans only to promote their own personal interests and welfare at the expense of real productivity and national development.

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

Before: Later on..

No room for credit People only produce what they can consume.
After passing through the process of: food processing

- They found out that the barter in a VERY several Only existsystem hadPRIMITIVE shortcomings.. economic and social system. - Thus, they invented MONEY!!
People are devoid of opportunities to develop into higher level of economic growth The introduction of money

- They realized that it is was not possible to produce ALL the goods that they wanted for consumption. - Thus they resorted to BARTER to improve their economic and social life.

in the economy ushered in a significant milestone in the development of credit system. - The pace of dev t of countries has accelerated ever since.

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

Pre-Spanish Time

Philippine had been trading with:

BARTER SYSTEM

China, Japan, Sumatra, India, Siam, Borneo.. Etc. Filipinos are famous for their Honesty and excellent credit record.

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

Spanish Time

Free trade was encouraged. Manila was still then the center of trade and commerce Subsequently, Spain Adopted a policy of trade restrictions in line w/ prevailing concept of MERCANTILISM in Europe

Monopoly Product = GALLEON TRADE Transpacific galleons Manila-Acapulco trade Most of those who participated in the galleon trade secured their loans
from the: OBRAS PIAS
Favored: CHOSEN FEW Forerunner of banking instn in the phils. Neglected: RURAL DEVELOPMENT
Funds: donated by RICH citizens for religious projects and were managed by religious officials.

Natural resources were not exploited by the colonizers

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

American era

Introduced better banking and credit system to promote economic devt, esp. in rural areas. Among the credit programs of the govt was:
Agricultural bank (1908) Rural Credit Law (1915) Rice and Corn funds

The banking system grew, but dominated by foreign interests.

Philippine National Bank (1916)
-- Organization of rural banks and agri credit association were encouraged.

The credit program of govt in rural areas failed.

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

American era

The credit program of govt in rural areas failed. (factors)

1. Farmers did not have steady income due to destruction of crops by natural calamities. 2. 3. 4. They were exploited by the landlords. The negative attitude of the borrowers towards theirs debt. They considered their loans as another form of dole-outs and therefore, they did no feel the responsibility of paying the government lending institutions.

FM 105: Credit and Collectio

THE DEVELOPMENT OF CREDIT

Under the republic

Period of reconstruction and rehabilitation. The national economy was greatly in need of money for business and economic development. Rehabilitation Finance Corp. Development Bank of the Philippines

A very significant improvement in the financial system was the establishment of CENTRAL BANK OF THE PHILIPPINES (1949).

Since then, monetary policies have been fashioned to improve production, employment and quality of life of people, esp. in rural sector where poverty were more widespread.

FM 105: Credit and Collectio

CREDIT INSTRUMENTS
-- the paper which contains in writing the obligation of the debtor and the rights of the creditor. -- credit instruments may differ depending on the purposes purposes, customs and laws of the government.

FM 105: Credit and Collectio

CREDIT SYSTEM
This includes:
credit Credit instruments Credit institutions

Laws and customs on credit lending and collection - A more dynamic and relevant credit system aims to maximize the use of the productive resources of the economy and to distribute fairly the fruits of production among the members of the society. - A good credit system should be responsive to the needs and welfare of the poor who constitute a great majority of our population.`

FM 105: Credit and Collectio

FUNCTIONS OF CREDIT
Economic function Through credit more goods and services are acquired.

Social function Through credit the determinants of social status can be acquired. - Serves a social equalizer

FM 105: Credit and Collectio

ADVANTAGES OF CREDIT ECONOMY

1. It is more convenient, economical and effective type of money. 2. Permits the business firm to make liquid or spendable non-liquid wealth. 3. It is easier to enterprising men to enter into business. 4. Provides security and more income to wage earners. 5. Government projects can be financed through bonds and securities. 6. It accelerates production, employment, income and consumption. 7. It allows consumers to enjoy consumption of goods and services sooner.

FM 105: Credit and Collectio

DISADVANTAGES OF CREDIT ECONOMY

1. Heavy borrowings by the government may lead to inflation. 2. Borrowings by the government may likely lead to extravagance and inefficiency. 3. Goods would be repossessed in case of failure to pay. 4. The ability to fulfill financial obligation may be difficult at the time when payment is due. 5. Business errors in the application of credit funds have chain effects on the whole economy. 6. Excessive loans from other countries by the government may likely be a burden to the future generation. 7. In some cases, credit reduces the future consumptions of debtors.

FM 105: Credit and Collectio

END OF TOPIC..
Get half sheet of paper. (crosswise) ;P
1. Cite at least 2 advantages of credit economy. 2. Cite at least 2 disadvantages of credit economy. 3. What does creditum means? 4. What are obras pias? 5. What are the parties involve in credit transactions? 6. What is a credit instrument? 7. Differentiate debt from credit. 8. What are the 2 functions of credit? 9. What is the characteristic of a good credit system?

Pass your paper once done

FM 105: Credit and Collectio

Thank you!