GROUP-2: Credit And Collection

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Other Sources
of Credit
FinancialzIntermediaries
 -While lenders and borrowers may be brought together through credit instruments
and credit markets , in many instances credit transactions are consummated
through credit institutions which serve as intermediaries between lenders and
borrowers in these markets.

 Credit institutions in general, perform the following functions:

 1. To pool the savings of the lending customers.

 2. To invest these funds financially on the basis of careful investigation ad

analysis of credit.

 3. To diversity risk to a degree unattainable for individual investors.

 4. To transform short term into long term funds through an expedient and
careful staggering of maturity dates, and

 5. To perform insurance and trust functions.

Financial
z Institutions

 - The number of financial institutions is numerous just as they are varied in

kinds and in scope ranging from pawnshops to such credit institutions as
investment houses.

 Financing Companies

 - As defined under the “financing Company Act”, (Republic Act No.

5980), financing companies are corporation or partnerships, (except
those regulated by the Central Bank of the Philippines, the insurance
commissioner and the cooperative and administration office, now the
Bureau of Cooperatives and Community Development),
Assignment of Credit
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 - In this case of assignments of credit or buying the installment paper,
accounts receivable, and other evidences of indebtedness bu financing
companies, the purchase discount, exclusive of interest and other charges,
shall be limited to 14% of the values of the credit assigned or the value of the
installment papers, account receivable and other evidences of indebtedness
purchased based on a period of twelve (12) months or less, and to one and
one-sixth percent (1-1/6%) for each additional month of fraction therefore in
excess of twelve months, regardless of the term and conditions of the
assignment or purchase
Philippine Finance Companies
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- In response to the needs of business and industry in particular and of
some individuals in general , a number of corporations have been
organized in this country aimed purposely to provide a wide complement
and complement of corporate financing services such as :

*Machinery and equipment financing and leasing.

*Account receivable and inventory financing.

 *Land development and real estate financing and so on.
 Investment Houses
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 invariably termed as investment banks, are concerned chiefly with the
transfer of capital from those that have more funds than they actually could
use to those who need them for utilization in long-term projects or activities.

 Investment Houses in the Philippines.

 The emergence of investment houses (investment banking)

in the financial system ushered in a new era in capital
resources intermediation. Investment houses added new
dimensions to the already got sophistication of capital
mobilization.

 The appearance of investment houses or quasi-banks in the

funds market indicates that the country is indeed on the
march to progress.
Underwriting
z .

Through its underwriting services, a role given solely to investment houses, the
sale and distribution of government securities are guaranteed.

Underwriting by an investment house may either be on a “best-effort” or “firm” basis.

On a best-effort basis, an investment house sells corporate securities up to a
volume that is actually sold publicly.

Money Market.
 To enhance its fund resources, investment houses
engage in money market operations. It acts as dealer
or broker who may directly buy short-term financial
notes or securities for the account of a client or act as
an in-
 Commercial Banking Corporation
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 In line with the pro- vision of the General Banking Act, a commercial banking corporation shall
be any corporation which accepts or creates demand deposits subject to withdrawal by check.

 Total Liabilities.
 Except when the Monetary Board may otherwise prescribe, the total liabilities of any person,
company, corporation or firm, to a commercial banking corporation, for money borrowed,
excluding

 (a) loans secured by obligations of the Central Bank of the Philippine Government .

 (b) loans fully guaranteed by the government as to the payment of principal and interest,

 (c) loans to the extent covered by hold-out on, or assignment of, deposits maintained in the
lending bank and held in the Philippines,

 (d) loans and acceptances under letter of credit to the extent covered by marginal deposits,
and € other loans or credits which the Monetary Board may, from time to time, specify as non-
risk assets, shall at no time exceed fifteen per cent (15%) of the unimpaired capital and surplus
of such bank.
 Line of Credit
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 Not infrequently, businessmen, in anticipation of a need for funds in the future,
may apply with their banks for a line of credit.

 Loan Agreements

 It is quite a common practice among big business concerns to enter into formal
loan agreements with their banks.

 Savings and Mortgage Bank,

 A savings and mortgage bank shall be any corporation organized for the purpose
of accumulating the savings of depositors and invest- ing them, together with its
capital, in bonds or in loans se- cured by bonds, real estate mortgages, and other
forms of security, or in loans for personal finance and long-term financing for home
building and home development.
 Loans and Investments
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 The loans and investments of savings and mortgage banks shall be limited to the
following:

 a. Loans with the security of their own savings deposit obligation.

 b. Medium-term loans

 c. Mortgage loans

 d. Real estate mortgage loans

 e. High-grade bonds

 f . Drafts, bills of exchange, acceptances

 g. Collateral bonds or notes

 Rural Banks in Economic Development

 z
The rural banking system has involved itself in the task of accelerating the tempo of
economic development through its efficient and effective role in providing adequate
and timely credit support to the government programs, like the agrarian reform, food
production, cooperative movement, cottage and small-scale industries development
through its integrated approach.

 Other Sources

 Equally important and of recent origin, as a source of credit, are private

development banks.

 In line with the declared policy of Congress to promote and expand the
economy of the country pursuant to the socioeconomic program of the
Government, as well as to expand industrial and economic growth,
private development banks were conceived and their existence made a
reality under Republic Act No. 4093
 Land Bank

 z under Section 74 of Republic Act No. 3844, the Land Bank of the
As provided
Philippines, better known as the Land Bank for short, is intended to finance the
acquisition by the Government of landed estates for division and resale to small
landholders as well as the purchase of the landholdings by the agricultural
lessee from the landowner.

 Sales Finance Companies

 The sales finance company is a private corporate venture in the financing of

distribution through the purchase of vendors' installment sales contracts.
 Credit and Collection
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Other Sources
of Credit
 Individual Money Lenders
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 Individual money lenders in this country fall under two types: Those who grant loans as
a personal accommodations to friends and relatives termed in Pilipino as pakikisama or
to reciprocate a debt of gratitude or what is known as “utang na loob.” As such, these
individuals do not charge interest for such personal accommodations. The other type
covers those who make the lending of money a profitable business.

 Commercial Establishments

 Of significance to the continued functioning of a credit economy are commercial

establishments, as may be gauged by the kind and amount of credit that they grant. To
mention a few, we have: retail stores, department stores, and supermarkets.
 Retail Stores
 z flourished in ancient Rome, so much so, that it was described as a “city of shops”.
Retail stores

 Grocery and Department Stores

 More sophisticated, grocery and department stores are two examples of retailing establishments.
However, grocery stores are essentially food stores.

 Supermarkets.
 While a supermarket is largely a brand new form of re- tailing, its chief features consist of assembling all
kinds of goods including non-food items, clothing, shoes, hardware, and countless others.

 Pawnshop

 The terms mons referred to any form of capital accumulation and

pieties from the Latin “pietas” meaning pious. As such, Montes
pieties consisted of charitable funds from which loans come from,
which were exempted from interest, but secured by pledges. Such
loans were granted to the poor.
 Under the New Society.
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 In accordance with Presidential Decree No. 114, otherwise known as the
Pawnshop Regulation Act, the Central Bank of the Philippines is charged with
the task and responsibility of regulating the operation of pawnshops in this
country.

 Redemption and Disposition

 The pawner who fails to pay his obligation on the date it falls due may, within
ninety days from the date of maturity of the obligation, redeem the pawn by
paying the principal as well as the interest corresponding to the obligation.

 Supervisory/Regulatory Body

 Before the promulgation of Presidential Decree No. 114, there was no

specific law which governed pawnshops, particularly providing definite and
uniform standards for their operation.
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Insurance Companies
 In the Philippines today, insurance is gaining national
importance. Practically unknown during the early part of the
Spanish regime, life insurance was first introduced in this
country when the Sun Life Insurance Company of Canada
established a local branch in Manila in October 1898.
Savings and Loan Association
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 - As the term indicates, a saving and loan association is any corporation engaged in the
business of accumulating the savings of its members or stockholders, And using such
accumulation, together with its capital in the case of stock corporation, for loans and/or for
investment in the securities of productive enterprises or in the securities of the government, or
any of its political subdivisions, instrumentalities or corporations.

 Principles Governing Credit Operation

 The following principles govern credit operations of savings and loan associations.

 A. Stock savings and loan association shall provide the normal credit needs of the consuming
public and of industry, commerce, and agriculture.

 B. Savings and loans association loans shall be for an amount not greater than what is
deserved so as not to impose repayment burden on the borrowers and a collection problem to
the association.

 C. Repayment periods should be short. Savings and loans associations should confine
business to meeting short term credit needs which shall be repayable within, and not allowed to
go beyond twelve (12) months, except real estate loans.
Extension or renewals of loans may be allowed under the following conditions:
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1. For productive loans, the extension shall not exceed one-half of the original
period. Provided, that fifty per cent (30%) of the loan shall have been paid. A
second extension may be allowed. The same how ever shall not exceed one-half
of the period of the first extension.

2. For consumer loans, the extension shall not exceed one-half of the original
period. Provided, that fifty per cent (50%) of the loans shall have been paid.
 3. For the loans for medical purposes, may be for the same duration as the
original period: Provided, that thirty per cent (30%) of the loan shall have been
paid.

 D. The size of the loans should be measured by the borrowers earning

capacity, character and ability to repay the obligations, or the fair value of the
property offered as collateral. The term “fair value” shall mean fair market value
of the property offered as collateral.
 Government Financing Institutions
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 If the tempo of the national’s economic development is to be accelerated at the
pace considered satisfactory, it is essential for the government to provide the
necessary bases for growth. Equally important is that it must have the
institutions which will give meaning and substance to the objectives of the
government and thus, make development a reality.

 Social Society System

 The concept of social security which saw the fruition under the administration
of President Marcos has it’s beginning in the Philippines as early as 1846 when
many Western countries were still groping on how to cope with the social
problems of the community.
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 Government Service Insurance System

 Like the Social Security System, the Government Service Insurance System
was the product of need. The need to protect employees against unforeseen
contingencies in the future. But unlike the Social Security System, which affords
protection to employee of private industry, that of the Government Service
Insurance System (termed as the GSIS for the short, established by virtue of the
enactment of Commonwealth Act No. 186) membership in the GSIS shall be
compulsory upon all appointive officer and employees in the executive,
legislative, and judicial branches of the government, including those tenure of
office is to fixed or limited by the constitution or by law.
 International Organizations
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 As indicated earlier, one particular class of credit is known as public credit, that is,
one government borrowing from another, as for instance, the municipal government
obtaining loans from the national government or from The Central Bank to finance
the construction of a public market or school building.

 Filipinization of Credit

 Insofar as Filipinization of credit is concerned, two schools of thought are at

variance with one another. One con-tends that, since businessmen irrespective of
their nationality contribute in their own way to the task of nation-building, they should
be entitled to the use of whatever credits are available locally.
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