SOURCES OF CREDIT

JUDY ANN G. SILVA

Individual Money Lenders
• individual money lender who may lend his
surplus to those in need so that it will bring some
income to him
• no collateral is required on the part of borrowers
to secure the loan of whatever sum money
• the money lender may be constrained to collect a
very high rate of interest over and above the
legal one in order to protect his personal interest
and thus become what is known as “loan-sharks”
Retail Stores
Easily the biggest source of merchandise
credit in the Philippines is the retail store,
more particularly known as the “sari-sari”
store. This becomes evident when one
takes into account the number of such
sari-sari stores in every barangay of our
communities.
These stores cater to the everyday needs of
the consumers, which explain their large
numbers. Such stores are run by Filipinos
and aliens alike, although after May 15,
1954, in accordance with the provisions of
the Retail Trade Nationalization Law, no alien
is permitted to engage in this type of
business.
The present-day pawnshops owe their origin According to Lien Sheng Yang, a Harvard
from the Montes Pietatis which were professor of Chinese history, pawnshop is
established by Franciscans (Friar Minor as they the “oldest credit institution in China” whose
were invariably called then) in Italy. The terms origin could be traced to as early as the
mons referred to any form of capital middle of the Six dynasties (about the 5th
accumulation and pietatis from the Latin century) when Buddhist monasteries
“pietas” meaning pious. As such, montes practiced pawnbroking with large amount of
pietatis consisted of charitable funds from
donated wealth in their treasuries.
which loans came from, which were exempted
from interest, but secured by pledges. Such
loans were granted to the poor.
In the Philippines, pawnbroking is also one of the oldest credit institutions and is believed to have
been introduced by the Spanish friars when we were under the Crown of Spain. It may be interesting
to point out, in this connection, that the oldest saving bank, the Monte de Piedad, was granted the
privilege of lending money against pledge of jewelry.
COMMERCIAL BANKS

Legally, they can be held for principal and

Commercial banks are engaged in the grant of loans not
interest due, in the event that the borrower for
only to businessmen, but also to individuals for personal
purposes. Generally speaking, in the case of personal whom they acted as guarantors fails to
loans, borrowers are required to furnish the bank with discharge his obligations incurred with the
the written guarantee of two or more responsible bank. As a common banking practice, a charge
persons that the contract will be faithfully performed. of 6 to 12% of the entire loan is deducted in
These guarantors of the credit of the borrower are called advance to represent the interest.
“co-makers”.

There is also what is known as “character loan” wherein no guarantors

nor pledges are required. Such loans, usually consisting of small sums of
money, are based upon the character of the borrower. Hence, the
descriptive term “character loan”. This kind of loan is being granted by the
PNB. In the case of loans granted by the bank for commercial purposes,
the borrower may be given the amount of applied for and approved in
terms of cold cash.
Commercial Paper House
• The commercial paper house is a financial institution that brings together the buyer and
seller of short-term commercial paper, that is, the lending institution and the borrowing
business enterprise.

• The commercial paper includes notes, bankers’ acceptances, trade acceptances, and
foreign exchange bills.
• A commercial paper house also buys issues outright at a discount and resell the notes at a
slightly higher price to investors.

• Under such an instance, the commercial paper house assumes the risk of loss that may
result from sudden change in money rates in the market, or even, of buying an issue that
cannot be sold because investors shy away from it. Most of the paper bought by a
commercial paper house takes the form of unsecured single - name promissory note.
 In its broadest meaning, the
Savings Bank term savings banks include
mortgage banks as well as
savings and loan associations.
Since savings banks Savings and loan associations
accumulate the small savings are established on the principle
of depositors, such of cooperation.
accumulated funds are in
turn invested in bonds or in
loans secured by bonds, real
estate mortgages, and other
forms of security.
Rural Banks The growth and development of these
In the rural areas of the Philippines, rural banks attest to the pressing need of the
banks provide the chief source of credit people in the rural areas for loanable
especially for those engaged in agriculture funds. Undoubtedly, the existence of rural
who need these facilities badly. Such type banks in the towns and communities has
of banks were unknown in this country
greatly minimized the existence of
prior to the enactment of RA 720, known
as the Rural Banks Act. usurious practices of some money
lenders
DEVELOPMENT BANKS
Like those of rural banks, development banks
from an important part of our banking system
extending the necessary fund for purposes of
hastening development. They have been
largely responsible for the birth and
development of certain industries that are now
quite common on the Philippine scene.
 INVESTMENT BANKS
Investment banks, at times
termed as investment The funds provided by
houses, bridge the gap investment banks are
between those who have idle
funds not knowing where to important not only to
invest them and those in dire entrepreneurs, but to
need of such funds. government as well,
which requires huge
As sources of credits, they help expenditures to
raise the needed funds that are support the various
not easily procurable elsewhere economic projects that
for use because of the sizeable
amounts involved and the length are part of its program.
of time for their use.
FINANCE COMPANIES
As an industry, it shares with government the universal
goal of achieving a strong and healthy financial system.
Given an conducive regulatory environment, finance
companies can effectively mobilize resources needed for
productive investments. They have developed into a major
source of funds for consumer, sales and commercial
financing.
CREDIT UNIONS
What is a Credit Union?
A credit union is a financial institution that is owned
and controlled by its members rather than
shareholders. The members of the credit union pool
their deposits and provide loans and other financial
services to each other.
ADVANTAGES OF CREDIT UNION
1 Low cost of operation, ordinarily, the office space for such purpose
is donated by the management

Losses are very small in view of the fact that there

2 exists an intimate relationship among all the members
of the credit union

Rates charged for interest by credit unions are very much

3 lower than those charged on similar loans by commercial
lenders

Member-borrowers also become entitled to the receipt of patronage dividends

4 when the same is distributed by the credit union
Insurance Companies
The business of insurance companies is to enter into insurance contracts with
those who wish to provide for such contingencies as death or fire.

They receive premiums and pay out money on the occurrence of the particular
contingencies covered by the contracts.

Insurance companies cannot, therefore, be regarded as financial institutions per se,

like banks. They are, however, important participants in the money and capital
markets, because they must accumulate insurance premiums to build up funds to
meet policy claims, and they must meanwhile employ these funds in loans and
investments. Thus, their financial functions are a necessary consequence of their
proper business of insurance.
Other Sources GSIS- Government Service Insurance
System SSS- Social Security System IGLF- Industrial
Guarantee Loan Fund / Agricultural Guarantee Loan Fund
Pag-Ibig Fund-intended to boost housing development in the
country KKK-Kilusang Kabuhayan at Kaunlaran-established
as a priority program under EO 715 on August 6, 1981 is
intended to involve the whole citizenry and calls for the
mobilization of the people to direct their creative energies and
resources toward productive participation in development
 C'S OF CREDIT 3, Capital. For credit purposes,
credit represents the financial
strength of the risk, that is, it
consists of the amount and quality
C’s of Credit 1. Character. Character is the of goods and property, expressed in
most important consideration in the proper terms of money, which an individual
determination of the credit rating of an or firm possesses over and above,
individual. The character of an individual is the his financial obligations
aggregate of distinctive mental and moral
qualities belonging to him. It denotes his good
moral built up by long years of honest dealing. 4. Collateral. Speaking of collaterals,
creditors as a general rule would
prefer loans or credits to be backed up
by collaterals as much as are
2. Capacity. As a basis of credit, capacity signifies the ability to
necessary for their self -protection.
pay when a debt is due.

5. Conditions. Economic conditions exert profound effect upon the grant of

loans and credits. It may be rightly mentioned that loans and credits may be
extended at certain times and may be denied at other times.
6. Country. Since, as had been stated time and
again, the sale of goods and services in any part 8. Confidence. After
of the world on credit involves risk, it follows that having indicated and
every factor should be carefully considered and discussed the various
scrutinized insofar as they affect credit risk. bases of credit, one is led
to conclude that, in the
ultimate analysis, credit is
founded on confidence –

7. Currency. Not only is the stability of the

C which by far is the principal
C of credit. For any credit
transaction to take place,
the businessman, whether
country of importation an important factor to he be a seller of goods or
reckon with in the consideration of credit risk in services on credit must
international trade transactions but, equally so is have confidence:
that which pertains to that of currency. The risk
of exchange must also be taken into account.
THANK YOU