NAME:

ASOGWAMERCYCHI
DIEBERE

MATRI
CNUMBER:
LAW/
PIL/
21/
016

DEPARTMENT:
LAW

LEVEL:
200

COURSECODE:
PPL203

COURSETI
TLE:
LAW OFBANKI
NG1

LECTURER:
I
NTRODUCTI
ON

Themoney
lender
sar
eahet
erogeneousl
ot.Theyi
ncl
udepr
ofessi
onalmoney
lender
s,

r
ural
andur
ban,
whosemai
nsour
ceofi
ncomei
smoney
-l
endi
ng,
iti
ner
antmoney
lender
s,

l
i
kepat
hans,kabul
i
s,andqi
stwal
as,andnon-
prof
essi
onalmoney
lender
swhocombi
ne

money
-lendi
ngwi
thot
heract
ivi
ti
es.Thel
att
eri
ncl
udel
argef
armer
s,mer
chant
s,t
rader
s,

ar
hat
ias(
commi
ssi
onagent
s),t
heubi
qui
tousv
il
lagebani
a,gol
dsmi
th,j
obber
sand

sar
dar
sofl
abour
ersi
nur
banar
eas,
etc.

Theyar
eknownbydi
ff
erentnames,suchassahukar
,mahaj
an,set
horbani
a.Theyar
e

i
ndi
vi
dualent
erpr
isesorf
ami
l
ypar
tner
shi
ps.Thei
rmet
hodsofoper
ati
ondi
ff
eral
most

f
rom money
lendert
omoney
lender
.Eachmoney
lendergener
all
yoper
atesi
nasmal
l

l
ocal
mar
ket
.

1.Money
lender
s’f
undsar
emost
lyownedf
unds.Gener
all
y,t
heydonotbor
row f
rom

eachot
her
,orbanks,
orot
herf
inanci
ali
nst
it
uti
ons.Theymayr
ecei
vesmal
lamount
sof

t
empor
arydeposi
tsf
rom cl
i
ent
s,r
elat
ives,andf
ri
ends.Butsuchdeposi
tsar
eav
ery

smal
lpr
opor
ti
onoft
het
otal
money
-l
ender
s’capi
tal
.

2.Thebor
rower
sfr
om money
lender
sar
emost
lyeconomi
cal
l
yweakersect
ionsoft
he

communi
tysmal
landmar
ginalf
anner
s,agr
icul
tur
all
abourandv
il
lagear
ti
sansi
nrur
al

ar
eas,f
act
oryandmi
newor
ker
s,peons,meni
als,andot
herl
ow-
pai
dwor
ker
sandsmal
l

t
rader
s.Ri
cherf
armer
sinneedoff
undsar
eabl
etobor
row f
rom co-
oper
ati
vecr
edi
t

soci
eti
esandot
heri
nst
it
uti
onalagenci
es.Theymayal
sobebor
rowi
ngf
orshor
tper
iods

f
rom ar
hat
ias(
commi
ssi
onagent
s).Butt
hebul
kofmoney
lender
s’f
inancegoest
omeet
t
heneedsf
orcr
edi
tofsmal
lbor
rower
s.

I
tist
hel
att
ert
owhom t
hedoor
sofi
nst
it
uti
onalcr
edi
tar
est
il
lpr
act
ical
l
ycl
osed.Most

oft
her
emai
ningf
eat
uresofmoney
lender
s’cr
edi
tder
ivef
rom t
hissi
mpl
efactoft
he

bor
rower
sbei
ngweak,
indi
gent
,andnowher
eel
set
ogot
oforcr
edi
t.

3.Themoney
lender
s’cr
edi
thasbeenknownt
obehi
ghl
yexpl
oit
ati
ve.Theexpl
oit
ati
on

hast
akenv
ari
ousf
orms,suchasusur
iousr
atesofi
nter
estgoi
ngupt
o100percentor

mor
eperannum,f
requentcompoundi
ngofi
nter
est
,fal
semani
pul
ati
onofl
oanr
ecor
ds

i
nnumer
ousway
s,ext
rai
mposi
ti
onsi
nthef
orm ofbegar(
freel
abouri
nmoney
lender
s’

f
iel
dsandhomes)
,ther
equi
rementt
osel
lpr
oducet
othemoney
lenderatl
ocalpr
ices

whi
chwoul
dbei
nvar
iabl
ylowert
hant
hepr
icesi
nmandi
s.

Hi
stor
ical
l
y,money
lendi
ng has al
so been t
he chi
efi
nst
rumentt
hrough whi
ch t
he

owner
shi
pofl
andhaspassedf
rom debt
or-
cul
ti
vat
orst
oot
her
s,non-
agr
icul
tur
ist
sor

agr
icul
tur
ist
s.Wi
thl
egalr
est
ri
cti
onsont
het
ransf
erofl
andt
onon-
agr
icul
tur
ist
s,t
he

chi
efgai
ner
sofsuchl
andt
ransf
ershav
ebeent
heagr
icul
tur
istmoneyl
ender
s.Thus,

money
lender
s’cr
edi
t has cont
ri
but
ed,i
n no smal
lmeasur
e,t
othe i
ncr
easi
ng

pauper
isat
ioni
nrur
alI
ndi
a.

4.Themoney
lender
s’cr
edi
tisunr
egul
ated.Loansar
emadef
orpr
oduct
ivepur
posesas

wel
lasf
orconsumpt
ion.Consumpt
ionl
oanst
akenf
orcer
emoni
alpur
posesusual
l
ysi
t

asdead-
wei
ghtbur
denont
hebacksofbor
rower
s.Thebur
deni
ncr
easesr
api
dlyov
er

t
imeassmal
lbor
rower
sar
erar
elyi
nacapaci
tyt
orepayl
oanst
akenathi
ghcompound

r
atesofi
nter
est
.Thi
sresul
tsi
ntheaf
oresai
dlossofpr
oper
tyofbor
rower
satcheap
pr
ices.

5.Themoney
lender
s’cr
edi
tmaybesecur
edorunsecur
ed.Thesecur
it
yhasbeenl
and,

cat
tl
e,cr
ops,or
nament
s,andot
hermat
eri
alobj
ect
s.Unsecur
edl
oansar
eadv
anced

pur
elyont
hepr
omi
set
opay
,suppor
tedbyent
ri
esi
ntheaccountbooksand/
orby

si
gnat
ureort
humbi
mpr
essi
ononbl
ankpaper
s.

Forr
ecov
eri
esofl
oansandi
nter
est
,al
lki
ndsofst
rong-
arm met
hodsort
hreat
smaybe

used.Onl
yinexcept
ionalcases,t
hemat
teri
stakent
othecour
tsofl
aw.Si
ncet
he

bor
rower
sar
elocalper
sons,t
heydonotf
indaneasyescapef
rom t
hemoney
lender
s

whousual
l
ywi
eldmuchmor
eeconomi
c,soci
al,
andpol
i
tical
inf
luencei
nthei
rlocal
i
ties.

6.Themoney
lender
s’cr
edi
thast
hesav
inggr
aceofbei
ngpr
ompt
,inf
ormal
,andf
lexi
ble.

Onr
egul
arandt
imel
ypay
mentofi
nter
est
,thel
oansar
eeasi
l
yrenewed,becauset
he

money
lender
sar
emai
nlyi
nter
est
edi
nthei
rint
eresti
ncomei
ftheyar
eassur
edt
hatt
he

capi
tal
sumsoft
hei
rloansar
esaf
e.Butt
othebor
rower
s,al
lthi
sissmal
lcompensat
ion

f
oral
lthei
l
lst
hatgowi
tht
hist
ypeofcr
edi
t.

I
tisgener
all
yagr
eedt
hat
,int
heabsenceofadequat
einst
it
uti
onalsour
cesofcr
edi
tfor

t
heneedi
estandhencet
hemostv
ulner
abl
esect
ionsoft
hepopul
ati
on,money
lender
s’

cr
edi
thast
obeaccept
edasanecessar
yev
il
.Int
hepastsev
erall
egi
slat
ivemeasur
es

hav
ebeenpassedi
nthef
orm ofr
est
ri
cti
onsont
heal
i
enat
ionofl
and,cont
rolor
,the

r
atesofi
nter
estchar
ged,r
est
ri
cti
onont
hemaxi
mum amountoi
nter
estofal
oanso
t
hatt
het
otaldoesnotexceeddoubl
ethei
nit
ialamountoft
hel
oan,
ther
equi
rementf
or

t
aki
ngoutofl
i
censesf
ordoi
ngt
hebusi
nessofmoney
-l
endi
ngandt
her
equi
rementf
or

t
he l
i
cenced money
lender
sto mai
ntai
n pr
operbooks ofaccountand t
o gi
vet
he

bor
rower
sregul
arst
atement
sofaccount
s.Butmostoft
hesel
egalpr
ovi
sionshav
e

r
emai
nedunenf
orced,because,gi
vent
hemet
hodsofoper
ati
onoft
hemoney
lender
s

andt
henat
ureofdemandf
ort
hei
rcr
edi
t,t
hesepr
ovi
sionsar
enoteasi
l
yenf
orceabl
e.

Whati
srequi
redi
stodev
elopt
hei
nst
it
uti
onalsour
cesofcr
edi
t.Themai
nemphasi
s

shoul
dbeont
hequant
it
yofcr
edi
tmadeav
ail
abl
eandnotont
heconcessi
onalr
atesof

i
nter
est
.Keepi
ngi
nvi
ewt
hehi
ghcostofser
vici
ngsmal
ll
oansandsmal
lbor
rower
sand

t
hepr
obl
em ofr
ecov
eryofl
oansandassoci
atedov
er-
dues,
financi
ali
nst
it
uti
onsshoul
d

notbeaskedt
ocar
ryt
heext
rabur
denofpr
ovi
dingl
oansatconcessi
onalr
atesof

i
nter
est
.Thi
sissur
etodi
scour
aget
hem f
rom pr
ovi
dingwhat
evercr
edi
ttheyot
her
wise

woul
d.

Thi
shasal
sobeent
heexper
iencesof
ar.Whatt
hesmal
lbor
rower
sneedi
sadequat
e

i
nst
it
uti
onalcr
edi
t.I
fiti
sgi
vent
othem att
heor
gani
zedmar
ketr
atesofi
nter
est
,iti
s

hi
ghl
yconcessi
onalt
othem ascompar
edt
othemoney
lender
s’cr
edi
t.So,t
heywoul
d

notgr
udgepay
ingt
hemar
ketcostofl
oans.Justmaket
hel
oansav
ail
abl
etot
hem and

gi
vet
hem ot
herhel
prequi
redt
oimpr
ovet
hei
rrepay
ingcapaci
ty.

Pov
ert
yisbot
hthecauseandt
heef
fectoft
hei
rcont
inuedi
ndebt
ednesst
ousur
ious

money
lender
s.I
tist
hecausebecause,bei
ngpoor
,theyhav
etogoi
nfordebtev
enf
or
consumpt
ionpur
posesanbor
rowf
rom sour
ceswhi
char
ehi
ghl
yexpl
oit
ati
ve.

I
tist
heef
fectbecauset
heyar
econt
inuousl
yfl
eecedf
orl
oansoncet
aken.I
tisani
rony

t
hatt
heweakestar
ethemostexpl
oit
ed.Themoney
lender
scanausef
ulsoci
alr
ole

wi
thoutf
angsonl
yinacl
i
mat
eofheal
thycompet
it
ionf
rom al
ter
nat
ivesour
cesofcr
edi
t.

I
tist
hei
rmonopol
yofcr
edi
tfort
hepoort
hatl
i
esatt
her
ootofal
lthei
l
lsoft
hei
rcr
edi
t.

BANKI
NGPOLI
CY

Pol
i
cymeansact
ionorpr
ocedur
econf
ormi
ngt
oorconsi
der
edr
egar
dingpr
udenceor

expedi
ency
.Bankl
endi
ngpol
i
cyr
efer
stot
hepol
i
cyandgui
del
i
nest
omakei
tsl
endi
ng

pr
ocesssy
stemat
icandmet
hodi
cal
.Banksdealwi
thot
herpeopl
e’
smoney
.Theyl
end

t
hemoneywhi
cht
heybor
rowf
rom t
hedeposi
tor
s.Unl
esst
hesedeposi
tsar
epr
udent
ly

ut
il
ized,banksar
edest
inedt
oincurl
osses.Bankscannotkeept
hedeposi
tsi
dlei
nthe

v
aul
tsorl
endt
hedeposi
tsandnotr
ecol
l
ectt
hem.Hence,apr
operl
endi
ngpol
i
cymust

bei
npl
ace.Commer
cialBankwi
l
lcar
eful
l
yanal
yzeandconsi
dersomef
act
orsbef
ore

sanct
ioni
ngl
oanst
oit
scust
omer
s.

1.Li
qui
dit
y

2.Pr
ofi
tabi
l
ity

3.Saf
etyandSecur
it
y
4.Pur
pose

5.Sour
cesofRepay
ment

6.Di
ver
sif
icat
ionofRi
sk

7.Soci
alResponsi
bil
i
ty

Li
qui
dit
y

Thet
erm ‘
l
iqui
dit
y’i
mpl
i
est
heabi
l
ityt
opr
oducecashondemand.A bankmai
nly

ut
il
izes’
itsdeposi
tst
ogr
antadv
ances.

Thesedeposi
tsar
erepay
abl
eondemandort
heexpi
ryofaspeci
fi
edper
iod.Tomeet

t
hedeposi
tor
s’demandi
nti
me,banksshoul
dkeept
hei
rfundsi
nal
i
qui
dst
ate.Money

l
ockedupi
nlong-
ter
mloanscannotber
ecei
vedbacki
nti
meandsoar
elessl
i
qui
d.Soa

bankshoul
dconf
inei
tsl
endi
ngt
oshor
t-
ter
mloansonl
y.

Pr
ofi
tabi
l
ity

Li
keal
lot
hercommer
ciali
nst
it
uti
ons,banksar
erunf
orpr
ofi
t,andev
engov
ernment
-

ownedbanksar
enoexcept
iont
othi
s.Banksear
npr
ofi
ttopayi
nter
estt
odeposi
tor
s,

decl
areadi
vi
dendt
oshar
ehol
der
s,meetest
abl
i
shmentchar
gesandot
herexpenses,

pr
ovi
de f
or r
eser
ve and bad and doubt
ful debt
s, depr
eci
ati
on, mai
ntenance,

i
mpr
ovement
s ofpr
oper
tyowned byt
he bank,and suf
fi
cientr
esour
ces t
o meet

cont
ingentl
oss.so,pr
ofi
tisanessent
ialconsi
der
ati
on.Bankershoul
dempl
oyt
hei
r
f
undsi
nsuchawayt
hatt
heywi
l
lbr
ingt
hem adequat
eret
urns.Howev
er,abanker

shoul
dnev
erpr
ovi
deunduei
mpor
tancet
opr
ofi
tabi
l
ity
.

Saf
etyandSecur
it
y

Thebankershoul
densur
ethatt
hebor
rowerhast
heabi
l
ityandwi
l
li
ngnesst
orepayt
he

adv
ancesaspert
heagr
eement
.Cl
osel
yal
l
iedt
othi
spoi
nt,
heshoul
dcar
eful
l
yconsi
der

t
hemar
ginofsaf
etyof
fer
edbyt
hesecur
it
yandt
hepossi
bil
i
tiesoff
luct
uat
ionsi
nval
ue

bef
ore gr
ant
ing a secur
ed adv
ance.I
fiti
san unsecur
ed adv
ance,i
tsr
epay
ment

dependsont
hecr
edi
twor
thi
nessoft
hebor
rowerandt
hatoft
heguar
ant
or.

Thecar
dinalpr
inci
plest
hatt
hebankershoul
dconsi
deri
ncaseofunsecur
edadv
ances

ar
e char
act
er,capaci
ty,and capi
tal(
popul
arl
y known as t
he 3C’
s)orr
eli
abi
l
ity
,

r
esponsi
bil
i
ty,andr
esour
ces(
popul
arl
yknownast
he3R’
s)oft
hebor
rowerandt
he

guar
ant
or.

Pur
pose

Thebankerhast
ocar
eful
l
yexami
net
hepur
posef
orwhi
cht
headv
ancehasbeen

appl
i
ed.I
ftheadv
ancei
sint
endedf
orpr
oduct
ivepur
poses,i
tcoul
dber
easonabl
y

ant
ici
pat
edt
hatcashf
lowsar
isi
ngf
orpr
oduct
iveact
ivi
ti
eswi
l
lpr
omptr
epay
ment
.Of

cour
se,
thebankerhast
obecar
eful
tomoni
tort
heexactpur
posef
orwhi
cht
headv
ance

i
sut
il
iz
ed.
Sour
cesofRepay
ment

Bef
oregi
vi
ngf
inanci
alaccommodat
ion,abankershoul
dconsi
dert
hesour
cef
rom

whi
chr
epay
menti
spr
omi
sed.I
nsomei
nst
ances,debent
urest
ober
edeemedi
naf
ew

mont
hsoral
i
fei
nsur
ancepol
i
cyt
omat
uresoonmaybeof
fer
edassecur
it
y.Adv
ances

agai
nstsuchsecur
it
ygi
venot
roubl
e.Somet
imes,cust
omer
smayappl
yforl
oansf
or

addi
ti
onalwor
kingcapi
talf
ort
hei
rbusi
nessandr
epayt
hepr
ofi
tsov
eraper
iod.I
nsuch

cases,
ther
atet
hecust
omercanr
easonabl
yhopet
orepayshoul
dbeascer
tai
ned.

Di
ver
sif
icat
ionofRi
sk

A banker
’s secur
it
yconsci
ousness and t
he bor
rower
’si
ntegr
it
yar
e‘notadequat
e

f
act
orst
okeept
hebankersaf
e.Whati
sal
soi
mpor
tanti
sthedi
ver
sif
icat
ionofr
isk.

Thi
smeanst
hebankershoul
dnotl
endamaj
orpor
ti
onoft
hei
rloanabl
efundt
oany

si
ngl
ebor
rowerori
ndust
ryoronepar
ti
cul
arr
egi
on.Ot
her
wise,
anadv
ersechangei
nthe

economymayaf
fectt
heent
ir
ebusi
ness.I
nsuchacase,r
epay
mentwi
l
lbehi
ghl
y

di
ff
icul
t,andt
hebank’
ssur
viv
alwi
l
lbecomequest
ionabl
e.Ther
efor
eabankshoul
d

f
oll
ow t
hewi
sepol
i
cyof“
donotputal
ltheeggsi
nasi
ngl
ebasket
.”Thebankmust

adv
ancemoder
atesumst
o cust
omer
sspr
eadov
erawi
dear
eaandbel
ongi
ngt
o

di
ff
erenti
ndust
ri
es.

Soci
alResponsi
bil
i
ty

Whi
l
eadmi
tt
ingt
hatbanksar
eessent
ial
l
ycommer
cialv
ent
ures,abankshoul
dnot
f
orgett
hati
tisnotenought
hatonl
ypeopl
eofmeansar
egi
venbankf
inance.Thr
ough

pr
oduct
iveef
for
t,bankf
inanceshoul
dmakepeopl
ecr
edi
twor
thyandt
urnt
hem i
nto

peopl
eofmeans.

Techni
calcompet
enceoft
hebor
rower
,oper
ati
onalf
lexi
bil
i
ty,andeconomi
cvi
abi
l
ity
,

r
athert
hant
hesecur
it
ythebor
rowercanof
fer
,shoul
dbeconsi
der
edi
nev
aluat
inga

l
oanpr
oposal
.

I
dent
if
ying pr
ior
it
ysect
orst
o ex
tend bankcr
edi
tshoul
d be consi
der
ed a posi
ti
ve

dev
elopmenti
nthebanki
ngsy
stem,ai
medatef
fect
ivel
ydi
schar
gingi
tsr
esponsi
bil
i
ty

t
owar
dssoci
ety
.

DI
FFERENCEBETWEENBANKI
NGANDMONEYLENDI
NG

Abanki
ngbusi
nessi
s,howev
er,
dist
inctf
rom apur
emoney
-l
endi
ngbusi
ness.Amoney
-

l
enderusual
l
yadv
anceshi
sownf
unds.

Abankaccept
sdeposi
tsf
rom t
hepubl
i
c,whi
char
ewi
thdr
aw-
abl
ebycheques,andt
he

f
undssoaccumul
atedar
elentt
oit
sneedycust
omer
sagai
nstgoodsorsecur
it
iesorby

di
scount
ingbi
l
ls.

Fur
ther
,thebankpay
sint
erestt
oit
sdeposi
tor
s,andt
hedeposi
tsar
ewi
thdr
aw-
abl
eby

cheques.

Money
-l
ender
sgener
all
ydonotr
ecei
vedeposi
tsf
rom publ
i
c,andev
eni
ftheyr
ecei
ve

suchdeposi
ts,i
tisnotobl
i
gat
oryont
hei
rpar
ttopayauni
for
mint
erestr
ateonsuch

deposi
ts;
andt
hesedeposi
tsar
enotchequabl
e.
Fur
ther
,ver
yof
ten,whent
her
eiscr
edi
tst
ri
ngency
,banker
smaybor
row f
rom ot
her

banksorcent
ral
bankt
olendt
othei
rcust
omer
s.Money
-l
ender
sobv
iousl
ydonotdoso.

Banki
ngi
sabusi
nesst
hati
ssepar
atef
rom abusi
nesst
hatexcl
usi
vel
yrev
olv
esar
ound

moneyl
endi
ng.Money
lender
schar
act
eri
sti
cal
l
ylendt
hei
rownmoney
,wher
easbanks

f
unct
ionbyadmi
tt
ingdeposi
tsf
rom t
hei
rcust
omer
sandwi
thdr
awal
sar
econt
rol
l
ed.

Bank’
saccr
ued f
undscanbel
oaned t
o bor
rower
sagai
nstsecur
it
iesorcol
l
ater
al.

Mor
eov
er,
deposi
tor
sar
epai
dint
erestbyt
hebanks,
anddeposi
tscoul
dbewi
thdr
awn.

Money
lender
sdonotgener
all
yobt
aindeposi
tsf
rom t
hei
rcust
omer
s.Ev
eni
fthese

ki
ndsofdeposi
tswer
etobeacqui
red,t
heyar
enotneededt
ogi
veast
andar
dint
erest

r
ateondeposi
ts,andt
heycan’
tbewi
thdr
awn.Mor
eov
er,whencr
edi
tregul
ati
onsar
e

r
igor
ous,banksar
eper
mit
tedt
ousef
undsf
rom ot
herbanks,achoi
cet
hatmoney

l
ender
sdonotencompass.

Loansf
rom BanksandMoneyLender
s

Money
lender
sgener
all
yof
ferr
est
ri
ctedsmal
l
erl
oansaspert
hebor
rower
’si
ncome.

Lender
sar
eaccessi
blet
oai
dpeopl
etodealwi
thshor
t-
ter
mfi
nanci
alr
equi
rement
s.

Ther
efor
e,i
tmi
ghtnotbepr
act
icalt
oappl
yforl
oans,
fori
nst
ance,
homel
oanst
obuya

newhomewhendependi
ngonamoneyl
ender
.

Themai
ndi
sti
nct
ionsbet
weent
het
woent
it
iesar
ethei
rser
vices.Moneycanusual
l
ybe

keptsecur
elyatabank,bepr
ofi
cientataccessi
ngl
oans,i
nvest
ment
s,andnumer
ous
ot
herser
vices.Nev
ert
hel
ess,al
i
censedmoney
lendercanj
ustof
ferper
sonall
oans.

Ther
ear
e,mor
eov
er,
somecr
uci
aldi
spar
it
iesi
nthei
rlendi
ngpr
act
ices.

Ev
aluat
ingCr
edi
t

I
n cont
rastt
o banki
ng i
nst
it
uti
ons,money
lender
s ar
e gener
all
yless sev
ere when

ev
aluat
ingt
hebor
rower
’scr
edi
trepor
torscor
e.Money
lender
sgener
all
yoper
atewi
th

smal
l
erl
oansand char
gemor
eexcel
l
enti
nter
estr
ates,whi
ch ar
efeat
ured t
o an

enhancedr
iskofdef
aul
ti
ng.Money
lender
sar
est
il
lrequi
redt
oest
abl
i
shabor
rower
’s

f
inanci
alcapabi
l
iti
esbyaspect
ssuchashomeowner
shi
pandi
ncome.I
ncomest
atusi
s

r
elev
antt
obot
htheempl
oyedandsel
f-
empl
oyed.

Cr
edi
tchecksar
ethepr
omi
nentdi
ff
erent
iat
ingf
eat
urebet
weenbanksandl
i
censed

money
lender
s.Money
lender
sdonotgener
all
yhi
ghl
i
ghtcr
edi
trat
ings.Numer
ousbanks

candecl
i
neappl
i
cat
ionsi
nst
ant
aneousl
yaspert
hei
rpol
i
cies.Thi
shappenswhent
he

bor
rowerhasashor
tcr
edi
trat
ing.Money
lender
sar
elessr
est
rai
nedandf
inddi
ff
erent

way
stohol
dthei
rcust
omer
s.Col
l
ater
ali
sanal
ter
nat
ivet
hatcanbehel
pfulwhent
ryi
ng

t
osecur
eal
oan,
exceptcr
edi
tscor
eisnotav
italf
act
orf
ormai
nlymoneyl
ender
s.Thi
s

i
sbecauset
hel
oanamount
sar
ecompar
ati
vel
ysmal
lcompar
edt
othebanks’
amount
s.

I
nter
est

Money
lender
sal
l
owt
hei
rcust
omer
stoi
dent
if
ythei
rspeci
fi
cint
erest
sandar
eexpect
ed

t
ochar
geaddi
ti
onalf
eest
hanbanks.Theser
atescanber
elat
ivel
yhi
ghandr
ely
ingon

howexpensi
vet
hel
oani
s,al
ter
nat
ives,
suchascr
edi
tcar
ds,
canbedeemedaf
for
dabl
e.
I
fyouchooseacr
edi
tcar
d,spar
esomet
imet
oshopf
ort
her
ightcar
dandf
inedeal
s.

LoanAmount

Li
censedmoney
lender
sgener
all
yissuesmal
l
erl
oans.Oneoft
her
easonsf
ort
hisi
sthat

t
hecompani
esar
efr
equent
lysmal
landpr
ovi
dedef
ini
ter
egi
onalf
inanci
alneeds.The

bankbor
rowi
ngpr
ocedur
ecanbet
ir
esomeandbur
densomebecauseoft
hest
ri
ctr
ules

concer
ningappr
oval
.

Li
censedl
ender
sgi
veser
vicest
opeopl
ewhoneedf
astcash.Thel
oancanbeut
il
izedt
o

f
urni
shf
orunf
oreseenbi
l
lsoremer
genci
es.Cust
omer
swhodonothav
eadequat
e

sav
ingst
o cov
ert
heseki
ndsofcost
sorr
equi
resmal
l
eramount
scan choosea

money
lender
.Howev
er,f
ormor
econsi
der
abl
eexpenses,suchasmor
tgages,abanki
s

pr
efer
abl
e.

Accesst
oInf
ormat
ion

Banksar
egener
all
ytr
anspar
entaboutt
hei
rint
erestr
ates.Conv
ersel
y,money
lender
sar
e

f
requent
lyhesi
tantaboutdi
spl
ayi
ngt
hei
rrat
esonl
i
ne.Compar
isonsi
teshel
pmakei
t

muchmor
eef
for
tl
esst
ofi
ndoutaboutt
her
atesandpi
ckl
ender
s.

LoanPr
ocess

I
tiseasi
erandqui
ckert
oacqui
reashor
t-
ter
mloanf
rom al
i
censedl
endert
hanf
rom a

bank.Af
terv
isi
ti
ngt
hemoney
lender
,thepr
ocedur
ebegi
nswi
thf
ini
shi
nganappl
i
cat
ion

f
orm andt
hecr
edi
tri
skest
abl
i
shest
hei
nter
estr
atest
ender
ed.
Money
lender
sguar
ant
eet
hatt
hel
oansar
eal
lsetwi
thi
ntheshor
testper
iodoft
ime

f
easi
ble.Abor
rowerwi
thf
inecr
edi
tisaptt
ogett
hel
oanf
ast
er,butt
hepr
ocedur
eis

gener
all
yqui
ckandeasydespi
tet
hecust
omer
’ssi
tuat
ion.

Bankst
akel
ongert
ogr
antl
oansbecauset
headmi
nist
rat
ioni
nti
mat
elymoni
tor
sthe

appr
ovalpr
ocedur
e.Anot
herf
acetoft
hepr
ocedur
eist
hel
oanamount
,butt
hepr
ocess

i
srel
evantt
odi
ver
set
ypesofl
oans.Al
i
censedmoney
lenderi
sapr
act
icalchoi
cef
or

per
sonal
loanswheny
our
equi
recashf
ast
.

CONCLUSI
ON

Gai
ningal
oant
omeetdi
ff
erentcommi
tment
sandf
undemer
genci
esi
snol
onger

unusual
.Of
flat
e,t
her
ear
esev
eralopt
ionsf
ori
ndi
vi
dual
stodeci
def
rom,maki
ngi
t

mor
e chal
l
engi
ng f
orpeopl
eto make t
he cor
rectchoi
ce.Whi
l
e some banks ar
e

conv
ent
ionalandascer
tai
nedsour
cesoff
inance,
manypr
ivat
elender
s,suchaspeer
-t
o-

peerl
endi
ngsi
tes,onl
i
nel
ender
s,non-
banki
ngf
inanci
alcor
por
ati
ons,et
c.,hav
eal
so

i
nst
it
utedt
hemsel
vesi
nthel
oanmar
ketf
rom wher
eyoucangai
naper
sonal
loaneasi
l
y.

Nev
ert
hel
ess,sev
eraldi
ff
erencesexi
stbet
weenget
ti
ngaper
sonall
oanf
rom abankv
s

apr
ivat
elender
.
REFERNCES:

Lawofbanki
ngv
olume1(
1993)

ht
tps:
//www.
preser
vear
ti
cles.
com/
economi
cs/
what
-i
s-t
he-
dif
fer
ence-
bet
ween-
banki
ng-

and-
money
-l
endi
ng/
20527

TheFr
eeDi
cti
onar
yFi
nanci
alDi
cti
onar
y."
Lender
."

Exper
ian.
com."
Aver
ageConsumerDebtLev
elsI
ncr
easei
n2022