Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools

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 tool of development and progress of people
and society, has, from ancient times to the present, serviced
the specific and relevant needs of the economy.

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
Pre-Spanish Time
 The Philippines had been trading with foreign countries for hundreds of
years prior to the arrival of the Spanish colonization.
 The barter system then was used in the conduct of trade with the foreigners.
 The Filipinos exchanged their native products, such as cotton, pearls, betel
nuts, sinamay fiber, and the like with the foreigners, for porcelain, silk, ivory.
 Filipino traders were famous for their honesty and excellent credit record.
 Dishonesty and the non-payment of debt were greatly discouraged by
punishment which are considered primitive under the present culture.
 It took them eight to nine months to return to the ship to pay the foreign
merchant.
 The reputation of Filipino traders contributed to the growth of trade and
commerce.
Saint Peter’s College of Ormoc, Inc.
A member of the Association of Benedictine Schools
Spanish Time
 Free trade was encouraged.
 A product of mercantilistic policy in the Philippines
was the Galleon Trade.
 Most of those who participated in the galleon trade
secured their loans from the pias.

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
AMERICAN ERA
1908 – First Agricultural bank

1915 – Rural Credit Law enacted

1916 – Philippine National Bank was established

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
The failure of the credit program was
caused by a combination of several factors:
 Farmers did not have steady income.
 They were exploited by the landlords who give them unfair share in
the harvest.
 The negative attitudes of the borrowers towards their debt.
 They considered their loans as another form of dole-outs.

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
UNDER THE REPUBLIC
 July 4, 1946 - When the Philippines became a
republic.
 October 29, 1946 - Rehabilitation Finance
Corporation
• Provided credit facilities for the rehabilitation of
agriculture, commerce and industry.
 1958 - the Rehabilitation Finance Corporation became
the Development Bank of the Philippines.
1949 - establishment of the Central Bank.
Saint Peter’s College of Ormoc, Inc.
A member of the Association of Benedictine Schools
 BASIC CONCEPTS
OF CREDIT
CREDIT
 came from the Latin creditium which means trust.
 refers to the ability to acquire something of value, such as goods,
services, securities or money, at the present time to return for a
promise to pay at some future time.

Two Parties:
 Creditor – who provides the thing borrowed.
 Debtor - who receives it and assumes the obligation to pay.

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
 BASIC ELEMENTS OF CREDIT

 TRUST AND CONFIDENCE

 FUTURITY
 RISK

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
THE CREDIT CONTRACT
The agreement arrived at between the parties to a credit contract
naturally originates from credit transactions.

These may in turn arise in various way, namely :

 Purchase and sale of goods and services
 The issuance of fiduciary money
 Borrowing money

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
Characteristics of a Credit Contract

It is a bi-partite contract

It is a pecuniary contract
It creates a legal obligation
It has the fiduciary element
It is based on personal factors

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
Installment Buying vs. Cash Purchase
Example Problem:

A good sells for P4,500 cash or on the installment plan for P300 down
payment and P280 a month for 18 months.

A personal loan agency offers to lend P4,500 payable in 18 months at

the simple rate of interest of 12%. Which offer must the buyer take ?

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
A. Installment Plan

1. Installment Price = down payment + sum of monthly payments

= P 300 + (P280 x 18)
= P 300 + P 5,040
= P 5,340

2. Carrying Charge = Installment price - cash Price

= P5,340 - 4,500
= P840

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
B. Cash Purchase on borrowed money

Interest = Prt
= P4,500 (.12)(1.5)
= P810

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
Comparative Credit

Interest is money paid for the use of money.

Interest rates are computed in an annual or yearly basis.
Simple interest is money earned over the duration of a deposit or a
loan. The formula for simple interest is :
I = Prt
Where :
I = interest
P = principal
r = rate at which the interest is to be paid
t = time
Saint Peter’s College of Ormoc, Inc.
A member of the Association of Benedictine Schools
For example, how much interest would a P 10,000 earn assuming
that interest rate ( simple interest) is 7% per annum?

Given :
P = P 10,000
r = .07 (7%)
t=1

Solution :
I = P 10,000 x .07 x 1
I = 700

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
What if a vendor needs P 50,000 so he/she can buy
goods and sell them for profit?

There are several ways of getting credit.

1. through regular banking credit

2. through a credit card
3. through your friendly neighborhood credit

Saint Peter’s College of Ormoc, Inc.

A member of the Association of Benedictine Schools
Let us see how much interest the vendor has to pay.

1. Bank credit, interest is about 12% p.a

I = P50,000 x .12 x 1
I = P6,000

2. Credit card credit, interest is 3.5% per Month

Given :
A) 3.5% = .035
B) time = 12 (12 months a year )

I = P50,000 x .035 x 12
I = P21,000
Saint Peter’s College of Ormoc, Inc.
A member of the Association of Benedictine Schools
3. Friendly neighborhood (aka Bombay ) money lender is
20% in 2 months.

Given :
A. 20% = .20
B. time = 6 ( 12/2 = 6)

I = P50,000 x .20 x 6
I = P 60,000
Saint Peter’s College of Ormoc, Inc.
A member of the Association of Benedictine Schools
 “ That in all things,
God maybe
glorified!”
Saint Peter’s College of Ormoc, Inc.
A member of the Association of Benedictine Schools