THE BIRTH OF CREDIT SYSTEM

THE BIRTH OF CREDIT SYSTEMTHE INTRODUCTION OF MONEY IN THE ECONOMY USHERED IN A VERY SIGNIFICANT MILESTONE IN THE DEVELOPMENT OF THE CREDIT SYSTEM.DEVELOPMENT OF CREDITCREDIT 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. BECAUSE OF CREDIT SYSTEM THE PACE OF DEVELOPMENT OF COUNTRIES HAS ACCELERATED EVER SINCE

THE RATE OF ECONOMIC GROWTH OF A COUNTRY DEPENDS ON THE AVAILABILITY OF OF SUFFICIENT CREDIT, AND OF COURSE ON THE PROPER USE OF CREDITPRE-SPANISH TIMEHUNDREDS OF YEARS AGO, PRIOR TO THE ARIVAL OF THE SPANISH COLONIZATION, FILIPINO TRADERS WERE FAMOUS FOR THEIR HONESTY AND EXCELLENT CREDIT RECORD.SUCH CULTURAL VALUES WERE THE PRODUCT OF MALAY CULTURE.Dishonesty and the non payment of debt were greatly discouraged by punishments.

A GOOD EXAMPLE OF THE POSITIVE VALUES OF FILIPINOS WAS THE MANNER THEY HONORED THE CUSTOM OF TRADE.

THE REPUTATION OF FILIPINO TRADERS CONTRIBUTED TO THE GROWTH OF TRADE AND COMMERCE IN THE ASIAN REGION.

SPANISH PERIODDURING THE INITIAL YEARS OF SPANISH RULES FREE TRADE WAS ENCOURAGED.A PRODUCT OF MERCANTILISTIC POLICY IN THE PHILIPPINES WAS A GALLEON TRADE, THIS WAS THE MANILA-ACAPULCO TRADE.IT WAS CALLED GALLEON TRADE BECAUSE IT WAS CARRIED BY TRANS PACIFIC GALLEONS.THE PREVILEDGES OF DOING BUSINESS IN GALLEON TRADE WENT TO THE GOVERNMENT OFFICIALS, RELIGIOUS OFFICIALS, ROYALS OFFICIALS, SOLDIERS, AND THEIR RELATIVES AND FRIENDS.

AMERICAN ERAAGRICULTURE REMAINED UNDERDEVELOPED UNDER SPANISH REGIME.BUT THE AMERICAN GOVERNMENT GAVE PRIORITY TO ITS DEVELOPMENT.THEY INTRODUCED A BETTER BANKING AND CREDIT SYSTEM TO PROMOTE THE ECONOMIC DEVELOPMENT ESPECIALLY IN THE RURAL AREAS.CREDIT PROGRAMS OF THE GOVERNMENT WAS THE ORGANIZATION OF THE FIRST AGRICULTURAL BANK IN 1908 FOR THE BENEFITS OF THE FARMERS.1915 THE RURAL CREDIT LAW WAS ENACTED TO COMPLEMENT THE AGRICULTURAL BANK.THE BANKING SYSTEM GREW BUT IT WAS DOMINATED BY FOREIGN INTEREST.TO REMEDY SUCH SHORTCOMINGS IN THE CREDIT SYSTEM THE PHILIPPINE NATIONAL BANK (PNB) WAS ESTABLISHED IN 1916.THE ORGANIZATION OF RURAL BANKS AND AGRICULTURAL CREDIT ASSOCIATIONS WERE ENCOURAGED BY THE GOVERNMENT.

UNFORTUNATELY THE CREDIT PROGRAM OF THE GOVERNMENT FAILED IN THE RURAL AREAS. FARMERS DID NOT PAY THEIR OBLIGATIONS. THE FAILURE OF THE CREDIT PROGRAM WAS CAUSED BY A COMBINATION OF SEVERAL FACTORS :1. FARMERS DID NOT HAVE STEADY INCOME DUE TO DESTRUCTION OF THEIR CROPS BY NATURAL CALAMITIES.2. THEY WERE EXPLOITED BY THE LANDLORDS BY GIVING THEM UNFAIR SHARE IN THE HARVEST. THUS IT WAS NOT REALLY POSSIBLE FOR THEM TO PAY THEIR LOANS.3. THE NEGATIVE ATTITUDES OF THE BORROWERS TOWARDS THEIR DEBTS INFLUENCED THEIR REFUSAL TO SETTLE THEIR FINANCIAL OBLIGATIONS.4. THEY CONSIDERED THEIR LOANS AS ANOTHER FORMS OF DOLE OUTS ND THEREFORE THEY DID NOT FEEL THE RESPONSIBILITY OF PAYING THE GOVERNMENT LENDING INSTITUTIONS.UNDER THE REPUBLICTHE SCARS OF WORLD WAR II WERE STILL CONSPICUOUS WHEN THE PHILIPPINE BECAME A REPUBLIC ON JULY 4, 1946.SO THERES A GREAT NEED OF RECONSTRUCTION AND REHABILITATION.IN RESPONSE TO THE CREDIT NEED OF THE COUNTRY THE REHABILITATION FINANCE CORPORATION WAS ESTABLISHED ON OCTOBER 29, 1946.

UNTIL A VERY SIGNIFICANT IMPROVEMENT IN THE FINANCIAL SYSTEM WAS THE ESTABLISHMENT OF THE CENTRAL BANK OF THE PHILIPPINES IN 1949.SINCE THEN MONETARY POLICIES HAVE BEEN FASHIONED TO IMPROVE PRODUCTION, EMPLOYMENT, THE QUALITY OF LIFE OF THE PEOPLE ESPECIALLY THE RURAL SECTORS.

BASIC CONCEPTS OF CREDITCREDIT THE WORD CREDIT CAME FROM THE LATIN WORD CREDITUM WHICH MEANS TRUST.CREDIT REFERS TO THE ABILITY TO ACQUIRE SOMETHING OF VALUE, SUCH AS GOODS, SERVICES,SECURITIES OR MONEY AT THE PRESENT TIME IN RETURN FOR A PROMISE TO PAY AT SOME FUTURE TIME.TWOPARTIES INVOLVED IN ANY CREDIT TRANSACTIONTHE CREDITOR- WHO PROVIDES THE THING BORROWED AND THE DEBTOR- WHO RECEIVES IT AND ASSUMES THE OBLIGATION TO PAY.IT IS OBVIOUS THAT THE MOST IMPORTANT AND BIGGEST CREDIT TRANSACTIONS ARE THOSE WHICH INVOLVE THE USE OF MONEY.CREDIT INSTRUMENTApromissory noteor written evidence of adebtor'sobligation It must be in writing in accordance with the requirements of the LAW.

CREDIT SYSTEMTHIS INCLUDES CREDIT, CREDIT INSTRUMENTS, CREDIT INSTITUTIONS, LAWS AND CUSTOMS ON LENDING AND COLLECTION.A GOOD CREDIT SYSTEM SHOULD BE RESPONSIVE TO THE NEEDS AND WELFARE OF THE POOR WHO CONSTITUTE A GREAT MAJORITY OF OUR POPULATION.

A GOVERNMENT PROGRAM WHICH BENEFITS THE POOREST OF THE POOR IS AN EXCELLENT PROGRAM. ECONOMIC PROGRESS WOULD BE ONLY REAL WHEN THE FRUITS OF DEVELOPMENT IMPROVE THE QUALITY OF LIFE OF THE POOR.

ELEMENTS OF CREDITTRUST- THIS IMPLIES THAT THE CREDITOR OR BANKER HAS FAITH IN THE ABILITY AND WILLINGNESS OF THE DEBTOR TO FULFILL HIS OBLIGATION, BE IT AN INDIVIDUAL, CORPORATION OR GOVERNMENT.

TIME OF PAYMENT- THE BORROWER HAS AN OBLIGATION TO PAY HIS DEBT IN A DEFINITE TIME OR DATE. A CERTAIN FIXED DATE IS AGREED UPON FOR HIM TO PAY AS PROMISED.RISK- LIFE IS FULL OF RISKS AND THIS INCLUDES A PAYMENT OF LOANS. THE ABILITY OF THE BORROWER TO FULFILL HIS PROMISE TO PAY MAY BE REDUCED BY CIRCUMSTANCES BEYOND HIS CONTROL, SUCH AS NATURAL CALAMITIES AND PERSONAL MISFORTUNES.TO BE CONTINUED