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In the Philippines, there is a great number of individuals and families that could not secure
affordable credit because they are either retired already (over 55-60 years old), temporarily
disabled (receiving disability pension for about 12 months), or under employed (receiving less than
P15,000 gross income per month).
These individuals are therefore exposed to usury and are forced to borrow money at exorbitant
interest rates of over 4% per month from pawnshops and individuals wherein they pawn as security
jewelry, cellfones, laptops or desktops, motorcycles or vehicles and house & lot titles as collateral.
Sometimes, they borrow at 5%-10% a month from individuals lending money for 1-3 months.
It is in this light that this corporation engaged in lending business aims to help them get affordable
credit at 2%-3% per month plus fixed charges (3% service fee, 2% collection fee, 1% credit
investigation fee, 1% legal/audit fee, 2.5% marketing/referral fee, documentary stamps [PhP 0.30
per PhP 200 PN amount if more than PhP 100,000], notarial fee [PhP 180 per loan] and creditors life
insurance [PhP 1.55 per PhP 1,000 outstanding balance], all totaling around 8-9% as one-time fixed
This is still much cheaper than their traditional sources of credit. The retired pensioners usually
borrow around PhP 2,000-4,000 per month for a term of around 6 to 12 months. For a 12-month
term at 2% per month, this translates to a 2.58% per month average interest. On the other hand,
salaried individuals borrow from PhP 4,000-8,000 per month for a term of around 3 to 6 months. For
a 6-month term at 2.5% per month, this translates to a 3.85% per month average interest.
Target Market
Experience has shown that once a private employee (SSS member) or a government employee
(GSIS member) retires at the optional age of 60 years old or mandatory retirement of 65 years old,
the retiree suddenly loses access to affordable credit. This means that prior to retirement, the
employee should ideally have saved money and/or invested his savings in some form such as time
deposits, treasury bills, stocks, small business enterprises, apartment rental units, etc. in order to
have regular replacement income after retirement.
Upon retirement, the retiree suddenly finds himself with little or no savings at all, and therefore, is
solely dependent on financial support from his children or relatives and whatever little SSS or GSIS
retirement benefits he is entitled. The retiree usually receives a lump-sum payment equivalent to 1years salary upon retirement, and after 1 year of waiting, he begins to receive regularly his
monthly pension, the amount of which depends on his last 6-months average salary prior to
retirement. The larger the average salary, the larger the monthly pension he receives until he dies.
The pension amount also depends on having a surviving espouse and children under 18 years of
On the other hand, a retiree with some savings and upon receipt of lump-sum payment finds
himself with a large sum of money with little experience in investing such money to provide
supplemental cash flow to augment his monthly pension which commences 1 year from receipt of
lump-sum payment.
The lending investor business model is therefore an ideal solution to both retirees: that provides
investor retirees with 10% p.a. net interest (after 20% withholding tax) income payable monthly,
quarterly, semi-annually or annually, and borrower retirees a ready credit facility up to PhP50,000.

Since there is a 20% final tax on interest income which is shouldered by the lending investor
company, this translates to a 12.5% p.a. gross interest income which is definitely much higher than
what banks provide today: 2.5% p.a. gross interest on savings bank deposits, 4-5% on time
deposits, 5-7% on treasury bills, 7-9% on commercial papers. Mutual funds as well as investmentlinked life insurance products such as fixed funds, balance funds and equity funds may also provide
investment outlet but given the sophistication and stringent age / health requirements, this may be
out of reach from most retirees.
Identification of Target Market
The business of the lending investor is most appealing to small business ventures. The entities are
usually engaged in the service sector, wholesale / retail trade and manufacturing / subcontracting.
The agri-forestry and fisheries sectors may be tapped depending on the location of the business.
Being primarily undertaken in rural communities, they are serviced usually by the informal money
lenders (Bombay or Indian national money lenders).
Aside from business persons, the financial requirements of employed individuals in the locality are
potential source of revenue. The lending investor may arrange formal agreements with various
employers and extend consumer loans to the employees in the form of salary loans, appliance
financing or direct loans.
The handling of consumer accounts is more tedious and burdensome as compared to business
accounts. However, this difficulty is compensated by its ability to spread the default risk in having
smaller but numerous loan amounts.
Lastly, individuals receiving monthly pensions from SSS and GSIS members due to retirement,
temporary or permanent disability, and death (surviving spouse or children under 18 years of age
receives survivor pension) are also potential clients.
Types of Credit Accommodation
The following are the general types of loans extended by lending companies. This lending
corporation will concentrate, however, on salary loan and pension loans.
1)Direct Loan
2) Real Estate Mortgage
3) Chattel Mortgage
4) Market Vendor Loan
5) Assignment of Time Deposit
6) Salary Loan
7) Pension Loan (SSS and GSIS)
There are other specialized types of loan such as car loan, appliance financing, quedan guarantee,
housing loan, bridge financing, etc. These labels are coined essentially for marketing purposes and
they basically fall under the general types mentioned above.
Sources of Funds
Start-up Capital
A start-up lending investor such as its predecessor, Winning Edge Lending Investor (WELI), a single
proprietorship, started with the following initial capitalization consisting of working capital, donated

capital (donated vehicles L300 van and Honda Civic car), donated software (Real Time General
Ledger Accounting System), office equipment and pre-operating costs.
Sources of Revenue
The lending investor derives its income from finance and non-finance charges on loans extended to
its borrowers. The income consists mainly of the interest, service fee and collection fee and
penalty/charges if any.
The rest are payable accounts since these are pass-thru charges for creditor life insurance,
documentary stamps, notarial fee, credit investigation fee, legal & audit fee and marketing &
referral fee. Since the cash out is less than the amount collected, there are residual incomes from
these payable accounts.
SSS Pension Loan (3 12 months term, PhP 500 50,000 loan)
The loanable amount is from a minimum PhP 500 to 2,000 per month for a total of approximately
PhP 25,000 for a 12 month loan. The interest is 2% per month, no creditor life insurance as the
retiree is older than 55 years old (maximum age to be insurable by Insular Life), PhP 180 notarial
fee per loan application, one time 3% service & processing fee, one time 2% collection fee, one
time 1% credit investigation fee, one time 1% legal & audit fees (based on loan amount), and one
time 2.5% marketing & referral fee (commission to sales agent based on loan amount less interest).
Maximum age of pensioner is 70 years old, except for case-to-base basis for pensioner older than
70. The co-maker should be the surviving spouse or dependents since the pension may be inherited
or transferred to dependents upon death of pensioner, though at a lesser amount.
The borrower receives the net loan proceeds which is around 67% of the loan amount after
deducting the interest and one time fixed charges.
For a SSS Pension Loan, the following is an example loan computation:
Salary Loan (1 12 months term, PhP 1,000 50,000 loan)
The loanable amount is from a minimum PhP 1,000 to 10,000 per month for a total of
approximately PhP 50,000 for a 6 month loan. The interest is 2.5-3% per month depending on credit
risk (nature of job, employer, co-maker), creditor life insurance of PhP 1.55 per 1,000 loan value if
employee is less than 55 years old (maximum age to be insurable by Insular Life), PhP 180 notarial
fee per loan application, one time 3% service and processing fee, one time 2% collection fee, one
time 1% credit investigation fee, one time 1% legal & audit fees (based on loan amount), and one
time 2.5% marketing & referral fee (commission to sales agent based on loan amount less interest).
The borrower receives the net loan proceeds which is around 75% of the loan amount after
deducting the interest and one time fixed charges.
For a Salary Loan, the following is an example loan computation:
Costs and Incomes from Loans
The income derived from a SSS pension loan is shown below. For a 25,000 gross loan amount, the
collection is 16,715 while the cash out is 3,940 for a net income of 4,345 or 17.38% of the gross
loan over a period of 12 months.

The income derived from a SALARY loan is shown below. For a 50,000 gross loan amount, the
collection is 12,557 while the cash out is 5,227 for a net income of 7,330 or 14.66% of the gross
loan over a period of 6 months.
The total lending costs are a summation of the following cost items:
1) Operating Expenses personnel, repairs & maintenance, etc.
2) Bad Debts Expense allowance for doubtful accounts
3) Cost of Borrowing interest paid on placements / borrowings
4) Economic Cost opportunity cost representing the earnings of your capital invested, for
example, in the money market, where it will earn without going through this whole exercise, and
5) Gross Receipts Tax monthly percentage tax of 5% of gross revenue (interest + service /
processing fee + collection fee + penalties / charges)
Year 2007 Clients
As of 2007, a summary of clientele borrowings is shown below:

average SSS Pension Loan amount is PhP 13,311 for 3-12 months term.
average GSIS Pension Loan amount is PhP 12,923 for 6 months term.
average SALARY Loan amount is PhP 14,501 for 1-12 months term.
PDC Loan amount is PhP 29,154 for 1-12 months term.

Profitability Financial Model & Feasibility Study

Illustrated below is a Financial Model from a Feasibility Study prepared for a small lending investor
business. Numerous assumptions have been made to simplify the scenario. The picture may vary
depending on what parameters to suppress or highlight. Truly, there are endless what ifs. It is
presented only for illustrative purposes and possibly as a guide to those who wish to prepare their
own detailed feasibility study.
The following tables show the simple financial model of the lending investor business given the
above simplified data.

Maintaining Profitability
After everything has been said and done, the bottom line to profitability is judicious management.
As much as possible, equity capital should be used in order to maximize returns and minimize
interest cost on placements and borrowed funds. While interest to be charged to clients must be
competitive, it must also be sufficient to generate spreads in order to cover the cost of borrowing
money, fund the various expenses and provide extra income for the lending investor owners /
shareholders. If raising interest rates is not an option due to stiff competition, raising the lending
portfolio would be a better alternative to meet both fixed and variable costs of your operation. Also,
cost control should be exercised to avoid costs overcoming income from operations.
Managing Credit Risks
Extra care also must be exercised in lending to individuals to ensure that creditor default risks are
minimized. Sufficient collateral and co-makers with repayment capacity should likewise be carefully
examined so that only deserving borrowers are provided with loans that could be repaid in full as

they mature. Before approving a loan, a credit investigation is undertaken to verify information
provided in the loan information sheet. Before releasing the loan proceeds, all the credit and loan
requirements are complete, duly signed and notarized and the security / collateral in the companys
Marketing Strategies
Raising the loan portfolio is best accomplished by undertaking a targeted marketing effort. Fliers
may be distributed to tricycles drivers, jeepney drivers where prospective SSS Pensioners may
travel to their respective homes as well as distributing hand bills / fliers to prospective pensioners
and salaried individuals.
Huge streamers announcing PENSION LOAN with complete contact details is also encouraged. A
sales agent recruitment campaign shall also be undertaken regularly to ensure a continued pool of
dedicated sales agents who will assist the borrowers in complying with the loan requirements.
The equity investors and directors as well as staff shall endeavor to promote the well being of the
Lending Corporation and also conduct marketing drives to connect with Pensioners as well as
Salaried Individuals who wish to avail of its credit facilities and convince their employers to sign
Memorandum of Agreements (MOA) on providing loan facilities to their trusted employees. The MOA
will ensure proper and timely collection of monthly amortization in an efficient manner.