NON-BANKING FINANCIAL INSTITUTIONS

What is non-banking financial institution? A non-bank financial institution (NBFI) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency. NBFIs supplement banks by providing the infrastructure to allocate surplus resources to individuals and companies with deficits. Additionally, NBFIs also introduces competition in the provision of financial services. While banks may offer a set of financial services as a packaged deal, NBFIs unbundle and tailor these services to meet the needs of specific clients. Additionally, individual NBFIs may specialize in one particular sector and develop an informational advantage. Through the process of unbundling, targeting, and specializing, NBFIs enhances competition within the financial services industry. Difference of banking and non -banking financial institutions: Banking Institutions - corporations, companies or associations which are engaged in the lending of funds obtained from the public through the receipt of deposits and the sale of bonds, securities or obligations of any kind. Financial Institutions, Non-Bank - persons or entities whose principal functions include the lending, investing, or placement of funds or evidences of equity deposited with them, or otherwise coursed through them, either for their own account or for the account of others. The essential differences between banks and NBFIs can be stated as under: 1.In economic literature, NBFIs is a generic term and refers to financial institutions "whose liabilities are not accepted as a means of payment (or money) in the settlement of debt." While a bank is a financial institution whose liabilities (bank deposits) are widely accepted as a means of payment (or money) in settlement of debt. 2. Banks form a homogeneous group doing banking business. NBFIs form a heterogeneous group in the financial structure of the economy. 3. Usually, banks are confined to only short-term loans in the money market. NBFIs are spread over the entire range of financial markets supplying short, medium and long-term credit. 4. Commercial banks generate multiple expansion of credit. NBFIs only mobilize savings for investment. 5. Commercial banks' credit creation is determined by the availability of excess reserves and the cash reserve ratio. Rate of interest has little significance in this matter. On the other hand, NBFIs' operations and saving mobilization processes are largely governed by the structure of the rate of interest.

6. Commercial banks can raise funds rather costless as no interest is payable on demand deposits. NBFIs have to pay higher and higher interest to attract more funds. 7. People deposit money with banks for safety, convenience and liquidity considerations. They invest their savings with NBFIs with economic motive of earning extra incomes. 8. In the process of credit creation banks involve relatively a lesser time, for banks are basically interested in payment turnover. On the other hand, lending operations of the NBFIs involve relatively a longer time period, since they are based on income turnover. 9. Activities of banks and NBFIs can cause destabilization impact when there are changes in the structure of portfolios held by the NBFIs or when financial claims on the NBFIs are increasing at the cost of banks' demand deposits. 7 In fine, both banks and NBFIs play a significant role in the progress of the economy by influencing saving and investment. However, as the Banking Commission puts "the place of NBFIs in economy really depends on whether as a class they are performing some functions which cannot be performed by banks efficiently." Different types of Non-Banking Financial Institutions: 1. Investment House - an enterprise engaged in guaranteed underwriting of securities of another person or enterprise, including securities of government and its instrumentalities. REPUBLIC CT NO. 8366 AN ACT LIBERALIZING THE PHILIPPINE INVESTMENT HOUSE INDUSTRY, AMENDING CERTAIN SECTIONS OF PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS THE INVESTMENT HOUSES LAW. Section 1.Declaration of policy. It is the policy of the State to expand and strengthen the capital base of the economy in order to ensure sustained economic growth and development. Toward this end, the Philippine investment house industry is hereby liberalized, increasing foreign equity participation and raising the minimum capitalization of investment houses to enable them to meet the present and future demands of the market.

2. Investment Company - an entity primarily engaged in investing, reinventing or trading in securities. REPUBLIC ACT 2629 The Philippine Investment Company Act of 1960

1. Classification of Investment Companies in the Philippines (ICA Sec 5)

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Open-end company means an investment company which is offering for sale or has outstanding any redeemable security of which it is the issuer.

Closed-end company means any investment company other than an open-end company.

2. Investment Policy (ICA Section 12) Unless authorized by the vote of a majority of its outstanding voting securities, investment companies may not do any of the following:
o o o o o

borrow money issue senior securities underwrite securities issued by other companies purchase or sell real estate or commodities make loans to other people

3. Financing Company - a corporation or partnership which is primarily organized for the purpose of extending credit facilities to consumers and to industrial or agricultural enterprises by discounting or factoring commercial papers or accounts receivables or buying and selling contracts, leases, chattel mortgages and other evidences of indebtedness or by leasing motor vehicles, heavy equipment and industrial machineries and equipment, appliances, etc. REPUBLIC ACT NO. 5980 AN ACT REGULATING THE ORGANIZATION AND OPERATION OF FINANCING COMPANIES. Section 1. This Act shall be known as the "Financing Company Act." Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to regulate the activities of financing companies to place their operations on a sound, stable and efficient basis, so that they may be in a better position to extend effective service in a fair manner to the general public and to industry, commerce and agriculture; to curtail and prevent acts or practices prejudicial to the public interests.

4.Securities Brokers and Dealers-- conduct trading in the secondary market.

Brokers -- arrange sales between buyers and sellers Dealers-- play the market with bonds and/or stock. Broker-dealers fulfill several important functions in the financial industry; these include providing investment advice to customers, supplying liquidity through market-making activities, facilitating trading activities, publishing investment research and raising capital for companies. Broker-dealers may range in size from small independent boutiques to large subsidiaries of giant commercial and investment banks. REPUBLIC ACT 178 "Dealer" means any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business. "Broker" means any person engaged in the business of effecting transactions in securities for the account of others but does not include a bank

4. Non-Stock Savings and Loan Associations - a corporation organized primarily for mutual self-help and common interest of its members who must belong to a well-defined group and shall not transact business with the general public. REPUBLIC ACT No. 3779 AN ACT TO PROVIDE FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF SAVINGS AND LOAN ASSOCIATIONS (AS AMENDED BY RA 4378, PD 113, PD 450, PD 1318 AND PD 1539) Section 1.Title. The short title of this Act shall be the Savings and Loan Association Act. Section 2.Declaration of Policy. It is hereby declared to be the policy of the State: (a) To regulate and supervise the activities of savings and loan associations in order to place their operations on a sound, stable, and efficient basis to the end that they may be able to better provide for the establishment of additional credit and savings facilities in a fair manner to the consuming public and to industry, commerce, and agriculture and to curtail or prevent acts or practices of these savings and loan associations which are prejudicial to the public interest; (b) To lay down the minimum requirements and the standards under which savings and loan associations may be established and do business; (c) To maximize the protection of the public, and of members and stockholders of savings and loan associations against misfeasance and malfeasance of the directors and officers thereof; and

(d) To encourage industry, frugality and the accumulation of savings among the public, and the members and stockholders of savings and loans associations.

Section 4.Organization of savings and loan association. (a) A savings and loan association shall be organized either as a stock or non-stock corporation: (c) A savings and loan association organized as a non-stock corporation shall confine its membership to a well-defined group of persons and shall not transact business with the general public. It shall accept deposits from, and grant loans to, only its member-depositors; and (d) No entrance fees of any kind may be charged by any association without first securing the approval of the Monetary Board. In no case shall the total amount of fees exceed one percent of the amount deposited, contributed, or otherwise paid in by the particular shareholder, stockholder, or member.

6.Pawnshop - a business establishment engaged in lending money on personal property delivered as security or pledge. PRESIDENTIAL DECREE 114 THE PAWNSHOPS REGULATION ACT (PRESIDENTIAL DECREE 114) OF 1973 GOVERNS THE REGULATION OF PAWNSHOPS IN THE PHILIPPINES. The late President Ferdinand Marcos signed into law Presidential Decree No. 114 or the Pawnshop Regulation Act on January 29, 1973. PD No. 114 gave the BangkoSentrals predecessor, the Central Bank of the Philippines, the task to regulate and supervise the registration and operation of pawnshops in the Philippines. The BangkoSentral, for its part, has the Manual of Regulations for Non-Bank Financial Intermediaries-P Regulations, which contains the rules and regulations governing pawnshops. The central monetary authority also issues circulars and memoranda to strengthen its supervision over the pawnshop industry. Among its more recent issuances were Circulars No. 711 and 656 dated January 28, 2011 and June 2, 2009, respectively. Both of the circulars significantly updated the countrys pawnshop regulations. Highlights of these regulations are the following: Requirements in the application of new pawnshop and new branch; Application of the fit and proper rule to the board of directors and officers of corporate pawnshops;

 Requirement to maintain a prudential capital ratio based on the amount of loans, i.e., 50% or P1.5 million capital for the first P3 million loans; additional 30% for loans in excess of P3 million; Explicit provisions on Know-Your-Pawner procedures to address Anti-Money Laundering Act (AMLA) requirements as well as Anti-Fencing Law concerns; Submission of Audited Financial Statements by the top pawnshops (those with assets of P50 million and above); Provisions on collateral business such as remittance, money changing and bills payment; Transferring and closing of a pawnshop head office or branch; and Reports to be submitted i.e. Consolidated Statement of Condition and Consolidated Statement of Income and Expenses. 7.Lending Investor - a person who make a practice of lending money for themselves or others at interest and who are not organized under any specialized chartered law. REPUBLIC ACT 9497 The law is consistent with the declared policy of the State to regulate the establishment of lending companies and to place their operation on a sound, efficient and stable condition to derive the optimum advantages from them as an additional source of credit; to prevent and mitigate, as far as practicable, practices prejudicial to public interest; and to lay down the minimum requirements and standards under which they may be established and do business. Capital required for lending companies:The minimum paid in capital of any lending company established under the law is One Million Pesos (P1,000,000.00). Existing lending companies established and in operation prior to the effectivity of this law shall comply with the required minimum capitalization within such time as may be prescribed by the SEC which time shall, in no case, be less than three years from the date of effectivity. The SEC may also prescribe a higher minimum capitalization if warranted by circumstances. 8.Fund Manager-The person(s) responsible for implementing a fund's investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people. Fund managers are paid a fee for their work, which is a percentage of the fund's average assets under management. 9.Trust company- is a corporation, especially a commercial bank, organized to perform thefiduciary of trusts and agencies. It is normally owned by one of three types of structures: an independent partnership, a bank, or a law firm, each of which specializes in being a trustee of various kinds of trusts and in managing estates. Trust companies are not required to exercise all of the powers that they are granted. Further, the fact that a trust company in one jurisdiction does not perform all of the duties of a trust company in another jurisdiction is irrelevant and does not have any bearing on whether either company is truly a "trust company". Therefore, it is safe to say that the term "trust company" must not be narrowly construed.

10.Insurance companies-(insurance company) a financial institution that sells insurance.

11.Corporate venture capital (CVC)-distinct from corporate venturing, is the investment of corporate funds directly in external start-up companies. Corporate Venturing refers to when a company supports innovation and new projects internally.[1] CVC is defined by the Business Dictionary as the "practice where a large firm takes an equity stake in a small but innovative or specialist firm, to which it may also provide management and marketing expertise; the objective is to gain a specific competitive advantage.[2] The definition of CVC often becomes clearer by explaining what it is not. An investment made through an external fund managed by a third party, even when the investment vehicle is funded by a single investing company, is not considered CVC. Also, investments that are considered corporate venturing, whereby a company invests in a new internal venture that is distinct from its core business, but remains legally part of the company, is not CVC. [3] Most importantly, CVC is not synonymous with venture capital (VC); rather, it is a specific subset of venture capital.