SEC Chairman Lilia R. Bautista said the Commission will continue to accept applications for conversion of lending firms into financing companies in spite of the expiration of the deadline for the said conversion last June 6.
Bautista noted that only 47 out of the total 10,885 lending investors have converted and have been granted licenses to operate as financing companies by the SEC as of May 31, 2003.
Out of the 47, 14 were single proprietorships, two were partnerships while 31 were existing corporations.
Pending applications for conversion to financing companies received by the SEC as of end-May this year included 26 single proprietorships, six partnerships and 123 existing corporations.
Even with the pending applications, the number of lending investors complying with the SEC directive is still low, Bautista noted.
She noted that with the impending passage of the Lending Company Regulation Act, lending firms are not in a rush to convert themselves into financing companies.
Once the bill is signed into law, lending investors will fall under the jurisdiction of the Department of Trade and Industry.
The bill, filed by Bacolod City Rep. Monico Fuentevella, will lay down the minimum requirements and standards for the creation of lending firms.
Under the proposed measure, lending corporations shall register as a corporation and file with the DTI a schedule of liabilities and its list of debtors as well as other reports that the DTI may require. These reports shall be signed under oath by the company’s principal executive officer and principal financial officer.
The proposed bill also provides stiffer penalties for erring lending firms. Violators would be fined not less than P10,000 or maximum imprisonment of 10 years, both at the discretion of the courts.
Fuentevella said while there are special laws such as the Financing Company Act that govern most non-bank financial companies, there is no specific law that covers lending firms.
Lending firms have been taking their time complying with the SEC directive since this would entail additional capital. Those operating in Metro Manila will have to raise their capitalization to P10 million while those in the provinces should have at least P2.5 million in capital.
A group of lending investors earlier urged the SEC to temporarily hold the implementation of this directive as this would result in the extinction of small lending firms.
The group said that requiring lending investors to convert to financing companies is against the nature of micro-lending which is to remain small in order to cater to small borrowers denied credit by banks and bigger lenders.
The SEC said that while it recognized the role of micro-finance in the fight against poverty, it could not close its eyes to the dangers of thousands of unregulated lending investors who were deriving their funding requirements from the investing public.
The SEC has been receiving reports that several lending and/or financing companies have gone beyond their required business activity by soliciting funds from the public with the promise of high yielding returns.
Lending companies grant direct loans from their own funds and are engaged in microfinance.
The SEC, however, admitted that it is helpless in regulating the activities of the existing 200 finance companies and about 10,000 lending corporations in the country.
Under existing rules, the SEC Commission can only investigate lending investors "on a general basis" as a corporation.