POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter indicates the ideas relevant to the present subject relating to the other

studies and is briefly discussed providing the foundation of the Computerized Lending

Management System with SMS notification for High Lite Finance Corporation to develop a

new method and procedures.

Yet, this chapter acts as a stepping-stone towards the achievement of the project

objectives. For scholars, the depth, and breadth of the literature review emphasize the

credibility of the writer in his or her field. Lastly, this chapter provides a solid background to

back one’s investigation. The review play a critical role in analyzing the existing literature

and giving justification as to how one’s research fits into the existing body of knowledge. It

implies that the literature review provides the general understanding which gives meaning to

the discussion of findings, conclusions, and recommendations. It allows the proponents to

demonstrate how his / her research link to previous efforts and how it extends to build on a

better understanding.

Foreign Literature

Mahmoud and Dalia (2013) 8, conducted a study in Jordon to examine the impact of

IT sophistication on perceived usefulness of accounting information. This study focuses on

four dimensions of IT sophistication, i.e. technological, informational, functional and

managerial to examine the impact on accounting information. To achieve this objective they

studied 174 companies listed in Jordan Stock Exchange.From this study they revealed a

significant and positive relationship between four dimensions of IT sophistication and

accounting information characteristics. Their study also suggests managerial, informational

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and functional IT sophistication are more important than the technological aspect in

influencing the perceived usefulness of accounting information characteristics. In this study

they have given research model showing the relationship between Information technology

and perceived usefulness accounting information characteristics as follows.

Webster, J., & Watson, R. T. (2002) classify SMS as an information communication

technology (ICT), that provides infrastructure and components to enable modern computing.

Nowadays using ICT in any different sorts of business offer an increase of economic

efficiency and labor productivity that causes long term growth.

Local Literature

According to Diaz, Estoesta, Ledesma, Meneses, and Onesa on their study on

Multiple Borrowing in the Philippines (February 2011), found strong evidence of the

occurrence of multiple borrowing among urban-based women micro entrepreneurs. Close to

half (65women) of the sample acknowledged having current loans with two lenders (65% of

the multiple borrowers) or with three or more lenders (35%).Most of the multiple borrowers

obtain their extra credit from non-bank financial institutions (43.94%) like MFIs, followed by

family members and relatives (30.30%), and individual moneylenders at 24%.This indicates

that the availability of many MFIs in the urban area do facilitate the incidence of multiple

borrowing. The average loan principal for all respondents is P10,423 while multiple

borrowers register a higher average of nearly P17,000. This data suggests incremental

loan/s falling within the average loan size range of the total sample. This may indicate some

form of control exercised by multiple borrowers or by the lenders. Multiple borrowers are

quick to point out the many advantages of having access to loans. In particular, having

money when you need it has been found to help sustain business operations, keep children

in school, and provide support to families in distress due to medical emergencies, for
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example. For all its advantages, multiple borrowers do acknowledge the stress and mental

burden that go with multiple borrowing when money is tight and there is not enough to go

around meeting the needs of the family, business and lenders. Thus, only a small 20%

among them would endorse getting into multiple borrowing, offering a further advice of only

doing so if money will be put to good use.

The Five – Six money lenders: so-called because of the manner in which they

lend,”5-6” money lender charge a nominal interest rate rate of the 20% over an agreed

period of time. A person who borrows 5 pesos from a 5’6 over a period of one week repays

6 pesos, including 1 peso interest. Neither Filipino nor Indians “5’6” money lender requires

collateral or documents from their borrowers business and loan repayment history provide a

gauge of the borrower’s credibility. Five six money lenders undertake daily collections of

payment in the morning, afternoon or both. A clients daily payment is determined by the sum

of principal borrowed plus arrangement is flexible, if the clients fail to pay 1 day it is

understood that he or she will pay for the missed the next time around(mariekondo).

Renewal of loan depends on the money lenders policy. Some “5-6” money lender will renew

clients only after the previous loan is paid in full. More accommodating lenders will renew a

client’s loan earlier, subtracting the outstanding balance of the old from the new loan and

issuing the client from remainder. The favoured clients of informal money lenders are

proprietors of small business such as market vendors, small scale retailer and small service

providers. A key success factor of 5-6 business is to develop of the large, good-quality client

base which continually borrows and repay without default.

According to Eduardo F. Ugarte (2003) texting provides privacy and intimacy. By

allowing us to maintain contact with our significant others, cell phones help us cope with our

isolation, insecurities and confusion. This accounts for the recurring banality of texting

exchanges, in which the information conveyed is often less important than the fact that
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contact has been achieved. In business especially with banking or any loan related

corporate connection is important to secure the relationship between the company and

customer, giving them a reliable communication and real time view of data boost the trust

and satisfaction of customer.

Foreign Studies

The proponents collected information related to their study to prove the effectiveness

of the proposed system. This information was based on how technologies change the game

for micro finance and small lending businesses by using new algorithms and emerging

market places. G. Aaron (2010) given current market trends, retail banking as we know it

today will no longer exist by 2020. Even by 2015, almost all small retail banks will be

struggling, and even some of the large banks will be trying to re‐invent themselves as

software companies as they are confronted by competition from more agile and

technologically adept competitors.

Federal Reserve Bank of New York (2013) stated that the growth of online small

business lending is not just supported by access and a greater inclination to take on risk in

small business lending, and open new pools of capital for small business owners. The

growth is also driven by the ways in which alternative lenders are ‘innovating’ in small

business lending, particularly in terms of simplicity and convenience of the application

process, speed of delivery of capital, and a greater focus on customer service. For example,

all of the biggest players emerging in the alternative lending space offer online and mobile

applications, many of which can be completed in under 30 minutes. These are not just

inquiries; these are actual loan applications, which compares to the average of about 25

hours that small businesses spend on filling out paperwork at an average of three
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conventional banks before securing some form of credit.Brainard, Lael (2015) indicated

although the associated costs of borrowing can be higher with online lenders, small

business borrowers may be willing to pay a higher price in exchange for an easy application

process, a quick decision, and rapid availability of funds, or because they have no

alternative sources of borrowing.

Richards Kibbe (2013) coined the peer‐to‐peer (P2P) model is already established in

consumer lending, with two companies, Lending Club and Prosper, making more than $4

billion in consumer loans to date. P2P means that individual investors most of which are

large institutional investors such as hedge funds and investment banks direct capital to P2P

transactional marketplaces, like Lending Club, which then decision loans based on a

proprietary credit model. Revenue for P2P lending platforms is derived from origination fees

that are deducted from loan proceeds disbursed to the borrower and servicing fees that are

deducted from principal and interest payments paid to the lender.

Kabeer Hassan (2010) suggests the combination of Islamic microfinance with two

traditional Islamic tools of poverty alleviation such as Zakat and Awqafin an institutional set-

up. He suggests that the inherent nature of the proposed model mayensure equitable

distribution and welfare among the poor. As the model is based onprofit sharing and

concessional contract modes, distribution of earnings should beallocated among different

stakeholders such as depositors, shareholders, investor’s inthe NGO. The proposed model

will be financially viable and sustainable in the longrun, resulting from lower default rates

reduced the proper use of Zakah funds, whichdo not require any return. If implemented, this

model will contribute to povertyalleviation.

Afzal Peersade (2010) observes Islamic directions for financial inclusionthrough its

activities of zakah and infaq two types of flow of money from haves tohave notes. Author

points out that in history up to Islam there was no systematicsupport from the part of the
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state or community to financially include the relativelyworse people. Historically, the financial

inclusion in Islam may be linked to theeconomic exigencies of early followers of Islam in

particular and the moral andethical obligations of the Islamic state in general. According to

them zakah andsadaqahare the very important instrument for financial inclusion.

Local Studies

Lending P. (2014) PJH Lending Corporation is recognized as the premiere lender to

Overseas Filipino Workers nationwide. They issue more loans in Metro Manila, Cebu

Province, and Mindanao than any other financial institution they do more than simply

facilitate deployment. They offer a multi-faceted financial system that supports you and your

family every step of the way from pre-departure expenses, to overseas employment to

reintegration in the Philippines and beyond. PJH Lending Corporation monitors the needs

and concerns of Overseas Filipino Contract Worker and agencies alike and strives to

provide them with the quality of service they demand. PJH Lending is recognized as being

the most user friendly companying its field.

HOVONO (2013) Lending Corporation, (HLC) was formed in July, 2013 to enter the

rapidly expanding lending institutions in the Philippines. HLC offers two lending products

designed which are the DepEd School Teachers and Private School Teachers (PST) to help

with your financing needs. The company provides fast financial decisions with competitive

fixed and variable rate that gives you the complete financial services you deserve.

Armendariz & Labie (2011) Money lending has become prominent in the Philippines.

It is mainly a source of capital for most entrepreneurs, usually small scale business owners.

But with the demanding grounds for lending set by banks and other formal lending

institutions, these people usually settle for informal lending institutions; this now is termed as

microfinance. Microfinance is defined as the provision of small-scale financial services to

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people who lack access to traditional banking services. It usually implies very small loans to

low-income clients for self-employment, often with the simultaneous collection of small

amounts of savings.

Lenddo (2010) Philippines is a platform that provides Filipinos free financial

education and empowers them to use their online social connections to build their

creditworthiness and access local financial services including life improving loans for

education, medical emergencies, home repairs and business. Lenddo helps all of members

with financial education and currently provide loans in Colombia, Mexico and the

Philippines.

Microlending (2009) Lending industry thrives better in times of financial crunch. To

cope with crisis, people try to stretch their budged and augment their income. Many

households put up sari-sari stores; family members look for sidelines, try working abroad, or

simply try to borrow money. To raise the money to finance these activities interested rates,

and process loan applications faster.

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