72IlFUEEm CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
1 
‘64 JUN 30 PI0 :lo 
First Regular Session 
) 
S.B. No. 
118 
Introdwed by Senator Magsaysay, Jr. 
EXPLANATORY NOTE 
The 1 987 Philippine Constitution advocates the competitiveness , of Philippine 
private sector. Intended to enhance the quality of life of the majority of our people, the 
fbndamental law mandated, “[tlhe State recognizes the indispensable role of the private 
enterprise, and provides incentives to needed investments.” 
This bill is submitted by bridging the gap and implementing the hndamental 
tenets of the supreme law. 
The financial system is composed of both banks and non-bank financial 
institutions (NBFI). 
Lending Investor (LI) or lending company, as others would call it, is a form of an 
institution which had its beginnings in the country in the mid-70s. It emerged to address 
the needs of individuals left unserved by the more sophisticated form of credit 
institutions. Lending investors are no different from institutions engaged in micro- 
finance. 
Micro-finance, as recognized by the Bangko Sentral ng Pilipinas, is the 
provision of a broad range of financial services such as - deposit, loans, payment 
services, money transfers and insurance products - to the poor and Iow income 
households, for their micro-enterprises and small businesses, to enable them to raise their 
income levels and improve their living standards. 
The 1972 banking reforms gave the then Central Bank authority over the entire 
credit system and not merely over the banking system to allow it to effectively discharge 
its responsibilities. Thus, institutions engaged in credit operations without obtaining 
fbnds from the public were subjected to regulation by the BSP. Consequently, LIS, 
because of their primary hnction of extending credit, were included under the regulatory 
umbrella of the Bangko Sentral. 
Lending institutions, non-bank financial institutions without authority to engage 
in quasi-banking fbnctions, are covered by BSP regulations in the 19-lender limit, i.e. LIS 
cannot accept deposits or placements nor borrow from more than 19 lenders or from the 
public. Moreover, lending institutions are required to strictly adhere to the provision of 
Republic Act No. 3765, otherwise known as the “Truth in Lending Act” and to disclose 
the true and effective cost of borrowing for every loan granted. Further, they itre not 
allowed to undertake financing activities under Republic Act No. 5980 or the “Financing 
Company Act,” pawn broking under Presidential Decree No. 114 and find 
managementltrust operations under Republic Act No. 337 or the General Banking Act, as 
amended. 


Republic Act No. 7653 or the Banko Sentral ng Pilipinas Law, however, 
mandates BSP to phase out its regulatory powers over certain NBFIs, Lls included, and 
the same to be assumed by the Securities and Exchange Commission. Lending company, 
subsidiaries and afljli$es of banks and quasi-banks, however, shall remain under BSP. 
Early appr-al of this bill is earnestly recommended. 


THIRTEENTH CONGRESS OF THE REPUBLIC ) 
OF THEPHILlpPINES 
1 
First Regular Session 
) 
'64 JUN 30 
Introduced by Senator Magsaysax, Jr. 
AN ACT 
REGULATING THE ESTABLISHMENT AND OPERATION OF LENDING 
COMPANIES IN THE PEILIPPINES AND FOR OTHER PURPOSES 
SECTION 1. Title - This Act shall be known as the LENDWG COMPANY 
REGULATION ACT OF 2004. '' 
SEC. 2. Declaration of Policy . It is hereby declared the policy of the State to 
regulate the establishment and activities of lending companies, placing their operations 
on a sound, efficient and stable basis to derive the optimum advantages fiom 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. 
SEC. 3. Definition of Terins - For, purposes of implementing this Act, the 
following definitions shall apply: 
a. Lending Company (LC) shall refer to an entity primarily engaged in the 
business of microfinance by granting direct loans from their own knds or 
from other persons, not exceeding nineteen (19), with interests and charges 
whether on a secured or unsecured basis. LCs shall not be deemed to include 
banking institutions, investment houses, savings and loan associations, 
financing companies and non-bank financial institutions performing quasi- 
banking fbnctions, pawnshops, insurance companies, cooperatives and other 
financial credit institutions already regulated by law. 
The term shall be 
synonymous with "Lending Investor@l) ". 
b. Debtor shall refer to the borrower or persodentity granted a loan by the LC. 
c. Quasi-Bank shall refer to an entity or financial institution authorized by the 
Bangko Sentral ng Pilipinas to engage in quasi-banking functions or to 
borrow fbnds through issuance, endorsement or assignment with recourse or 
acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 


d. 
e. 
f 
g- 
h. 
1. 
j. 
7653, otherwise known as the New Central Bank Act, for purposes of re- 
lending or purchasing of receivables and other obligations to more than 
nineteen (19) non-institutional persons. 
Subsidiary shall refer to a corporation more thank fiQ percent (50%) of the 
voting stock of which is owned by a bank or quasi-bank. 
Affiliate shall refer to a corporation, the voting stock of which, to the extent 
of fiRy (50%) or less, is owned by a bank or quasi-bank or which is related or 
linked to such institution through common stockholder or such other factors 
as may be determined by the Monetary Board of the Bangko Sentral ng 
Pilipinas. 
SEC shall refer to the Securities and Exchange Commission. 
DTI shall refer to the Department of Trade and Industry. 
DILG shall refer to the Department of Interior and Local Government. 
BSP shall refer to the Bangko Sentral ng Pilipinas. 
BIR shall refer to the Bureau of Internal Revenue. 
SEC. 4. Form of Organization - An LC shall be established as a corporation; 
provided that, existing LCs organized as single proprietorship or partnerships shall cease 
from engaging in the business of granting loans to the public, unless, these existing LCs 
convert into corporations within One (1) year after the date of effectivity of this Act. 
No LC shall conduct business unless granted a License to Operate by the DTI. 
SEC. 5. Citizenship Requirements - At least majority of the subscribed and 
outstanding capital stock of an LC shall be owned by citizens of the Philippines. 
SEC. 6. Paid-up Capital Requirements - All LC shall have a paid-up capital 
of not less than One Million (Php 1,000,000.00) Philippine Pesos. 
SEC. 7. Maintenance of Books of Accounts and Records - Every LC shall 
maintain books of accounts and records as may be prescribed by the DTI. 
The Manual of Accounts prescribed by the Bangko Sentral for LC shall continue 
to be adopted by LC for uniform recording and accounting of their operations, until the 
DTI shalI have prescribed a new Manual of Accounts. 
SEC. 8. Registration of Securities - All securities, such as but not limited to 
bonds, debentures, notes, investment contracts, evidence of indebtedness issued by an LC 


to more than nineteen (19) non-institutional persons, shall be registered with the SEC, 
pursuant to Section 8 and 12 of the Securities and Regulation Code, and shall likewise’ 
require a quasi-banking license issued by the BSP. 
If an LC shall issue securities to not more than nineteen (19) persons, it need not 
register such securities, provided that it shall file with the DTI or BSP, as the case may 
be, a Disclosure Statement. 
SEC. 9. Amount and Charges on LQans - An LC shall grant loans in such 
amounts and reasonable interest rates and charges as may be agreed upon between the LC 
and the borrower or debtor. 
Provided however, that the agreement shall be in 
compliance with the provisions of Republic Act No. 3765, otherwise known as the Truth 
in Lending Act and Republic Act No. 7394, otherwise known as the Consumer Act of the 
Philippines; And provided however, that, the Monetary Board, in consultation with DTI 
and the industry, may prescribe such interest rate as may be warranted by prevailing 
economic and social conditions. 
SEC. 10. Delineation of Authority Between SEC & DTI - The incorporation 
of LC shall be administered’ by the SEC following pertinent laws, rules and regulations 
being implemented by said Commission. The DTI, on the other hand, shall have 
supervision and regulation over the operations of these LC. 
SEC. 11. Delineation of Authority Between DTI and Bangko Sentral - LCs 
which are subsidiaries and affiliates of banks and quasi-banks shall be subject to BSP 
supervision and examination in accordance with Republic Act No. 7653. 
SEC. 12. Periodic Reportorial Requirements - Every LC shall file with the 
DTI a Schedule of Liabilities, identimg the debtors and indicating the maturity pattern 
of transactions, as well as other reports as DTI may hrther provide. 
The reports shall be signed under oath by the company’s principal executive 
officer and principal financial officer. 
SEC. 13. Inspection Powers of the DTI - Having jurisdiction and supervision 
over LCs after their incorporation, the DTI shall be allowed under this law to make the 
necessary inspection of records and books of accounts, as well as inspection and/or entry 
into the premises of the LCs’ principal places of business during working hours or upon 
reasonable grounds warranting the necessity to make such inspection and/or entry, as the 


case may be. The DTI 
grounds may warrant said 
shall promulgate in its rules and regulations what reasonable 
inspection and/or entry. 
SEC. 14. Penalty - A fine of not less than Ten Thousand Philippine Pesos (PhP 
10,000.00) or imprisonment of not less than six (6) months but not more than ten (10) 
years or both at the discretion of the court, shall be imposed upon any person who shall 
violate any provision of this Act. 
SEC. 15. Suppletory Application of Other Laws - The provisions of Republic 
Act No. 3765, otherwise known as the “Truth in Lending Act,” Republic Act No. 7394 
or the “Consumer Act of the Philippines” and other existing laws, insofar as they are not 
in conflict with any provision of this Act, shall apply in matters not otherwise specifically 
provided for in this Act. 
SEC. 16. Entities Excluded by this Act - All entities, whether stock or non- 
stock corporations, which do not declare any dividends to its stockholders or profits to its 
members, receiving donations, grants, aid or contributions from local or foreign entities 
for the purpose of giving assistance or support in the form of small loans to help alleviate 
the poor and low-income households, cooperatives duly registered with the pertinent 
government agency charged with the supervision of cooperatives, associations and 
partnerships, which may be engaged in direct lending shall be excluded from the 
coverage of this Act. 
SEC. 17. Promulgation of Implementing Rules and Regulations - Within 
forty-five (45) days from the effectivity of this Act, the Department of Trade and 
Industry, Department of Social Welfare and Development (DSWD), in consultation with 
the BSP, the BIR and other key government and non-government institutions, shall 
promulgate the necessary implementing rules and regulations of this Act. 
SEC. 18. Separability Clause - If any provision of this Act or the application 
thereof to any person or circumstances is held invalid, the other provisions of this Act and 
the application of such provisions to other persons or circumstances shall not be affected 
thereby. 
SEC. 19. Effectivity - This Act shall take effect fifteen (15) days following the 
completion of its publication in the Official Gazette or in two (2) national newspapers of 
general circulation. 
APPROVED,