RATIONALE OF DELAYING PAYMENTS OF CUSTOMERS TOWARDS

HOME CREDIT PHILIPPINES

CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

According to World Bank Organization the Non-bank financial institution or

company is providing financial services similar to banks but do not hold banking license

or not supervised by a national or international banking regulatory agency. NBFI has an

easy way of transaction compared to bank company or institution. Examples of this are

insurance firms, pawn shops, currency exchanges and some microloans.

As life gets harder, people today tend to look for a job even they earn insufficient

to their needs. With this, they were forced to lend money to a non-bank financial institution

due to the limited requirements needed and way easier process. Then, researchers prove

that most non-bank financial institution helps an individual in most accessible way.

Home Credit Philippines is an example of a non-bank institution that suffice the

needs of people in terms of loans. According to Home Credit in 1997 Home credit is

established as a non-bank lender in Czech Republic and launches operations in the

Philippines in 2013 through a joint venture with a local partner Filcommerce Holding Inc.

to promote the safe lending and provide higher living standards. A known fact that Home

credit is gaining popularity in the market in purchasing appliances and gadgets with

monthly installment using a minimal requirement. It can easily perform their transaction

and approve loan application within the day.

 Make people rely on borrowing money or making an obligation with an easy

transaction, they renew it repeatedly which is not a good habit due to high interest rate. In

the creditor’s point of view, there is a lower chance that the borrower can pay his/her

obligation because of its minimum requirements and that’s we called default risk.

Default risk is a probability of an individual failure to pay his/her obligation

especially on paying their loans. The example of a default risk is when an individual

suddenly fails to make payments because of losing a source of income, terms of payment

and other personal issues that may arise any time. A common individual can fail to pay on

their credits specially an illiteracy consumer applied loans. In regards of this default risk it

can be the cause of company bankruptcy (wpmain,2017).

The purpose of this study is to gather and give information about the Rationale of

Delaying Payments of Customers Towards Home Credit Philippines Bocaue, Bulacan and

to provide insights about the company and customer perception in Home Credit

Philippines.

Statement of the Problem

This study aims to determine the Rationale of the Rationale of Delaying Payments

of Customers Towards Home Credit Philippines Bocaue, Bulacan. Specifically, this study

sought to answer the following questions:

1. What is the profile of the respondents in terms of:

1.1 Age;

1.2 Gender;

1.3 Civil Status;

 1.5 Monthly Income;

2. Why people are engaging in making debt

2.1 Economic Factor

2.2 Social Factor

3. Why people are failing to pay their obligations on time

3.1 Borrower’s Characteristics

3.2 Creditor’s Characteristics

Significance of the Study

This study intends to inform people about what they need to know about

home credit and how to avoid home credit default risk. Therefore, the study needs to

considered the importance of the following:

Home Credit Philippines. This study helps the HCP to know what is the consumer

perceptions about their company and to gather information about the reasons of customers

regarding the delaying payments and make a solution to provide more quality services.

Customers. This study helps the consumers to be more knowledgeable about HCP and can

give information when it comes to spending in financial institution for handling situation

specially they are taking some risks and to help the individual to pay their obligations on

time.

Future Researchers. This study is for future use purposes to give more reference for the

future researchers. All the ideas of this research can be their guide when they are doing

their own research paper in the future.

Scope and Delimitation
This study was designed to determine the the Rationale of Delaying Payments of

Customers Towards Home Credit Philippines Bocaue, Bulacan. It is focusing on consumer

perception and to make solutions regarding the delaying payments of the customers to

applied it in their growing industry. This study analyzed the answer of the respondent’s

base on the need information presented. The target respondents are 18 years old and above,

living at Bocaue, Bulacan and having a job. All the information from the respondents are

collected and analyzed to have an evaluation and recommendations. The researchers

choose the Bocaue, Bulacan as the location of the study because it is accessible and helps

the researchers to minimize the cost of money and time.

 CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter reviews the various studies that are relevant to the Rationale of

Delaying Payments of Customers Towards Home Credit Philippines Bocaue, Bulacan. It

is also presents the related theories, related literature and studies, the conceptual

framework and the operational definitions of terms used in the study.

Related Literature

Non-Bank Financial Institution

A Nonbank financial institution (NBF’s) is a financial institution that

does not have a full banking license or is not supervised by a national or international

banking regulatory agency (Carmichael Jeffrey;pomerleano,Michael 2002). NBFI are

helping the common individual to make transaction in a easiest way.

This are the example of NBFI, first is the PAWNSHOP, pawn broker’s shop

especially one where unredeemed items are sold to the public. Pawnshops have recently

become a permanent fixture in the lives of ordinary Filipinos (LAMBERTE, 1991). The

pawnshop or pawnbrokers is reliable because when you need money due to emergency you

can convert your valued things into cash quickly. Micro loans are small loans that are issued

by individuals rather than banks or credit unions. These loans can be issued by a single

individual or aggregated across a number of individuals who each contribute a portion of

the total amount (Hayes, 2019). Loans are a savior because they are giving talented people

a chance to start their small business and turn into a big one. The currency exchange is the

trading of one currency for another, foreign exchange transactions can take place on the

currency exchange market, also known as the forex market (Chen, 2019). It is a good thing
because transaction cost is low at the same time you can use leverage and it has high

liquidity. It is also a 24 hours’ so it is promising and dependable thing.

A Non-bank financial intermediaries both complement and compete with

commercial banks forcing them to be more efficient and responsible to customers need.

This non-bank helps people by giving them efficient services and reliable things at low

cost (Dimitri, 1997). Banks has lot of requirements asking from their clients, unlike non-

banks that has less and attainable requirements. Most people in our country don’t have a

good life style so they can’t attain and sustained the requirements of the banks for them to

have loans. A non-bank financial institution helps common people a lot because giving the

fact that they have less requirements to attained they can also change the people common

life into better one by giving them a chance to have a new appliances and electronic gadgets

to use with (zero interest) rate.

Filipinos and the Economy

Many workers say that they do not earn enough for the day to day necessities. Even

though they work overnight they do not earn enough for their family. DOLE confirmed

last November 2018 that it would increase workers' wages. People said that even if the

government increase their wages, it is still not enough to meet their needs (Rey, 2018). So

many people are in debt because their income is not enough to meet their family's needs.

As workers' wages increase, so does the prices of goods in the market, and they are forced

to borrow money to buy what they need (Hernandez, 2019). No matter how much they

owe, they have no choice because debt is their solution, to meet their daily needs. If they

do not borrow money they will not meet the needs of their family.
 Filipinos love to spend money even when they don't have enough money, they

spend their money on things they don't need. The person lacks discipline especially when

it comes on spending money (Tan, 2015). Once that they get what they earn, they don't

think they should save money. What they do is go to the mall, buy it, eat at the restaurant,

go to those places; they forget to save money (Louren, 2019). Because Filipinos have a

habit to spend too much money on unnecessary things, they don't even think about saving

money. So what happens is when they don't have money, they are forced to borrow, so that

they can spend more each day (Lunja, 2017). There are also some people they earn big, but

still their income is not enough to sustain the needs of their family. Because they are too

much in luxury and vices, so they don't make enough money because they just go for things

they don't really need. We should not be a one-day millionaire; we should know how to

spend the money correctly (Tan, 2016). No matter how big or small your income is, if you

don't know how to spend it right it still won't fit into your daily expenses and this is the

reason why people are engaging to debt.

Filipinos and Non-Bank Financial Institutions

Filipinos like to borrow money, appliances or gadgets especially when interest rates

are low. They prefer non-banks because the process is fast and have fewer loan

requirements than other commercial banks. Most of the people are impatience so they

prefer the quick process. In non-banks 2 valid I.D’s, personal information and some

questions they can approve your loan in just 30 minutes. It's easy and less hassle to borrow

so many people prefer non-banks (Camp, 2019)

Non-banks are an institution that helps small businesses and to those people who

needs money. Non-banks are like a bank, but not all they can offer to their clients. Non-
banks are also emerging not only for money loan; they also offer appliances and gadgets.

For money loan they deduct the percent of interest you’ll acquired it’s depend how much

you will acquire. For the appliances you need to have a payment it depends how much the

price or the item percentage they will give. Before you can get a loan, you must reach the

requirements of the Non-Banks support with other government services like SSS, Pag-ibig

etc. It also required your data privacy information (Phaneuf, 2019)

Home Credit

According to Home Credit, the HC is an example of a non-bank institution that can

provide the needs of people in terms of loans. In 1997 Home credit is established as a non-

bank lender in Czech Republic and launches operations in the Philippines in 2013 through

a joint venture with a local partner Filcommerce Holding Inc. to promote the safe lending

and provide higher living standards. A known fact that Home credit is gaining popularity

in the market in purchasing appliances and gadgets with monthly installment using a

minimal requirement. It can easily perform their transaction and approve loan application

within the day. The Advantages of Home Credit are Flexibility, Great payment options,

Tax benefits, Improve credit reports, Lower fees While the disadvantage are Adjustable

interest rates, Uncapped Variability, Budget stability, Difficult to manage, Higher

repayments, Unpredictability (Legrand, 2019).

The problem that may encountered by the Home Credit is when the borrower didn’t

repay his/her obligation on time and due to incapacity they did not fully paid it. There is a

study as an entry to Kaggles competition titled Home Credit Default Risk won 9 th place

last 2018. This entry help to predict weather the customer will default to repay his/her

obligation (Levinson, 2018). In related to our study, they are using data base to predict the
credit history of the loan applicants to know if they can repay the credit obligation on time

to avoid default risk. The researchers create this study to know the reasons why the

customers of home credit are not paying their obligations on time.

Reasons of Delaying Payments

The 4 common excuses of customers with small business regarding their late

payments are systems error, they did not receive an invoice and when payment is due before

making you aware that they haven’t received your invoice. The second excuse is Supply

Chain, because they didn’t have receive yet the payment from their customers and because

you are the supplier they can’t pay you. Third reason is Company Crisis like the authorized

person are not allowed to settle the payment due to holidays and the last excuse is Dispute,

when the customer will withhold the payment if they are dissatisfied with the service

(Dunsby, 2018).

There is a top 5 excuses for paying bills late, the first one is they forgot this is the

common reasons why most of us are delayed on payment. Don’t have money yet is the

second excuse this happened when there is an emergency or the due date is before the pay

day. Misplaced the bills and haven’t seen how much is the total amount need to pay. Just

got too busy, most of us are having a work or full schedule and because of that we forgot

something like paying our obligations. The last one is Procrastination, according to Dr.

Joseph R. Ferrari the college professor in Chicago “Delaying is a completely normal

impulse” it is best to start small rather than you not get started at all (Warnick, 2013).

Related Study

In the Study of Home Credit Default Risk End to End Learning Machine Project,

the common problem for the loan providers is to find out the customers or loan applicants
who is willing to repay their obligations on time. In this way the companies can avoid

losses and bankruptcy (Kotha 2019). This study made a data base for home credit to be

connected in other loan company and having an access to check if the applicant for loan is

having a current balance in other loaning company. They can see the record of the

applicants using the program and gather data to know if he/she is a good payer. In related

to our study, the researchers want to know some reasons why the debtors are cannot repay

their loans on time or did not fully paid their obligations.

The default risk is the company or an individual who fails to pay their obligations.

In this study, made a solution in this matter. According to him, the lender can set a default

premium which can use to cover the default risk (wpmain, 2017). The borrower can pay

the default premium while indirectly while repaying their obligations. In related to our

study, it can be hard to the borrower’s point of view because they are obliged to pay another

amount except on his total obligation.

In the study of Loan Defaults in Microfinance Institutions in Tanza: A Case Study

of Two Selected Microfinance Institutions in Dodoma Municipality last 2016, the two

municipality are Pride and Finca. It has 196 respondents to access the default rates of the

selected Microfinance Institutions for the period of 2004 and 2014. The study concludes

that age of the borrower, interest rate charged by MFI’s, business type, loan purpose and

business management education are the main factors that determine the borrowers fault.

And the other factors are family social problems such as disease, weak legal action to

defaulters and past experience in business are the reasons in repayment of the loan

installment. The effects of loan default to the borrowers are facing the denial of next loan

opportunities and loss of the collateral like properties and other assets. In MFI’s, it’s affects
low interest incomes and reduction of operating profit because of bad debts as a result of

loan defaults.

According to the study of Determining the Causes and impact of Loans Default on

the Operation of Credit Unions: A Case study of St. Joseph the Worker Cooperative Credit

Union last 2015, The loan defaults turns out to be major problems in financial industry

worldwide. The study has 100 customer respondents and 2 loan officers. It concludes that

granting of microcredit facility or loans is a major activity of St. Joseph the Worker

Cooperative Credit Union. The business failure, lack of monitoring of loans, low level of

income, inadequate marketing avenues is the major causes of the default loans in the

organization. To control default, include the provision of collateral to cover loan amount

especially to those in the informal sector, conduct training on how to used he loans,

effective and regular monitoring of the loan from the time of disbursement till the final

payment, loan officers should be resourced sufficiently at all times in terms of vehicle and

other logistics to support the monitoring activities.

Synthesis

Paying the obligations on time is the most important thing in the debtors even in

the creditors side. Repaying obligations is the example that a person has a good character.

Most of us are neglected when it comes to paying debts. There are things that we can do to

avoid the delaying payments and it can really help the creditor to avoid bankruptcy and the

debtor to repay their debts on time and to have a good record in loaning company.
Conceptual Framework

Input Process Output

-Economic and Social Data gathering Rationale of

Factor using Delaying
-Borrower’s and quantitative Payments Towards
Creditor’s survey Home Credit
Characteristics Philippines

Definition of Terms

This study used the following terms:

Non-bank Financial Institution. Non-bank financial institution or company is

providing financial services similar to banks but do not hold banking license or not

supervised by a national or international banking regulatory agency.

Home Credit. Home Credit Philippines is an example of a non-bank institution

that suffice the needs of people in terms of loans. Home credit is gaining popularity in the

market in purchasing appliances and gadgets with monthly installment using a minimal

requirement. It can easily perform their transaction and approve.

Loan Default. It is a probability of an individual failure to pay his/her obligation

especially on paying their loans according to initial arrangement. The example of a loan

default is when an individual suddenly fails to make payments because of losing a source

of income, terms of payment and other personal issues that may arise any time.

De Leon, Katrina Sarsaparilla, Kimberly

Francisco, Yves Santos, Maryrose