Lending by money lenders is an ancient activity that predates the modern banking system. They have been structured as a family or individual business. They range in size from small petty money lenders to large indigenous bankers whose profits have sometimes exceeded those of commercial banks. Moneylenders lend money, act as money changers, and finance loan transactions with bills of exchange. They typically use their working capital and do not accept deposits or solicit savings from the general public. They make loans based on personnel recommendations and provide guarantees to people they know. They also make loans against securities such as gold, jewelry, land, promissory notes, and so on.To know more click here to become good at money lending in toa payoh central.
Moneylenders typically have no contact with other suppliers or institutions because they rely solely on their funds. However, in times of high demand, they borrow from joint-stock banks and other financial institutions, creating a channel through which formal funds are channeled to the informal sector.
- They typically offer short-term financing for small loans, which is ideal for low-income groups who cannot handle larger loans and do not prefer long-term commitments.
- They make loans to borrowers quickly and in a flexible manner, allowing finance to be available immediately when it is needed, and with the least amount of paperwork and official requirements.
- They operate in close physical proximity to the borrower, allowing for frequent contact and, as a result, eliminating the need for collateral.
- They do not have set business hours and thus provide loans as and when they are requested.
- They are disorganized and have no contact with other branches of the banking industry.
- They combine lending with trading and commission activities, introducing risk into their business.
- They make no distinction between short-term and long-term finance, nor do they distinguish between the purposes of the loans.
- They use traditional accounting methods and, in most cases, do not provide receipts.
- They charge high-interest rates in comparison to banking institutions.
Moneylenders are useful in providing credit loans to sectors that are not served by commercial banks.During periods of high credit demand, money lenders may borrow from commercial banks using bills of exchange or their funds as security.Credit provided by moneylenders is timely – that is, it is available right away when it is most needed – the need for timely credit. Therefore money lenders are most appropriate as they will not give you money without any time-bound situations.