Nonstate Institutions-Banks and Corporations

Nonstate Institutions: Banks and
Corporations
Objectives
At the end of the lesson, you should be able to:
*define non-state institutions, banks,
commercial banks, corporations, and articles of
incorporation,
*enumerate the different kinds of banks and
non-banking institutions,
*analyze the role of banks and corporations in
the economy of the country, and
*discuss the functions of banks and
corporations in the economy.
What are non-state
institutions?
How do non-state institutions

such as banks and corporations
affect society?
Learn about it!
Non-state institutions refer to institutions

that are organized by private individuals or
groups for the purpose of providing
services to the members of society. These
institutions are not controlled by the
government but are regulated through
laws and statutes of the state.
There are non-state institutions that play vital
roles in the economy because they are the ones
providing the needs of the people that the
government cannot provide. However, a
corresponding price or payment is needed in
exchange for their services.
Typical examples are different kinds of financial

institutions, specifically a bank, and different
kinds of business organizations, specifically a
corporation.
Learn about it!
Financial institutions are organizations that

serve as bridges or intermediaries that
facilitate the flow of money in various
transactions. This means that financial
institutions serve as links between the
source of funds, the depositor, the fund
user, and the borrower.
Banks receive savings and deposits of their clients. These
may be loaned out to borrowers.
Example:
Juan dela Cruz has PhP 10,000.00, which he has saved

from his salary as a manager. He deposits it
at Maharlika Bank, which offers a 2% interest per annum.
This would mean that if he does not withdraw any of his
savings, he will get 10,000.00 + 2% = 10,200.00 after one
year.
Now, Mr. Entrepreneur needs PhP 7,000.00 because he

wants to put up a sari-sari store. He borrows PhP
7,000.00 form Maharlika Bank.
Can you see the flow of money? Juan gets more
than PhP 10,000.00 after a year. At the same
time, he is able to help Mr. Entrepreneur put up
a business. These would not have happened
without the help of Mahalika Bank since Juan
and Mr. Entrepreneur do not know each other.
Banks started during the Renaissance period in

Italy. The word 'bank' traces its origin from the
Old Italian word banca which means 'table' or
'bench,' and is where transactions occurred at
that time.
The role of a financial institution as a
link in the transfer of money from the
source to the borrower is very
important to our economy.
Banks provide safe-keeping place for

money and valuables of individuals.
They also perform a role in settling
payments and credit intermediation.
Learn about it!
Banking Institutions
The Bangko Sentral ng Pilipinas is
known as the banks of all banks in the
Philippines. It is the bank responsible
for the regulation, creation, and
management of monetary supply in
the country.
These are the different types of banks:
Commercial banks accept savings deposits, check
deposits, and time deposits. Examples of Philippine
commercial banks are Bank of the Philippine
Islands and Metrobank.
Thrift banks are categorized into stock savings and loan
associations, savings and mortgage banks, and private
development banks. They consolidate the savings
deposits of their members into a fund from which their
members can draw loans with interest. They also accept
deposits from the public and provide loans for small- and
medium-scale enterprises.
Rural banks cater primarily to farmers and small business
people, mostly in rural areas.
Learn about it!
Corporations
A corporation is an organization of people legally
bound by a charter to conduct some type of business.
It has a legal entity separate from its owners. The type
of business that a corporation wants to venture in
depends on its articles of incorporation.
Articles of incorporation are written applications to
the government requesting permission to form a
corporation. This will give the name, address, and
type of business for the corporation; the names of the
officers, and the initial amount of money being put
into the business.
Alfred Chandler, a renowned
business historian, explained how
modern corporations propelled the
growth of modern economy and was
fascinated on how the people that
make up large corporations managed
to "coordinate complex production
processes" and "produce the wealth
of the nations."
The following are the advantages of corporations as
business organizations in the economy:
easy to raise funds–since the corporate form is the
most effective for raising money
limited liability–the concept that owners of the
business are only responsible for its debts up to the
amount they invest in the business
unlimited life–not ceasing to exist if a major
stockholder dies
specialized management–affording to have
specialized managers to run the business
shared risks–spreading business risks among many
owners.
The following are the disadvantages of
corporations as business organizations in the
economy:
difficult to start–needs government approval
before starting the business
less direct control–owners that are usually far
from the day-to-day operation of the business
double taxation–corporate taxes that need to
be paid by the corporation and the owner who
received dividends from the profit
limited activities–limited activities by the article
of incorporation
Explore
One of the hottest issues in the Philippine
banking industry is the $81 million allegedly
stolen from the Bank of Bangladesh and
laundered into the Philippines through the
banking system and casinos.
What do you think is the impact of this
particular case to the Philippine banking
industry and to the whole Philippine economy?
Are you in favor of the on-going investigation by
the Senate about the issue? Will you still trust
our banks and big financial corporations?
Try it!
Put aside a portion of your

weekly or monthly allowance in
a bank. Document your
experience in opening your
savings account.
What do you think?
Matthew, Mark, and John, being good buddies since high
school, decided to put up a corporation named MMJ
Corp. The articles of incorporation state that they will be
selling beauty products. They borrowed money from the
banks using their cars as collateral. The first 3 years of
operation became successful because they were able to
dominate the market.
As years passed, numerous competitions emerged, their

sales gradually dropped, and their profits are now
dwindling and near bankruptcy. They are behind in loan
payments, owes money from suppliers, behind workers'
compensations, and owes taxes to the government.
It seems as if MMJ Corp. will go out of business.
Matthew, Mark, and John are worried that
creditors will force them to turn over their
personal savings and sell their cars to have
money to pay their business debt.
*Can MMJ Corp. creditors force Matthew, Mark,

and John to turn over their personal savings and
sell their cars to pay the debts? Why or why
not?
*Do you think it is fair to the three buddies? Do
you think it is fair to the creditors? Explain.
Keypoints
Non-state institutions refer to institutions that are organized
by private individuals or groups for the purpose of providing
services to the members of society.
Financial institutions are organizations that serve as bridges
or intermediaries that facilitate the flow of money.
The Bangko Sentral ng Pilipinas is known as the banks of all
banks in the Philippines.
There are three kinds of banks: commercial banks, thrift
banks, and rural banks.
A corporation is an organization of people legally bound by a
charter to conduct some type of business.
The advantages of corporations are: easy to raise funds,
limited liability, specialized management, and shared risks.
The disadvantages of corporations are: difficult to start, less
direct control, double taxation, and limited activities.

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Nonstate Institutions: Banks and

How do non-state institutions

Non-state institutions refer to institutions

Typical examples are different kinds of financial

Financial institutions are organizations that

Juan dela Cruz has PhP 10,000.00, which he has saved

Now, Mr. Entrepreneur needs PhP 7,000.00 because he

Banks started during the Renaissance period in

Banks provide safe-keeping place for

Put aside a portion of your

As years passed, numerous competitions emerged, their

*Can MMJ Corp. creditors force Matthew, Mark,

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