The Transactional Credit Suppliers

Transactional credit suppliers are those for whom credit is a "transaction". Examples include pawn brokers, money lenders and employer credit. Most of these suppliers use their own funds for providing credit. Some of the characteristics (presented in contrast to the other two categories) which are common to suppliers under this category are:

Immidiate availability of credit:
If the borrower establishes credit worthiness, the credit/loan is usually made available by the supplier immidiately, typically within a few days.

Suppliers own funds:
The source of money for informal credit loans are usually the supplier's own funds or profits made from previous transactions. A certain amount of borrowing from other suppliers also takes place. Borrowing from commercial banks is rare.

No encouragement to save:
Transactional suppliers make no obligation on the part of the borrower to save a particular amount, that is, loans are not linked to the savings behaviour of borrowers.

Reduced proximity to the borrower:
The proximity of the transactional suppliers to the borrower's residence is less compared to other supplier groups (some money lenders, for example operate from the same settlement).

Less flexible terms and conditions:
Terms and conditions of credit are less flexible and more strictly enforced compared to other suppliers. Default by the borrower on the other hand is also rare (though not necessarily due to strict enforcement).

Compliance with the law:
Pawn brokers have to comply, by law, to "The Karnataka Pawn Brokers Act of 1962" and Money Lenders to "The Karnataka Money Lenders Act of 1962". These acts set the rules and regulations for operation and issues permits for weration. However enforcement by the authorities is loose and compliance by the suppliers is rare.

Small organization size:
Transactional suppliers are either single suppliers, or belong to the same family, a group or company.

Regular, cyclical operations:
Operations of the suppliers are regular (on a daily basis), that is, it is cyclical in nature and fairly organized.

Borrower evaluation:
Asset holding, social standing, economic viability are some of the important criteria for evaluating borrowers.

Thus, to summarize, one of the central ideas which distinguish the transactional credit suppliers is their timely credit: Credit should be made available at that time when it is most needed and with the shortest possible transaction process and time.

Hari Srinivas -
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