Banks usually grant loans based on the 3Cs: Credit which elucidates a person’s credit and payment history, Capacity of borrower’s to make payments, and Collateral which is an asset pledged as security for the loan.
When an individual applies for a loan, banks study thoroughly every application from credit history, monthly income, business plans, and purpose of loan, as their main concern is the individual’s capability to settle back the loan, regardless of the mortgage.
In the case of these new “lending companies”, their main clients are those who had their bank loan request declined. Acceptance ranges from small entrepreneurs without effective business plan, to compulsive gamblers, unemployed, and land owners in urgent need of cash and many other cases.
Moneylenders were illegal crooks usually wandering around Casino Du Liban parking lending on-the-spot cash for gamblers, others were uncovered working inside Lebanese banks using connections for their private benefits, while others were recommended by third-parties looking for a commission fee.
Recently, private money lenders saw an opportunity to penetrate the Lebanese market, desiring to massively lend money in exchange of valuable mortgage that can range from luxurious car to real estate.
Their public communication started in late 2012, posting advertisements on different Lebanese social media, on banners around markets and poor crowded areas. In 2015, they received a license from Banque Du Liban (BDL) to operate as an over-the-counter money lending offices, whereas BDL doesn’t have any scrutiny over its financial transactions and performance.
Nevertheless, the emergence of such financial entities is directly linked to internal and regional situations; such as the need to launder large amounts of cash into the Lebanese market, smuggled from Iraq, Syria and Libya without the possibility to deposit it legally in Lebanese banks.
Some financial experts explain that they’re simply the result of Lebanese banks strict conditions in granting loans to individuals. Add to that the legal hassle banks face in auctioning mortgaged properties.
Other theories revolve around massive acquisition of lands through this process, by pushing poor to medium classes who own real estate to mortgage their properties in exchange of cash.
Application process is simplified in their mass communication and made easy for people in financial need, but it’s far from being so. They know for instance that on the other side of every call is a desperate person in need of cash. They snub questions about the capacity of repayment and focus more on the mortgage offered by the borrower, which is usually double the lend amount.
In case of non-repayment, they use illicit ways to pressure the borrower with the sole objective of putting hand on the mortgage.