Feasibility ASKI Isabela Philippines

FeasIbIIIty oI EstabIIsbIng a MIcroIInance Programe In IsabeIa, PbIIIppInes
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FeasIbIIIty oI EstabIIsbIng a
MIcroIInance Programme In IsabeIa,
PbIIIppInes

This is a feasibility study prepared for PLAN
International Philippines

By Carlos P. Ani
Microfinance Consultant

September 2003
Makati City, Metro Manila, Philippines

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Feasibility of Establishing a Microfinance
Programme in Isabela, Philippines

Table of Contents

List of tables ____________________________________________________________5
List of abbreviations______________________________________________________5
Executive Summary ______________________________________________________6
Introduction____________________________________________________________13
Purpose of this feasibility study _________________________________________13
Research methodologies used __________________________________________13
Organization of this report______________________________________________14
Part 1 Assessment of ASKI as a potential partner ___________________________14
1.1 Brief history of ASKI ______________________________________________14
1.2 Governance _____________________________________________________15
1.2.1 Composition of the board _______________________________________________ 15
1.2.2 Board member induction _______________________________________________ 16
1.2.3 Independence of the board _____________________________________________ 16
1.2.4 Board meetings ______________________________________________________ 16
1.2.5 Participation in key decision-making ______________________________________ 16
1.2.6 Supervision over managers _____________________________________________ 17
1.2.7 Vision and mission ____________________________________________________ 17
1.2.8 Five year business plan ________________________________________________ 17
1.3 - Management _____________________________________________________18
1.4 - Microfinance Operations ___________________________________________19
1.4.1 Microfinance products being offered ______________________________________ 19
1.4.2 Microfinance methodology: group lending __________________________________ 20
1.4.3 Methodology standardization ____________________________________________ 23
1.4.4 Microfinance methodology: individual lending _______________________________ 23
1.4.5 Branch network_______________________________________________________ 23
1.4.6 Branch office structure _________________________________________________ 24
1.4.7 Microfinance personnel ________________________________________________ 24
1.4.8 Client outreach _______________________________________________________ 25
1.4.9 Pricing policies _______________________________________________________ 25
1.4.10 Loan and savings portfolio _____________________________________________ 25
1.5 Quality of loan portfolio ___________________________________________26
1.5.1 Three basic quality indicators____________________________________________ 26
1.5.2 Analysis of loan delinquency ____________________________________________ 27
1.5.3 Practices that help maintain high repayment ________________________________ 29
1.6 - Financial Management _____________________________________________30
1.6.1 Basic accounting policies _______________________________________________ 30
1.6.2 Financial reporting ____________________________________________________ 30
1.6.3 Expense control ______________________________________________________ 30
1.6.4 Loan loss provisioning policy ____________________________________________ 31
1.6.5 Loan write off policy ___________________________________________________ 32
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1.6.6 Cash-flow management ________________________________________________ 32
1.6.7 Earning assets ratio ___________________________________________________ 33
1.6.8 Improving trend of financial results________________________________________ 33
1.7 Management Information System ___________________________________34
1.7.1 - Key features of ASKI MIS _______________________________________________ 34
1.7.2 Initial benefit obtained from new MIS ______________________________________ 35
1.7.3 - Appropriateness of reports generated______________________________________ 36
1.7.4 - Extent of use by management of reports generated by system __________________ 36
1.7.5 Possible improvements in the MIS________________________________________ 36
1.8 - Internal control and monitoring _____________________________________36
1.8.1 Internal audit department _______________________________________________ 36
1.8.2 Internal controls in place________________________________________________ 37
1.8.3 Fraud cases discovered ________________________________________________ 38
1.8.4 Practices that help prevent fraud _________________________________________ 38
1.8.5 Attitude of staff regarding audits__________________________________________ 38
1.8.6 Branch monitoring ____________________________________________________ 39
1.8.7 Suggestions to help further improve internal control __________________________ 39
1.9 - Human Resource Management ______________________________________39
1.9.1 Organizational structure ________________________________________________ 39
1.9.2 - Staff hiring policies ____________________________________________________ 40
1.9.3 - Staff training and development ___________________________________________ 40
1.9.4 - Staff turnover _________________________________________________________ 40
1.9.5 Human resource management manual ____________________________________ 41
1.9.6 Compensation package ________________________________________________ 41
1.9.7 Performance-based incentives for employees _______________________________ 42
1.9.8 Employee attitudes ____________________________________________________ 43
1.9.9 Management development plans _________________________________________ 43
1.10 Sustainability of the organization __________________________________44
1.10.1 - Financial sustainability of ASKI as a whole_________________________________ 44
1.10.2 - Financial sustainability of branches ______________________________________ 44
1.11 Efficiency of operations __________________________________________44
1.11.1 Fieldworker productivity _______________________________________________ 44
1.11.2 Average portfolio per fieldworker ________________________________________ 45
1.11.3 Operating cost ratio __________________________________________________ 45
1.11.4 Ratio of field staff to total staff __________________________________________ 45
1.12 - Non-financial services ____________________________________________45
1.13 Relationships with OMB and APPEND ______________________________46
1.13.1 Future role of ASKI vis--vis OMB and APPEND ___________________________ 46
1.13.2 Phased turnover of viable branches to OMB _______________________________ 46
1.13.3 Transition phase_____________________________________________________ 47
1.14 Recommendations to help improve ASKI operations __________________47
Part 2 Analysis of demand and supply for microfinance______________________48
2.1 Analysis of supply of microfinance services in Isabela__________________48
2.1.1 - Formal financial institutions identified in the four towns ________________________ 48
2.1.2 Other MFIs operating in the province______________________________________ 49
2.1.3 Profile of Rural Bank of Mallig Plains Inc. __________________________________ 49
2.1.4 Farmers cooperatives _________________________________________________ 49
2.1.5 Reasons why access is poor ____________________________________________ 50
2.1.6 Informal sources of rural credit ___________________________________________ 51
2.1.7 Reasons why people use informal sources _________________________________ 51
2.1.8 Profile of agricultural trader-financiers (ATF) ________________________________ 52
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2.2 Borrowing and savings needs of people______________________________53
2.3 Estimating demand for microfinance services _________________________54
2.4 Livelihood of poor people__________________________________________56
2.5 Gap Analysis: Supply vs. Demand __________________________________57
Part 3 Isabela microfinance programme ___________________________________58
3.1 Purposes and objectives___________________________________________58
3.2 Target areas _____________________________________________________58
3.3 - Branch office, location, equipment and structure_______________________58
3.4 - Financial services to be offered _____________________________________59
3.5 - Operational targets for 2 years ______________________________________59
3.6 - Microfinance methodologies to be used ______________________________60
3.6.1 Solidarity group lending methodology: the AKP Model ________________________ 60
3.6.2 - Individual lending methodology___________________________________________ 60
3.6.3 Loan portfolio quality __________________________________________________ 60
3.7 - Staff hiring, orientation and deployment ______________________________61
3.8 - Management Information System____________________________________62
3.9 Financial projections______________________________________________62
3.10 Financial requirements ___________________________________________63
3.11 Financing plan __________________________________________________64
3.12 - Sustainability ___________________________________________________65
3.13 - Internal control and audit__________________________________________67
3.14 - Management support services from ASKI ____________________________67
3.15 - Evaluation of results and impact ___________________________________68
3.16 Future plans for Ilagan branch _____________________________________68
3.17 Summary of recommendations for Isabela microfinance program _______68
Part 4 Development of Financial Service Associations _______________________71
4.1 Background information on Financial Service Associations: _____________71
4.2 Current status of FSA in Del Pilar: ___________________________________71
4.3 Practical suggestions to improve existing FSA ________________________75
4.4 Recommendations for long-term FSA development ____________________77
Appendices ____________________________________________________________79
Annex 1 List of persons interviewed ____________________________________79
Annex 2 Profile of the board members __________________________________80
Annex 3 Description of ASKI microfinance methodologies _________________82
Annex 4 Suggestions to improve MIS of ASKI ____________________________84
Annex 5 Sample reports generated by the MIS____________________________85
Annex 6 Recommendations regarding ASKI______________________________86
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Annex 7 Survey questionnaire: Microfinance Survey in Isabela______________88
Annex 8 Agriculture production loans (APL) _____________________________92
Annex 9 Profile of the Rural Bank of Mallig Plains Inc. (RBMPI)______________93
Annex 10 Terms of Reference: _________________________________________95
List of tables

Table 1 - List of ASKI board members................................................................................15
Table 2 - List of ASKI senior managers..............................................................................18
Table 3 - Features of the AKP Model and Comparison with Grameen................................20
Table 4 - Loan aging analysis of ASKI loan portfolio ..........................................................27
Table 5 - Loan loss provisioning policy...............................................................................31
Table 6 - Reports generated by the ASKI MIS....................................................................34
Table 7 - Cash incentives for field staff...............................................................................42
Table 8 Quick picture of ASKI branches..........................................................................44
Table 9 - Average borrowing and saving needs .................................................................54
Table 10 First minimum estimate of demand...................................................................55
Table 11 - Second estimate of demand..............................................................................55
Table 12 - Third estimate of demand..................................................................................56
Table 13- Gap between supply and demand......................................................................57
Table 14 - Operational targets for Isabela microfinance programme ..................................60
Table 15 - Financial resources needed for 2 years.............................................................63
Table 16 - Financial resources needed in First Year ..........................................................64
Table 17 - Financial resources needed in Second Year .....................................................64
Table 18 - Proposed financing plan....................................................................................65
Table 19 - Projected incomes and expenses......................................................................66
Table 20 - Loans under AKP..............................................................................................82
List of abbreviations

AKP - Alalay Sa Kabuhayan Programme
AKP PO - Alalay sa Kabuhayan Programme Project Officer
ASKI - Alalay Sa Kaunlaran sa Gitnang Luzon, Inc.
APPEND - Alliance of Philippine Partners on Enterprise Development
APL - agriculture production loans
BSP - Bangko Sentral ng Pilipinas
CBU - capital build up
FSA - Financial Services Association
FSS - financial self-sufficiency
IL - Individual Lending
ILPO - Individual Lending Project Officer
MAF - Mutual Aid Fund
MCP - Microfinance Council of the Philippines
MFI - microfinance institution
MIS - management information system
NGO - Non-government organization
OCR - operating cost ratio
OMB - Opportunity Microfinance Bank
OSS - operational self-sufficiency
PO - Project Officer

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Executive Summary

This purpose of this study was to determine the feasibility of a microfinance programme in
Isabela, Philippines. The Consultant used a number of research methodologies: review of
relevant documents, interviews with key informants, observation of actual field operations of
the proponent microfinance organization, field visits, focus group discussions and a sample
survey. This report is divided into four parts and organized in the following manner: Part 1
is an assessment of the proponent ASKI as a potential partner of PLAN; Part 2 is an
assessment of supply and demand for financial services in Isabela; Part 3 is a description
and assessment of the proposed Isabela microfinance program, with specific
recommendations to make it viable, sustainable and appropriate to client needs; Part 4 is a
description of the Financial Services Association, with specific recommendations on how to
strengthen the FSA and how to move forward its evolution and development.

Part 1 Assessment of ASKI as a potential partner of PLAN

History: The proponent is non-government organization called Alalay sa Kaunlaran sa
Gitnang Luzon, Inc. (ASKI). ASKI is based in Cabanatuan City, Nueva Ecija, Philippines.
1

It was formed and created in early 1987. Starting with a loan portfolio of 460,000 pesos, its
loan portfolio has reached 53 million pesos. In May 17, 2001, to further its mission and
vision of reaching the poor, ASKI became one of the incorporators and major shareholders
of the Opportunity Microfinance Bank (OMB), the first microfinance-oriented thrift bank in
the Philippines.

Governance: The Board of Trustees (BOT) of ASKI consists of prominent and respected
business men, professionals and community leaders of Nueva Ecija. At present, there are
7 persons that compose the board. All are professionals, well educated and highly
successful in their respective fields. The manner of selecting and inducting new board
member of ASKI is quite good. Board meetings are held regularly; reports of operational
and financial performance are submitted to the board; the board actively participates in
strategic and operational planning activities; the board reviews and approves the
operational and HR policies and manuals of the organization.

Path to sustainability: In 1999, together with other APPEND (Alliance of Philippine
Partners in Enterprise Development) partners; ASKI launched its ambitious first 5-year
scale-up program. The operational targets of the plan included increasing client outreach,
setting up more branches, attaining full operational self-sufficiency, maintaining a high
repayment rate, limiting drop-outs and increasing its loan portfolio. That business plan
dramatically changed the direction of ASKI, and it placed ASKI on a sustainability path
which resulted to better financial performance. As ASKI moved forward, it realized that its
MIS was not good enough. Thus, ASKI invested substantial sums of money and effort in
developing a good, computerized MIS, which proved useful in supporting its growth and
enhancing efficiency.

Management: The senior management team of ASKI consists of eight people, headed by
Mr. Rolando Victoria, who serves as the chief executive. The senior managers are well-
educated and have many years of field and management experience behind them.

1
Nueva Ecija is located south of Isabela, the province where the proposed microfinance programme
is targeted.
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Financial performance: Beginning in fiscal year 2000, the financial performance of ASKI
has improved. Gross revenues have increased, year after year. The improvements were
dramatic in the past 3 years. Operating losses were experienced in past years, but ASKI
made a turn around, and made profits in 2003. ASKI was successful in reducing its
operating losses during the past three years. Upon closer examination, it was revealed that
this improved financial performance happened because the radical policy changes made in
1999 started to bear fruit, beginning in 2001. The contributory factors are: a) increased
number of Project Officers that increased over-all production; b) more clients; c) more loans
that generated more interest incomes; d) new MIS that increased staff productivity and
allowed tighter management of finances; e) substantial improvement in the methodology
and operational policies that caused high repayment and smaller loan losses; f) better
internal controls, and g) greater staff acceptance of principles of sustainability.

Microfinance Operations: ASKI offers six financial products: 1) regular AKP loans
intended for small business, income-generating activities or micro-enterprises; loan size
starts at 3,000 pesos; 2) emergency loans are small short-term loans, to meet common
household emergencies or to meet sudden household needs; loan size ranges from 500
pesos to 4,000 pesos; 3) life insurance pays a hefty insurance benefit to the family of a
deceased member; available only to active members who are regularly paying dues to the
MAF; 4) individual regular loans are unsecured small business loans extended to qualified
owners of micro-enterprises; loan size ranges from 3,000 pesos to 50,000 pesos; 5)
individual fully secured loans are extended to qualified small businesses; loan size ranges
from 50,000 pesos to 200,000 pesos; fully secured by chattel or real estate mortgage; 6)
individual market-vendors loans are loans extended to qualified small market vendors; loan
size ranges from 3,000 to 25,000 pesos.

Microfinance methodology: ASKI operates two basic lending programmes: the Alalay Sa
Kabuhayan Program (AKP) and the Individual Lending Programme (ILP). The AKP is
basically implemented using a modified Grameen Bank methodology. The central feature
of AKP model is the so-called center accountability principle, where the whole center is
accountable to pay any delinquent or defaulted loan of any member of the center. This is
one of the secrets for high repayment performance. The Individual Lending Programme
(ILP) is implemented using a classical individual lending methodology. An ILPO handles
the selection, background checking and processing of individual loan applications. After
release of the loan, the ILPO visits the client once a week and collects the amortizations.

Branch network: As of June 30, 2003, ASKI maintains a total of 7 branches. They are
located in Gapan, Cabanatuan, Talavera, Guimba, San Jose City, Palayan City and Tarlac
City. All branches, except one in Tarlac, are located within Nueva Ecija.
2
All branches
except two are now profitable. There are 134 ASKI employees, of which 47% are female.

Client outreach: As of June 30, 2003, ASKI has a total of 16,046 client-members. Of
this, 85% are women.

Loan and savings portfolio: As of June 30, 2003, the size of ASKIs net loan portfolio is
worth 53.6 million pesos; (this figure excludes provisions for doubtful accounts). Looking
back at its history, the growth of its portfolio has been positive and healthy during the past
five years. The members savings in ASKI is now valued at 23.9 million pesos, financing
39% of the loan portfolio. The bulk of these savings consists of mandatory savings of
members under the Capital Build-Up (CBU) accounts.

2
A new branch is being established in Baler, Aurora, as of August 2003. The Baler branch will be
the 8
th
branch of ASKI.
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Quality of loan portfolio: The repayment rate stands at 89% (as of June 30, 2003), based
on a formula using a one-day late payment. If the standard 30-day repayment formula is
used, repayment is around 94%. The portfolio at risk (PAR) ratio is at 28%. This ratio
(PAR) provides an idea of how much of the loan portfolio is at risk, based on the arrears
and age of those arrears. If we apply Philippine standards, ASKIs PAR-over 30 days is
15% which is sub-standard, given that the locally accepted standard in the Philippines is
5% or less. The arrears ratio is at 20% which is also sub-standard. Taking all three
indicators together show that portfolio quality is sub-standard. The old bad loans of the past
are weighing down the quality indicators, and ASKI has not been writing off these bad loans
as quickly as it should have. There are strong signs exhibited during the last 3 years that
portfolio quality is improving. For example, its model branch (Palayan City branch) is
showing a consistent 100% repayment in its AKP, and ASKI is trying to replicate this good
performance in all its branches. It is very clear that ASKI need to keep on strong efforts to
improve its portfolio quality within the next two years. This should be its top priority. A
positive sign noted is that during the past 3 years, ASKI has learned and adopted many
best practices that enhances repayment performance.

Financial Management: An examination of the basic accounting policies of ASKI shows
that those policies are reasonable and conforms to standard practices within the
microfinance sector. The Operating Cost Ratio (OCR) is 49% which is far beyond the
acceptable level of 25%. OCR is defined as the ratio of operating expenses to average
amount of the total loan portfolio of a microfinance organization between two reporting
periods. During the past five years, the expenses of ASKI have been increasing at a rapid
rate, due to the expansionary moves of the organization including hiring of new staff,
establishing new branches, procurement of equipment, etc. While most of added
expenditures were investments in productive capacity, to be on the side of prudence, it is
necessary that ASKI find various ways and means cut down operating costs, and decrease
its Operating Cost Ratio. The earning assets ratio is the ratio of earnings assets to the total
assets of the organization. It indicates how much of the assets of an organization are
creating positive revenues for the organization. ASKIs current earning asset ratio is at
78%, which is healthy and nearing the ideal ratio of 80%.

Management Information System: ASKI has a strong MIS system that allows it to
regularly prepare financial reports. The MIS has many built-in internal controls, and makes
preparation of reports easy. Staff productivity has improved substantially after the new MIS
was installed in the branches.

Internal control and monitoring: Internal auditors regularly conduct monitoring and audit
visits to the branches, and they check the records, books, databases and operations. The
Audit Department reports directly to the board. Fraud cases were discovered in the past
three years, partly due to close monitoring of the branches and good internal controls.
Currently, no new fraud cases have been discovered, so far, due to good internal control
mechanisms in place. It can be concluded that ASKI management, through the use of
judicious audits, strict rules, internal controls and stern discipline, is sending a good signal
to all employees that it will not tolerate fraud and irregularities. This is a healthy sign for an
MFI.

Human resource management: Staff hiring policies: A great deal of resources and
conscientiousness go towards staff recruitment. The staff hiring process is well-thought of
and is found effective in finding the right personnel. ASKI has a two-stage hiring process,
which effectively screens out the unfit ones. Staff development: ASKI provides many
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opportunities to its staff to build and develop their skills. Employees say that ASKI provides
them adequate opportunities to improve their skills. Policies: ASKI has good personnel
policies that encourage efficiency, honesty and integrity. It has an HR Manual, an
Employees Code of Conduct and Employees Handbook. Compensation: The salary scale
at ASKI is considered to be competitive among the ranks of similarly-situated organizations.
The salary structure was revised in 2002 based on a salary survey. Feedback obtained
from employees revealed that there is wide satisfaction among employees regarding the
pay structure. ASKI provides performance-based incentives which have been proven
effective in driving excellence and increasing repayment performance. The attitude of
employees is generally positive and enthusiastic.

Sustainability of the organization: ASKI has reached 100% Operational Self-Sufficiency
(OSS) as of June 30, 2003, which is the organizations best and highest performance ever.
It has also reached 98% Financial Self-Sufficiency (FSS). As stated earlier, there was a
trend of a gradual improvement of financial performance during the past 3 years. Loan
portfolio and gross revenues gradually increased; operating losses were gradually reduced.
It can be concluded that ASKI has gained momentum in moving towards attaining full
financial sustainability.

Efficiency of operations: Fieldworker productivity (client caseloads) is quite good at
ASKI. Average client caseload of AKP PO is good, at 351 clients per AKP PO. This is a
healthy sign given that each fieldworker (in a Grameen set up) should have 350 to 400
client caseload. For the ILP, average client caseload is also good, at 193 clients per ILPO
which is a healthy sign of efficiency; nearing the standard caseload of 200. The number of
loans disbursed annually has been increasing during the past five years, growing at around
24% annually. The average portfolio per fieldworker is also quite good, at 910,000 pesos
(average portfolio being serviced by all POs, both in the AKP and ILP). ASKI has a 71 %
ratio of field staff to total microfinance employees, which is good, but which is not yet ideal.
ASKI should aspire to increase the ratio of fieldworkers to 80%.

But the operating cost ratio (OCR) of ASKI, at 49%, is far beyond the Philippine standard of
25% or less. ASKI needs to exert stronger efforts to bring this performance indicator to the
standard level. Necessarily ASKI needs to watch its costs very closely, putting a tight rein
on costs, to improve its cost efficiency.

Conclusions: ASKI is a stable, mature and competent microfinance organization. The
strong points of ASKI are the following: a good working philosophy, well-disciplined staff,
good governance, strong management team, sturdy MIS, strong HR support (especially on
staff recruitment and training), existence of checks-and-balances, good internal control
systems, contented staff, and satisfied clientele. The weak areas are: increasing operating
costs, and sub-standard loan portfolio. ASKI must exert greater efforts in improving its loan
portfolio within the next 2 years, and also on putting a tighter rein on expenses, especially
personnel costs.

Part 2 Analysis of demand and supply for microfinance services in Isabela

Analysis of supply of microfinance services in Isabela: A quick sample survey was
conducted by the Consultant, with the help of three field Data Collectors. The purpose of
the survey was to identify the existing financial service providers in the various localities as
well as to determine the specific needs for financial services of both PLAN-assisted and
non-PLAN assisted families in four towns of Isabela. The survey covered the towns of
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Ilagan, San Mariano, Tumauini and Quirino. A random sample of 133 households was
selected and interviewed.

Findings: There are few formal providers of financial services in the four towns. There is
only one major microfinance service provider: the Rural Bank of Mallig Plains, Inc. (RBMPI).
This bank operates a Grameen Bank replication programme that maintains centers in 12
towns of Isabela. The bank is serving currently 13,185 clients. Some PLAN-assisted
families in Quirino and Tumauini are already members of the Grameen programme of this
bank. This is the only credible and significant supplier of microfinance services in the area.
There were a number of small, non-functional cooperatives. All the cooperatives are small,
dying or have actually closed down; the ones surviving have limited funds and scope of
services.

Reasons why access is poor: Based on actual survey data and peoples feedback, it
became clear that access to formal financial institutions is quite low. Poor people are not
using the financial services of these formal service providers because of various barriers
and high transaction costs; specifically, the respondents cited the following:
The banks /formal institutions are too away from the villages where the poor people
live; the banks do not have outreach services that extend loans or collects savings;
Given the distances involved, it is very expensive and time-consuming for poor
people to go to the bank / formal institutions; Poor people have small amounts of
savings to deposit, and they say it is not wise to spend money to save these small
amounts. Transportation cost is also high.
Poor people do not understand the rules or processes in accessing loans from
banks. They are daunted by the many documentary requirements asked by banks;
Poor people have no real assets to offer as collaterals to secure the loans.
Many banks are unfriendly to the poor. And they do not encourage the poor to
borrow.
The functional cooperatives have a small geographic coverage, and they have
limited lending funds. These cooperatives service a small limited area, barring other
interested poor people living in other villages.
Many poor people are reluctant to borrow from banks or cooperatives because they
have no good business or IGAs, and they do not know where to get the money
needed to pay back the loan.
The financial services of banks and cooperatives are credit-focused and not
savings-focused, and there are currently no services that allow the accumulation of
small daily or weekly savings of poor households.

Informal sources of rural credit: There are many informal providers of financial services.
They are as follows: (a) relatives, neighbors and friends, (b) agricultural trader financiers
(ATF), also called popularly as bodegas in the local dialect, (c) local moneylenders, and
(d) Bombay moneylenders. By and large, 98% of poor people rely on borrowings from
informal sources. The survey revealed that people borrow from their relatives because: a)
the loans do not carry any kind of interest; b) the loans can be repaid over an extended
period of time; c) it is easy to talk to and deal with relatives; d) there are no paper work
involved; e) some better off relatives (i.e. those who are working abroad or who have good
jobs in the cities) offer them interest-free loans. The bodegas or Agricultural Traders-
Financiers (ATFs) are the dominant players in this informal credit field. The most common
reason given by farmers is that there are really no other options. Farmers have no choice.
The ATFs are the only sources of credit for their farm needs. Farmers and rural
households are aware that dealing with ATFs is disadvantageous to them but they have no
real, better options.
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Conclusions: The survey also revealed the borrowing and savings pattern of poor people,
which were useful in estimating demand. Three estimates were made, and all show that
demand is large. The biggest demand is for agriculture-based loans, followed by demand
for small business loans, and then followed by small household / multi-purpose loans.
There is also a big demand for savings services that are appropriate to the needs of the
poor. The supply of such financial services is very little; hence the gap is very large. Even
if the most conservative estimate is taken, it will still show a large demand which is
significant enough for a microfinance organization to tap profitably. Part of this huge
demand is being serviced by informal lenders called bodegas which are exploiting the
poor, dragging them down to lower levels of poverty.

Part 3 Business plan for establishing a microfinance programme in Isabela

ASKI designed the Isabela microfinance programme to provide financial services to poor
people (in both PLAN and non-PLAN areas) in Isabela, to enable them to improve their
livelihood activities, and increase their household savings / assets. The target areas will
include Ilagan, Tumauini, Quirino, San Mariano, Cauayan, Roxas, Gamu, Burgos, San
Manuel, Aurora: Cabagan, Benito Soliven, Naguilian, and Reina Mercedes. During the first
six months, the initial target areas will be the PLAN-covered areas of Tumauini, Qurino, San
Mariano and Ilagan. The financial services to be offered are those currently being offered
by ASKI in all its other branches, with minor changes only. ASKI will charge a standard
interest rate of 36% per annum on all loans, where the effective interest rate will be around
44% per annum (if all these service charges and related fees are included). Loan terms
are six-months (24 weeks) for all regular AKP loans.

The ASKI Isabela microfinance programme office (Isabela branch office) will be located in
the capital town, Ilagan. An appropriate office will be rented; and office renovation done.
Basic equipment, including office equipment, computers, furniture and motorcycles will be
procured. The new branch office will be composed of 15 personnel. ASKI prepared a
detailed 2-year business plan for this Isabela branch. The branch will become a fully self-
sustaining branch within a two-year period. The key operational and financial targets are
the following:
To have a client outreach of 3,653 clients by the end of 24 months;
Attain an Operating Self-Sufficiency (OSS) ratio of 134 % by the end of 24 months;
To attain 100% OSS after 17 months of operation and attain 100% Financial Self-
Sufficiency by the end of 24 months;

ASKI will use the AKP model as its basic, primary microfinance methodology. The AKP will
be implemented in Ilagan, Quirino, Tumauini, San Mariano, Benito Soliven, Roxas, San
Manuel, Gamu, Burgos, Cauayan and Reina Mercedes. ASKI will use the individual
lending methodology, in three towns only: Ilagan, Roxas and Cauayan. ASKI will finance
the ILP largely as part of its counterpart funding.

ASKI will assign one of its senior managers (Mr. Luvimin Mauricio Jr.) to serve as the first
Branch Manager of this branch. He is well experienced in establishing new ASKI branches.
ASKI will implement staff recruitment and training following its standard procedures on staff
recruitment. The Project Officers will be deployed as follows: Two AKP POs will be
assigned to cover Ilagan and part of Quirino, 1 AKP PO will be assign to cover Tumauini, 1
AKP PO to San Mariano, 1 AKP PO to Roxas and some parts of Burgos, 1 AKP PO to
Cauayan, and finally 1 AKP PO to San Manuel and Aurora. The three ILPOs will be
assigned to each of these towns: Ilagan, Cauayan and Roxas
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Salary and fringe benefits: In Isabela, ASKI will apply its own salary scale, which is
deemed attractive to prospective employees given the wage levels in the province. Doing
this will allow ASKI to and attract and keep highly qualified individuals in the staff. ASKI will
provide its Isabela employees with the same range of fringe benefits it provides to its
employees. Also, ASKI will apply its incentive scheme for branch staff, including the
performance bonus scheme.

Management Information System: The MIS Unit of ASKI will install the hardware and
software for the new branch office in Ilagan. Adequate training will be provided to
Bookkeeper and Teller about basic trouble shooting and maintenance of both hardware and
software. If the technical problem can not be resolved by local staff or by using a remote
administration program, then the MIS Unit will send a technician to Ilagan to fix the problem.
The daily financial reports and copies of the database will be sent to the ASKI head office
daily, using e-mail or hyper terminal.

Internal control and audit: For this Isabela branch, ASKI will apply the usual internal
controls that it employs in its other branches. The audit department of ASKI (based in
Cabanatuan City) will be programmed to visit Isabela twice a year (semi-annual) to ensure
that internal controls are maintained, all policies are being properly implemented, and that
there are no irregularities or fraudulent activities.

Total financial requirement needed is 23.1 million pesos; see table below; and the proposed
cost-sharing arrangement is that PLAN will finance 74% of this need, while ASKI will
finance 26% of it. The financial resources needed for first year of operation is 15.9 million
pesos.

Purposes Pesos Percentage
Loan funds 15,000,000 64.67 %
Planned capital expenditures 1,941,900 8.37 %
Operating and administrative costs 5,096,897 21.98 %
Training and capability building program 1,063,200 4.58 %
Total financial resources needed 23,192,971 100.00 %

Over-all financial and operational self-sufficiency is expected to be achieved on or before
the 17th month of operation. Thereafter the branch would be able to cover all operational
costs of the project. The financial projections indicate that the program should continue to
be financially viable and sustainable after the 2-year partnership programme. Thereafter,
the branch will provide increasing number of loans at a steadily increasing average loan
size.

Conclusions: After a thorough analysis, the Consultant concluded that the proposed
microfinance programme of ASKI in Isabela is feasible. However, there are a few
recommendations below which would make the programme more effective. The
recommendations are summarized below (some of which are already included in the new
Business Plan prepared by ASKI):

1) Select carefully the target areas, balancing outreach and viability.
2) Allow ASKI to use the methodologies it knows best;
3) Create a medium size branch, instead of the full mega-branch; start with a small
number of staff because it is easier to achieve sustainability with a smaller
branch and lower cost-structure;
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4) Design some loan products that fit the needs of farmers in the areas.
5) ASKI should also design products and approaches to attract the poorest
households, allowing the poorest to participate in ASKIs savings programs.
6) Go slow on insurance services given that there is no major expressed need for
micro-insurance. Modify the ASKI micro-insurance product; it is suggested that
the premium and benefit value be reduced by half.

Part 3 Financial Service Associations:

Beginning in year 2000, PLAN Philippines took the initiative to support the development
and adaptation of the FSA approach in the Philippines. PLAN supported the establishment
of two Financial Services Associations (FSAs) in remote villages of Isabela. PLAN
collaborated and partnered with a local corporation called Access Basic Inc. (ABI). The
PLAN partnership with ABI ended in December 31, 2002, and the objectives of that
partnership project were only partially met. It is understood that the new microfinance
programme implementor (ASKI, in this case) will be expected to continue supporting this
FSAs. This report includes a section that provides updated information about the FSA, and
some practical suggestions on how to improve its operations. Finally, this report provides
specific recommendations regarding strategies that maybe used for the long-term evolution
and development of FSAs in the Philippines.

Introduction

Purpose of this feasibility study

This study was commissioned by PLAN Philippines to determine the feasibility of a
proposed microfinance program in Isabela, Philippines. The Consultant was hired by PLAN
to perform the following tasks: assess the governance and management structure of the
proponent organization ASKI; examine its management information system, financial
management; internal controls; pricing policies and operational plan; ability of ASKI to
operate on sustainable basis; evaluate the savings and credit products of ASKI and
determine its appropriateness to the needs for financial services in the community; assess
the demand for financial services in the target communities; review financial projections
and assess its completeness, accuracy and reliability; provide an over-all assessment of
the feasibility of the proposal, making recommendations for any changes that would
enhance chances for success; and facilitate the preparation of a business plan. See Annex
10 for Terms of Reference.

Research methodologies used

This feasibility study used a number of methods to collect information, including the
following: desk review of relevant documents, interviews with key informants, observation of
ASKI's operations at the branches and the field, focus group discussions with small groups
of field staff, and a microfinance sample survey.

The desk review included review of relevant documents of ASKI, including its 5-year
business plan, ASKI project proposal to PLAN, audited financial reports, unaudited financial
report for fiscal year 2002-2003, sample MIS reports, board minutes, HRD manual, audit
manual, operations manual, etc. Several documents of PLAN were reviewed, including
PLAN Annual Report, ABI proposal to PLAN, program documents of the Cagayan Program
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Unit, FSA assessment report, reports generated by the FSA, etc. Review of secondary
information included a quick general review of the whole microfinance sector of the
country and documents provided by the Provincial Government of Isabela. Field visits
were made to ASKI's existing program areas in Nueva Ecija, including the ASKI branches
in Cabanatuan City, Palayan City, San Jose City and Talavera. Field visits were held in
Isabela, including several barangays of Ilagan, San Mariano, Quirino, Tumauini, Gamu,
Roxas, Burgos, San Manuel, Cauayan, Benito Soliven and Mallig. The Del Pilar FSA
located in a distant remote barangay of San Mariano was also visited. Field interviews
were held with potential microfinance clients, barangay officials, community leaders, PLAN
field staff, clients who dropped out from microfinance programs operated by other
organizations, and other key informants. Some of the officers of the Del Pilar FSA were also
interviewed. Interviews with rural bank officers were held (this is a rural bank engaged in
microfinance in Isabela). Interviews were held with a cross-section of ASKI's management
staff at the Head Office and three branch offices; all ASKI senior managers and four board
members were interviewed individually; three Branch Managers, one Project Unit
Supervisor, three Project Officers, several support staff and a few ASKI clients were also
interviewed. Annex 1 provides a full list of all people interviewed. Observations were done
in three ASKI Branch Offices, to observe routine office operations; especially how the MIS
works. An AKP center meeting was also observed. Visits to homes and farmlands of some
PLAN-assisted families and potential clients in Isabela were held, in order to see a range of
economic activities they are engaged in. Focus group discussions (FGDs) were held to
solicit direct first hand information from the community members, farmers, barangay
officials and potential clients. Finally, a microfinance sample survey was also conducted
in July 28 August 1, 2003, consisting of interviews with 133 poor households selected
from 13 barangays in the four towns covered by PLAN.

Organization of this report

This report is divided into four parts and organized in the following manner: Part 1 is an
assessment of the proponent ASKI as a potential partner of PLAN; Part 2 is the an
assessment of supply and demand for financial services in the PLAN-assisted communities
and nearby communities; Part 3 is a description and assessment of the proposed Isabela
microfinance program, with specific recommendations to make it viable, sustainable and
appropriate to client needs; Part 4 is a description of the Financial Services Association,
with specific recommendations on how to strengthen the FSA and how to move forward its
further evolution and development.

Part 1 Assessment of ASKI as a potential partner

1.1 Brief history of ASKI

The non-government organization called Alalay sa Kaunlaran sa Gitnang Luzon, Inc. or
ASKI for short, was formed and created in early 1987, through the efforts of another NGO
called Tulay sa Pagunlad, Inc (TSPI) and Maranatha Trust, an Australian-based
development organization. It was officially registered with Securities and Exchange
Commission as a non-stock, non-profit corporation in March 23, 1987. The first board
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members were selected from among the well-known citizens and community leaders of
Cabanatuan City and other key cities of Nueva Ecija, Philippines.

Starting with a loan portfolio of 460,000 pesos, which TSPI lent, ASKI was able to assist 25
individual income generating projects owned by the poor. During its first year of operation,
ASKI was able to assist 642 people.

1.2 Governance

The governance processes and mechanisms of ASKI were examined, including the
following: composition and mix of the board members, manner of board member selection
and orientation, board meetings, independence, supervision over management,
participation in key decision-making, etc. They are discussed below:
1.2.1 Composition of the board

Table 1 - List of ASKI board members
Name Position Background
Dr Gemiliano Calling Chairman Economist, educator, administrator
Dr Rolando Veneracion President Medical doctor, Medical director NEDH
Ruel Capule Secretary Businessman
Samuel Padolina Treasurer Pastor, School Director, Palayan High School
Yi Bio Gan Auditor Trading businessman, active in Red Cross
Reynaldo Villanueva Member Businessman, President NEECOII
Zenaida Ferrer Member CPA, BIR employee

The Board of Trustees (BOT) of ASKI consists of prominent and respected business men,
professionals and community leaders of Nueva Ecija. At present, there are 7 persons that
compose the board. A list of the board members is shown in Table 1 above. A profile of
the members of the board is shown in Annex 2. All board members are well educated and
highly successful in their respective fields. None of the board members are related (by
blood) to each other or to any members of the senior management team of ASKI. All have
proven their competence, integrity and dedication to their work and fields. It can be
concluded that the composition of the board is good and independence is assured. Mix
and composition of the board members skills are fairly good, but there is lack of lawyers
and bankers.

There are currently no term limits for ASKI board members. The board members can serve
repetitively without any limitation. In fact, a few of the current board members have served
for more than 10 years, continuously.
3

The officers of ASKI are listed also in Table 1 above. The officers are elected from and
among the board members every year as per Article VI, Section III of ASKI by-laws. Each

3
The election of the board members happen every year, however, they are essentially re-election of
the same board members because the body of members (who is supposed to elect the board
members) is the same group of people that consists the board. This set-up is common in NGOs and
called a self-perpetuating board set-up. Replacements for outgoing members are filled anytime
when it vacancies occur. There is no need, at this time, to change this self-perpetuating board set-
up in ASKI given the good mix of board members and the existing system of checks and balances.

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officer shall be elected for a fixed term of 2 years and maybe re-elected for any number of
terms, without limitations.

1.2.2 Board member induction

The manner of selecting and inducting new board member of ASKI is quite good. If there
is any vacancy in the board, the remaining board members make suggestions or
nominations. They must be residing in any of the towns of Cabanatuan, and must be
known for their success, integrity and dedication. The board decides based on the
nominations submitted. Then, the chief executive and some board members go to the
prospective board member and make a formal presentation about ASKI and about the role
and duties of a board member. If the person accepts, he is appointed as an adviser to the
ASKI board. This adviser role is designed to give the incoming board member an
opportunity to gain a real understanding of the principles, philosophies and operations of
ASKI. He/she is exposed to the operations and workings of the organization for a period of
3 months or even up to a year. He/she visits the offices, meet the staff, go to the centers,
meet clients, and observe the operations. As adviser, he/she can sit in the board, as an
observer; participate in discussions but possess no voting power. During this period, the
adviser also assesses his/her own willingness to give ASKI the necessary time and
dedication required. Once the adviser passes this stage, the board formally accepts
him/her into the board as a full pledge member. All new board members are asked to make
a commitment to donate 20,000 pesos to ASKI, which can be paid in one installment or in
multiple installments over a period of time.

All board members have undergone basic good governance seminars conducted by its
mother network - APPEND and they are kept aware of the roles and responsibilities of
board members.
1.2.3 Independence of the board

Based on discussions with board members, it is apparent that it is not a rubber stamp
board and it carefully examines and scrutinizes everything brought to its attention by
management. Given their status, they are able to think independently of management. The
current board has assumed a supportive role to management.

From all appearances and indications, there is a good working relationship between the
board and the chief executive. Relationships among board members are also very good.
Camaraderie, trust and openness prevail.
1.2.4 Board meetings

Regular meetings of the board are held each month and special meetings are also held if
necessary. Minutes of meetings are faithfully kept and maintained. Reports of operational
and financial performance are submitted to the board and they are discussed during regular
board meetings. Several senior managers are present during board meetings to make oral
(and PowerPoint) presentations of the various reports. Board members are now familiar
with some of the key microfinance performance indicators.
1.2.5 Participation in key decision-making

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The board actively participates in strategic and operational planning activities of the
organization. The board approved the 5-year business plan in early 2002 and has
approved the recent revisions to that plan in early 2003. The board deliberates on and
approves the annual work plan and annual budgets prepared by the staff.

The board reviews and approves the operational and HR policies and manuals of the
organization. Currently the HR and audit manuals are being reviewed and updated by staff
and board.

The board also actively participates in annual employee retreats and in quarterly general
assemblies of employees. Some board members conduct short lectures or deliver short
pep talks during such general meetings.
1.2.6 Supervision over managers

There seems to be effective supervision by the board over ASKI management. The board
discusses the over-all performance of ASKI, annually, which serves as proxy evaluation of
the chief executive. However, there is a need to install a more formal way of evaluating
performance of chief executive and the top senior managers
4
; see footnote below.
1.2.7 Vision and mission

The vision of ASKI is to see people live in accordance with Gods plan for a just and caring
society where all live with dignity, sufficiency and responsibility towards others and the rest
of the creation.

The mission of ASKI is stated as follows: To promote the socio-economic and spiritual
transformation in the province of Nueva Ecija and nearby provinces by harnessing the
resources of development organizations, cooperatives, peoples organizations and
individuals engaged in micro, cottage and small enterprises development and assisting
clients alleviate poverty and bring about fullness of life based on ecumenical Christian
development philosophy.

1.2.8 Five year business plan

4
One way to improve management oversight is something like this: First the board creates a
management oversight committee (MOC) which will examine the performance targets of
management staff. At the beginning of a fiscal year, the senior managers would sit down and agree
on specific targets that will be assigned to each one. Then, they are presented to the MOC, which
will agree or modify or increase those performance targets or objectives per senior manager and the
chief executive. Then, the MOC meets the board to discuss and have the performance targets
ratified. The targets should be completely aligned with the annual targets set by the board for the
whole organization. Then, the MOC conducts two reviews, at the middle and end of fiscal year. The
MOC reviews the accomplishments of the individual managers, including the chief executive. If there
is a need to modify any of the performance targets of a manager, then such can be done through the
MOC during the mid-year review. At the end of fiscal year, the MOC presents data to the board
regarding the planned and actual accomplishments of each manager. Rewards maybe set by the
board for excellent performance. By doing this, the board will have a better supervision over the
senior management team.
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In 1999, together with the other APPEND (Alliance of Philippine Partners in Enterprise
Development) partners; ASKI launched its ambitious 5-year scale-up program. The
operational targets of the said 5-year plan included the following: a) outreach of 88,000
clients through eleven branch offices; b) attaining 120% operating self-sufficiency; c) each
new branch becoming viable after 12 months of operation; d) maintaining a repayment rate
of 98%; e) limiting drop-outs to 10% in the AKP; e) attaining 110 % financial self-sufficiency;
f) increasing loan portfolio of each branch to 11 million pesos; g) generating 60 million
pesos in Capital Build Up funds. That business plan dramatically changed the direction of
ASKI, and it placed ASKI on a sustainability path which resulted to an improving trend of
financial performance during the past 3 years.

Initial problem during scaling-up process: As ASKI moved forward, it realized that its
preparations were not enough. A major problem it encountered during the start of the
expansion program is the inadequate MIS. ASKI realized the importance of having a good,
sturdy MIS to support the expansion process. Thus, ASKI invested substantial sums of
money and effort in developing a good, computerized MIS. The MIS proved to be
extremely useful in supporting its growth and enhancing efficiency.

Adjustments due to change in role: Since its formation in 1987, ASKI has been a direct
microfinance service provider, but this role is now changing. In May 2001, ASKI became a
part of the Opportunity Microfinance Bank (OMB), which is a profit-oriented microfinance
bank. The plan is that all viable branches of ASKI will be transferred to OMB. As payment,
ASKI will get some financial resources from OMB, which ASKI would invest in creating new
branches. Hence, ASKI will become an originator or hatchery of new branches, while
OMB will become the main microfinance service provider. ASKI has thoroughly oriented all
its staff and managers regarding this change of role. The employees are aware of these
changes, and no major problem has emerged, so far. But it is possible that conflicts and
stresses will emerge once the transfer process actually begins, like for example, the
following: a) OMB is not able to follow the time table of absorbing ASKIs branches, due
probably to OMBs financial difficulties or on difficulties of complying with BSP
requirements; b) ASKI becoming dissatisfied with the amounts of compensation paid by
OMB for the transferred branches, or such compensation is inadequate to establish new
branches; or such payments are not made promptly; c) Some of the ASKI rules and
policies will be changed, modified or deleted by OMB after the transfer, and it is possible
that some branch managers or employees will fail to adjust or to agree to such new
operating rules or policies under OMB; d) Failure of employees and management to adjust
to each other. While these conflicts and stresses may actually happen in the future, the
potentials for major disruption is small because ASKI would probably be able to manage it
well given its active participation in all key OMB decision-making. ASKI has been with the
APPEND and OMB network for past 16 years, and furthermore, ASKI is a part-owner of
OMB. Nonetheless, it is best if the ASKI board and senior managers anticipate these
potential problems and make corrective actions, to help make transition as stress-free as
possible.

1.3 - Management

The senior management team of ASKI consists of eight people, see Table 2 below. The
team is headed by Mr. Rolando Victoria, who serves as the chief executive (official title is
Executive Director).
Table 2 - List of ASKI senior managers
Name Position Professional Background
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1 Rolando Victoria Executive Director Former banker, Municipal Planning and
Development Coordinator
2 Babylyn Fernando Corporate Planning Head Former community organizer, project
officer, training officer, branch manager
ASKI
3 Areli Vega Operations Manager Former chief accountant, TSPI, staff
auditor SGV&Co., former faculty member,
Wesleyan University of the Philippines
4 Mary Ann Leonardo Chief Accountant and MIS
Unit Head
Former supervisory accountant, internal
auditor
5 Emmie Quijano Finance Manager Former Head Office Bookkeeper ASKI
6 Jane Manucdoc Audit and Monitoring Dept
Head
Former audit assistant, audit manager
7 Divina Gracia Santos Human Resource and Admin
Manager
Former instructor, training officer, training
supervisor
8 Luvimin Mauricio Jr. Roving Manager Former branch manager, ASKI

The Consultant reviewed the detailed background of each member of the senior
management team. The senior managers are well-educated and have many years of field
experience behind them. The chief executive is a former banker and has led ASKI during
the past 16 years. The Operations Manager (Areli Vega) had several work experience with
TSPI and had participated extensively in APPEND workshops. The rest of the
management team has good education and adequate professional backgrounds.

1.4 - Microfinance Operations
1.4.1 Microfinance products being offered

Regular AKP loans intended for small business, income-generating activities or micro-
enterprises. Loan size ranges from 3,000 pesos to 6,000 pesos for the first loan cycle. This
type of loan is provided to members of the centers that meet every week. Loan sizes
gradually increase, following a step-up approach, based on good performance. Though
unsecured, the main security is the mutual guarantee provided by center members. The
bulk of loans of ASKI are under this category of loans.

Emergency loans are small short-term loans, ranging in size from 500 pesos to 4,000
pesos. These are extended to meet common household emergencies (sickness,
hospitalization, etc.) or to meet sudden household needs.
5

Life insurance pays a hefty insurance benefit to the family of a deceased member;
available only to active members (defined as one who is updated in paying the loan
installments and premiums to the ASKI life insurance pool called as Mutual Aid Fund). If an
active member dies, the family gets 120,000 pesos less any unpaid loans with ASKI. If the
spouse or child of an active member dies, then 60,000 pesos is paid to the family. Many
members appreciate this benefit. Some people have joined ASKI, attracted mainly by this

5
Internally to ASKI, the emergency loan is not really a loan, accounting-wise, because they simply
deduct the loan amount from the Emergency Fund savings accounts of group members. But the
loanee is required to pay back the money to ASKI, which re-deposits the amount to the group
members Emergency Fund accounts. Hence, from the point of view of the client, it is a loan.

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insurance benefit.
6
See item 3 in Annex 6 a specific recommendation to convert the MAF
into a real insurance pool, which will make administration of MAF simpler and easier.

Burial benefit / funeral insurance product is an optional product offered to members,
where burial / funeral services are provided to the family of a client. An annual premium
(called membership fee) must be paid by the client, and the premium amount depends on
his/her age. The main benefit is funeral assistance worth 25,000 pesos.
7
ASKI is able to
offer this useful insurance product through its partnership with an NGO called Damayan
Lingap sa Mamamayan based in Talavera.

Individual regular loans are unsecured small business loans extended to qualified
owners of micro-enterprises. Loan size ranges from 3,000 pesos to 50,000 pesos. Chattel
mortgage security is not strictly required for this kind of loans.

Individual market-vendors loans are loans extended to qualified small market vendors.
Loan size ranges from 3,000 pesos to 25,000 pesos

Individual fully secured loans are loans extended to qualified small businesses. Loan
size ranges from 50,000 pesos to 200,000 pesos. Chattel or real estate mortgage security
is required.

1.4.2 Microfinance methodology: group lending

ASKI operates two basic lending programmes: the Alalay Sa Kabuhayan Program
Programme (AKP) and the Individual Lending Programme (ILP). Full descriptions of the
AKP and the Individual Lending Programme (ILP) are shown in Annexes 3.

The AKP is basically implemented using a modified Grameen Bank methodology. ASKI
simply calls this methodology as the AKP model. The basic features of this AKP
methodology are described briefly in Table 3 below, with a brief comparison with Grameen
Bank model.

Table 3 - Features of the AKP Model and Comparison with
Grameen
Criteria AKP Model Basic Grameen Bank model
Members Minimum of 15 members, and
maximum of 40 members in a
given group or center.
Minimum of 15 members and maximum
of 30 members per center (big group)

6
Majority of clients of ASKI have actually seen with their own eyes that ASKI really pays the life
insurance benefit to the households of a deceased member, thereby strengthening the credibility of
ASKI and increasing appreciation for the life insurance product.

7
Besides the main benefit, a cardholder-member of Damayan Lingap sa Mamamayan program can
also lend his/her card to his/her relatives, neighbors or friends, where the NGO provides 50%
discount on the costs of casket and funeral services. A member can lend his/her card five times
each year.

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Small groups The new AKP model has no
small groups within the big group
or center.
8

Has small groups (5 persons per small
group)
Mutual loan
guarantee
The members of the whole
center (big group) are
responsible for repaying any
delinquent or defaulted loan of a
member of the center.
The members of the small group are
responsible for repaying any delinquent
or defaulted loan of a member of the
group. The center is not responsible
for loans of members within the small
groups.
Center
meetings
Meets every week, for regular
Bible-sharing, discussion of
development, and collection of
loan installments and savings.
9

There is a center place, usually a
house of a member.
Meets every week, for discussion of
development, and collection of loan
installments and savings. Meets in a
center house.
Means test Done at the start of center
formation
Done at the start of center formation
Admission of
members
New members have to pass the
Continuous Center Training
(CCT) and the Center
Recognition Test (CRT)
New members have to pass the
Compulsory Group Training, and to
pass the Group Recognition Test.
Loan approval The center approves the loan
but ASKI conducts background
checks and makes final approval
of the loans
The center approves the loan and
MFI does not conduct background
checks. MFI makes final approval of
the loans
Loan releases Proceeds of loan are disbursed
in the branch office, not in the
center. The loan is given to an
individual.
Loan is disbursed in the center, during
center meetings. The loan is given to
an individual
Officers The center elects its own key
officers: center chief, vice-center
chief, secretary, treasurer and
auditor
The center elects its own key officers:
Decisions The members memorize and
recite ten decisions
The members memorize and recite ten
decisions

The four main differences of the AKP model with the Grameen Bank model consist of the
following:

1) Center loan accountability: In the AKP model, the whole center is accountable to
pay any delinquent or defaulted loan of any member of the center. ASKI calls this
principle as center accountability (discussed more below). In Grameen model, the
whole center is not accountable, only the small group.

2) Background checks: ASKI conducts credit investigation of its members, especially
for first time borrowers. In Grameen Bank model, the MFI does not conduct this

8
The older version of this AKP model has small groups which are mutually responsible for the loans
taken by the group members. The new version has done away with small groups with mutual
guarantees. The small groups exist mainly to facilitate collections of loan installments and to make
monitoring easier.

9
The older versions of AKP allowed monthly meetings of the centers, though collection activities are
done weekly. The new version strictly stipulates regular weekly center meetings.

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anymore because it is assumed that the applying members have been pre-screened
by the group or center.

3) Manner and timing of loan releases: In Grameen Bank model, the clients receive
their loans in a 2-2-1 manner (meaning two clients receive their loans, then after a
few weeks, another 2 members receive their loans, then after a few weeks the
group leader receives her loan). In contrast, the AKP model allows all members to
receive their loans simultaneously. The advantage of this is that ASKI is able to
increase its loan portfolio quickly in a new center.
10

4) Freedom of center members to create and maintain their own special-purpose
funds: ASKI allows its members to form and maintain special purpose funds, like
Damayan Funds in the centers, to help meet burial or hospitalization expenses.
These funds are directly managed by the center, but under the watchful eye of ASKI
fieldworker. There are many advantages to this, but also there are some potential
problems.
11

Except for these four items, the AKP model is similar to the basic Grameen Bank in all
respects.

Center accountability: secret for high repayment performance: ASKI has learned that
it is more beneficial if the whole center is responsible for paying the loan of a defaulting
member because the load is distributed to a bigger group. The individual members load is
considerably much lower. Hence, ASKI has modified the basic Grameen concept of group
liability to center liability. Since 2001, it has implemented a principle called center
accountability, where the whole center is responsible for the defaulted loan of any member
of the center. This results to high repayment performance and good relationships within
the center.
12
Members appreciate this shift because this results to lighter load burdens to
each one. For example, if a member defaults on her 200 peso installment, in the older
AKP, each member of the 5-person group will have to chip in 50 pesos (4 people pay for
the default of a member). In the new AKP, members chip in 5.15 pesos; the load of paying
the 200 peso default is distributed to 39 members. This is the secret of high repayment
performance in centers, as it is easier for the whole center to pitch in for any member who
fails to turn in her weekly installment.

Two other reasons for shifting to center accountability principle are: (a) to create
uniformity in the manner of sharing the burden for loan installment defaults, and (b) to cure
the weaknesses of the older methodologies. In prior years, ASKI employed 3 to 4 different
methodologies, which confused both the staff and clients, and which led to bad results (for

10
The loans are disbursed or released at the ASKI branch office, and not in the centers. While this
increases security protection for ASKI as well as prevent the occurrence of ghost borrowers, it
somehow increases the transaction costs to the borrowers because they have to go to the branch
office to get their loan checks, as well as to the bank to encash the check.

11
ASKI should watch out for excessive proliferation of these self-managed funds in the centers
because of the following: (a) monitoring the funds can take a great deal of time and effort of ASKI
fieldworkers; (b) the center-managed funds may duplicate the special savings funds being
maintained by ASKI; (c) those funds needs to be audited or examined also, at least once a year, by
ASKI auditors, taking precious time away; and (d) any mismanagement of those funds will erode the
credibility of ASKI in the community.

12
This principle is still being used by CARD.

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example, group members became so discouraged because of heavy burdens that they
opted out also). In fact, the bulk of all past due loans in the books of ASKI today were from
the older versions of their Grameen model implementation of the past.

ASKI emphasizes transparency at each level of operation. The entire lending and saving
activities of the centers at the grassroots are performed in an open and transparent
environment. For example, it is only after groups' complete discussion and subsequent
concurrence by the Center Chief that the loan applications of the members are advanced to
the Branch Office. The lending activities are transparent right from the beginning.
1.4.3 Methodology standardization

The shift to a standard AKP model is a good sign for ASKI. The organization is now
standardizing its methodology across all branches and across all locations, regardless of
the donors of such branches. This will make implementation of microfinance programme
easier and more uniformed. It will also lead to development of a higher quality and uniform
MIS that can be implemented across the whole organization. To pursue this methodology
standardization, and as part of the retooling strategy, ASKI now requires all branch
managers and unit supervisors to visit and learn from the Palayan City branch, which now
serves as a model for reconfiguring old branches and for establishing new branches.

The new version of the AKP model is also aligned with the model being used by OMB the
Opportunity Microfinance Bank, to which the branches of ASKI will be eventually
integrated.
13

The ASKI Operations Manager claims that while ASKI has made headway in standardizing
the methodology under AKP, it is still a challenge to do so because some branch managers
and field staff are used to the old ways of doing things and they still have some resistance,
though this is milder now than before.
1.4.4 Microfinance methodology: individual lending

The Individual Lending Programme (ILP) is implemented using a classical individual
lending methodology. A special type of project officer called ILPO Individual Lending
Project Officer handles the selection, credit checks and processing of individual loan
applications. They also help the applicant complete the required documents. After release
of the loan, the ILPO visits the client once a week and collects the amortization. See Annex
3 for more details.
1.4.5 Branch network

As of June 30, 2003, ASKI maintains a total of 7 branches. They are located in Gapan,
Cabanatuan, Talavera, Guimba, San Jose City, Palayan City and Tarlac City. All seven
except the last are located within the province of Nueva Ecija. Furthermore, ASKI has now
expansion work in the following areas: Bulacan, Pangasinan and Aurora. Several
branches serve as platforms for these expansion activities. A discussion about the
sustainability of these 7 branches is found in Section 1.10.2. Table 5 in Section 1.10.2

13
The AKP methodology is aligned with the branch model that was jointly developed by ASKI and
other member MFIs of APPEND. The generic branch model developed in 1998 by APPEND is
called branch scale up model, but now called the Mega Branch model.

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shows a snap shot of the ASKI branches, in terms of client caseloads, portfolio, staff
numbers and net income.
1.4.6 Branch office structure

The branch offices of ASKI conforms to the basic designs developed by APPEND in 1998.
APPEND calls it then the branch scale up model. Today, this evolved to one which is
called the Mega Branch model. A fully-developed mega-branch consists of a Branch
Manager, 2 Project Unit Supervisors, 14 Project Officers (with seven POs reporting to one
Project Unit Supervisor), 2 or 3 Individual Lending POs, a Bookkeeper, an Accounting
Assistant and a Teller. In essence, when compared with a standard Grameen bank branch,
ASKIs mega-branch is actually two branches, combined into one, being supervised by one
Branch Manager. The use of a computerized financial management and MIS system
allows having two Project Units under one roof.

Currently, all branches of ASKI are formatted like a mega-branch
14
but there are branches
where only one Project Unit exists, hence those branches have plenty of room for
expansion. This means that ASKI has unutilized installed production capacity. It is
recommended that ASKI puts first priority on fully utilizing this unused production capacity
in next few years. Doing so would result to greater efficiency and will yield the largest
productivity increase in the organization.

As a minimum, a fully-developed branch should have at least 3,000 clients, to be viable.
When fully staffed and when it reaches maturity, the ideal client caseload of each mega-
branch is 4,500 people.
15

1.4.7 Microfinance personnel

As of June 30, 2003, there are 134 ASKI employees, of which 47% are women.
Predominantly, the field staff or POs are male, due to the nature of the job. POs have to
travel to distant barangays to attend weekly center meetings, ride motorcycles, do
background checks and conduct field visits, and interact with community members. It is not
unusual for these activities to run to evenings; hence women generally do not like this kind
of work. All support staff are female, as the jobs are all office-based. Branch managers are
currently all male.

Almost all of the branch personnel are college graduates and many have business
management degrees. Branch personnel behave in highly professional manner,
hardworking and diligent in their respective duties. The fieldworkers of ASKI are all
committed, sincere and dedicated to the mission of poverty alleviation through the provision
of financial services.

14
One minor, temporary aberration to this basic mega-branch model is that ASKI has hired several
Collection Officers, and placed them in several branches, for the purpose of running after the old bad
loans of the past. But this job is, perhaps, not a permanent position, and maybe abolished after all
of the bad loans have been cleared.

15
Each of the 14 AKP POs will have a client caseload of 300 people, and each of the two ILPOs will
have client caseloads of 150 people each. This will bring in a total clientele of 4,500.

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1.4.8 Client outreach

As of June 30, 2003, ASKI has a total of 16,046 client-members. Over the past five years,
the number of clients has steadily increased; growing at an average rate of 20% per year.
At this level, the Philippine Microfinance Council considers ASKI as a medium-size
microfinance organization.
16
Around 85% of ASKI clients are women. Based on actual
feedback, clients are satisfied with the services of ASKI.
1.4.9 Pricing policies

ASKI charges a standard interest rate of 36% on all loans. Loan terms are six-months (24
weeks) for all regular loans under AKP. The service charge is 2% per application; filing fee
is 40 pesos per application; notarization fee is 50 pesos, and there is a one-time
Identification Card fee of 30 pesos. If all these service charges and related fees are
included, the effective interest rate will be around 44.4% per annum; (this is based on an
annualized computation of fees, interest and charges and based on a 5,000 peso loan. If
10,000 peso loan amount is used as basis, the effective interest rate will be around 41%
per annum.) If the MAF contribution is considered as cost of borrowing by the clients,
then the real interest rate will be around 52.4%. The portfolio yield
17
is good, at 64% and
this is a good yield.

At these rates (effective interest rate of 44% per annum, and 63% portfolio yield), ASKI
would be able to earn sufficient revenues to cover all its costs. While these rates may
sound too high, this is actually reasonable given the high transaction costs involved.
Microfinance lending rates normally ranges from 50 to 60% per annum given the normally
high cost of delivering credit to the villages. Existing clients of ASKI consider the interest
rate reasonable. However, in the future, when ASKI has attained full 100% Financial Self-
Sufficiency and has substantially increased its loan portfolio, ASKI may consider reducing
its interest rate in order to give back to its member-clients some efficiency dividends
resulting from greater efficiency of the organization.
1.4.10 Loan and savings portfolio

As of June 30, 2003, the size of ASKIs net loan portfolio is worth 53.6 million pesos; (this
figure excludes provisions for doubtful accounts). This is fairly good size portfolio, but given
the current staffing structure of ASKI and given the under-utilized production capacity in the
branches, ASKI need to further increase its portfolio size to around 100 million pesos within
the next 2 or 3 years.

Looking back at its history, the growth of the portfolio has been positive and healthy during
the past five years. In 1998, portfolio was 19.4 million pesos, and then it increased
gradually, at an average annual rate of 17%, until it reached the current level. If ASKIs

16
The Philippine Microfinance Council is the association of microfinance organizations in the
Philippines, consisting mainly of NGOs and a few rural banks. The credit unions and cooperatives
are not part of the Council. ASKI is a founding member of the Council since 1987. Member-MFIs
submit financial and operational reports to the Council every year.

17
Portfolio yield is obtained by getting the sum of all interest incomes, service fees, penalties, and
filing fees, and then dividing the sum by the average of total net loan portfolios for 2002 and 2003.
Portfolio yield ratio indicates how much money the portfolio actually produces as income in a year.

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loan portfolio continues to growth at this rate (17% per year), then it will take four years
before it reaches the 100 million peso level.
18
Hence, it is necessary that ASKI accelerates
the growth of its portfolio.

The members savings portfolio of ASKI is now valued at 23.9 million pesos. The bulk of
this consists of mandatory Capital Build-Up (CBU) savings contributed by members. These
savings constitutes 39% of the loan portfolio of ASKI. This is a healthy figure and ASKI
may further increase this to 50% gradually over the next 3 to 4 years. These savings are
cheap sources of operating capital and they also reduce the exposure of ASKI because the
savings effectively serve as collateral on members loans.
19

To increase its savings portfolio, it is recommended that ASKI begin emphasizing savings
mobilization. ASKI has four options, which are not mutually exclusive: The options are: (1)
enhancing the features of the current Emergency Fund to make it really accessible; (2)
creating a separate voluntary savings account product which is fully accessible by members
anytime; (3) allowing so-called associate members which can take part in the voluntary
savings accounts; and (4) creating special savings groups. See specific details of this
recommendation in Annex 6. The advantages of this savings-focused approach are many,
and includes the following: (a) increase in client numbers as more people will be interested
to join; (b) more of the poorest households can be reached because there are no pressures
to them to borrow; (c) increase in the savings portfolio of ASKI, which will enable ASKI to
increase its loan portfolio; (d) increasing the number of potential future borrowers. With a
bigger loan portfolio, it can have more income.
20

1.5 Quality of loan portfolio
1.5.1 Three basic quality indicators

The quality of loan portfolio of ASKI was examined and reviewed. Three standard portfolio
quality indicators were examined: repayment rates, portfolio-at-risk ratio (PAR) and arrears
ratio. See below:

Repayment rate: The repayment rate at ASKI is computed based on installment payment
received on the exact due date. A 1-day late payment makes the loan past due and the
loan is tagged automatically as delinquent by the MIS. This is a good internal tool for
tracking repayment but this formula is not the industry standard nationally or internationally.
Repayment rate at ASKI is 89% (as of June 30, 2003), which does not look good.
However, if the standard 30-day repayment rate formula is used, then repayment rate
increase to around 94%. While this is not too bad, it is also not very good. It is below
standards; (acceptable repayment rate ranges between 97 99%). It is worrisome,
because repayment can get worse.

Portfolio at Risk ratio: This ratio provides an idea of how much of the loan portfolio is at
risk, based on the arrears and age of those arrears. Similar to computation of repayment

18
The five-year business plan of ASKI is an ambitious document, and it is unlikely that ASKI would
be able to meet its stated targets, if the past growth rates were considered as basis.

19
In case a member-client defaults on her loan, and wants to withdraw from membership, then her
CBU + EF savings accounts will be applied against her unpaid loan.
20
Many of these special groups will eventually take out loans from ASKI after they have generated
savings and after they have developed enough confidence to start their own small businesses.
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rate, ASKI computes Portfolio at Risk ratio at 1-day late. A 1-day late payment causes the
computerized MIS to tag the loan as delinquent, and at risk. PAR-1 day is reported at 28%
as of June 30, 2003. The value of all loans with past due payments is now 15,962,439
pesos. While this is a good internal tool, the standard PAR is based on over 30 days past
due (in the Philippines) and over 90-days past due (internationally).

The most recent loan aging analysis of ASKI is shown in Table 4 below:

Table 4 - Loan aging analysis of ASKI loan portfolio
Loan categories Amount Percentage
Loans that are current 40,319,322 71 %
Loans with 1-30 days past due payment 7,615,404 14 %
Loans with 121 days over past due payment 2,955,262 5 %
Total loan portfolio 56,966,242. 100 %

If we apply Philippine standards, ASKIs PAR-over 30 days is 15% which is considered sub-
standard, given that the locally accepted standard is 5%.

Arrears ratio: Currently, the value of all payments in arrears is around 11.4 million pesos;
hence arrears ratio is at 20.2% which is also sub-standard.

1.5.2 Analysis of loan delinquency

The Consultant conducted a deeper analysis regarding the loan delinquencies within ASKI,
and such an analysis revealed that most of the problems are those under the Individual
Lending Programme (ILP), specifically those clients given higher loan renewals. There
seems to be some weaknesses in ILP programme guidelines or implementation where loan
sizes are sometimes inappropriate (too big) for the actual needs of ILP clients. It is
important to remember that when a loan has been extended to a client and the size of that
loan is far beyond the needs of the client and far exceeds the clients normal repaying
capacity, then it is likely that the client will have difficulty in paying it back.

The analysis also revealed that the most of the delinquency problems lie in 3 branches,
namely Guimba, Cabanatuan and Talavera; with Guimba having the largest number of loan
delinquency and defaults. For example, repayment rate of ILP in Guimba is 88%, arrears
ratio in Guimba is 19% (which is the highest arrears ratio among 7 branches), and PAR of
ILP in Guimba is at 23%, which is also the highest PAR among the 7 branches. On the
other hand, the Palayan City branch is the best performing branch in terms of portfolio
quality: 0% PAR in its AKP, 7% PAR in its ILP; 100% repayment in its AKP and 97% in its
ILP.

It was revealed that great majority of the bad loans consist of old loans extended in the past
under the unstandardized Grameen replication models. Those old bad loans are weighing
down the quality indicators, and ASKI has not been writing off these bad loans as quickly as
it should have.

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Conclusions: taking all three portfolio quality indicators together (as discussed in section
1.5.1 above) show that portfolio quality is sub-standard.
21
The delinquencies are traceable
to:
Old bad loans due to poor methodology and implementation in the past - 1990
1997 (box below shows a breakdown of these old bad loans),
ASKIs failure to write off these old bad loans as quickly as it should have;
Weaknesses in the ILP implementation, particularly on determination of loan sizes
to ILP clients. It is very clear that ASKI need to keep on strong efforts to improve its
portfolio quality within the next two years, addressing weaknesses in ILP especially.

A breakdown of the old bad loans is shown below:

An ASKI senior manager claims that while ASKI has made headway in some of the old bad
loans of the past, it is still a big challenge. The past due loans from previous Grameen
models / approaches used to be around 8 million pesos. Around 40% of these bad loans
have been written during the past three years. ASKI has hired Collection Officers, and
place them in several branches. Their main job is to collect on these old bad loans.
22

Despite these problems, an encouraging sign is that during the last 3 years, the overall
portfolio quality is improving. For example, its model branch (Palayan City branch) is
showing a consistent 100% repayment in its AKP, and ASKI is trying to replicate this good
performance in all its branches. This should be its top priority. A positive sign that was
noted also is that during the past 3 years, ASKI has learned and adopted many best
practices that enhances repayment performance; see section 1.5.2 below.

The current delinquency problem of ASKI should not be considered a major issue for the
Isabela expansion programme because of the following:
a) The AKP model that will be used in Isabela will be based on the standardized,
latest version of AKP which has been proven effective in Palayan City branch;
b) The person who managed and run the Palayan City branch will be the same
person who will be assigned to manage the proposed Isabela branch; hence
potentials for success is high;
c) The weaknesses in the ILP would have been cured by ASKI by the time it
implements ILP in Isabela.
d) There will be strong MIS and internal controls in place in the Isabela branch, which
will reduce possibility of fraud, malpractices or declining staff discipline. (Some of

21
The organization still suffer from the consequences of past years inefficiencies and faulty
methodologies of the past. It will take time to recover some of those bad old loans, and some of
those, maybe amounting to 2 or 3 million pesos, would have to be given up as complete losses and
be written off the books.

22
Of this 8 million pesos of old bad loans, the Cabanatuan City branch carries 2 million pesos worth
of bad loans. It is estimated that of these 8 million peso bad loans, one-fourth will finally be declared
as uncollectible. This was based on specific signs like: clients can not be located or hardly
accessible; the client willfully refuses to honor the loan or pay even small installments, clients pay
minimal amounts only of installments, businesses of clients have closed down, etc.

BRANCH AKP ILP
Cabanatuan 1.909 m 1.321 m
Gapan 0.362 m 0
Palayan 0 2.602 m
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the loan delinquencies were partially caused by malpractices or lack of discipline
or consistency from ASKI staff.)

Loans under litigation: the value of all loans under litigation is 6.06 million pesos. Many
of these old bad loans are still in the books. It is recommended that such loans should be
written off once it has been determined that possibility of recovery is nil.

The ASKI Board of Directors is generally receptive to the idea of writing off bad loans. It has
in fact authorized the writing off of a big chunk of bad loans in 2001, 2002 and 2003. The
board however requires that the specific loan accounts should be audited first by ASKIs
internal auditors before it is finally written off.

1.5.3 Practices that help maintain high repayment

Learning from its bitter experiences of the past, ASKI has adopted many best practices
that enhances repayment performance and keep delinquency at bay. Some of the
important ones are shown below:
The use of MIS-generated collection sheet pre-determines at the start of the day
how much collection is expected for that day, for a given group / center. At the end
of the day, the Branch Manager checks whether the total amount due for the day
has been actually collected,
The so-called walang uwian practice. This is a practice where the Project Officer
will not leave or dismiss a center if it has not paid the full 100% due amount. This
creates, initially, very strong pressure to complete the payment. Later on, the center
members imbibe the habit of bringing enough extra cash to pay for the missed
payments of some their co-members.
The group solidarity or center accountability, where the members really
understand and fully implement the principle they are jointly liable for the loans of
each one.
Well-organized centers; the dedicated group leaders and center officers implement
collection activities in an organized and transparent manner.
Good deep orientation of members about their duties and responsibilities. Deep
and good social preparation of members (clients fully understand their duties,
especially the concept of solidarity and mutual guarantee of loans)
Weekly center meetings (because the pay-ins are small enough that installments
are generally affordable by the clients). Because the weekly meetings have become
a habit for all members, savings and accumulating money for amortization becomes
natural for all of them.
Some managers and POs are creative, making weekly meetings interesting and
exciting, which enhances attendance.
The organization sends a strong clear signal that it will not tolerate poor repayment.
It would also severely penalize staff that fails to meet high repayment standards. For
example, probationary employees are removed when their performance is not
acceptable or when repayment is below expectations.
The staff conducts credit background checks even if the center endorses a
members loan application.
Regular, personalized approach in the ILP
Insistence that a client operates a small business, so that there will be an assured
source of loan amortization weekly (though this rule can potentially exclude the
poorest and those without any IGA).
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Strong and attractive staff incentives provided for good performance. Awards are
also given to outstanding employees.

There is strong evidence that during the last 3 years portfolio quality is improving. The
best practices (described above) are beginning to show results. For example, its model
branch (Palayan City branch) is showing a consistent 100% repayment in its AKP, and
ASKI is trying to replicate this good performance in all its branches.

It is very clear that ASKI need to keep on strong efforts to improve its portfolio quality within
the next two years. This should be its top priority

1.6 - Financial Management
1.6.1 Basic accounting policies

An examination of the basic accounting policies of ASKI shows that those policies are
reasonable and conforms to standard practices within the microfinance sector. Some
examples are the following:
Interest income is recognized in the books after the interest payment has been
actually received. There is no accrual of interest income for all loans that if the
installment payment has not been paid. In this way, there is no possibility of
inflating the interest income account.
Recognition of expenses is based on accrual basis, meaning an expense that has
been incurred but not yet paid is considered an expense in the books.
There are loan-loss provisioning policies that are applied against the loan portfolio.
1.6.2 Financial reporting

The organization has a strong MIS system that allows it to regularly prepare financial
reports. The following are produced at its head office and branches:
Balance sheet, produced monthly, quarterly and year-end
Income Statement, produced monthly, quarterly and year-end
Portfolio report (loan-aging), produced daily, monthly, quarterly and year-end,
Daily Cash Receipts, Cash Disbursements, produced at the branches, every day
1.6.3 Expense control

For expense control, the organization has an Annual Budget that is broken down to the
branch level. A budget variance analysis report is prepared each month, to see the
variances of actual versus planned.

During the past five years, the expenses of ASKI have been increasing at a rapid rate.
Expenses were 10.5 million pesos in 1998, then 18.7 million pesos in 1999, then 22.3
million pesos in 2000, then 23.2 million pesos in 2001, then 27.4 million pesos in 2002, then
34.6 million in 2003. The growth accelerated in 2002 (18%) and in 2003 (26%). A deeper
analysis was conducted and it was found out that the expansion activities of ASKI during
the past three years, in both the microfinance and non-microfinance areas, contributed
substantially to expense growth. Specifically, these factors were identified:

a. ASKI has been on an expansion phase since 1999, and there were large numbers of staff
added during the past 3 years. Staff numbers were 91 in year 2001; 131 in year 2002; and
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134 in year 2003. The increase in number of staff, especially fieldworkers in 2001 2003
drastically increased the salaries and fringe benefits expense of ASKI.
b. There was a major salary scale upgrade in fiscal year 2002-2003 that caused a sudden jump
in the salary expense.
c. The expansion moves resulted to more clients on the ground, for example, there were 9,685
clients in 2001; 13,690 clients in 2002, and 15,817 clients in 2003. The monitoring expenses
(amounts spent by field staff in meeting clients in the field, and in providing the services to
them) increased substantially. There were also substantial increases in related operating,
administrative and training expenses due to this larger number of employees.
d. The depreciation expense increased also due to more equipments purchased, when new
branches were opened by ASKI. Equipments in the older branches were also upgraded.
e. With more clients, the loan portfolio increased, and so did the interest expense of the
organization, as it relies heavily on borrowed funds to finance its portfolio.
f. During the past three years, ASKI has adopted a more aggressive stand on loan loss
provisioning, which drastically increased the provision expenses for loan losses. It charged
0.49 million pesos in 2001; 2.61 million pesos in 2002; and 2.68 million pesos in 2003.
g. The launching of non-microfinance project in 2002, i.e. Community Development Projects, has
also increased the overhead and administrative expenses of the organization.

While the growth were largely due to investments in organizational capacity and growth in
projects, it is not good if the expense growth becomes too fast and unmanageable. It is
recommended that ASKI adopt a more prudent attitude and exercise tighter rein on
expenses, given that ASKI has just met break-even point (100% OSS) in June 2003 and
the net income is still very thin. ASKI has to ensure that the growth of staff, branches and
portfolio does not become unmanageable.

ASKI has to put more effective cost-controls in the organization. For example, standard
budgets maybe devised for branches, and Branch Managers will be held liable if the
variances exceed 10%. Various ways and means should be identified to cut down costs. It
is further suggested that management think twice about purchasing motor vehicles (cars)
next fiscal year because this will substantially increase operational expenses. It is further
recommended that ASKI find new ways of reducing or controlling personnel expense costs.
Personnel expense is the biggest expense of ASKI, and it should find new and better ways
of managing this cost. There are probably some new or innovative ways of implementing
this without necessarily causing hardships among the existing employees. See Annex 6 for
specific suggestions.
1.6.4 Loan loss provisioning policy

Table 5 below shows the loan loss provisioning policy of ASKI:
Table 5 - Loan loss provisioning policy
Loan categories Loan loss provision
Loans with 1-30 days past due payment 0
Loans with 31-60 days past due payment 5 %
Loans with 360-over days past due payment 100 %

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Some members of ASKI senior management feel that the current loan loss provisioning
policy is too aggressive and the scale goes up abruptly at a certain point.
23
They
recommended that some improvements be made in the policy, which will be taken up by
the whole senior management and by the board soon. It is recommended that ASKI
deliberates on this change in policy as soon as possible. This is one of the most important
policies of an MFI because it forces the MFI to present the true worth of its loan portfolio.
Whatever it decides as the most realistic loan loss provision should be applied strictly,
preferably on monthly basis.
1.6.5 Loan write off policy

ASKI has a loan write-off policy based on APPEND standards. However, discussions with
staff showed that that policy is not clearly understood and currently not being implemented.
ASKI is currently reviewing the policy. The current practice is something like this: a detail
analysis is done by the Collection Officers on the loans to be written off; then it is endorsed
for write-off by the branches; then that the loan account is audited first before it is actually
written off (as required by the ASKI Board).

The ASKI Board is open to loan-write offs, and has in fact authorized monthly write-offs of
bad loans based on the current practice (as described above).

Given that the current practice is cumbersome, time-consuming, and given that there is
vagueness on when a loan should be written off, it is recommended that ASKI develop an
appropriate detailed policy on loan write-offs, with detailed criteria on when a loan is
considered ripe for full write-off.
24
Furthermore, it is recommended that over a period of 2
years, ASKI should write off all bad loans of the past, especially those with slim chances of
being recovered.
25
All loans under litigation should also be written off and placed off
books.

Not writing off bad loans will create an unnecessary drag on the institution. The loan
portfolio will carry a heavy burden of old bad loans, which degrades its over-all appearance.
The portfolio quality indicators will show below-par performance.
1.6.6 Cash-flow management

Given that ASKI has a good MIS in place; it is able to monitor the amount of cash assets in
all its branches. Currently, it has a practice of moving cash out of branch which has plenty
of idle cash, and then investing them in short-term, interest-bearing time deposits with
commercial banks. This is a very good practice. It is also able to move in cash quickly if a
branch has large cash requirements, for example many loan disbursals.

23
The draft financial report for the fiscal year ended June 30, 2003 shows a loan loss provision of
2.68 million pesos, which is what management feel is a realistic estimation of losses. If the current
provisioning policy is followed, then this will be around 3.8 million pesos. Hence, there is a gap
between what the policy dictates and what management feel is the realistic value of loan losses.

24
The lack of a clear-cut and detailed policy on loan write offs, plus the requirement that all loans
should be audited first before it is written off has effectively delayed the writing off of many bad loans.

25
It was reported that around 2 million pesos worth of bad loans are still in the books but which
should be written off the books. The chances of recovering them are already very slim.
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1.6.7 Earning assets ratio

The earning assets ratio is the ratio of earnings assets to the total assets of the
organization. It indicates how much of the assets of an organization are creating positive
revenues for the organization. By earning assets, it includes the loan portfolio, time
deposits, and other assets of the organization which generate incomes. ASKIs current
earning asset ratio is at 78%, which is healthy and nearing the ideal ratio of 80%. Given the
high cost structure of ASKI, it is recommended that ASKI aim for an earning asset ratio of
90% within next 3 years.
1.6.8 Improving trend of financial results

Beginning in fiscal year 2000, the financial performance of ASKI has improved. Gross
revenues have increased, from 10.91 million pesos in 1998, then decreased to 7.6 million
pesos in 1999, then recovered and increased to 17.3 million pesos in 2000, then to 18.1
million pesos in 2001, then to 23.7 million pesos in 2002, and then finally to 34.8 million in
2003. The improvements were dramatic in years 2001, 2002 and 2003. Operating losses
were experienced in 1998 up to 2002, but the annual losses were gradually reduced.
Finally, ASKI made profits in 2003. The picture shows that improvements (in terms of
cutting losses) were dramatic during the past three years. Upon closer examination, it was
revealed that this happened because the policy changes initiated in 1999 started to bear
fruit, beginning in 2001. More specifically, these were the contributory factors:

a) The hiring of new additional Project Officers resulted to recruiting more clients and this led to more
loans that generated more interest incomes. (Note: ASKI started its scale up program in 1999)

b) The introduction of the new MIS, beginning in June 1999, resulted to a tighter management of
finances that allowed closer monitoring of branch performance. For example, the new MIS allowed
management to closely watch over idle cash in the branches, and if there is such idle money, ASKI
invests them in short-term interest-earning bank deposits, which generates additional income.

c) There was substantial improvement in the operational policies of ASKI due to the new policies and
philosophy introduced by board and management in 1999. Many of these new policies were
patterned after banking principles, standards and procedures (unlike before when ASKI operated,
behaved and thought like an NGO).

d) The new AKP methodology is proving to be highly effective in attaining high collection and
repayment, leading to smaller loan losses.

e) There was increased efficiency of staff due to the installation of new MIS and better internal policies.

f) ASKI is becoming more known and well-recognized in the places where it operates, and this leads to
attracting more clients.

g) The tighter internal controls and close management support from the top prevented fraud and laxity
among managers, which helped keep high financial discipline among staff and clients.

h) More of the branches are becoming financially viable.

i) ASKI is getting bigger in terms of loan portfolio, and is beginning to reap the benefits of economy of
scale.

j) ASKI lost some of its old employees, who were resisting the new changes introduced by
management. They were tightly embracing the old ways and were refusing to accept the new
changes. For example, the old employees were resisting the concept of financial viability. They
believe that ASKI should not be concerned with financial viability or earning profits because ASKI is
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a non-profit organization and should concern itself solely with helping the poor.
26
Such loss of old
employees was a tremendous benefit to ASKI because the opposition to the new policies and new
ways of operating was effectively removed. The new employees that replaced them did not have the
baggage of the past, and were totally receptive to the new concept and enthusiastically embraced
them. Now, the concept of viability is well-accepted by almost all employees. They realize that to
help the poor on a long-term basis, the NGO must attain financial viability in order to survive and
continue providing valuable services to the poor.

1.7 Management Information System

A major problem it encountered during the start of the expansion program is the inadequate
MIS. Thus, in June 1999, ASKI realized the importance of having a good, sturdy MIS to
support the expansion process. ASKI invested substantial sums of money and effort in
developing a good, computerized MIS and ASKI claims to have one of the best MIS
systems in the microfinance industry.

1.7.1 - Key features of ASKI MIS

The MIS system of ASKI has several modules: Loans Receivable Aging, Cashiering/Cash
Receipts, Check Voucher/Cash Disbursement, General Journal, and Subsidiary Ledger.
The MIS has many good features; among the important ones are the following:

a) ll ras separale sollWare rodu|es lor le||er|rg, |oars lrac||rg (suos|d|ary |edgers), payro||, joo order / joo
cosl|rg, oul lrese rodu|es are a|| |rlercorrecled W|lr ore arolrer. Tre resu|ls ol lre le||er|rg rodu|e are
posled lo lre suos|d|ary |edgers al lre erd ol lre day. Furlrerrore, lre Vl3 ur|l ras jusl corp|eled a
'0erera| Ledger rodu|e Wr|cr W||| real|y l|e |r a|| ol lre corporerl rodu|es logelrer.

o) Tre sysler gererales rary var|ous reporls; see Tao|e oe|oW lor a parl|a| ||sl ol reporls lral |l gererales.
Arrex 5 sroWs sore ol lre Vl3 reporls gereraled.

Table 6 - Reports generated by the ASKI MIS
The MIS computerized systems can generate the following reports:

Consolidated and Branch Daily Loans Receivable Aging
Official Receipts/Collection Report
Tellers Proof sheet
Daily Cash Receipts Book
Check Vouchers
Loan Repayment Schedules
Cash Disbursement Book
Journal Vouchers
General Journal
Loans Subsidiary Ledgers
Client Information
Loan Release Information
Daily Loan Amortization Schedule (Daily Maturities)
Aging of Loan Receivables

The loans receivable feature can generate on a daily basis, Aging of Loans Receivable Report:

Per Branch and Consolidated

26
The resistance among old employees is also probably due to discomforts of the old employees
with such activities like setting loan targets, computing viability indicators, etc. Their educational
background and aptitude are simply not aligned with the new approach taken by ASKI.

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Per Project Officer
Per Funding Agency
Per Type of Loan
Per Barangay
Per Municipality or City
Per Gender
Of Portfolio at Risk
Of Accounts with Capital Build Up (CBU) and Emergency Fund (EF)
Of Accounts with Advance Payments
Of Accounts with Principal Collections
Of Matured Loans

With the reports available on the system such as per project/funding agency, per branch and consolidated
basis both on a daily and monthly basis, a close monitoring of loan accounts, branch, project, area as well as
staff performance is made possible and easy.

c) Tre sysler recorc||es casr ard sysler oa|arces al lre erd ol eacr day, preverl|rg errors lror oe|rg
carr|ed over lo lre rexl day. Trere are rary ou||l-|r corlro|s W|lr|r lre Vl3 lral errarces |rlerra| corlro|.

d) Tre orarcres produce lre|r oWr respecl|ve l|rarc|a| reporls every day, ard a soll copy ol lre l|rarc|a|
reporls (rosl|y lre lr|a| oa|arces) are suor|lled v|a era|| lo lre A3Kl read oll|ce |r Caoaraluar. Tre rexl
day, a|| lre dala lror lre sever orarcres are corso||daled ard ar 'over-a|| l|rarc|a| p|clure |s prepared lor
lop raragererl's use.
2Z
Tr|s |s ar exce||erl loo| lral car a||oW lop raragererl lo delecl darger s|grs
ear|y |r ary ol lre orarcres. Furlrerrore, lre orarcres' dalaoases are a|so serl lo lre read oll|ce da||y,
ellecl|ve|y creal|rg ar updaled oac|up ol a|| c||erl records al lre read oll|ce.

e) A c||erl or aryoody car requesl lor a slalererl ol accourl lral sroWs a|| ol lre lrarsacl|ors or r|s/rer
accourl. Tre slalererl |s produced al lre orarcr oll|ce, ard rade or|y |l requesled oy lre c||erl or Wrer
re/sre app||es lor a reW |oar.

l) Tre sysler gererales a Loar Ag|rg Ara|ys|s reporl al lre erd ol eacr day, or eacr rorlr. 3ee secl|or
Arrex 1 lor sore suggesl|ors lo |rprove lr|s ag|rg reporl.

g) Tre sysler res|des |r lrree corpulers |r lre orarcr oll|ce, ard a|| lrree corpulers are ||r|ed oy a |oca|
area relWor| (LAN). Tre dala |s lrarslerred d|recl|y lror ore corpuler lo arolrer W|lroul pass|rg lrrougr
rurar rards, preverl|rg errors ard polerl|a| rar|pu|al|or ol dala.

r) Tre Vl3 sysler |s passWord-prolecled, Wrere sore sers|l|ve rodu|es |r lre sysler car oe accessed or|y
oy persors rav|rg lre r|grl passWords. Tr|s |s ar exce||erl loo| lo preverl uraulror|zed access lo sers|l|ve
dala.

|) Al lre erd ol lre day, lre Te||er lrarsr|ls lre dala or a|| casr lrarsacl|ors lral sre d|d, ard lrere |s ar
auloral|c crec||rg (dore oy lre corpuler prograr) or Wrelrer lre lrarsacl|ors ralcr. Tre corpuler
l|ags lre lrarsacl|ors lral d|d rol ralcr, lac|||lal|rg lre |derl|l|cal|or ol errors.

j) Tre Vl3 sysler ras sore Way ol crec||rg or r|s-posl|rgs (lor exarp|e posl|rg ol payrerls lo lre Wrorg
|oar accourl).
1.7.2 Initial benefit obtained from new MIS

In early part of year 2000, when the new MIS was being installed in all of the branches,
ASKI senior managers discovered that some anomalies occurred in the Cabanatuan City

27
This feature of the MIS truly makes it an impressive MIS because top management is kept aware
of whats happening in the scattered branches. Since data is sent via telephone lines, even far-flung
branches can be connected to the ASKI MIS system easily and cheaply, provided, of course, there
are telephone lines there.
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Page 36
branch. It was discovered that there were substantial discrepancies between the subsidiary
ledger of the loans and the General Ledger controlling account. The discrepancy was
traced to the following: a) posting errors in the old manual recording system, b)
weaknesses in implementation of the loan program, c) failure of the staff to report loan
delinquencies, d) failure to generate loan delinquency indicators, and d) inaccurate report
preparation. While no major fraud was uncovered, it was the first serious flaw within ASKI
that it discovered when the new MIS was installed. Past due loans worth 3 million pesos
were uncovered, and some of those loans have gone really bad and uncollectible. Of these
3 million pesos of bad loans, about 80% of them has either been settled, collected and
some were written off, as of June 30, 2003. An amount of 500,000 pesos of loans are still
un-reconciled as of June 30, 2003. Reconciliation work is still being pursued by the
accounting staff of ASKI, but given the lack of reliable documents and the long time that
have elapsed, it is unlikely that ASKI would be able to reconcile everything. Some losses
will have to be recognized eventually. To sum up, it is sufficient to say that without the
attempt to install a new MIS system; this big flaw within ASKI will not have been discovered
at all.
1.7.3 - Appropriateness of reports generated

The MIS generates many kinds of reports, as can be seen from section 1.7.1 above, that
enhances the internal controls within the organization. Most of the reports are generated
for internal control, for verification and for creating solid paper trail of transactions.
Generally, it was observed that many of the other reports generated by the system are
appropriate for the needs of ASKI management.
1.7.4 - Extent of use by management of reports generated by system

The reports generated by MIS are being used widely by branch managers, unit supervisors,
auditors, support staff and senior managers. However, the Consultant observed that
access to the PAR ratios was not easy whereas this is one of the most critical ratios that an
MFI like ASKI should monitor on a daily and weekly basis.
1.7.5 Possible improvements in the MIS

While the current MIS is good, it can stand some more improvements. Based on
observations made by the Consultant, a few suggestions are being offered to further
improve the MIS; see Annex 4 for details.

1.8 - Internal control and monitoring
1.8.1 Internal audit department

The Internal Audit Department of ASKI was formed in 1997 when the board and
management realized the need to improve internal control within the system. Now, internal
auditors go around the seven branches to check books, records, MIS databases, and
operations. Currently, the Department has three full-time staff, with a pending proposal to
increase the number of auditors to 8 people over the next 5 years, as the organization
expands. There are two kinds of audit that they do: a) comprehensive audit, which includes
table audit and field audits, and b) special audits that focuses on a specific aspect of
operations. Surprise on-the-spot cash counts in the branches are also done by the
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auditors. It is claimed that the small number of auditors now can not cope with the big
demand for audit work in the field.

The Department reports directly to the board, which is a good arrangement. The
Department is headed by a highly qualified person, which has been with the organization
for the past five years and is familiar with all branch operations.
28

1.8.2 Internal controls in place

As discussed above, there are many internal controls in place. Some of these are the
following:

lssuarce ol a lerporary rece|pl (TR) oy lre Projecl 0ll|cer lo lre groups/cerlers, Wr|cr creales a prool
docurerl lral lre cerler / c||erls ro|d. Tre P0 W||| rol oe ao|e lo d|verl or r|de r|s co||ecl|ors. Tre TR |s
carce||ed oy ar 0R |ssued oy lre Te||er. Trere |s ralcr|rg ol lre 0R vs. TR.
Requ|rererl lo rer|l a|| co||ecl|ors ol lre P0 lo lre orarcr oll|ce.
Tre Vl3 sysler gererales a 'Co||ecl|ors 0ue lor lre 0ay lor eacr P0. Tr|s |s lre arourl ol rorey lral a P0
|s supposed lo co||ecl or lral day lror lre cerlers Wr|cr re |s go|rg lo v|s|l. Al lre erd ol lre day, lre orarcr
rarager crec|s Wrelrer eacr P0 rel lre arourl slaled |r r|s 'Co||ecl|ors 0ue lor lre 0ay.
use ol a |ogooo| lo record a|| co||ecl|ors lral arr|ved al lre orarcr oeyord lre culoll l|re. Tre casr |s p|aced |r
lre vau|l, aller |l ras oeer recorded |r lre |ogooo| ard courlers|gred oy slall. Tr|s ersures lral lre casr |s
courled ard docurerled We||, preverl|rg |ls d|vers|or.
use ol |ogooo| lo record a|| accourlao|e lorrs
A|| accourlao|e lorrs are pre-ruroered.
Trere |s a rardalory da||y douo|e casr courl. Al lre erd ol lre day, lre casr |s recorc||ed W|lr lre dala
gereraled oy lre sysler.
Access lo lre casr vau|l |s reslr|cled, W|lr |eys ard coro|ral|or re|d oy d|llererl persors. No ore, acl|rg a|ore,
car oper lre vau|l.
Tre read oll|ce |eeps a sea|ed copy ol lre vau|l coro|ral|or, Wr|cr car oe uselu| |r case a orarcr slall
aoscords, or goes or Aw0L, or |l lrere |s roooery.
Tre vau|l coro|ral|or car oe crarged, preverl|rg access lo |l oy separaled erp|oyees.
Rev|eW ol a|| voucrers ard oll|c|a| rece|pls oy lre aud|lors.
Tre used pages |r lre TR ooo||el |s s|gred oy lre 8oo||eeper prec|ud|rg lre re-|ssue ol a TR oy a P0
A|| rece|pls allacred lo lre voucrers ard pelly casr voucrers are slarped PAl0.
Crec||rg ol lre pelly casr voucrers oy lre aud|lors.
lrlerra| aud|l crec|s corp||arce W|lr lre ru|e lral a|| casr advarces lo erp|oyees srou|d oe ||qu|daled 5 days
aller lre erd ol lre acl|v|ly lor Wr|cr lre casr advarce Was oola|red.
A|| d|soursererls are lrrougr crec|s.
A|| |oar d|soursererls lo c||erls are re|d al lre orarcr oll|ce. Tre 8rarcr Varager gels lo |rlerv|eW ard reel
lre c||erls oelore lre |oar crec|s are re|eased lo lrer.
Tre aud|lors crec| Wrelrer a|| |oar lo|ders are corp|eled - a|| requ|red docurerls are allacred lo lre voucrer
- |rc|ud|rg lre Loar App||cal|or, Pror|ssory Nole, co-ra|ers slalererl, p|clures, elc.
Trere |s a crec| reg|sler, Wr|cr |s a |ogooo| Wrere lre payee s|grs lral re/sre ras rece|ved lre crec|.
Corducl ol |oar ul|||zal|or crec|s or lre c||erls.
A|| corpulers W|lr|r lre orarcr are correcled oy |oca| area relWor| (LAN) ard lre dala |s lrarslerred d|recl|y,
preverl|rg errors ard polerl|a| lor rar|pu|al|rg dala.
Al lre erd ol lre day, lre Te||er lrarsr|ls lre dala or a|| casr lrarsacl|ors lral sre d|d, ard lrere |s ar
auloral|c crec||rg (dore oy lre corpuler prograr) or Wrelrer lre lrarsacl|ors ralcr. Tre corpuler l|ags lre
lrarsacl|ors lral d|d rol ralcr, lac|||lal|rg lre |derl|l|cal|or ol errors.
Tre Vl3 |s passWord-prolecled lral a||oWs or|y aulror|zed persors lo access |l.
Tre Vl3 sysler ras sore Way ol crec||rg or r|s-posl|rgs

28
The Audit Manager Jane Manucdoc had the opportunity to work in the branch during the past
year, which allowed her to gain a better understanding of branch operations.

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Page 38
A3Kl ras a po||cy ol per|od|c rolal|or ol 8rarcr Varagers (every 2 years). Tr|s procedure ras oeer exlrere|y
uselu| |r urcover|rg lraud |r 8rarcr 0ll|ces.
1.8.3 Fraud cases discovered

The policy of strict internal controls has resulted in uncovering major fraud, anomalies and
irregularities, which, to summarize, are the following: (a) anomalies in the Tarlac branch,
January 2003, (b) fraud in the Palayan City branch, February 1999, and (c) anomalies in
the Cabanatuan branch, March 2000. ASKI has been rigorous in enforcing staff discipline,
and has penalized several key staff, including some branch managers. It has dealt very
well with the fraudulent practices it discovered in the branches. For example, a major fraud
case was discovered in 1999 in the Palayan City branch. There was a breakdown in
financial discipline in the branch and in the centers resulting to massive loan delinquency
and defaults.
29
ASKI froze the Palayan branch, examined its records, appointed a new
branch manager, fired the staff involved in fraud, and revived the programs.
30
The hard
work paid off after 2 years, and Palayan boasts of 100% repayment rate in its AKP and
client caseload of AKP PO is high.

Furthermore, since 1997, the internal auditors have uncovered a wide assortment of
anomalies ranging from fraud, dishonesty, violations of standing rules, mis-postings, etc.
Around 15 people have been removed (either fired, forced to resigned, resigned in a
hurry)
31
, since 1997, for being involved in such anomalies. Due to strict and close
monitoring of the branches and good internal controls in place, there are no new or major
fraud cases that have occurred at ASKI

It can be concluded that ASKI management, through the use of judicious audits, strict rules,
internal controls and stern discipline, is sending a good signal to all employees that it will
not tolerate fraud and irregularities. This is a healthy sign for an MFI.
1.8.4 Practices that help prevent fraud

Learning wisely from the bitter experience in Palayan City, ASKI has now established a
number of practices that help prevent the occurrence of fraud. Some of these are (a)
regular and on-the-spot audits, (b) many built-in controls in the MIS, (c) installation of many
internal control procedures in the branches; (d) conducting background checks on new
employees, probing if the new employee was involved in past questionable or fraudulent
activities.
1.8.5 Attitude of staff regarding audits

The branch managers of ASKI now take a positive view on internal audits. If they sense
something is wrong or amiss in their branch, they immediately call the internal auditors to

29
ASKI suffered more than 2 million pesos in losses, mainly in the form of bad loans, and it is still in
the process of trying to recover some of those bad loans.

30
In year 2002, the AKP was re-started in the Palayan City branch following strict and better AKP
model, but it was restarted in new locations (not the old locations where the bad loans occurred).
The repayment performance has been very good, so far.

31
It has been observed that an employee resigns from the organization whenever the internal
auditors have found negative findings and when evidence is solid and strong. While they were not
fired, ASKI allows this kind of graceful exit.
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Page 39
conduct an audit. They know that maintaining the controls will mean maintaining integrity
of their branch offices. They also know that their failure to report any anomaly can result to
their demotion or to loss of their jobs.
1.8.6 Branch monitoring

Besides the regular field monitoring of the auditors, the Operations Manager and other
senior managers regularly visits the Branch Offices. They also check and review the
records of the Branches.
1.8.7 Suggestions to help further improve internal control

The existing internal control policies, procedures and mechanisms at ASKI are adequate
and are working well. However, a few suggestions are being offered below, as follows:
Require a security deposit pesos from each new employee who will be handling money, to
develop a cash bond; (b) Require security deposits from branch managers and selected
support staff and gradually reduce reliance on fidelity bonds; (c) To unload some burden
from the auditors, the Operations Manager, Finance Manager and the Chief Accountant,
whenever they visit the branches, should be able to conduct surprise cash counts; (d)
Given the small number of existing audit staff, it is suggested that the audit department
employ a risk-based approach to audit management. Details of these recommendations
are found in Annex 6.

1.9 - Human Resource Management
1.9.1 Organizational structure

Figure 1 - Organizational structure of ASKI

Board of Trustees
Board Committees Executive Director Audit & Monitoring dept.
Credit
Operations
Dept.
HR &
Admin
Dept.
Chief
Accountant
Transformation
Finance
Dept.
Corporate
Planning
Dept.
Branches
Administration
MIS Community Devt
Officer
Executive Secretary
Page 40 of 96
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1.9.2 - Staff hiring policies

A great deal of resources and conscientiousness go towards staff recruitment. The staff
hiring process at ASKI consists of two stages the first stage is called Preliminary
Screening while the second stage is called Orientation and On-the-Job Training Program
Annex 6 describes the various activities process under the two stages.

Based on the actual implementation of such two-stage hiring process, ASKI has found the
process effective in identifying the right people for the Project Officer positions. The
process screens out the unfit ones, such as those looking for easy, office-based jobs,
those who do not want to travel to poor rural areas, those who can not take the rigors and
discipline of being a Project Officer, etc. For example, during the second stage, there is a
five-day field orientation portion, where the prospective employees experience the
hardships and rigors of field work. At that point, many fall out from the program; reducing
the number of qualified trainees, thereby weeding out the unfit ones.

Gender balance of the staff is quite good; around 47% of ASKI employees are female, the
rest are male. There seems to be a good gender-balance in staff recruitment.
1.9.3 - Staff training and development

ASKI provides many opportunities to its staff to build and develop their skills. For example,
it requires all Branch Managers, Project Unit Supervisors, etc. to visit the Palayan City
branch to learn the better ways of running centers. The rank and file employees (the ones
interviewed by the Consultant) have expressed a common perception that ASKI provides
adequate opportunities on skills development.
1.9.4 - Staff turnover

In prior years (1998 2001), it has been identified a serious problem i.e. that ASKI suffers
from high staff turn-over. There are 5 reasons given by ASKI on why there was a high staff
turn-over in the past, namely:

a) Tre reW erp|oyees, espec|a||y lre ores urder lra|r|rg or prooal|or, are rol ao|e lo reel lre producl|or ard
perlorrarce slardards sel oy lre orgar|zal|or. w|lr|r s|x rorlrs, a reW erp|oyee |s expecled lo rave 180
Administrative
Personnel
Communication
Officer
Training Services Bookkeepers
Accounting Asst.
Training Officer
Research &
Doc.Asst
Driver
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Page 41
c||erls W|lr 100 repayrerl (urder AKP)
32
. A reW erp|oyee |s requ|red lo rave 30 reW c||erls W|lr 100
repayrerl. Fa||ure lo reel lrese requ|rererls W||| reel rol oe|rg regu|ar|zed as ar erp|oyee. Vary reW
erp|oyees s|rp|y res|gr, aller a leW rorlrs |r lre orgar|zal|or, |l |l oecare c|ear lral lrey Wou|d oe urao|e lo
reel lre requ|rererls.
o) 3ore erp|oyees |oo| lor greerer paslures; sore go aoroad lor oeller-pay|rg joos. A3Kl ras slopped r|r|rg
rurses oecause |l ras |earred lral graduales ol rurs|rg courses qu|c||y |eave lre|r joos al A3Kl, ard go aoroad,
orce lrey passed lre rurs|rg ooard exar|ral|ors. 3ore rave roved lo correrc|a| oar|s Wrere pay |s
gerera||y r|grer ard oeller.
c) A leW erp|oyees rave |ell lre orgar|zal|or W|lr corp|a|rls ard urreso|ved gr|evarces.
d) 3ore erp|oyees Were l|red, lerr|raled, or Were lorced lo res|gred oecause ol cerla|r grourds - rosl|y
regal|ve aud|l l|rd|rgs d|scovered oy raragererl or oy lre Aud|l 0eparlrerl. ll |s esl|raled lral arourd 15
peop|e rave |ell lre orgar|zal|or s|rce 1999 oecause ol lr|s reasor.
e) 3ore erp|oyees res|gred oecause lrey reluse lo accepl lre crarges oe|rg |rp|ererled oy raragererl.
Vary erp|oyees rave oeer used lo lre o|d Ways ol do|rg ous|ress, ard are re|uclarl lo accepl reW ru|es or
l|rarc|a| d|sc|p||re, pr|rc|p|es ol v|ao|||ly, perlorrarce largels, prorplress ard accourlao|||ly. Tr|s 'res|slarce
lo crarge all|lude caused lrer lo everlua||y |eave lre orgar|zal|or, Wr|cr lurred oul lo oe a oerel|l lor A3Kl
oecause lre ores lral are o|oc||rg lre crarges ard relorrs rave Wa||ed aWay.

Currently, staff turn-over at ASKI has declined, but the number of new employees falling out
due to failures to meet performance standards is still high. This can be reduced by further
improving its employee recruitment and training program.
1.9.5 Human resource management manual

From the beginning ASKI has an HR manual, but it was discovered in 2001 that
implementation of the manual is not uniform across all offices of ASKI. For example,
application of employee discipline is not consistent and uniform. ASKI remedied this
problem by revising the manual and re-training its own managers about strict
implementation of the manual. Currently, the HR manual is being revised again to reflect
recent changes in policies and rules. ASKI plans to reprint the Code of Conduct and
Employees Handbook in small, handy versions and then give each employee a personal
copy, to ensure that all employees are aware of the standing rules and policies of the
organization.

ASKI regularly consults its employees regarding the adoption and implementation of new
policies that impact on staff. Every quarter, a General Assembly is held, where all
employees are required to attend. New rules or employee policies are discussed in those
assemblies, among a range of topics. ASKI also allow employees to bring up and discuss
with their branch managers (or supervisors) whatever suggestions, grievances and
complaints they have. The branch managers, in turn, take this up with senior
management.
1.9.6 Compensation package

The salary scale at ASKI is considered to be competitive among the ranks of similarly-
situated organizations. Box 1 below shows the salary grades. A salary survey was officially
conducted in 2002, and accordingly, changes were made to the pay structure based on the
results of that survey. The pay in ASKI is slightly higher than the pay in rural banks and
cooperatives in Nueva Ecija, but is lower when compared to that in commercial banks.

32
Under the ILP, a new employee or Project Officer should have at least 90 new clients with 100%
repayment.
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Feedback obtained from employees revealed that there is wide satisfaction among
employees regarding the pay structure.

Box 1 Salary grades
Training Allowance 75 % of the approved minimum wage in Region III All Trainee
Staff or learners
Salary Grade 1 Positions which involve non-professional work in non-supervisory capacity which requires
less than four (4) years college studies.
Salary Grade 2 Probationary Staff Member
Salary Grade 3 Technical Work (Permanent Project & Collection Officers Technical Assistant, Personnel
& Admin. Assistant, Accounting Assistants & Tellers
Salary Grade 4 Well experienced technical (i.e. Project /Collection Officers II & Bookkeepers and
Executive Secretary)
Salary Grade 5 New Supervisors (Senior P.O., Acting Supervisor, Senior Bookkeeper)
Salary Grade 6 Experienced Supervisors (Acting Manager/ O.I.C, Training Supervisors.)
Salary Grade 7 Managerial & Executive Services (Full pledge Branch Managers & Department Heads)
Salary Grade 8 Top Management & or Chief Executives.

ASKI provide many fringe benefits to employees, which includes SSS, Philhealth, 13
th

Month Pay, Medical and Hospitalization Insurance, sick leave (and monetization of unused
sick leave credits), vacation leave, maternity leave, etc. ASKI has an Employee Retirement
Program, which is self-managed by the organization as provided by Republic Act 7641 or
the Retirement Pay Law as of 1996. Eligible members are all permanent and full time
managers/department heads and staff members of ASKI.

Having many fringe benefits has a negative effect in terms of costs. The fringe benefits
cost constitutes 52% of the basic salaries of employees. (In other organizations, cost of
fringe benefits is not allowed to go beyond 30% of basic pay). While some of these benefits
are mandated by law, some are not.
1.9.7 Performance-based incentives for employees

ASKI has a good basic incentives mechanism for its employees that motivate them for
higher / excellent performance. The scheme provides 20 pesos for every account with
100% repayment. See Table 7 below for details. To qualify for this, a PO must have 300
clients, and there is a basic deductible of 150 accounts. For example, a PO with 320
clients, and 310 have 100% repayment. The incentive is 1,200 pesos (arrived at by: first
deduct 150 from 310 multiplying, then multiply the remainder by 20 pesos). The support
staff also gets incentives, i.e. 3 pesos per account and distributed to support staff in the
branch office.
Table 7 - Cash incentives for field staff
For Regular P.O. P 20.00 for each updated (100% Repayment Rate) account in excess of
150 and 75 updated accounts for AKP and ICP respectively

For Probationary P.O. - P 15.00 for each updated (100% Repayment Rate) account in excess
of 150 and 75 updated accounts for AKP and ICP respectively

Branch Manager / Acting B.M. 30% pf P3.00 for each updated (100% Repayment Rate)
account in excess of 150 and 75 updated accounts for AKP and ICP respectively

Program Unit Supervisor ( Supervising Senior P.O. / Acting PUS) 40% of P 3.00 for
each updated (100% Repayment Rate) account in excess of 150 and 75 updated accounts for
AKP and ICP respectively

Branch Support Staff 30 % of P 3.00 for each updated (100% Repayment Rate) account
in excess of 150 and 75 updated accounts for AKP and ICP respectively
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Performance Bonus: Besides the basic incentives scheme described above, ASKI also
operates a performance bonus scheme where branch personnel are given bonuses based
on the level of profits generated by their branch. The bonuses are given in the form of 14
th

month pay, or 15
th
month pay.

1.9.8 Employee attitudes

The Consultant was able to speak privately with a sample set of employees of the
organization. Their attitude is generally positive and enthusiastic, about the current
operations of ASKI. They are also keenly interested and very positive abut the future of
ASKI / OMB. Some of the feedbacks obtained directly from the employees were the
following:

Trere Was a o|g |rprovererl |r our operal|ors dur|rg lre pasl 3 - 5 years.
A3Kl |s rore proless|ora||y-raraged ard rur lrese days.
Prev|ous|y, We are a|Ways or lre regal|ve (|os|rg rorey), oul roW We are roW pos|l|ve (gereral|rg prol|ls).
we are roW cover|rg reW areas, ard We corl|rue lo expard lo reW ard lresr areas.
lr pr|or years, We rave leW peop|e/slall |r lre orarcres; roW We are lu||er ard We car accorp||sr rore.
we are roW rore l|rarc|a||y v|ao|e ard susla|rao|e corpared lo 5 years ago.
we rave rore |erd|rg lurds roW.
Tre prorol|or ol slall |s lasler roW, prooao|y oecause A3Kl reeds lo oper reW orarcres ard |l |s good lral
A3Kl |s prorol|rg lror W|lr|r.
we rece|ve rore slall lra|r|rg lrese days. we a|so prov|de r|grer qua||ly lra|r|rg lo our c||erls.
0ur Vl3 |s rucr oeller roW.
Trere |s |ess lraud |r our orgar|zal|or roW.
Tre reW |rcerl|ve |s qu|le exc|l|rg. Vary slall |r our orarcr rece|ves relly |rcerl|ve payrerls lror lre
orgar|zal|or. we are ||dd|rg eacr olrer, say|rg lral rexl l|re l W||| oecore lre 'oulslard|rg erp|oyee ard gel
lre r|gresl |rcerl|ve pay.
1.9.9 Management development plans

ASKI supports the professional growth of its employees. It provides opportunities for lower-
level staff to mature and gain greater responsibilities. ASKI offers supervisor development
courses and manages courses.
33
The organization has a promotion-from-within policy
which allows several project officers to rise up and become branch managers. Given the
expansion plans of ASKI, it established a mechanism of identifying potential managers and
providing them the right learning opportunities. This produces the branch managers, which
is the most important and critical link in the chain of command. If this link is weak, then the
organizations performance will falter.

Recently, ASKI has launched a retooling on-the-job skills upgrading for its branch
managers and unit supervisors, who are required to visit and immerse in the Palayan City
branch for a number of weeks, so they can improve their skills on a number of operational
areas. This retooling scheme seems to be working based on feedback gathered.

33
ASKI has a plan to establish a Management Professional Enhancement Program (MPEP), which
will provide courses equivalent to formal schooling for graduate studies or Masteral Program. The
plan of ASKI is to partner its HR team with the masteral program of universities in Nueva Ecija (i.e.
Nueva Ecija University of Science and Technology and the College of Immaculate Conception.
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The organization provides adequate training and skills development opportunities to its
senior managers also.

1.10 Sustainability of the organization

1.10.1 - Financial sustainability of ASKI as a whole

ASKI has reached 100% Operational Self-Sufficiency (OSS) as of June 30, 2003, which is
the organizations best and highest performance ever. It has also reached 98% Financial
Self-Sufficiency (FSS). The Return on Performing Assets for 12 months ended June 30,
2003 is 49%. As stated earlier, there was a trend in ASKI of a gradual improvement of
financial performance during the past 3 years. Loan portfolio and gross revenues gradually
increased; operating losses were gradually reduced. It can be concluded that ASKI has
gained momentum in moving towards attaining financial viability.
1.10.2 - Financial sustainability of branches

Table 8 below shows the snap shot of the ASKI branches, in terms of portfolio and net
operating income (as of June 30, 2003).

Table 8 Quick picture of ASKI branches
Location Net Portfolio Net income
1 Cabanatuan 5.05 million pesos (15,216 pesos)
2 Tarlac 7.51 million pesos 31,573 pesos
3 Gapan 9.34 million pesos (605,825 pesos)
4 Guimba 10.76 million pesos 82,813 pesos
5 Palayan 5.97 million pesos 396,339 pesos
6 San Jose 6.32 million pesos 60,294 pesos
7 Talavera 8.65 million pesos 807,307 pesos

From the table above, except for two branches, all branches of ASKI have now attained
financial viability, and making profits. The Talavera branch is the most profitable. Two
branches - Gapan and Cabanatuan City still bring negative results; ASKI should focus on
these two branches to turn them into profitable, sustainable branches.

1.11 Efficiency of operations

There are a number of basic standard indicators to measure efficiency of microfinance
operations. Four of the commonly used efficiency indicators are: client caseloads, portfolio
caseloads, operating cost ratio and ratio of field staff to total staff.
1.11.1 Fieldworker productivity

Average client caseload of AKP PO is good, at 351 clients per ILPO (as of June 2003);
excluding the caseloads of new POs on probation (because they are very new in their jobs
and their productivity is still low). This is a healthy sign. Each fieldworker (in a Grameen set
up) should have 350 to 400 client caseload. This means that each PO, on the average, can
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take in more clients, and ASKI should give highest priority to tap this unutilized production
capacity in the branches.

Average client caseload of ILPO is good, at 193 clients per ILPO (as of June 2003). This is
a healthy sign, and is nearing the standard caseload (200).

The number of loans disbursed annually has been increasing during the past five years,
growing at around 24% annually. The amount of loans disbursed has been increasing also,
growing at the rate of 44% annually.
1.11.2 Average portfolio per fieldworker

The average portfolio per fieldworker is 910,000 pesos as of June 30, 2003. This is the
average portfolio being serviced by all POs, both in the AKP and ILP (but not including that
of newly hired POs who are called learners). If broken up, the average portfolio for ILPOs
is 1.3 million pesos; and 0.80 million pesos for AKP POs. This is a healthy sign; (the
optimal portfolio for AKP is 1.0 million pesos and 1.5 million pesos for ILPOs)
1.11.3 Operating cost ratio

The operating cost ratio (OCR) of ASKI as of June 30, 2003 is 49%. Operating cost ratio is
defined as the ratio of operating expenses to average amount of the total loan portfolio of a
microfinance organization between two reporting periods. This ratio shows how much does
it costs a microfinance organization to carry a peso of loan in its portfolio. The NGO
Performance Standards indicate an efficient microfinance operation would normally have an
OCR of 25% or less. Given this, ASKI is still far away from meeting this performance
standard, and ASKI would have to watch its costs, putting a tight rein on costs, to improve
its efficiency.
34

1.11.4 Ratio of field staff to total staff

ASKI has a total of 134 employees, 39 are in head office while 95 people are in the
branches, as of June 30, 2003. (108 employees are considered permanent regular
employees while 26 employees are categorized as either probationary, under training, or
contractual). This translates to a 71 % ratio of field staff to total microfinance employees,
which is good, but which is not yet ideal.
35
ASKI should aspire to increase the ratio of
fieldworkers to 80% and reduce the proportion of support staff to no more than 20%.

1.12 - Non-financial services

Conduct of development oriented sessions: Key messages related to hygiene,
sanitation, managing a household, drinking potable water, family planning, planting trees,
proper disposal of garbage, child rights, etc. It is recommended that ASKI standardize the

34
The cost for every peso lent is 15 centavos (or 15%). This is the total cost incurred by a
microfinance organization in delivering its loans to its beneficiaries. The lower the number, the more
efficient it is. ASKI needs to reduce this figure further for the next 2 years, to around 10%.

35
The average Field Staff to Total Staff ratio of 15 member-MFIs of the Microfinance Council of the
Philippines is 77%.

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development-oriented lessons, for easy and uniform delivery by POs.
36
(PLAN Nepal has
developed a package of 27 key messages in the form of 27 stories presented in large
colorful pictures. The messages are related to livelihood, gender issues, and other
important issues i.e. gender equity, early child marriage, child labor, child trafficking, legal
rights, child rights, etc. They would probably be understood easily by the women clients,
given its simplicity and clear visual presentation.)

Business development services: ASKI has arranged and sponsored the conduct of
special seminars and skills development classes for its clients. Hands-on seminars on
candle-making, meat processing, soap-making, basket weaving, etc. have been conducted,
and clients generally appreciate this kind of training. While this is good and useful, there
are also dangers and pitfalls here. See Annex 6 for specific recommendations.

1.13 Relationships with OMB and APPEND
1.13.1 Future role of ASKI vis--vis OMB and APPEND

In May 17, 2001, to further its mission and vision of reaching the poor, ASKI became one of
the incorporators and major shareholders of the Opportunity Microfinance Bank (OMB), the
first microfinance-oriented thrift bank in the Philippines. OMB has a goal of reaching one
million poor Filipinos within the next five years. The total subscription of ASKI amounts to
PHP 8,199,000 which is equivalent to 29.5% of total shares, and entitles ASKI to one board
seat. ASKI is represented in the OMB board by its chief executive.

The general plan is that all branches of ASKI will be transferred to OMB, over a period of 3
to 5 years. ASKI will gradually assume a new role, in the future. It will be engaged more in
the provision of support services to the turned-over branches. Such support will include: 1)
recruitment and training of branch employees, 2) general management oversight and
operational monitoring, 3) provision of non-financial services, and 4) provision of audit
services. OMB would be paying ASKI for these services.
1.13.2 Phased turnover of viable branches to OMB

The Tarlac City branch of ASKI is now being prepared for integration with OMB. Full
integration may happen by the end of 2003. OMB will compensate ASKI for such asset
transfer. The formula for computing the compensation is still being studied and discussed
within the top managements and boards of OMB, ASKI and other APPEND member-MFIs.
A formula may finally be agreed upon before the end of 2003. Compensation is necessary
in order for ASKI to recover the amounts invested in establishing the branch. The money
paid to ASKI will be used by ASKI in establishing new branches, in other locations. Once a
clear compensation formula has been agreed upon, it is expected that branching of OMB
(by means of absorbing the viable branches of ASKI and other APPEND member MFIs)
can proceed faster. However, given the realities on the ground, the pace of OMB branching

36
Currently, there are plans for developing a Project Officers Lesson Book, which will contain
development messages and lessons good for one whole year or 52-weeks. Other MFIs, like ASA,
CARD, etc. have developed this, and there is no need for ASKI to reinvent the wheel. The PLAN
International Nepal and Nirdhan bank in Nepal has also compiled such development messages in
the form of 27 stories, presented in large pictures. ASKI can ask PLAN to get copies of these
materials. PLAN Philippines may request a set from PLAN Nepal so that it can be adapted to
Philippine situation.
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(and the integration of ASKI branches to OMB) will depend on two factors: a) Readiness of
a branch to be integrated to OMB; because there are clear and strict standards that a
branch must meet before it can be joined or integrated with OMB; b) availability of adequate
capital of OMB to pay ASKI for the branch and the general profitability of OMB itself. The
lack of capital is currently hampering the branching plans of OMB. Besides a long list of
documentary requirements, the Bangko Sentral ng Pilipinas (BSP) requires that OMB is
proven to be profitable first before it is allowed to expand or add new branches.
1.13.3 Transition phase

Given these, ASKI is now on a transition phase. It is slowly changing its processes,
organizational culture, procedures and policies which will allow it to transfer seamlessly its
viable microfinance branches to OMB. ASKI is gradually assuming a role of branch
hatching and nursing. It will establish and create new branch and nurse them until it
reaches viability. Another role being assumed by ASKI is the establishment of so-called
community development projects. These projects are essentially community organizing
efforts where ASKI organizes the poor people in a given community, and empower them
through training, linkages and other various means. These projects will have livelihood
components, where the savings and credit activities maybe undertaken and linked with the
main microfinance programme of ASKI or OMB. ASKI has just started a new community
development project funded by a New Zealand donor.

1.14 Recommendations to help improve ASKI operations

Annex 6 compiles all relevant specific recommendations to ASKI; and they are being
offered by the Consultant to help ASKI improve its operations and financial performance.

Annex 4 provides some specific recommendations to improve the MIS of ASKI.

Conclusions: ASKI is a stable, mature and competent microfinance organization. The
strong points of ASKI are the following: a good, well-disciplined staff, good governance,
strong management team, sturdy MIS, checks-and-balances, transparency, good internal
control systems, satisfied staff and clientele. The weak areas are: increasing operating
costs, and sub-standard loan portfolio. ASKI has to exert greater efforts in improving its
loan portfolio within the next 2 years, and also on putting a tighter rein on expenses,
especially personnel costs.

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Part 2 Analysis of demand and supply for microfinance

2.1 Analysis of supply of microfinance services in Isabela

As part of this feasibility study, a quick sample survey called Microfinance Survey in
Isabela was conducted by the Consultant, with the help of three field Data Collectors. The
purpose of the survey was to identify the existing financial service providers in the various
localities as well as to determine the specific needs for financial services of both PLAN-
assisted and non-PLAN assisted families in four towns of Isabela. A copy of the survey
questionnaire is found in Annex 7. The towns of Ilagan, San Mariano, Tumauini and
Quirino were covered in this study. A random sample of 133 households was interviewed,
consisting of 93 PLAN-assisted and 40 non-PLAN-assisted families. They were randomly
selected from 13 barangays in these four towns.
37
The 13 barangays were: Cumabao,
Namnama, Bayabo East and Sto Nino in Tumauini; Batong Labang and Villa Imelda in
Ilagan; Zone 3, Minanga and Sta Filomena in San Mariano; San Mateo, Luna, Sta Lucia in
Quirino.
38
The survey tool was designed by the Consultant, while a PLAN senior staff
helped supervised the Data Collectors in the field. The data collection work was held July
24-31, 2003. The findings of the survey were complemented by information gathered from
various key informants.
2.1.1 - Formal financial institutions identified in the four towns

There are few formal providers of financial services in the four towns. The ones that were
identified were the following:
a) Rural Bank of Mallig Plains, Inc. (RBMPI), - known to be operating in 2 towns. This
bank operates a Grameen Bank replication programme that maintains centers in 12
towns of Isabela. The bank is serving currently 13,185 clients. Some PLAN-
assisted families in Quirino are already members of the Grameen programme of this
rural bank.
b) Land Bank of the Philippines (LBP) based in Ilagan with minimal outreach to
nearby towns.
c) St Thomas Aquinas Multi-Purpose Cooperative Inc. operates in poblacion and
nearby barangays of san Mariano only. initiated by the parish priest of San
Mariano. It operates in poblacion and nearby barangays of San Mariano only. This
cooperative has a small, limited loan portfolio and it has small scope of area
coverage. This cooperative provides mainly agricultural loans
d) Rural Bank of Benito Soliven Inc. (RBBSI) operates in Soliven town which is close
to San Mariano. Some poor people from San Mariano go to this bank for loans.
Loans are secured by collaterals. RBBSI do not provide microfinance services.
e) Cooperatives: There were a number of small, non-functional or barely functional
cooperatives. For example, in Quirino, there is a cooperative called Sto. Domingo
Multi-Purpose Cooperative Inc. (MPCI), the San Juan MPCI, the Eastern Farmers
MPCI, Sto Nino MPCI, the Tumauini Corn Farmers Cooperative in Tumauini, Viva

37
All these four towns and 12 barangays are areas where PLAN operates.

38
There is another remote barangay in San Mariano that was covered.

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Narra Cooperative in Ilagan. There is also a Bayabo Farmers Irrigators Association
based in Tumauini, which has a small credit programme. There is also a certain
Family Development Cooperative in Ilagan, but it is not a significant microfinance
service provider.
f) CAVALCO a small cooperative entity that operates in a few barangays of San
Mariano and Ilagan. The CAVALCO operations are small, and they have little loan
funds now.
g) Department of Agriculture (DA) fieldworkers are known to provide small amounts of
loans to a few farmers in limited number of barangays of Tumauini, but farmers said
(during the sample survey) that the amounts of agricultural inputs the DA provide is
limited and that the quality of those inputs are not good.
h) Others: Pawnshops 3 or 4 operate in the four towns. A few people use PNB,
Land Bank and Western Union to receive remittances from their family members
and relatives who work abroad. One respondent cited that he has a life insurance
policy with Philamlife. There were also small local employees associations, who
lend to their members only. A few respondents are people working for the
government or the military; hence they can access loans from the AFPSLAI and the
GSIS.

Of the formal organizations listed above, only the first one (RBMPI) is of significant size and
scope. The remaining ones have very small operations in microfinance; have limited scope
of services; and many have no more funds for microfinance lending.

Note: The two Financial Services Associations (FSAs) operating in San Mariano were not
included anymore in this study, as these are already well-known by PLAN.
2.1.2 Other MFIs operating in the province

There are other significant microfinance players in Isabela, but they have no operations in
the four towns covered in this study. They are: FICO Bank (based in Cauayan), HomeTown
Lending Investor, CAVALCO, LGU-DSWD and DTI. The first three provides microcredit
following the Grameen approach, although CAVALCO has made large changes to the basic
Grameen methodology. Both FICO Bank and HomeTown are serious providers but they do
not have operations in the four towns under study.
2.1.3 Profile of Rural Bank of Mallig Plains Inc.

The most serious microfinance player and the biggest provider of microfinance services in
Isabela is undoubtedly the Rural Bank of Mallig Plains Inc. (RBMPI). This section describes
briefly its profile, operations, and performance. RBMPI is a rural bank, with head office in
the town of Mallig, Isabela. It has 13 branches, all of which operates microfinance
programme. The bank has 49 full-time bank personnel assigned to the microfinance
programme. The bank employs the Grameen model for extending microfinance services. It
has formed numerous centers, covering a total of 610 barangays. The microfinance
program was started by the bank in 1998 in Cordon, Isabela. It has expanded to other
places since then. Total client outreach is 13,185 women, as of June 30, 2003. See full
details about this rural bank in Annex 9.
2.1.4 Farmers cooperatives

There are farmers cooperatives and credit unions in the province, but almost all of them
are non-functional or have collapsed. Those which are still surviving have limited
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operations and lending funds. For example, the San Juan Multi-Purpose Cooperative Inc.
in Quirino has not been operating for several years now. A similar farmers cooperative
Sto. Domingo Multi Purpose Cooperative has no more lending operations. While they
generally provide cheap, sudsidized loans, most of the cooperatives are bankrupt and
insolvent, and their lending funds depleted. The peoples perceptions of the cooperatives
are also poor. They say that the main reason why the cooperatives failed was the rampant
corruption inside, perpetrated by the board members and leaders, the people who are
supposed to nurture and protect the assets of the cooperative. Common malpractices
include: officers take big loans which are beyond the sizes stipulated in policy; officers of
cooperatives refuse to pay back the loans; members refuse to pay their loans following the
bad examples of their leaders; mismanagement, etc.
2.1.5 Reasons why access is poor

Based on actual survey data and peoples feedback collected from the field, it became clear
that access to formal financial institutions is quite low. Poor people are not using the
financial services of these formal service providers because of the following reasons:

a) Tre oar|s /lorra| |rsl|lul|ors are loo aWay lror lre v|||ages Wrere lre poor peop|e ||ve; lre oar|s do rol rave
oulreacr serv|ces lral exlerd |oars or co||ecls sav|rgs;

o) 0|ver lre d|slarces |rvo|ved, |l |s very expers|ve ard l|re-corsur|rg lor poor peop|e lo go lo lre oar| / lorra|
|rsl|lul|ors;

c) Poor peop|e rave sra|| arourls ol sav|rgs lo depos|l, ard lrey say |l |s rol 'W|se lo sperd rorey lo save
lrese sra|| arourls. Trarsporlal|or cosl |s a|so r|gr.
39
ll |s a Wasle ol l|re lo save sra|| arourls ol rorey
oecause |l |s l|re-corsur|rg lo or|rg sra|| depos|ls lo a oar|.

d) Poor peop|e do rol urderslard lre ru|es or processes |r access|rg |oars lror oar|s. Trey are daurled oy lre
rary docurerlary requ|rererls as|ed oy oar|s. Vosl poor peop|e car rol produce lre requ|rererls aryWay,
ever |l lrey urderslard lre ru|es. Ever lrose Wro lr|ed oorroW|rg lror oar|s ard rel lre requ|rererls se|dor
corl|rue lral re|al|orsr|p oecause lrey l|rd lre 'lrarsacl|or cosls (|rc|ud|rg lre paper Wor|) loo rucr.

e) Poor peop|e rave ro rea| assels lo oller as co||alera|s lo secure lre |oars.

l) Vary oar|s are urlr|erd|y lo lre poor. Ard lrey do rol ercourage lre poor lo oorroW. Tre survey sroWed lral
lrere Were a leW peop|e Wro lr|ed app|y|rg lor a oar| |oar oul Was relused oy lre oar|; rerce, lrey do rol |||e
lo core oac|.

g) Tre lurcl|ora| cooperal|ves rave a sra|| geograpr|c coverage, ard lrey rave ||r|led |erd|rg lurds. Tr|s
ellecl|ve|y exc|udes poor peop|e ||v|rg |r olrer oarargays. Poor peop|e a|so reporl lral erler|rg sucr
cooperal|ves as reroers |s rol easy.

r) Peop|e sa|d lral ever |l lrey Warl lo oorroW lror lurcl|ora| cooperal|ves, lrey reed lo ra|se rorey lo ouy
srares |r lrose cooperal|ves.

|) Vary ol lre larrers' cooperal|ves rave dep|eled lre|r |oar lurds, ard lrey rave slopped |erd|rg a |org l|re
ago. 3ore ol lre Wea|er rura| oar|s rave c|osed doWr due lo poor raragererl, lor exarp|e, Corso| 8ar| |r
3ar Var|aro ard Rura| 8ar| ol Turau|r|.

39
For example, if someone in Quirino wanted to deposit 50 pesos she saved for the day, to the
nearest commercial bank in Roxas (the nearest progressive town); she has to spend 30 pesos in
jeepney fare. Thats 60% of the savings amount. Going to Quirino town proper is also likewise
expensive.
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j) Poor peop|e Wro rave parl|c|paled |r sore so||dar|ly groups (|||e lre ore |rp|ererled oy R8VPl) drop oul ol
lre prograr oecause ol poor or|erlal|or or lre prograr ard poor |rp|ererlal|or ol lre prograr |r lre l|e|d.
0rop-oul ral|os exceed|rg 15 |s aororra| ard a s|gr ol oad rea|lr.

|) Tre survey revea|ed lral a s|gr|l|carl porl|or ol poor peop|e are re|uclarl lo oorroW lror oar|s or cooperal|ves
oecause lrey rave ro good ous|ress or l0As, ard lrey do rol |roW Wrere lo gel lre rorey reeded lo pay oac|
lre |oar.

|) Tre l|rarc|a| serv|ces ol oar|s ard cooperal|ves are cred|l-locused ard rol sav|rgs-locused, ard lrere are
currerl|y ro serv|ces lral a||oW lre accuru|al|or ol sra|| da||y or Wee||y sav|rgs ol poor rousero|ds.

2.1.6 Informal sources of rural credit

There are many informal providers of financial services. They are as follows: (a) relatives,
neighbors and friends, (b) agricultural trader financiers (ATF), also called popularly as
bodegas in the dialect, (c) local moneylenders, and (d) Bombay moneylenders. By and
large, 98% of poor people rely on borrowings from informal sources.
2.1.7 Reasons why people use informal sources

The survey revealed that people borrow from their relatives because: a) the loans do not
carry any kind of interest; b) the loans can be repaid over an extended period of time; c) it is
easy to talk to and deal with relatives; d) there are no paper work involved; e) some better
relatives (i.e. those who are working abroad or who have good jobs in the cities) offer them
interest-free loans.

People also borrow from their neighbors and friends, for emergency needs and for many
household needs. This kind of borrowing is a frequent and common practice, but the loan
amounts involved are usually small and the term is very short. They are used mainly for
survival, emergency or basic household needs. The loans carry no interest; no paper work
involved; no collateral; quick to obtain; easy to deal with friends. However, it was also
revealed that poor people generally avoid getting big loans from better-off or rich neighbors
because it is difficult to be indebted to them.
40

The bodegas or ATFs are the dominant players in this informal credit field (discussed in
the next section in great detail). The most common reason given is that there are no other
real options for the farmers. The ATFs are the only ones providing credit for their farm
needs. There is no choice. Also, the ATFs provide loans quickly, and one can get the loan
(or the agri-inputs) on the same day you asked for the loan.

The Bombay moneylenders are generally found in or near the town centers, and they deal
largely with market vendors and established small businesses in town. Many of them offer
loans in the form of household appliances gas stoves, furniture, TV, VHS player,
refrigerator, water pump, all-purpose farm engines, etc. The survey revealed that a small
number of poor people still use this source because they consider the daily payments
affordable, and they can extend or rollover the loan for a longer period, if necessary. Also,
these Bombay lenders accept small sums of money, even if it is not the full amount of

40
It is quite difficult for a poor farmer to owe a big debt of gratitude utang na loob in the local
language to a rich neighbor, because the latter may make endless demands on the poor farmer.
The obligation is also endless.

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daily installment. People also appreciate its convenience citing the Bombay collectors
house-to-house visits, to collect. However, the majority of people surveyed avoid these
Bombay lenders because they know that the interest on their loans is very high.

There are a few local moneylenders charging 7% to 10% interest per month, but usage of
this credit source is generally avoided by poor people.
2.1.8 Profile of agricultural trader-financiers (ATF)

The ATFs are the dominant players in the informal rural credit market. They are typically
agricultural traders, and they purchase rice, corn, and tobacco from farmers, and they
maintain large warehouses, hence the name bodega which is the commonly used local
term for these ATFs.
41
They are owned by rich, influential people.
42
Some are owned by
Filipino-Chinese entrepreneurs. Poor people, especially farmers, rely extensively on ATFs
or the so-called bodegas which are traders of agricultural products and inputs, and which
provides loans to farmers and rural households. These ATFs offer loans to farmers in the
form of agricultural inputs, i.e. seeds, fertilizer, insecticides, etc. For tested and credit-
worthy farmers, these ATFs extend cash loans, to meet the farmers food / survival and
emergency needs.

Surprisingly, large numbers of farmers use the ATF for their credit needs. For example, in
Quirino, rough estimates of barangay officials there show that around 90% of farmers use
the ATFs for their agricultural and household credit needs.
43
Usage rates in Ilagan, San
Mariano and Tumauini are likewise high.

The ATFs are usually based in the poblacion or town centers, but some of the bigger and
well-organized ATFs employ field agents, who purchase agricultural produce in the
barangays. These field agents also act as channels for loans, both cash and in-kind to
farmers.

The ATFs charge interest on their loans, ranging from 5% to 10% per month. They prefer
loans-in kind because they earn more on those loans considering the mark-ups in the
prices. For cash loans, they are quite selective. Only farmers with good loan track records,
those with farm lands of significant size, those with titled real properties, and good moral
character are able to get loans from the ATFs. For big loan sizes, the ATFs demand
collateral (land titles). The ATFs prefer to disburse cash loans a few months before the
planting season, as they like their money lent out for too long. .

The ATFs collect back their loans by requiring the farmers to surrender to the ATF the
whole produce of his farm, less a small portion of his own consumption needs. The farmer
has no choice but to sell of his produce to the ATF. The price is based on the prevailing
price, and the sales proceeds are paid to the farmer less all the loans and accumulated

41
The term bodega means warehouse in the local language.

42
In one town surveyed, the mayor, vice-mayor and a barangay captain were running their own
respective bodegas.

43
There are 10 known ATFs in the town of Quirino. In Ilagan, there are many ATFs, whose
operations go beyond the town of Ilagan.

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interests. It is not an unusual situation where the sales proceeds are not enough to cover
the loans.
44
This will, generally, disqualify the farmer from getting a next loan from the ATF.

The annualized interest on the ATF loans may range from a low 60 to 150% per year. The
true effective interest can be substantially higher if the hidden mark-ups and price
manipulation are considered. Farmers and rural households are aware that dealing with
ATFs is disadvantageous to them but they have no real, better options.

2.2 Borrowing and savings needs of people

Around 80% of the respondents in the microfinance survey are female; are elementary and
high school graduates. Almost all of the respondents are engaged in farming, though some
are engaged in small businesses and income generating activities. The microfinance
survey yielded the following key findings:

The results of the sample survey showed the following:

a) About 3 to 4% of poor people use or borrow from formal sources, while at the same
time, more than 98% of poor people use informal sources of loans;

b) More than 95% of all respondents rely on the ATFs or bodegas for their agricultural
inputs and credit needs. People say and understand that the ATFs or bodegas are
offering them a lopsided (one-sided) deal, but they have no other choice. ATF is the
only source for quick agri-loans.

c) About 97% of poor people do not save in banks or cooperatives; they hardly save
cash, at all, given the barriers (or high transaction costs). But on the other hand,
poor people say that they can save small amounts of money each day or each
month if there is a simple and convenient way of depositing those small savings in a
safe place.

d) Around 70% of poor people save in the form of assets, like pigs, chicken, goats,
fletches of hardwood, etc. They sell these assets when they need cash.

e) Very few poor people mentioned insurance as a priority need. They, however,
agree that cash are needed whenever a family member dies. Many make voluntary
contributions whenever a neighbor dies to help the bereaved family cope with the
burial costs. Given this, we can conclude that there is a small peripheral demand
for micro-insurance services, but feedback obtained directly from clients show that
they do not like to pay a lot for such services.

f) Very few people has needs for transfer services, to receive remittances sent in by
family members abroad, and those who do makes use of the facilities of PNB, LBP
and Western Union.

The survey yielded good estimates on how households borrow, the amount of their
borrowings, and how much they can save potentially (that is, if they are given the
opportunity to save regularly). The specific results were the following:

44
This situation is called sayad in the vernacular.

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a) At the time of the survey; great majority of poor people are indebted to various
lenders, and the average outstanding loan per household is 17,379 pesos. Majority
of respondents say that these are owed to bodegas;

b) Farming households regularly borrow each year to plant their crops and maintain
their fields; and their average annual borrowing for this purpose is 43,602 pesos.

c) Households need loans to support their small and micro-businesses, and the
average small business loan they need is 14,644 pesos per household per year.

d) Households need small loans to meet various family and emergency needs, and
their average borrowing need for this purpose is around 6,432 pesos per household
per year.

e) Savings is a universal need of households. They say that, if given an opportunity to
place their households savings into a nearby bank, they can save 2,886 pesos per
household per month. They save less during the lean season, given the lower
household incomes on those months; averaging 488 pesos per month, or around
16 pesos per day.

These results are summarized in Table 9 below, which also provides some averages for the
four towns surveyed:
Table 9 - Average borrowing and saving needs

Existing
loan
amount
Agricultu
ral loan
Small
business
loan
Household
loan
Savings,
after
harvest
Savings,
lean
season
Tumauini 29,968 37,041 4,625 4,125 4,450 234
Ilagan 18,960 77,823 21,000 1,707 2,165 1,582
San Mariano 15,460 46,222 2,000 4,572 2,851 520
Quirino 20,000 19,842 16,333 10,766 No estm. 241
Averages 17,379 43,602 14,644 6,432 2,886 488

2.3 Estimating demand for microfinance services

First estimate: Based on the results of the survey, a rough estimation of demand for
microfinance services was done, by multiplying the average numbers with the number of
households, and adjusting for certain factors. Table 10 below shows details of a limited-
area minimum estimate of demand, based only on the barangays covered by PLAN in the
four municipalities; and assuming that a minimum number (25%) of households per
barangay would qualify and would be interested in the programme. This is called a limited
area estimate because it is assumed that the operational area of the microfinance
organization chosen by PLAN will be limited to a small geographic area, i.e. only in those
barangays where PLAN works Based on these conservative estimates, it showed that the
demand in the four towns is quite large. The rough estimates are as follows:

a) The total number of qualified households in PLAN areas will be around 3,415
households.
b) The gross demand for agricultural loan services is around 150 million pesos per
year.
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c) The gross demand for small business loan services is around 50 million pesos per
year.
d) The gross demand for emergency /household loan services is around 22 million
pesos per year.
e) The gross demand for savings services will be around 23.5 million pesos per year,
in terms of savings deposits. (Thats broken into 10 million pesos raised during the
period after harvest and around 13.5 million pesos during the lean period 8
months prior to harvest).

Table 10 First minimum estimate of demand
a aa a b c d e f g h
AGRI-LOAN BUSINESS HH LOAN savings1 savings2
TUMAUINI 2,635 0.25 659 28.7 9.6 4.2 1.9 2.6
SAN MARIANO 4,965 0.25 1,241 54.1 18.2 8.0 3.6 4.8
ILAGAN 2,285 0.25 571 24.9 8.4 3.7 1.6 2.2
QUIRINO 3,918 0.25 980 42.7 14.3 6.3 2.8 3.8
3,451 150.0 50.5 22.3 10.0 13.5
Note: Amounts shown in columns d h are in million pesos
Legend:
a = number of households in the barangays of the municipality covered by PLAN
b = assumption on the percentage of those households which are qualified to participate in the
microfinance program, including those which are interested to participate
c = number of qualified households (which is computed as the product of a and b)
d = the estimated amount of agricultural loan a household will require in a year multiplied by c (the
number of qualified households)
e = the estimated amount of small business loan a household will require in a year multiplied by c
f = the estimated amount of household /emergency loans a household will require in a year
multiplied by c
g = the estimated amount of savings a household can save right after the harvest time multiplied
by c
h = the estimated amount of savings a household can save during the lean 8-month period
preceding harvest multiplied by c

Second estimate: If the assumption on the percentage of households who will qualify is
raised to 40%, then the number of qualified households will increase to 5,521, and the
demand estimates will be as follows: 240 million pesos agri-loan, 81 million pesos small
business loans, and 35 million pesos emergency/ household loans, and savings will be
around 18 million pesos. This is also a limited-area estimate (similar to the first estimate).
See Table 11 below for details on how these were arrived at.
Table 11 - Second estimate of demand
a aa a b c d e f g h

AGRI-
LOAN BUSINESS HH LOAN savings1 savings2
TUMAUINI 2,635 0.40 1,054 46.0 15.4 6.8 3.0 4.1
SAN MARIANO 4,965 0.40 1,986 86.6 29.1 12.8 5.7 7.8
ILAGAN 2,285 0.40 914 39.9 13.4 5.9 2.6 3.6
QUIRINO 3,918 0.40 1,567 68.3 23.0 10.1 4.5 6.1
5,521 240.7 80.9 35.5 15.9 21.6

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Third estimate: It is known that the microfinance organization (ASKI) would not limit itself
to the PLAN-assisted communities, for viability reasons. PLAN knows that the barangays
where PLAN operates are isolated and with relatively lower economic activity. PLAN would
probably not restrict too much the geographic area where ASKI will work, and should allow
ASKI to serve a wider spectrum of the population to enable ASKI to attain financial viability
quickly. It is known that ASKI prefers to work also in nearby barangays in the same four
towns, especially those with higher economic activities, and also serve other nearby towns,
including the following: Gamu, Burgos, Benito Soliven, Cauayan, Reina Mercedes and
Roxas. Given these assumptions, a third estimate was obtained; see Table 12 below for
details.
Table 12 - Third estimate of demand
TOWNS a aa a b c d e f g h

AGRI-
LOAN BUSINESS
HH
LOAN savings1 savings2
TUMAUINI 51,061 0.10 5,106 223 75 33 15 20
SAN MARIANO 39,419 0.10 3,942 172 58 25 11 15
ILAGAN 115,629 0.10 11,563 504 169 74 33 45
QUIRINO 19,658 0.10 1,966 86 29 13 6 8
SOLIVEN 28,007 0.10 2,801 122 41 18 8 11
CAUAYAN 103,128 0.10 10,313 450 151 66 30 40
GAMU 27,090 0.10 2,709 118 40 17 8 11
NAGUILIAN 24,475 0.10 2,448 107 36 16 7 10
R MERCEDES 18,513 0.10 1,851 81 27 12 5 7
ROXAS 50,802 0.10 5,080 222 74 33 15 20
47,778 2,083 700 307 138 187

Under this third estimate, a conservative assumption of the minimum number of households
was used (only 10% of the total number of households in the town). The results, as per
Table 12 above, are as follows: the number of qualified households will increase to 47,778
and there will be 2 billion pesos demand for agri-loan, 700 million pesos for small business
loans, and 307 million pesos for emergency / household loans. Total savings demand will
be 325 million pesos (arrived at when the sum of columns g and h are added together).

The second estimate and the third estimate show that demand is indeed very high. We can
conclude that even if the first estimate (the bare minimum, limited-area estimate) is used,
the demand is large enough to justify the establishment of a microfinance program.

2.4 Livelihood of poor people

Based on the 1998 Provincial Profile of Isabela, the households in the province are
classified into 66% farming and 33% non-farming. The livelihood of poor people in the rural
barangays of the four towns is predominantly agriculture-based. Common crops are corn,
rice, banana and vegetables.

But there are large numbers of households engaged in small businesses, especially in the
poblacions (town centers) of Ilagan, Roxas, Tumauini and San Mariano. Even in remote
villages, there are some of the rural poor who are engaged in small businesses or micro-
enterprises, for example hollow-block making, backyard piggery, broom making, furniture-
making, carinderia, cooked corn vending, trading of vegetables and agricultural products,
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etc. Based on these information, we can conclude that demand for agriculture-based loans
will be very high, while demand for business loans will be smaller (when compared with
agri-loans) but would be significant enough for a microfinance organization to tap.

2.5 Gap Analysis: Supply vs. Demand

It is difficult to estimate available supply given the lack of information. However, it is still
possible to make rough estimates, for example by taking the estimated loan portfolio of
RBMPI as base supply and then adjusting it a bit to consider the supply from other
microfinance providers. In Table 13 below, the estimate for the gap between supply and
demand range from 40 million pesos to 887 million pesos depending on which assumptions
to use. It is clear that the gap is quite large, even without considering the agricultural type
of credit.
Table 13- Gap between supply and demand
Credit services Supply Demand Gap
First estimate 32 million pesos (a) 72 million pesos (b) 40 million pesos
Second estimate 32 million pesos (a) 116 million pesos (c) 84 million pesos
Third estimate 120 million pesos (d) 1,007 million pesos (e) 887 million pesos
Notes: (a) The loan portfolio of RBMPI in the four towns is estimated at PHP 20 million; plus add another 12 million
pesos to it to consider the other suppliers; (b) The 72 million pesos estimate for demand was taken from Table 8; the
sum of total demand for small business loans and household / emergency loans. (c) The 116 million pesos estimate for
demand was taken from Table 9; the sum of total demand for small business loans and household / emergency loans.
(d) The 120 million pesos estimate for supply, which includes all suppliers operating in towns listed in Table 10,
including RBMPI, FICO Bank, HomeTown, cooperatives, etc. (e) The 1.007 billion pesos estimate for demand is taken
from the third estimate, see Table 10.

The gap for savings supply and demand is easier to estimate because there are no
significant suppliers in the area which provide the kind of accessible savings services the
poor people need. Hence, the demand becomes the gap. It ranges from a low estimate of
23 million pesos to 325 million pesos.

Conclusion: It is clear that there is a big demand for financial services among the poor in
Isabela. The biggest demand is for agriculture-based loans, followed by demand for small
business loans, and then followed by small household / multi-purpose loans. There is also
a big demand for savings services that are appropriate to the needs of the poor. The
supply of such services is very little; hence the gap is very large.

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Part 3 Isabela microfinance programme

3.1 Purposes and objectives

The Isabela microfinance programme is designed to provide financial services to poor
people (in both PLAN and non-PLAN areas) in Isabela, to enable them to improve their
livelihood activities, and increase their household savings / assets.

3.2 Target areas

Initial target areas include the following: Ilagan, Tumauini, Quirino, San Mariano, Cauayan,
Roxas, Gamu, Burgos, San Manuel and Aurora. Expansion areas include: Cabagan, Benito
Soliven, Naguilian, and Reina Mercedes. (The expansion areas will be served after work in
the initial areas have been firmly established, probably beginning in the 2
nd
year of
operations).

3.3 - Branch office, location, equipment and structure

Location and equipment: The ASKI Isabela microfinance office (Isabela branch office)
will be located in the capital town, Ilagan. An appropriate office will be rented; and office
renovation done. Basic office equipment, including computers, will be procured. Detailed
list of equipment to be purchased is shown in the Business Plan.

Vehicles: The villages to be served by the project are located in mountainous areas,
where public transportation is either non-existent or grossly inadequate. Distances are also
large. Given this, it is essential to equip fieldworkers with motor vehicles. The seven field
staff (POs) will be provided with seven motorcycles so they can travel easily and quickly to
the barangays. A pickup vehicle will also be procured to facilitate field visits, monitoring,
and field training activities.

Branch organizational structure: The new branch office will be composed of 15
personnel. The structure is briefly described below:

Figure 2 Organizational structure of the Isabela branch

BM
(1)

AKP PUS
(1)
Bookkeeper (1) Teller ( 1) ILP P.O.
(3)
7 AKP P.O.
FSA P.O.
(1)
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3.4 - Financial services to be offered

Financial services to be directly provided by ASKI: The following are the financial
services to be directly offered by ASKI to poor people in Isabela:

a) Regular AKP loans intended for small business, income-generating activities or
micro-enterprises. Loan size ranges from 3,000 pesos to 6,000 pesos for the first
loan cycle. This type of loan is provided to members of the centers that meet every
week.

b) Emergency loans are small short-term loans, ranging in size from 500 pesos to
4,000 pesos. These are extended to meet common household emergencies
(sickness, hospitalization, etc.) or to meet sudden household needs.

c) Life insurance pays an insurance benefit to the family of a deceased member;
available only to centers members, and those who paid their dues to ASKIs life
insurance pool called as Mutual Aid Fund (MAF). If a member dies, the family gets
a life insurance benefit less any unpaid loans with ASKI. If the spouse or child of a
member dies, then half of the usual benefit will be paid to the family.

d) Individual regular loans are unsecured small business loans extended to
qualified owners of micro-enterprises. Loan size ranges from 3,000 pesos to
50,000 pesos.

e) Individual fully secured loans are loans extended to qualified small businesses.
Loan size ranges from 50,000 pesos to 250,000 pesos. Chattel or real estate
mortgage security is strictly required.

f) Individual market-vendors loans are loans extended to qualified small market
vendors. Loan size ranges from 5,000 to 25,000 pesos

Loan terms / pricing policies to be used: ASKI will charge a standard interest rate of
36% per annum on all loans. Loan terms are six-months (24 weeks) for all regular loans
under AKP. The service charge is 2% per application; filing fee is 40 pesos per application;
notarization fee is 50 pesos, and there is a one-time Identification Card fee of 30 pesos.
The effective interest rate will be around 44% per annum (if all these service charges and
related fees are included). The pricing for the individual loans will be at 3% per month also,
and the service charges and fees will be similar to that of AKP, with some slight variations.

3.5 - Operational targets for 2 years

ASKI prepared a detailed 2-year business plan for this Isabela branch. It is aimed that the
branch will become a fully self-sustaining branch within a two-year period, serving poor
people and entrepreneurs in at least fourteen (14) municipalities in Isabela. The key
operational and financial targets are the following:

To have a client outreach of 3,653 clients by the end of 24 months;
Attain an Operating Self-Sufficiency (OSS) ratio of 134 % by the end of 24 months;
To attain 100% OSS (operational self-sufficiency) after 17 months of operation, and
139% OSS by the end of 24 months;
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To attain 130% FSS (financial self-sufficiency) by the end of 24 months;
To maintain a 98% repayment rate.
To attain a member retention rate of 99%
To attain 17.3 million pesos in loan portfolio, and to generate 6 million pesos in
members savings by the end of 24 months

These targets are further broken down into specific annual targets, as shown below:
Table 14 - Operational targets for Isabela microfinance programme
Targets
Year 1 Year 2 Year 3
Outreach:
Number of clients 2,921 3,653 5,829
Number of loans disbursed (in pesos) 2,921 3,653 5,829
Outstanding loan portfolio (in pesos) 12,391,770 17,300,051 26,521,031
Total savings balance (CBU and EF), in pesos 2,957,273 6,094,114 8,502,080
Sustainability:
Operating self-sufficiency 83 % 131% 142%
Financial self-sufficiency 74 % 130% 138%
Operating efficiency:
Number of loans per credit officer 292 365 343
Portfolio per credit officer (pesos) 1,239,177 1,730,005 1,560,061
Monthly member retention rate 99% 99% 99%
Cost efficiency 29% 27% 27%
Portfolio quality:
Portfolio in arrears 4.75% 9.88% 12.24%
Portfolio at risk 4.75% 9.88% 12.24%
Loan loss ratio 2% 5% 4%
Repayment rate 98% 98% 98%

3.6 - Microfinance methodologies to be used
3.6.1 Solidarity group lending methodology: the AKP Model

ASKI will use the AKP model as its basic, primary microfinance methodology. This has
been amply described in section 1.4.2. The Business Plan also describes in detail the
various criteria, steps and activities involved in the AKP methodology. The AKP will be
implemented in Ilagan, Quirino, Tumauini, San Mariano, Benito Soliven, Roxas, San
Manuel, Gamu, Burgos, Cauayan and Reina Mercedes.
3.6.2 - Individual lending methodology

ASKI will also implement the individual lending methodology, which has been amply
described in section 1.4.4. The Business Plan also describes in detail the various criteria,
steps and activities involved in the ILP. The Individual Lending Programme will be
implemented in three towns only: Ilagan, Roxas and Cauayan.
3.6.3 Loan portfolio quality

The current delinquency problem of ASKI in Nueva Ecija should not be considered a major
issue for the Isabela expansion programme because of the following:
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a) The AKP model that will be used in Isabela will be based on the standardized, latest
version of AKP which has been proven effective in Palayan City branch;
b) The person who managed and run the Palayan City branch will be the same person
who will be assigned to manage the proposed Isabela branch; hence potentials for
success is high;
c) The weaknesses in the ILP would have been cured by ASKI by the time it
implements ILP in Isabela.
d) There will be strong MIS and internal controls in place in the Isabela branch, which
will reduce possibility of fraud, malpractices or declining staff discipline; (these
things negatively influences loan performance; some of the loan delinquencies were
partially caused by malpractices or lack of discipline or consistency from ASKI staff.)

3.7 - Staff hiring, orientation and deployment

Branch manager: ASKI will assign one of its senior managers (Mr. Luvimin Mauricio Jr.) to
serve as the first Branch Manager of this branch. He is well experienced in establishing
new ASKI branches. Eventually, he will train a new manager to take over his position, once
the branch has been firmly established.

Staff hiring: ASKI will implement staff hiring following its standard procedures on staff
recruitment. It would advertise the jobs, first within the ASKI organization to encourage
interested skilled staff to apply for the jobs. All qualified existing staff who expressed their
interest and willingness to join the Isabela expansion program will be required to submit a
written application letter. It is expected that the Project Unit Supervisor and the Bookkeeper
will be hired from within given that it is imperative to have a few highly skillful people in
place at the start of operations. Then, ASKI will advertise the jobs in Isabela; and it is
expected that the rest will be hired from Isabela towns. The staff training process consists
of two stages the first stage is called Preliminary Screening while the second stage is
called Orientation and On-the-Job Training Program The Business Plan describes the
detailed activities under this four-week employee selection and training program.

Staff deployment: The Project Unit Supervisor (PUS) will focus exclusively on the AKP
program supervision. The Project Officers will be deployed as follows: Two AKP POs will
be assigned to cover Ilagan and part of Quirino, 1 AKP PO to Tumauini, 1 AKP PO to San
Mariano, 1 AKP PO to Roxas and some parts of Burgos, 1 AKP PO to Cauayan, and finally
1 AKP PO to San Manuel and Aurora. The three ILPOs will be assigned to each of these
towns: Ilagan, Cauayan and Roxas

Salary and fringe benefits: In Isabela, ASKI will apply its own salary scale, which is
competitive and attractive to prospective employees. (The Business Plan contains specific
amounts / salaries to be paid to employees.) Doing this will allow ASKI to and attract and
keep highly qualified individuals in the staff. The pay in ASKI is slightly higher than the pay
in rural banks and cooperatives. ASKI will provide its Isabela employees with the same
range of fringe benefits it provides to all its employees.

Incentives scheme: ASKI will also apply its incentive scheme for branch staff. This is
amply described in section 1.9.7. Beside the basic incentives scheme described above,
ASKI also operates a performance bonus scheme where branch personnel are given
bonuses based on the level of profits generated by their branch. The bonuses are given in
the form of 14
th
month pay, or 15
th
month pay.

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HR policies: Naturally, ASKI will apply the same HR policies and processes for its Isabela
staff. Each employee will be given a copy of the ASKI Employees Code of Conduct and a
copy of the Employees Handbook, to ensure that all new employees are aware of the
standing rules and policies of the organization.

3.8 - Management Information System

Installation: The MIS Unit of ASKI will purchase the computers in Cabanatuan City and
then pre-load them with the necessary software, and the ASKI MIS, including the ASKI
chart of accounts, configurations and reporting formats. Then the MIS unit will bring the
units to Isabela, and install the hardware and software for the new branch office in Ilagan.
This will take 2 or 3 days. The following will be installed: local area network, system and
remote administrator programs, backup software, antivirus software, internet connection
and hyper-terminal connection. Immediately, the system will be able to enter and process
actual transactions.

Maintenance: The MIS Unit (based in Cabanatuan) will train the Bookkeepers and Teller
in Ilagan about basic trouble shooting and maintenance of both hardware and software.
These two branch workers are expected to handle all common routine problems. If there
are unexpected errors that occur, and such cannot be solved by the Bookkeeper or the
Teller, the MIS Unit (in Cabanatuan) will use a dial-up connection to connect with the Ilagan
branch computers, and use a Remote Administration program to fix the problem.
45
If the
technical problem can not be resolved using the said program, then the MIS Unit will send a
technician to Ilagan to fix the problem.

System backup: The Isabela branch personnel will be trained on backup procedures.
Backups will be required to be done periodically to protect the integrity of the database.
Backup will use a Compact Disc Writer and made to re-writeable Compact Disks, which
serves as back-up storage of data. With this, data loss can be avoided.

Sending of reports to head office: The Isabela branch office will submit to the ASKI head
office financial reports and copies of the database, on a daily basis; using e-mail or hyper
terminal.
46
The Bookkeeper will zip the database file and other Excel files and send them to
the Head Office for consolidation. At the same time, this serves as back-up files.

3.9 Financial projections

Review of original projections: The original project proposal submitted by ASKI suffered
a number of weaknesses. Some of these are as follows:
Trere |s ro c|ear geograpr|c largel|rg; rerce |l |s rol dela||ed erougr or Wr|cr oarargays W||| oe served, ard
Wrer.
Trere are ro c|ear or dela||ed c||erl recru|lrerl ard |oar d|soursa| largels;
Tre ruroer ol projecl slall (or orarcr persorre|) |s ralrer loo |arge lor ar |r|l|a| orarcr |r lsaoe|a. Alla|r|rg
v|ao|||ly lor a o|g orarcr |s d|ll|cu|l lo alla|r.
Trere are ro c|ear lurd|rg (l|rarc|rg) p|ar;

45
A remote administration program allows a technical administrator to work on another computer
located from away or remotely.

46
A hyper-terminal connection is a modem to modem connection which allows sending and receiving
files between computers using ordinary telephone connections and without passing through an
Internet Service Provider.
Page 63 of 96
Page 63
0|ver lral rary assurpl|ors are urc|ear or rol exp||c|l, |l |s d|ll|cu|l lo judge re||ao|||ly ol lre l|rarc|a|
projecl|ors;
Trere |s ro d|scuss|or or roW lre F3A |r 0e| P||ar W||| oe deve|oped ard roW A3Kl Wou|d lurlrer deve|op or
|rprove lre approacr;

Given these, it was deemed imperative that a new set of financial projections be prepared;
see below.

New financial projections: The Business Plan (submitted to PLAN together with this
feasibility study) contains the detailed new set of financial projections. The features and
assumptions made in the Business Plan include the following:
Trere |s a c|ear geograpr|c largel|rg; lrere are a|so |oar d|soursa| largels;
Trere |s c|ear ard dela||ed c||erl recru|lrerl ard largels or lre ruroer ol cerlers lorred; lre case|oads ol lre
l|e|d slall rave oeer del|red; lrere are assurpl|ors or drop-ouls.
Loar d|soursa| largels are spec|l|ed ard rade c|ear;
Tre ruroer ol projecl slall (or orarcr persorre|) ras oeer reduced lo 15; rerce cosl-slruclure |s |oWer, ra||rg
|l eas|er lo acr|eve v|ao|||ly;
Tre lLP W||| oe srou|dered oy A3Kl, as |ls courlerparl lo lre projecl. A3Kl W||| prov|de lre |oar porllo||o ard lre
operal|ora| cosls lor lr|s prograr.
Tre assurpl|ors or oll|ce sel-up cosls are rore rea||sl|c ard oased or |alesl cosls oola|rao|e |r l|agar.
Trere |s a c|ear l|rarc|rg p|ar; lrere |s ar assurpl|or lral Z0 ol a|| reroers' sav|rgs W||| oe used lo l|rarce
lre groWlr ol lre |oar porllo||o.
Trere |s a corporerl or deve|op|rg ard ass|sl|rg lre F3A |r 0e| P||ar lrougr lr|s ray oe |epl separale lror
lre ra|r agreererl).

3.10 Financial requirements

The Business Plan (submitted together with this feasibility study) contains several tables on
financial projections. The Business Plan and the projections show many things, including:
specific monthly targets on number of loans disbursed, value of loans released, number of
clients, amount of revenues earned, expenses incurred, net operating losses / profits, cash
balances, and projected income statement, balance sheet.
Table 15 - Financial resources needed for 2 years
Loan Fund 16,926,460 67.6%
Capital Expenditures 1,941,900 7.8%
Transportation Equipment 1,595,200
Leasehold Improvement 100,000
Furniture and Fixtures 246,700
Administration 5,096,897 20.4%
Salaries and Benefits 3,028,776
Operations 2,068,121
Training 1,063,200 4.2%
Staff Training 812,700
Clients Training 250,500
Total fund requirements for 2 years 25,028,457 100%

The total financial requirement of the project is 25.02 million pesos. Of this amount, 16.9
million pesos will be needed to support the loan fund, 1.94 million pesos is needed to
support the planned capital expenditures; 5.09 million pesos for operating and
administrative costs, and 1.06 million pesos for training/capability building program. See
Table 15 above for details.
Page 64 of 96
Page 64

A big part of the clients savings (CBU and EF), up to 70%, will be utilized by ASKI to
finance the loan portfolio in the Isabela branch. This has been considered in the financial
worksheets, in computing the net financial requirement and the monthly loan fund
requirements.

The financial projections indicate that the program should continue to be financially viable
and sustainable after the project period is concluded, and it will provide increasing number
of loans at a steadily increasing average loan size. The projected cash flow indicates that
the revenues from the loans will cover all expenses by the 17
th
month of operation.

The financial resources needed for each of the two years are shown in Tables 16 and 17
below:

Table 16 - Financial resources needed in First Year
Loan Fund 10,985,796
Capital Expenditures
Transportation Equipment 1,595,200
Leasehold Improvement 100,000
Furniture and Fixtures 246,700
sub-total 1,941,900
Administration
Operations 2,068,121
sub-total 3,395,481
Training
sub-total 531,600
Total fund requirement 16,854,777

Table 17 - Financial resources needed in Second Year
Loan Fund 5,940,664
Capital Expenditures 0
Administration
Operations
sub-total 1,701,416
Training
sub-total 531,600
Total fund requirements 8,173,681

3.11 Financing plan

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Page 65
ASKI proposes that PLAN and ASKI share the burden of financing this new microfinance
program in Isabela, on a 70 30 basis; that is PLAN will provide funds to ASKI amounting
to 17.4 million pesos (nearly 69.8 % of total requirements), while ASKI will put in 7.5 million
pesos (or about 30.2 % of the total need). See Table 18 below for details:

Table 18 - Proposed financing plan

TOTAL
NEED PLAN ASKI
Loan Fund 16,926,460 11,774,770 5,151,690
Capital Expenditures
Transportation Equipment 1,595,200 1,196,400 398,800
Leasehold Improvement 100,000 75,000 25,000
Furniture and Fixtures 246,700 185,025 61,675
sub-total 1,941,900 1,456,425 485,475
Administration
Salaries and Benefits 3,028,776 2,047,155 981,621
Operations 2,068,121 1,551,091 517,030
sub-total 5,096,897 3,598,246 1,498,651
Training
Staff Training 812,700 495,240 317,460
Clients Training 250,500 152,649 97,851
sub-total 1,063,200 647,888 415,312
25,028,457 17,477,329 7,551,128
100% 69.8% 30.2%

PLAN and ASKI will provide funds for the lending capital needed, for establishing the
branch, and for operating it during the project period.

ASKI will provide all capital funds and operating expenses for the ILP, where ASKI will
provide the salaries of three Individual Lending Project Officers (ILPOs); while PLAN is
expected to finance the AKP part of the programme.

PLANs financial support for salaries and operating expenses will be needed, 100%, during
the first 12 months (except costs for ILPOs, which ASKI will provide). On the 13
th
month,
such subsidy from PLAN can be reduced by 25%; then further reduced by 25% on the 19
th

month; and then reduced by a final 25% by the 21% month.

ASKI is also requesting PLAN to provide the loan funds for AKP on a soft-loan basis. That
is, instead of charging the 12% per annum interest on the loan part, ASKI will be asked to
pay 5% per annum interest only. That consideration will help ensure that the branch attains
viability quickly.

As to the implementation of Financial Services Association, one Project officer will be hired
and Plan international is requested to support fully the salary costs for this Project Officer
for 24 months.

3.12 - Sustainability

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Page 66
Factors that will affect viability: The financial sustainability of the project (this branch)
depends to a large degree on the capital base, and the interest rate charged on loans. The
capital base must be of sufficient magnitude, and the interest rate must be such that it
covers both operational and capital costs.

Time frame to reach 100% viability: The financial projections indicate that the Isabela
microfinance programme would become financially viable and sustainable. At 17
th
month of
operation, it will reach 100% OSS. Table 19 below shows the projected incomes and
expenses of the project. It is expected that a net operating loss will be incurred in the first
year, but then it will compensated in the second year when net operating profit will be
around 2.5 million pesos.

Table 19 - Projected incomes and expenses

Income and Expense accounts
YEAR 1 YEAR 2
lrleresl or Loars, lees, ard crarges 3,9Z1,82 10,83Z,0Z
lrleresl or 8ar| 0epos|ls ard |rveslrerls 2,100 2,100
TOTAL REVENUES 3,979,22 10,839,47
lrleresl or deol ard oorroW|rgs ZZ,821 2,119,20Z
Prov|s|or lor |oar |osses 318,2Z0 1,013,1ZZ
Net revenues after provision for loan 2,854,132 7,37,783
0lrer operal|ora| |rcore 0 0

3a|ar|es ard oerel|ls 1,328,Z90 1,Z02,81
Adr|r|slral|ve experses 1,95Z,218 2,Z13,0Z9
F|rarce crarges 1,Z35 88,21
0eprec|al|or 292,ZZ3 292,ZZ3
Total operational expenses 3,43,54 4,79,93
Net operational income (789,414} 2,579,820

Over-all 100% operational self-sustainability is expected to be achieved on or before the
17
th
month of operation. Expected OSS at the end of 2 years is 131%.

At the end of the project, there is no more need to finance the operational costs from
outside (donor or grant) sources, and that the project will provide gradually increasing
number of loans at a steadily increasing average loan size. Furthermore, beginning in year
3, it is projected that the accumulated net operating revenues and the members savings of
the branch will be sufficient to finance the loan requirements of the branch. See Table 20
below for the projected balance sheets.

Table 20 - Projected balance sheets

Balance sheet accounts (based on CGAP terminology)
YEAR 1 YEAR 2
ASSETS
Casr ard casr equ|va|erls 1,33,119 10,10,51
Loar porllo||o, rel ol a||oWarce lor |osses 12,013,500 15,908,305
0lrer currerl assels 5,123 3,25
Tola| currerl assels 13,Z11,ZZ1 2,585,130
F|xed assels, rel ol accuru|aled deprec|al|or 1,19,12Z 1,35,353
Page 67 of 96
Page 67
Total assets
15,390,898 27,941,483

LIABILITIES AND EQUITY
Furds re|d |r lrusl (reroers' sav|rgs) 3,252,1Z Z,282,Z1Z
Lorg-lerr deol 12,92Z,9 18,88,30
Tola| ||ao|||l|es 1,180,312 2,151,8ZZ
Equ|ly / Furd oa|arce (Z89,111) 1,Z90,10
Total liabilities and equity 15,390,898 27,941,483

Table 21 - Projected Cash Flow

Inflows and outflows
YEAR 1 YEAR 2
Projected cash inflows
Nel |rcore lror operal|ors (Z89,111) 2,5Z9,820
Add oac| ror-casr experses
Loar |oss prov|s|ors 318,2Z0 1,013,1ZZ
0eprec|al|or 292,ZZ3 292,ZZ3
Loar co||ecl|ors 1Z,05,230 51,130,31
0eol rece|ved 12,92Z,9 5,911,1
Furds re|d |r lrusl (reroers' sav|rgs) 3,252,1Z 1,030,101
Total cash inflow from operations 33,097,171 65,017,197

Projected cash outflows
Loar re|eases 29,15Z,000 5,038,13
F|xed assel adr|r|slral|or 1,911,900 0
lrcrease (decrease) |r olrer assels 5,123 (28,858)
Total cash outflow 31,464,023 56,009,785
Total net cash inflow (outflow) 1,33,119 9,00Z,112
Add oeg|rr|rg oa|arce 0 1,33,119
Ending cash balance 1,633,149 10,640,561

3.13 - Internal control and audit

Internal controls: For this Ilagan branch, ASKI will apply the usual internal controls that it
employs in its other branches. This has been amply described in section 1.8.2. The MIS to
be installed is the same one used in ASKI branches, and such MIS has many built-in
mechanisms and controls that substantially improve internal control.

Audits: The audit department of ASKI (based in Cabanatuan City) will be programmed to
visit Isabela twice a year (semi-annual) to ensure that internal controls are maintained, all
policies are being properly implemented, and that there are no irregularities or fraudulent
activities. The Business Plan contains a section on what specific activities the audit team
will do during and after the audit visit. Special, surprise audits may be done, from time to
time.

3.14 - Management support services from ASKI

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Page 68
Monthly coordination meetings: The Branch Manager of Ilagan branch will be asked to
attend the monthly Operations Meeting held at the head office in Cabanatuan. He will brief
senior management about the progress of his work, the accomplishments made, problems
being faced and resolved, etc. He shall also coordinate with various units in the head office
regarding activities in the branch that would support from them.

Monitoring visits by top management: A team of senior managers from the head office
will visit the Ilagan branch at least once a quarter. If needed, special visits will be done
also.

Technical visits by Head Office staff: Whenever needed, a team of technical personnel
shall visit the Isabela office to render / provide management support or technical services.
These include: training and orientation of staff, trouble-shooting the MIS system, conduct of
impact assessments, installation of incentives schemes and performance evaluation
systems, etc.

3.15 - Evaluation of results and impact

ASKI shall conduct a baseline study during the first three months of project implementation
in Isabela. ASKI shall gather basic socio-economic data from the initial batch of
beneficiaries or clients. That data will be analyzed, and a profile prepared. Then, near the
end of the 24-month project period, ASKI will conduct an evaluation study, which will gather
the same socio-economic data and compare that with those gathered during the baseline
study. The main impact indicators to be used are: household income, household assets,
business assets, and savings.

3.16 Future plans for Ilagan branch

The Ilagan branch is the first branch that ASKI plans to set up in Isabela. ASKI is interested
in setting up a total of three branches in the province to fully cover and serve all its
municipalities
47
. These three branches will be in Ilagan, Santiago and Roxas.

The Santiago branch will cover the towns of Santiago, San Mateo, Echague, Cordon, and
possibly other nearby towns in Nueva Viscaya. The Roxas branch will cover the towns of
Mallig, Roxas, San Manuel, Aurora, and other towns on the northwestern part of the
province. The Ilagan branch will cover Ilagan, San Mariano, Naguilian, Gamu, Tumauini,
Reina Mercedes, Burgos, Cauayan, Quirino, Cabagan and Benito Soliven.

3.17 Summary of recommendations for Isabela microfinance program

The proposed microfinance programme of ASKI in Isabela is feasible. However, there are
a few recommendations below which would make the programme more effective. The
recommendations are summarized below:

1. 8e|ect carefu||y the target areas: Tre PLAN areas are p|aces W|lr |oW ecoror|c acl|v|ly. ll |s recessary lo
a||oW A3Kl lo cover olrer rearoy oarargays ard loWrs W|lr r|grer ecoror|c acl|v|ly, lo erao|e A3Kl lo oecore

47
ASKI would not be able to reach three inaccessible towns facing the Pacific Ocean Maconacon,
Palanan, etc. There are no roads that lead to these towns and it can only be reached by foot or by
air.
Page 69 of 96
Page 69
l|rarc|a||y v|ao|e. A3Kl srou|d locus or lre |r|l|a| sel ol largels, lor lre l|rsl rorlrs, ard lrer gradua||y rove
lo lre expars|or areas Wrer lre Wor| |r lre |r|l|a| areas ras oeer l|rr|y eslao||sred.

2. A||ow A8K| to use the methodo|og|es |t knows best: 0|ver lral A3Kl |s a|ready adepl |r |ls orard ol
0rareer |rp|ererlal|or ard |ls oWr |rd|v|dua| |erd|rg relrodo|ogy, A3Kl srou|d |rp|ererl lre lsaoe|a
r|crol|rarce prograrre us|rg lre relrodo|og|es |l |roWs oesl. A3Kl srou|d oe g|ver sull|c|erl l|re, lo l|rsl
eslao||sr lre orarcr, ard lrer |l srou|d la|e l|re lo |earr lre F3A rode| Wr|cr |s reW lo lrer. A separale
corlracl W|lr PLAN rayoe erlered |rlo, |r order lo pusr lorWard lre deve|oprerl ol lr|s F3A rode|.

3. 6reate a med|um s|ze branch, |nstead of the fu|| mega-branch: A3Kl srou|d operale lre prograrre us|rg
a sra||er ruroer ol slall oecause |l |s eas|er lo acr|eve susla|rao|||ly W|lr a sra||er orarcr. For lre l|rsl lWo
years, A3Kl srou|d rol |rp|ererl a lu|| rega-orarcr W|lr lWo Pu, oul rave ore Pu or|y. 3larl sra|| al lre
sare l|re lr|r| o|g.

1. 0eve|op an agr|-|oan product on 2
nd
year: Tre oas|c |oar producls ol A3Kl are su|lao|e lo lre reeds ol poor
peop|e |r lsaoe|a. 8ul lrere |s ore rajor reed ol peop|e lrere (agr|cu|lura| producl|or |oar) lor Wr|cr A3Kl ras
ro ralcr|rg producl. Tre larrers |r lsaoe|a are exp|o|led oy 'oodegas, Wr|cr lurlrer pu||s lrer lo deeper
poverly. 0|ver lr|s, |l |s recorrerded lral or lre secord year ol lre parlrersr|p projecl oelWeer PLAN ard
A3Kl, a spec|a| prograr srou|d oe deve|oped oy A3Kl Wr|cr W||| prov|de 'Agr|cu|lura| Producl|or Loars (APL)
lo poor larrers |r lsaoe|a. Tre APL corporerl srou|d oe |rp|ererled or a sra||, lr|a| oas|s, lo exper|rerl
Wral producls W||| oe successlu| |r reel|rg lr|s o|g reed |r lre area. 3ee Arrex 8 lor dela||s ol lr|s proposed
APL suo-prograrre.

5. 0eve|op new sav|ngs products that cater to the poor and the poorest: A3Kl ras lWo good rardalory
sav|rgs producl (C8u ard Erergercy Furd) Wr|cr a||oWs |l lo suoslarl|a||y |rcrease lre arourl ol sav|rgs |l
gererales arorg lre poor. Tr|s |s good lor lsaoe|a c||erls a|so oecause lrey Wou|d oe ao|e lo save s|gr|l|carl
arourls ol rorey over l|re. loWever, lre sa|d producl |s rol allracl|ve lo lre pooresl rousero|ds, oecause
lrey car or|y access lrese sav|rgs producls |l lrey oorroW lror A3Kl. Tre pooresl rousero|ds, roWever, do
rol |||e lo oorroW rorey oecause lrey rave ro ex|sl|rg ous|resses, ard ro regu|ar source ol |rcore. Tre
pooresl lar|||es W||| oe re|uclarl lo jo|r A3Kl oecause lrey are ursure roW lrey car reel lre l|xed Wee||y
|rsla||rerls ard sav|rgs.

ll |s recorrerded lral A3Kl rod|ly |ls slrorg cred|l-locus oy a||oW|rg 'spec|a| sav|rgs groups W|lr|r cerlers.
Trese are groups ol Worer Wro oorded logelrer ra|r|y lo save rorey ard lo parl|c|pale |r lre ror-l|rarc|a|
serv|ces ollered lrrougr lre cerlers. Trey sra|| oe a||oWed lo save spec|l|c arourls ol rorey eacr Wee|, or
a||oWed lo pul |r ary arourl ol sav|rgs (W|lroul ary spec|l|c r|r|rur arourl). Tre reroers ol lrese 'spec|a|
sav|rgs groups W||| rol oe requ|red lo oorroW rorey lror A3Kl dur|rg lre l|rsl lWo years ol lre|r parl|c|pal|or.
Aller lral per|od, lrey W||| oe as|ed lo gel |oars lror A3Kl, ever sra|| |oars, lo l|rarce lre|r reW verlures or
l0As. ll |s expecled lral lWo years ol parl|c|pal|or |r lre cerler's lra|r|rg acl|v|l|es W||| a||oW lrer lo gel
sull|c|erl ercouragererl lror lre|r co-reroers, ard ga|r lre recessary corl|derce lo slarl lre|r oWr l0As or
sra|| ous|resses.

ll |s lurlrer recorrerded lral A3Kl |rp|ererl lre assoc|ale reroers passooo| or vo|urlary sav|rgs
accourls. Tr|s car rave a pos|l|ve |rpacl or cr||drer oecause lrey ard lre parerls car save up rorey lo reel
cr||drer's lulure reeds. Trese sav|rgs accourls car oe rar|eled ard proroled W|de|y lo ercourage rore
cr||drer |r lre corrur|ly (lral are re|aled lo lre Worer reroers) lo parl|c|pale |r lre sav|rgs screres ol
A3Kl.

. Co s|ow on |nsurance serv|ces: Tre r|crol|rarce survey d|d rol revea| ary rajor expressed reed lor r|cro-
|rsurarce.
18
ll Was a|so lourd oul lral lsaoe|a c||erls do rol Warl lo pay rucr lor lr|s serv|ce. Trerelore, |l |s
recorrerded lral A3Kl oller or|y ore lype ol r|cro-|rsurarce producl - lre VAF - ard lral lre prer|ur ard
oerel|l va|ues srou|d oe reduced oy ra|l. lrslead ol prov|d|rg lre VAF al lu|| va|ue - 120,000 pesos, |l |s oeller

48
Based on field interviews with clients who dropped out from the RBMPI Grameen programme, the
mutual aid fund (life insurance) turned out to be least appreciated by the clients. It is probably due
to the fact that there are doubts on peoples minds on whether the bank would really pay the life
insurance benefit to the households of a deceased member.

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Page 70
lor A3Kl lo oller ra|l-va|ue or 0,000 pesos |r order lo drasl|ca||y cul lre cosls ol prer|urs lral lsaoe|a c||erls
W||| pay.

Z. Poo| the r|sks together: ll |s recorrerded lurlrer lral A3Kl poo| lre r|s|s logelrer, rear|rg lre lsaoe|a VAF
|s r|xed W|lr lre A3Kl VAF lurds lor Nueva Ec|ja. Tr|s |s lo rave a o|gger poo| Wr|cr W||| oear lre r|s|s. lr
|rsurarce, lre o|gger lre poo| lral aosoros lre r|s|s lre oeller.

8. Reduce operat|ng subs|dy from PLAN beg|nn|ng on the second year: PLAN's l|rarc|a| supporl lor sa|ar|es
ard operal|rg experses W||| oe reeded, 100, dur|rg lre l|rsl 12 rorlrs (excepl cosls lor lLP0s, Wr|cr A3Kl
W||| prov|de). ll |s reeded oecause lre reverues ol lre orarcr are sl||| sra|| ard Wou|d rol oe erougr lo cover
a|| ol lree experses. 8ul, W|lr l|re ard W|lr groW|rg reverues, |l |s poss|o|e lo cul lre suos|dy. ll |s
recorrerded lral or lre 13
lr
rorlr, sucr suos|dy lror PLAN oe reduced oy 25; lrer lurlrer reduced oy 25
or lre 19
lr
rorlr; ard lrer reduced oy a l|ra| 25 oy lre 21 rorlr.

9. Transportat|on equ|pment: Tre projecl reeds a rolor ver|c|e, prelerao|y a lour Wree| dr|ve p|c| up, oecause
lrere are rary largel corrur|l|es ard v|||ages Wr|cr are d|slarl ard |so|aled. To reduce lre |r|l|a| |rveslrerl
cosls ol lre projecl, PLAN ray s|rp|y |rslead |erd a used rolor ver|c|e lo A3Kl |rslead ol purcras|rg a reW
ore.
19

10. Expense contro| at the branch To ersure ellecl|ve experse corlro| al lre orarcr, |l |s recorrerded lral
A3Kl prepare a lWo year oudgel lor lre orarcr, oul Wr|cr rayoe arerded or lre 21
lr
rorlr (|r case lrere are
crarges |r lre cosls or cord|l|ors W|lr|r lre area). Trer, ar Annua| Project udget W||| oe prepared ard
agreed upor oy PLAN ard A3Kl. Every quarler, A3Kl W||| prepare ard suor|l lo PLAN a 'oudgel var|arce
ara|ys|s, lo po|rl oul lre var|arces ol aclua| versus p|arred.

49
This will lessen the depreciation costs of the project.
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Part 4 Development of Financial Service Associations

4.1 Background information on Financial Service Associations:

Beginning in year 2000, PLAN Philippines took the initiative to support the development
and adaptation of the FSA approach in the Philippines. PLAN supported the establishment
of two Financial Services Associations (FSAs) in remote villages of Isabela. PLAN
collaborated and partnered with a local corporation called Access Basic Inc. (ABI). The
PLAN partnership with ABI ended in December 31, 2002. The objectives of the PLAN-ABI
partnership project were only partially met.

It is understood that the new microfinance programme implementor (ASKI, in this case) will
be expected to continue supporting this FSAs. It is important, therefore, to know the current
status of these FSAs and their current plans. Section 4.2 provides an updated description
of the FSAs; section 4.3 provides some practical suggestions on how to improve the
operations of the FSA. Finally section 4.4 provides some specific recommendations
regarding strategies that maybe used for the long-term evolution and development of FSAs
in the Philippines.

4.2 Current status of FSA in Del Pilar:

Brief history: The two FSAs were established by ABI in barangay Del Pilar and in
barangay San Jose, both in the town of San Mariano, but it was decided to merge the two
FSAs to attain greater efficiency and scale. The area coverage of the FSA include
barangays Del Pilar, San Jose, Casala, Libertad, Canamnama and San Juan, all in the
town of San Mariano, Isabela. These barangays are located on the eastern side of San
Mariano, and they are remote and isolated; located at the hills of Sierra Madre mountain
range. Del Pilar is 27 kilometers away from the San Mariano town center, and it takes
almost two hours to reach the barangays over very rough mountain roads. The FSA was
organized in June 2001 by ABI, with support from PLAN.

Board members: The board of directors of the FSA consists of 5 members. Regular
meetings of the board are held. Several training seminars were given to the board
members by ABI in 2001-2002, mainly about their duties and responsibilities as FSA board
members. It is not clear how good internal governance is right now.

A board member also heads the FSA Credit Committee, which has supposed to approve all
loans given out by the FSAs. The loan review and approval process is now currently being
done for the Del Pilar center, and it is not done for the other centers. Loan approvals for
the other centers are done largely by the Community Development Worker (who is a
temporary employee of PLAN). There seems to be some confusions and overlapping of
functions in this important area of operations.

Three board members sit in the Audit Committee, but it seems that the committee has not
fully assumed responsibility for reviewing and auditing the books and records of the FSA.

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Page 72
Members: Almost all members of the FSA are female. Share capital and savings
mobilization has been quite impressive.

Financials: Total shareholder equity is worth 182,023 pesos while total savings is 111,426
pesos. Total assets is worth 293,450 pesos (as of January 31, 2003, and excludes the
office building).
50
The FSA has constructed a bank-like office in the middle of barangay Del
Pilar, where the central cash vault is located. All transactions (loan releases, loan
collections, savings collection, savings withdrawals, etc.) are done in cash, in the office.
The cash is kept in a secured cash vault inside the FSA office building. Its excess cash
(the amount beyond the maximum allowed to be kept in the cash vault of the FSA) is being
kept in a bank account with Land Bank in Ilagan; now with a balance of 145,551 pesos.

Methodology: The lending operations of the FSA follow a basic Grameen methodology,
specifically patterned after CARDs model. The FSA has established 5 centers, and recently
it just established two new ones. The established centers are located in San Jose (45
members), Libertad (15 members), Casala (10 members), Del Pilar (35 members), San
Juan (10 members) and there are 15 new members in two new centers.
51
Total active
membership is now 130 (as of June 2003). All centers are still young, and need
strengthening.

Loan products: It started lending operations in March 2002; hence it has gained 17
months of lending experience as of July 31, 2003. There are three loan products, namely:

a) Regular loan, mainly for farm-production, agriculture needs.
b) Negosyo (small business) loan, for small non-farm income-generating activities or
small businesses.
c) All-purpose loans, for household emergencies and common household needs.

The interest is 10% per six-month term, on the first two loan products. The regular loan and
the negosyo loan are provided on a step-up approach, where the loan sizes start small
and then gradually grow bigger as the prior loans are paid successfully. The first loan cycle
is 3,000 pesos and goes up gradually until the maximum loan size is reached, which is
50,000 pesos.

The pricing of the FSA loan products is decided by the FSA itself. Currently, it is set at 20%
per annum for regular loans, and 5% per month for the all-purpose loans. Potentially, these
rates will change once the cost-structure of an FSA has been finally determined.
52

50
The latest financial report is as of January 31, 2003, and there is no updated financial statement
(as of July 31, 2003) given that the PLAN has not yet found a good replacement for the Project
Bookkeeper who resigned January 2003.

51
One PLAN Community Development Officer (Eric Esta) maintains three centers San Jose,
Libertad and Casala; while another PLAN worker (Marissa Daquiwang) maintains two centers Del
Pilar and San Juan. The manager maintains one and the cashier maintains another center.

52
These interest rates were set by the FSA during the initial year of operation when all expenses are
being subsidized by PLAN/ ABI. But when an FSA has reached maturity, employed the optimal
number of employees or workers, and has gained experience on how much bad loan losses it will
bear, then the cost-structure will be finally identified. To meet the full cost of running an FSA, the
interest rate can be changed or modified to ensure that the FSA becomes financially viable, over the
long-term.
Page 73 of 96
Page 73

The all-purpose loans are small, 1,000 pesos only, with interest at 5% per month and
payable within one month.

The bulk of all loans are under the regular loans because all the members are farmer
households. Very few are engaged in small businesses. Total loan portfolio as of July 29,
2003 is 248,672 pesos.
53
Loan repayment performance is 100%, based on unverified
reports submitted by the PLAN worker.
54

Savings products: The FSA is focused on savings mobilization. Poor people in the area
appreciate the FSA because it is considered a safe and convenient place to keep their
savings. The barangay captain of Del Pilar said that people there are happy that there is
now a village bank in the community where people can deposit their savings. It is not
unusual for individual members to keep savings accounts in the FSA amounting to 10,000
pesos or even 40,000 pesos.

Savings services: The FSA deliver these savings services to poor people:
a) Pledge savings, which consists of 5% forced savings deducted from each loan to
members,
b) Weekly savings, amounting to 20 pesos, mandatory, paid each week during the
center meetings, and
c) Passbook savings accounts, withdrawable, voluntary savings

Money saved under the first two savings product is not withdrawable and can only be
recovered by a member if she leaves the FSA, while savings under the passbook savings
product is withdrawable, though there are timing limitations (once a week when the PLAN
Community Development Officers go to the area). Total amount of voluntary savings is
69,463 pesos.
55

Client feedback: Based on client feedback, people appreciate the passbook savings
because there are no banks in the area. Poor people in the area appreciate the FSA
because it is considered a safe and convenient place to keep their savings. Clients can
withdraw their money quite easily when they need it (in spite of the current timing issue).
Clients are happy because they can get loans all-year round unlike in the bodegas (ATFs)
where the loans are given only a few months before the planting season. Loans can be
used for varied household needs. Clients also do not complain about the interest rate being
charged because they know they will get back a part of it at the end of the year in the form
of dividends. Furthermore, based on actual client feedback, the loans have been useful in

53
The breakdown of this loan portfolio is as follows: Cinamnama=10,632 pesos; San Jose=125,040
pesos; Libertad=36,040 pesos; Casala=14,800 pesos; Del Pilar=39,360 pesos; Dinuman=1,680
pesos. These figures are based on an on-the-spot calculation in the field and have not been verified
or double-checked.

54
When the partnership between PLAN and ABI ended in December 2002, it was decided that the
three project staff of ABI will be temporarily absorbed by PLAN.

55
This savings figure is based on an on-the-spot calculation in the field, and was not double-checked
or verified.

Page 74 of 96
Page 74
improving their livelihoods. Clients also appreciate the short weekly center meetings, not
going beyond 30 minutes, typically.
56

Sustainability: The FSA has a fair chance to become financially viable. In fact, the FSA
has already earned some net profits from its lending operations, allowing it to hire its own
manager and a bookkeeper.

Staff: The FSA has hired a manager and a bookkeeper, and both works part-time for the
FSA and both are residents of the area. Their salaries are low,
57
but are appropriate for the
amount of work they give and the rural context of the area. The low cost-structure is
beneficial to the FSA as it will help the FSA attain financial viability more quickly.

Weaknesses: One major weakness of the FSAs is that they can not produce its own
financial reports. They need the direct assistance of a PLAN technical staff (Project
Bookkeeper) from the PLAN Ilagan office to prepare their financial reports. The latest
financial report available is as of January 31, 2003, and there is no updated financial
statement at the time of visit of the Consultant. It is urgent that PLAN deploys a
Bookkeeper/Accountant to the FSA, as soon as possible, to assist the FSA prepare its
financial statement, working through 7 months of backlog work. Failure to come up with a
financial report for the FSA General Assembly will seriously damage the credibility of the
FSA.

Most urgent need of the FSA: The most serious and urgent need of the FSA now is
guidance regarding the restructuring of its loans to members. The province of Isabela was
hard-hit by a super- typhoon called Harurot in the third week of July 2003. The typhoon
brought large scale damages to the crops of Isabela, including the town of San Mariano.
58

The banana and corn crops in the hills and plains of San Mariano were badly damaged,
destroying the main livelihoods of poor people there; including members of the FSA. From
a 100% loan repayment performance, the FSA would soon experience a sudden and
prolonged decline in repayment due to these disastrous damages. It is important that the
FSA is immediately provided technical guidance on how to resolve this grave situation.
59

The FSA has now three options: a) declare a 3 or 4 month moratorium on all loan
repayments to allow members to recover; b) restructure loans so give more time for
members to pay their outstanding loans; and 3) refinance by giving out new fresh loans, so
members can replant their fields, and then restructure the old loans. These options are not
mutually exclusive. The FSA need technical guidance immediately, on how to take the right
decision and how to implement these major changes.

56
These women are quite busy being active farmers themselves; they do not like to sit long for
meetings. Meeting time averages 30 minutes only if there are no loan applications to be discussed.
It is suggested that this short-meeting format be kept.

57
The FSA manager is paid 1,200 pesos per month, while the cashier is paid 800 pesos per month.
Both employees work part-time only for the FSA.

58
The Philippine Department of Agriculture estimates that typhoon Harurot damaged 80,000
hectares of crop lands in Cagayan Valley, with Isabela as the hardest-hit province. Crops worth 2
billion pesos were damaged. Source: Philippine Daily Inquirer, July 31, 2003 issue.

59
Failure to address this major need of the FSA will result to confusions, poor performance, stress
and loss of confidence.

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Page 75

4.3 Practical suggestions to improve existing FSA

This section contains some specific recommendations on how to improve the existing FSA
in Del Pilar; see below for details.

1) Ass|gr |rred|ale|y a Projecl 8oo||eeper Wro W||| updale lre ooo|s, prepare lre l|rarc|a| reporls, ard
recorc||e lre casr oa|arces (per ooo|s) W|lr lre aclua| casr |r lre vau|l.
0

2) Corp|ele lre slall|rg ol ar F3A: 1 rarager/casr|er, 1 ooo||eeper ard 1 l|e|dWor|er. 0|ver lre
rourla|rous lerra|r ol lre area, |l |s |rporlarl lral a F3A F|e|dWor|er oe equ|pped W|lr a poWerlu|
rolorcyc|e so re car lrave| lo lre var|ous s|l|os ard oarargays W|lroul rucr d|ll|cu|ly.

3) lrlroduce a s|rp||l|ed rarua| ooo||eep|rg sysler, Wr|cr W||| a||oW lre |oca| 8oo||eeper lo urderslard
lre ooo|s, ard lra|r rer lor al |easl 3 rorlrs, so sre car prepare s|rp|e l|rarc|a| reporls. A3Kl ray
rave lo sludy lre Wro|e F3A accourl|rg sysler l|rsl oelore ra||rg lr|s crarge. CAR0 ras adopled lre
A3A rode| ol ooo||eep|rg, Wr|cr |s s|rp|e ard car oe eas||y ra|rla|red ever oy ror-accourlarls.
Preparal|or ol reporl |s a|so easy. A3Kl ray as| lre re|p ol CAR0 so lral lre A3A ooo||eep|rg
sysler |s adopled (ard adapled) oy lre F3A.

1) 0radua||y lurr-over F3A raragererl ard operal|ora| respors|o|||l|es lo lre reW|y r|red rarager. Tra|r
lre F3A rarager lo oe |roW|edgeao|e or lre ooo||eep|rg sysler, so sre car supporl lre ooo||eeper
|r ra|rla|r|rg lre ooo|s. Teacr rer roW lo read ard |rlerprel l|rarc|a| reporls. (Correrls: lre
Varager |s a graduale ol 83 lore Ecoror|cs ard Wou|d prooao|y rave lre capac|ly lo |earr oas|c
accourl|rg ard l|rarc|a| ara|ys|s).

5) Turr-over l|duc|ary respors|o|||ly. Aller |rlers|ve rorlrs ol lra|r|rg lre Varager ard lre 8oo||eeper,
lre l|duc|ary respors|o|||ly ol lre A3Kl P0 srou|d oe gradua||y lurred over lo lre F3A Varager ard
Treasurer ol lre F3A, so lral oper|rg ol lre casr vau|l |s rol deperderl or lre C00.
1

) lrcrease reroersr|p oase. Currerl|y |l ras 130 acl|ve reroers or|y. A|r lo or|rg |l up lo 300
reroers, Wr|cr |s prooao|y lre opl|rur ruroer lo ra|e ar F3A v|ao|e. Tre good lr|rg |s lral rary
v|||agers |r lrese rerole oarargays |r 3ar Var|aro rave oecore |rleresled |r jo|r|rg lre F3A; rerce |l
W||| rol oe loo d|ll|cu|l lo recru|l reW srarero|ders ard reroers.

Z) 3alurale a|| ol lre rerole oarargays ard v|||ages surrourd|rg or rear lre 0e| P||ar F3A. Ever W|lr a
roloro||e, g|ver lre d|slarces oelWeer lre cerlers, |l Wou|d oe d|ll|cu|l lor lre |ore l|e|dWor|er lo ro|d
rore lrar lWo cerler reel|rgs eacr day. lerce, rax|rur ol 8 lo 9 cerlers W||| oe opl|ra| lor ar F3A
W|lr 1 F|e|dWor|er ard lWo supporl slall (rarager ard ooo||eeper). lav|rg 8 cerlers ol 10 reroers
eacr W||| rear ar acl|ve reroersr|p oase ol 320 reroers. Tre opl|rur ruroer ol 300 reroers
srou|d oe reacred W|lr|r lre l|rsl 12 rorlrs. Tral W||| oe lre perlorrarce largel ol lre F3A
l|e|dWor|er.

8) Ercourage ard supporl lre F3A lo |rcrease lurlrer |ls porllo||o s|ze ard assel s|ze, prooao|y lo al |easl
Z00,000 pesos ol earr|rg assels. Recogr|z|rg lral lrere |s ar 'ecorory-ol-sca|e pr|rc|p|e al Wor| |r
ary ||rd ol r|crol|rarce operal|or, rav|rg ar assel oase ol |ess lrar Z00,000 pesos |s prooao|y rol
WorlrWr||e ard W||| rol oe v|ao|e. A la|r|y s|gr|l|carl earr|rg assel s|ze W||| rear a so||d oase or
p|allorr lor alla|r|rg l|rarc|a| v|ao|||ly.

60
The amount of cash in the vault has not been reconciled with the cash balance (as per books)
since January 2003.

61
Currently, the FSA staff can not open the vault without the presence of the PLAN CDO. This
restricts the business hours of the FSA, and their flexibility to act, especially when some members
need to withdraw some savings.
Page 76 of 96
Page 76
9) Tre F3A srou|d arerd |ls |erd|rg ru|es lo creale |rcerl|ves lor reroers lo |rvesl rore |rlo lre F3A |r
lre lorr ol add|l|ora| srares. For exarp|e, a ru|e ray oe rade requ|r|rg lral oelore a reroer qua||ly
lor ar 8,000 peso |oar; r|s/rer srarero|d|rgs srou|d oe Worlr al |easl 2,000 pesos. A|| |oars oe|oW
8,000 pesos W||| or|y requ|re a r|r|rur srares Worlr 500 pesos. A|| |oars aoove 8,000 pesos W|||
requ|re srarero|d|rgs equ|va|erl lo 25 ol lre |oar s|ze. Tr|s ru|e W||| creale slrorg |rcerl|ves lor
reroers lo pul rore |rveslrerls |rlo lre F3A. ll W||| a|so rear slrorger l|rarc|a| oase ol lre F3A.
ll Wou|d a|so ||r|l lre |erd|rg r|s|s.

10) Rev|ve lre Cred|l Corr|llee so lral |l car oecore lurcl|ora|. lave a gradua| prase-|r/prase-oul
per|od ol al |easl 10 - 12 rorlrs, Wrere |oar-approva| aulror|ly |s srared oelWeer lre A3Kl ard lre
Cred|l Corr|llee. C|ear ru|es or |oar approva| ard |oar s|zes srou|d oe adopled ard slr|cl|y
ooserved. Tre F3A reroers ard ooard reroers srou|d oe lrorougr|y or|erled aooul lrese ru|es lo
prec|ude aouse ol |oar-approva| aulror|ly oy lre Cred|l Corr|llee. Aller 10 rorlrs, ard Wrer |rlegr|ly
ard corpelerce are lu||y derorslraled, lrer A3Kl ray lurr over lu|| cred|l approva| aulror|ly lo lre
Cred|l Corr|llee.

11) Rev|eW lre pera|l|es or cerler allerdarce oecause rary v|||agers cors|der lrer over|y rarsr. Va||rg
|l rore reasorao|e W||| allracl rore reroers.
2

12) lrlroduce |rd|v|dua| passooo|s lor lre p|edge sav|rgs ard rardalory Wee||y sav|rgs, so lral reroers
car |eep lrac| ol lre|r sav|rgs oa|arces. Tre passooo|s car oe updaled every rorlr or every quarler.
0o|rg so W||| lurlrer errarce lre cred|o|||ly ard lrarsparercy ol lre F3A.

13) Cors|der var|ous opl|ors or roW lo |rprove lurlrer lre F3A oll|ce secur|ly lealures, lo prolecl lre casr
vau|l, ard lo preverl lorc|o|e erlry, lrell or l|re. Ass|gr a 'carela|er lor lre Wro|e ou||d|rg. (0re opl|or
|s lo creale a slurdy slee| door. Tre |eys lo lre slee| cage srou|d oe re|d oy lWo persors. Tre |eys
ard coro|ral|or lo lre casr vau|l srou|d oe re|d oy separale persors.)

11) lrlroduce a 'casr |ogooo| Wrere a|| depos|ls ard W|lrdraWa|s lror lre casr vau|l are recorded, ard
allesled oy 2 or 3 W|lresses. Tr|s W||| oe exlrere|y uselu| |r lrac||rg lre erlry ard ex|l ol casr, ard |s
ar exce||erl |rlerra| corlro| loo|.

15) updale lre operal|ors rarua| ol lre F3As lo ra|e |l cors|slerl W|lr currerl pracl|ces ard po||c|es.

1) Tre sa|ar|es ol lre rarager ard ooo||eeper srou|d oe srou|dered 100 oy lre F3A. To re|p lre F3A
lu|| l|rarc|a| v|ao|||ly, a sra|| suos|dy ray oe g|ver lo lre F3A lo |r|l|a||y cover Z5 ol lre rorlr|y
sa|ary ol lre F3A l|e|dWor|er. Tral suos|dy srou|d slop oy lre erd ol 12 rorlrs. Tre F3A srou|d lu||y
cover (100) lre sa|ary ol lre l|e|dWor|er oeg|rr|rg or lre 13
lr
rorlr ol operal|or.

1Z) 0eve|op slrorg oul s|rp|e Vl3, oased or a rarua| s|rp||l|ed ooo||eep|rg sysler.
3

18) Re-lra|r lre ooard reroers, lre cred|l corr|llee, ard lre aud|l corr|llees or lre relrodo|ogy, |oar
ard sav|rgs po||c|es, ard goverrarce ru|es.

19) 0eve|op slrorg secur|ly po||c|es regard|rg lre sale lrarsporl ol excess casr lror lre F3A oll|ce
ou||d|rg, lo lre Lard 8ar| |r l|agar. Tr|s |s lo preverl lrell or roooery or lre road.

20) Parl ol lre casr oa|arces W|lr Lard 8ar| srou|d oe |rvesled |r |rleresl-earr|rg l|re depos|l W|lr lre
oar|, lo opl|r|ze earr|rgs or sucr casr assels.

62
Currently, late attendance in center meeting is penalized by a 500-peso reduction in the next loan.
Unexcused absence is penalized with a 1,000-peso loan size reduction. Villagers which are
interested to join are turned off by these rules which they consider to be too harsh.

63
ASKI should not try to install its computerized MIS systems in FSAs because they are totally
inappropriate. The FSAs are located in distant remote places, where there are no power, no
computer-literate personnel, and where computer maintenance costs will be too prohibitive.

Page 77 of 96
Page 77

21) Tre F3A srou|d adopl a c|ear '0|v|derd Po||cy, Wr|cr W||| ercourage re-|rveslrerl ol d|v|derds as
add|l|ora| equ|ly srares. For exarp|e, lre F3A ray approve a po||cy lral ary reroer purcras|rg
add|l|ora| srares us|rg rer d|v|derds as payrerl W||| oe auloral|ca||y erl|l|ed lo a 5 d|scourl. 3re
reeds lo pay 1Z5 pesos lor ore srare |rslead ol lre regu|ar lu|| pr|ce ol 500 pesos.

22) 0|ver lral lre F3A |s reg|slered W|lr lre 3EC, |l ras lo corp|y W|lr oas|c reporlor|a| requ|rererls,
Wr|cr |rc|udes lre suor|ss|or ol aud|led l|rarc|a| reporls. A3Kl or PLAN srou|d prov|de ass|slarce |r
rav|rg F3A ooo|s aud|led oy qua||l|ed |rdeperderl exlerra| aud|lor. Tre |aW a|so requ|res |l lo suor|l
arrua| relurrs ard aud|led l|rarc|a| reporls lo lre 8lR.

23) Corl|ruous|y |rprove lre s||||s ol lre F3A rarager ard ooo||eeper.

4.4 Recommendations for long-term FSA development

Perfect the FSA approach first before creating new ones. PLAN and ASKI have to
improve and perfect first the FSA methodology and concept before replicating it to new
areas or municipalities. It is also essential to improve the financial operations of the existing
FSA, before starting new ones. Premature replication will result to defective copies and
more problems. Ensure that the first FSA is financially viable, and its systems are working
well, before creating new FSAs. Using a strong FSA in San Mariano as mold or model, it
would be easier to create new FSAs, probably in remote PLAN-assisted communities, like
some places in Quirino or Tumauini. The lone ASKI fieldworker who will be assigned to this
FSA supervision work should not have more than three FSAs to oversee and supervise.

Specific recommendations: This section contains some specific recommendations
regarding the long-term evolution and development of the FSA approach. This is provided
to help take forward the further evolution and development of the FSAs. See below:

1) A prorol|rg agercy |||e A3Kl srou|d prov|de supporl ard ass|slarce ar F3A lor al |easl lrree years
oecause |rsl|lul|ora| deve|oprerl does rol rapper overr|grl. A3Kl srou|d prov|de adequale c|assroor
ard rards-or lra|r|rg, lo |rprove lre s||||s ol lre F3A rarager, ooo||eeper ard l|e|dWor|er. A|| lra|r|rg
prov|ded lo lre F3A slall srou|d oe docurerled, Wr|cr car oe used |aler |r deve|op|rg a sel ol lra|r|rg
rodu|es (lor lre success|ve rep||cal|ors ol F3A).

2) 0radua||y, A3Kl srou|d lurr-over aclua| F3A raragererl ard operal|ora| respors|o|||l|es lo lre slall r|red
oy lre F3A. Tre '||r| oar| |r lre or|g|ra| corcepl deve|oped oy Jayazer| W||| oe rep|aced oy a 'supporl
agercy; Wr|cr |r lr|s case |s A3Kl. A prorol|rg agercy Wou|d reed lo oe 'ergaged W|lr a F3A lor al
|easl lrree years: |rlers|ve|y dur|rg lre l|rsl lWo years, ard lrer |ess |rlers|ve|y dur|rg lre lr|rd year, Wr|cr
prepares lor lre ex|l ol lre prorol|rg agercy oy lre erd ol lre lr|rd year.

3) Prov|de adequale ard appropr|ale lra|r|rg lo ooard reroers, lre cred|l corr|llee, ard lre aud|l
corr|llees or lre relrodo|ogy, |oar ard sav|rgs po||c|es, ard goverrarce ru|es. Tre prorol|rg agercy
srou|d ersure lral lrere |s a lu||y lurcl|ora| Cred|l Corr|llee, lral lrere are c|ear ru|es or |oar approva|
ard |oar s|zes, ard lral lrere are recrar|srs lo crec| aouse ard corrupl|or. Tre la|| ol rary cred|l
cooperal|ves |s |arge|y due lo lre aouse ol |erd|rg poWers ol lre ooard ard cred|l corr|llees.

1) Tre cosl-slruclure ol ar F3A srou|d oe |epl |oW. vo|urleer|sr srou|d oe ercouraged. 8ul lre rarager,
ooo||eeper ard l|e|dWor|er srou|d oe corpersaled, oul lre sa|ar|es srou|d oe reasorao|e ard |epl W|lr|r
lre l|rarc|a| capac|ly ol lre F3A. 3ore parl|a| exlerra| suos|dy rayoe reeded, dur|rg lre l|rsl year ol
operal|or, lror a doror or prorol|rg agercy, lo re|p lre F3A acr|eve |ls oulreacr ard porllo||o largels
W|lr|r a srorl per|od ol l|re. Pure|y deperd|rg or reroer srarero|d|rgs a|ore lo alla|r v|ao|||ly W||| rol oe
erougr g|ver lre o|g cosls ol lra|r|rg ard capac|ly-ou||d|rg.

Page 78 of 96
Page 78
5) Ar F3A srou|d rave a pre-des|gred slall|rg pallerr. lr lre l|rsl year ol operal|ors, corp|ele lre slall|rg ol
ar F3A, lo ersure proper d|slr|oul|or ol Wor|. Tre recorrerded slall|rg |s |||e lr|s: ore F3A
rarager/casr|er, ore ooo||eeper ard ore l|e|dWor|er. Tre rarager ard ooo||eeper Wor|s parl-l|re lor
lre F3A, Wr||e lre l|e|dWor|er Wor|s lu||-l|re.

) ll lre cord|l|ors ol lre largel areas Warrarl |l, lre prorol|rg agercy srou|d equ|p lre F3A l|e|dWor|er W|lr a
rolorcyc|e lo re|p cover r|s area rore ell|c|erl|y. Tr|s |s lrue espec|a||y |r cases Wrere lre largel areas
are rourla|rous ard d|ll|cu|l lo reacr v|a puo||c lrarsporlal|or sysler.

Z) F3A srou|d rave s|rp||l|ed rarua| ooo||eep|rg sysler, Wr|cr W||| a||oW lre |oca| 8oo||eeper lo ra|rla|r
lre ooo|s, ard prepare s|rp||l|ed reporls. 0eperderce or corpulers srou|d oe avo|ded. Ar F3A srou|d
rave a slrorg oul s|rp|e Vl3, oased or a rarua| s|rp||l|ed ooo||eep|rg sysler.

8) lrlroduce slrorg |rlerra| corlro|s W|lr|r lre F3A lo prolecl casr ard lre |oar rece|vao|es.

9) A s|rp||l|ed 'l|rarc|a| rode| srou|d oe crealed Wr|cr Wou|d gererale l|rarc|a| projecl|ors, ard Wr|cr W|||
prov|de a c|ear |dea ol Wrer lre orea| ever po|rl W||| oe reacred. Tr|s loo| W||| oe lre gu|de lo
susla|rao|||ly.

10) 8ased or lre l|rarc|a| rode|, ar F3A srou|d rave a largel opl|rur s|ze |r lerrs ol |oar porllo||o. ll car
oe Z00,000 pesos, or 1 r||||or pesos, or Wralever arourl deered appropr|ale. Tre l|gures ray crarge |r
eacr s|lual|or, oul lre ra|r delerr|r|rg laclors are lre cosl-slruclure ol lre F3A ard lre |rleresl |rcores
lo oe poss|o|y der|ved. w|lr|r lre l|rsl 18 rorlrs, ar F3A srou|d a|r lo groW lo lral opl|rur s|ze so |l car
reacr l|rarc|a| v|ao|||ly qu|c||y.

11) L||eW|se, ar F3A Wou|d rave a pre-des|gred opl|ra| reroersr|p s|ze, |r lerrs ol reroersr|p. ll car
rarge lror 200 lo 350 peop|e. wralever opl|ra| ruroer ras oeer ascerla|red, lre F3A slall srou|d locus
|ls ererg|es lo reacr lral opl|ra| reroersr|p oase W|lr|r lre l|rsl 12 lo 18 rorlrs.

12) Tre F3A srou|d creale |rcerl|ves lor reroers lo |rvesl rore |rlo lre F3A |r lre lorr ol add|l|ora| srares;
(see |ler 9 ol lre prev|ous secl|or). Tr|s W||| rear slrorger l|rarc|a| oase ol lre F3A.

13) 0|ver lral lre F3A |s lre or|y 'oar| |r a rerole v|||age, lre oll|ce ou||d|rg srou|d oe corslrucled slrorg|y,
W|lr a good slrorg casr vau|l lral cou|d d|scourage lrell or |osses. A secur|ly guard or carela|er rayoe
ass|gred lo Walcr over lre ou||d|rg al r|grl. 3ecur|ly arrargererls rayoe rade W|lr lre |oca| oarargay
oll|c|a|s or oarargay po||ce.

11) Access lo lre vau|l srou|d oe carelu||y slud|ed ard d|slr|ouled lo |ey persors. ll srou|d oe |r sucr a Way
lral ro ore persor, a|ore, car rave lu|| access lo |l.

15) 0|ver lral lre F3A |s lre or|y 'oar| |r lre area, |l car oper |ls doors lo lre reroers ol lre Wro|e
corrur|ly, oy us|rg ar 'assoc|ale reroers sav|rgs recrar|sr. Tr|s car oe dore oy creal|rg a reW
calegory ol reroers ca||ed 'assoc|ale reroers. Trese assoc|ale reroers car save rorey W|lr lre
F3A oul cou|d rol la|e oul |oars (|.e. |oars lral are usua||y exlerded |r cerlers) ard lrey rave ro vol|rg
poWers. A rax|rur depos|l oa|arce ol 30,000 pesos ray oe sel or eacr assoc|ale reroer. Trese
assoc|ale reroers reed rol allerd cerler reel|rgs, or gerera| assero||es, ard lrey are rol erl|l|ed lo
rece|ve d|v|derds. 0o|rg lr|s W||| errarce lre presl|ge, l|rarc|a| resources, ard v|ao|||ly ol lre F3A. Tre
assoc|ale reroers srou|d oe lrorougr|y or|erled aooul lre|r r|grls, dul|es ard a|so lre r|s|s ol us|rg lre
F3A as a 'lruslee ol lre|r sav|rgs rorey. 0o|rg lr|s W||| suoslarl|a||y |rcrease lre operal|rg lurds ol lre
F3A. loWever, care srou|d oe exerc|sed, lo ersure lral lre Word '8ar| |s rol used oll|c|a||y oy lre F3A
as lr|s |s aga|rsl lre |aW ard 83P regu|al|ors.

1) Every rorlr or every Wee|, lre va|ue ol a|| 'assoc|ale reroer sav|rgs srou|d oe ascerla|red, ard lre
excess casr depos|led W|lr a oar|. 0r|y parl ol lre assoc|ale sav|rgs, rol rore lrar 30, srou|d oe |erl
oul lo reroers. Tre resl (Z0) srou|d oe |epl as casr |r vau|l ard |r Lard 8ar|. Tre F3A ray pay
|rleresl ol 2 per arrur lo |ls assoc|ale reroers' sav|rgs accourls, pa|d al lre erd ol eacr l|sca| year,
ard corpuled oased or lre|r average quarler|y ra|rla|r|rg oa|arce.
Page 79 of 96
Page 79

1Z) wr||e assoc|ale reroers are rol a||oWed lo gel regu|ar |oars lror lre F3A, lrey rayoe a||oWed gell|rg
'spec|a| erergercy |oars ol up lo 50 ol lre|r sav|rgs accourls, prov|ded a 'ro|doul |s p|aced or
rer/r|s erl|re sav|rgs depos|l as secur|ly.

18) Tre prorol|rg agercy - A3Kl - srou|d sporsor ar |rdeperderl exlerra| aud|l ol lre F3A orce a year,
lo ersure lral a|| lurds are accourled lor. Tre aud|l cosls rayoe oorre oy lre prorol|rg agercy
dur|rg lre l|rsl lWo years, oul cosls ol suosequerl aud|ls srou|d oe srou|dered oy lre F3A.

19) Tre operal|ors ard slruclure ol ar F3A does rol l|l ary ol lre corporale orgar|zal|ors a||oWed urder
Pr|||pp|re |aWs. ll does rol l|l We|| a ror-sloc|, ror-prol|l orgar|zal|or, ror a cooperal|ve, ror a sav|rgs
ard |oar assoc|al|or (Wr|cr |s cors|dered a lrr|ll oar| ard regu|aled oy lre 83P), ror a l|rarc|rg
corpary, ror ar |rveslrerl corpary. 0|ver lrese, |l |s rol recessary lor a reW F3A lo reg|sler W|lr
lre goverrrerl or ga|r |ega| |derl|ly |rred|ale|y. Tr|s car oe dore |aler or. lr lre |r|l|a| 3 or 5 years,
|l car operale as ar |rlorra| peop|e's orgar|zal|ors. To erao|e ar F3A lo operale |ls oWr oar|
accourls, lre oar| accourls car oe opered ard ra|rla|red urder lre rare ol lre prorol|rg agercy -
A3Kl - Wr|cr W||| lreal lrer as 'lrusl lurds ard operale lrer separale|y lror lre regu|ar lurds ol
A3Kl. Tr|s |s lre rosl appropr|ale al lr|s l|re. 0o|rg lr|s W||| prov|de |ega| cover lor lre F3A ard al
lre sare l|re lree |l lror lre reavy reporlor|a| requ|rererls ol regu|alory agerc|es.

Appendices

Annex 1 List of persons interviewed

Name of respondent Position / Organization
1 Rolando Victoria Execul|ve 0|reclor, A3Kl
2 Lyn Fernando Corporale P|arr|rg 0|reclor, A3Kl
3 Dr Rolando Veneracion Pres|derl, 8oard reroer, A3Kl
4 Zenaida Ferrer 8oard Veroer, A3Kl
5 Gio Gan 8oard reroer, A3Kl
6 Mr Villanueva 8oard reroer, A3Kl
7 Joy Santos lR ard Adr|r Varager, A3Kl
8 Areli Vega 0peral|ors Varager, A3Kl
9 Mary Ann Leonardo Cr|el Accourlarl ard Vl3 ur|l lead, A3Kl
10 Emmie Quijano F|rarce Varager, A3Kl
11 Jane Manucdoc Aud|l ard Vor|lor|rg 0epl Varager
12 Efren Padolina 0lC/8rarcr Varager, Pa|ayar C|ly orarcr, A3Kl
13 Luvimin Mauricio Jr. Rov|rg Varager, A3Kl
14 Jayson Jacamile Projecl 0ll|cer, Pa|ayar C|ly orarcr, A3Kl
15 Domingo Arquesa Projecl 0ll|cer-Tra|ree, Pa|ayar C|ly orarcr, A3Kl
16 Dexter Ong Projecl 0ll|cer, Pa|ayar C|ly, A3Kl
17 Romulo Castro 8rarcr Varager, 3ar Jose C|ly orarcr, A3Kl
18 Jaime Mariano Projecl ur|l 3uperv|sor, 3ar Jose C|ly orarcr, A3Kl
19 Maricris Franco 8oo||eeper, 3ar Jose C|ly orarcr, A3Kl
20 Manuel Madamda Tecrr|ca| 0ll|cer, Cagayar Prograr ur|l, P|ar Pr||s.
21 Diosdado Waa lead, Cagayar Prograr ur|l, P|ar Pr|||pp|res
22 Marissa Daquiwag Corrur|ly 0evl 0ll|cer (F3A), Cagayar Prog ur|l
23 Charlie Hernandez Projecl 0ll|cer (0u|r|ro), Cagayar Prog ur|l
24 Vincent Mangabat Projecl 0ll|cer (l|agar), Cagayar Prog ur|l
25 Ponciano Arcega Jr Projecl 0ll|cer (Turau|r|), Cagayar Prog ur|l
26 Allan Tabdi Projecl 0ll|cer (Turau|r|), Cagayar Prog ur|l
27 Claro Recto Barcellano Projecl 0ll|cer (3ar Var|aro), Cagayar Prog ur|l
28 Ma.Theresa Viernes Projecl 0ll|cer (3ar Var|aro), Cagayar Prog ur|l
29 Claro Ermitano Jr. 8rarcr Varager, Rura| 8ar| Va|||g P|a|rs, 0u|r|ro
Page 80 of 96
Page 80
30 Hazelyn Tuibeo Corp||arce 0ll|cer, Rura| 8ar| Va|||g P|a|rs, Va|||g
31 Michelle Inere L0u Adr|r 3lall, 0u|r|ro, lsaoe|a
32 23 barangay officials 0u|r|ro, lsaoe|a
33 Jose Wanol 8arargay Capla|r, P|ar|de|, 3ar Var|aro
34 Eric Esta Corrur|ly 0ev. wor|er, Cagayar Prograr ur|l
35 Carmelita Gallo Varager/Casr|er, 0e| P||ar F3A, 3ar Var|aro, lsaoe|a
36 Mila Allaga 8oo||eeper, 0e| P||ar F3A, 3ar Var|aro, lsaoe|a
37 Corazon Batister 8oard reroer, 0e| P||ar F3A, 3ar Var|aro, lsaoe|a
38 Dexter Darius Garcia Tecrr|ca| 0ll|cer lor Learr|rg, Cagayar prograr ur|l
39 Rogelio Asingaya 8arargay Capla|r, 3lo N|ro, Turau|r|
40 Marcelino Lagman Cra|rrar, 3lo N|ro Vu|l| Purpose Cooperal|ve lrc
41 Donna Mariano F|e|d erureralor
42 Catherine Claravall lrcor|rg Projecl 8oo||eeper lor 0e|p||ar F3A
43 Debbie Apanay F|e|d erureralor
44 Alexander Puno 8rarcr Varager, Ta|avera orarcr, A3Kl
45 Alma Villaviza C||erl, 3ar Car|os, Ta|avera, Nueva Ec|ja
46 Annie Villaviza C||erl, 3ar Car|os, Ta|avera, Nueva Ec|ja
47 Natividad Aquino C||erl, 3ar Car|os, Ta|avera, Nueva Ec|ja
48 Paul Lobo V|crol|rarce Coord|ralor, P|ar Pr|||pp|res

Annex 2 Profile of the board members

GEMILLIANO C. CALLING, Ph D.
Pos|l|or: 8oard Cra|r
0ale ol 8|rlr: Feoruary 15, 1939
0r. 0er|||aro C. Ca|||rg or '0er lo r|s co||eagues ard lr|erds |s a Cerl|l|ed Puo||c Accourlarl. le earred r|s 0oclor ol
Pr||osopry |r Ecoror|cs lror ur|vers|ly ol 3lo. Toras, (u3T) Var||a. As|de lror oe|rg ar educalor ard acader|c|ar,
0r. Ca|||rg ras ar exlers|ve Wor| exper|erce W|lr lre Nal|ora| Ecoror|c 0eve|oprerl
Aulror|ly. le ras oeer ar acl|ve p|ayer |r lre Prov|rc|a| 0eve|oprerl Courc|| ol Nueva
Ec|ja. 0r. Ca|||rg a|so seals as Cra|rrar ol lre 8oard ol Truslees ol Nueva Ec|ja N00
/Peop|e's 0rgar|zal|or Corlederal|or

l|s s||||s ard experl|se |r p|arr|rg, l|rarc|a| raragererl ard ecoror|cs ras
oeer very uselu| lo lre orgar|zal|or, lrrougr r|s acl|ve lac|||lal|or dur|rg lre orgar|zal|ors'
3lraleg|c P|arr|rg, Forru|al|or ol 8us|ress P|ar, ard olrer re|aled acl|v|l|es. Al preserl,
0r. Ca|||rg |s lre Pres|derl ol Nueva Ec|ja ur|vers|ly ol 3c|erce ard Tecrro|ogy (NEu3T)

ROLANDO B. VENERACION, MD
Pos|l|or: Pres|derl
0ale ol 8|rlr: Ju|y 19, 1933
0r. Ro|ardo 8. vererac|or - earred r|s 0oclor ol Ved|c|re lror lre ur|vers|ly ol lre Pr|||pp|res (uP) |r 195. le rad r|s
posl graduale slud|es |r lrlerra| Ved|c|re lror larvard Ved|c|re 3croo| ol
Vassacrusells ard 'Fe||oW |r Ved|c|re lror Jorr lop||rs losp|la| |r Vary|ard.

le oecare lre Ved|ca| 0|reclor ol Nueva Ec|ja 0oclor's losp|la| ard a
corsu|larl ol lre Nueva Ec|ja Prov|rc|a| losp|la|. le |s a|so acl|ve |r re|p|rg |rd|gerl
peop|e ol 0|rga|ar as We|| as |r prov|d|rg lree red|ca| serv|ces ard red|c|re lo poor
peop|e, s|rce re |s oller|rg 'Free C||r|c orce a Wee|. le |s lre lourder ard Pres|derl ol
T|r|rg rg Parg|roor Corrur|ly Fourdal|or ard ar acl|ve coord|ralor ol Calro||c
Crar|sral|c RereWa| Vovererl urder lre 0|ocese ol Caoaraluar.

0r. vererac|or |s ore ol lre rardWor||rg 8oard Veroer ol A3Kl Wro acl|ve|y g|ves r|s
supporl ard l|rarc|a| corlr|oul|or |r every galrer|rg ol A3Kl sucr as 3lall Relreal ard
C||erls 0erera| Assero|y.

Page 81 of 96
Page 81

MR. RUEL I. CAPULE
Pos|l|or: 8oard 3ecrelary
0ale ol 8|rlr: 0eceroer 5, 1952
Vr. Rue| l. Capu|e a graduale ol 8acre|or ol Arls lror wes|eyar ur|vers|ly - Pr|||pp|res |s a successlu| ous|ress rar |r
Caoaraluar C|ly. le used lo oe lre 0|reclor ol Caoaraluar C|ly Craroer ol Correrce.
Vr. Capu|e |s lre ra|r d|slr|oulor ol NeWspaper |r Reg|ors ll ard lll. le |s a|so acl|ve |r
crurcr ard oulreacr acl|v|l|es sucr as Corrur|ly 3erv|ces.

PASTOR SAMUEL R. PADOLINA
Pos|l|or: Treasurer
0ale ol 8|rlr: 0eceroer 28, 1939

Paslor 3arue| l. Pado||ra - l|r|sred r|s posl graduale slud|es or 8.0. ur|or Treo|og|sl
3er|rary |r Var||a. le |s ar acl|ve V|r|sler ol lre ur|led Velrod|sl Crurcr |r Nueva
Ec|ja lror 1958 - 198. lr 198Z, re oecare lre 0|slr|cl 3uper|rlerderl ol uVC -
Nueva Ec|ja. 8orr |r 0erera| T|r|o, Nueva Ec|ja - Paslor Pado||ra al preserl |s lre
3croo| 0|reclor ol Pa|ayar C|ly Corrur|ly l|gr 3croo|.

MR. YI BIO GAN
Pos|l|or: Aud|lor

Vr. Y| 8|o 0ar |s ar acl|ve |eader |r 3oc|o - C|v|c 0rgar|zal|or |r Caoaraluar C|ly as
We|| as |r lre prov|rce ol Nueva Ec|ja. le lac|||lales oulreacr acl|v|l|es ol Nueva Ec|ja
L|ors' Fourdal|or |||e '8|ood Lell|rg Prograr ard Free EC0 ard Corsu|lal|or
espec|a||y lor poor peop|e |r Nueva Ec|ja. Vr. 0ar coord|rales W|lr lre Pr|||pp|re
Nal|ora| Red Cross |r prov|d|rg lree |aooralory red|ca| exars. Vr. 0ar |s |rvo|ved |r
lrad|rg ous|ress.

MR. REYNALDO V. VILLANUEVA
Pos|l|or: 8oard Veroer
0ale ol 8|rlr: Apr|| 1, 190

Vr. Reyra|do v. v|||arueva |s a graduale ol 8us|ress Adr|r|slral|or lror 3l.
Josepr's Co||ege |r u3A |r 1982. le l|r|sred r|s V8A lror Alereo de Var||a
ur|vers|ly. le acl|ve|y serves crurcr ard corrur|ly acl|v|l|es Wrere re oolr
rard|es rajor pos|l|or as |eader. le |s lre Pres|derl ol Nueva Ec|ja E|eclr|c
Cooperal|ve, lrc. (NEEC0 ll) lror 1993 up lo preserl. le a|so seals as
Corporale Treasurer ol lre Cerlra| Luzor PoWer Trarsr|ss|or 0eve|oprerl
Corporal|or s|rce 199 up lo lr|s dale.

Page 82 of 96
Page 82

MS. ZENAIDA P. FERRER
Pos|l|or: 8oard Veroer
Vs. Zera|da P. Ferrer - a Cerl|l|ed Puo||c Accourlarl |s lre or|y lera|e ooard reroer ol A3Kl. Ever oelore rer
reroersr|p lo lre 8oard ol Truslees ol A3Kl - Vs. Ferrer |s acl|ve|y supporl|rg ard re|ps rary oulreacr acl|v|l|es ol lre
orgar|zal|or. As a|urr| ol lre Pr|||pp|re lagga| Leadersr|p lrsl|lule |r ore ol lre Area wee|erd 3er|rar |r Nueva Ec|ja -
Vs. Ferrer a|so srare rer |eadersr|p s||||s |r lre|r corrur|ly as lreasurer ol lre|r |oca| 8arargay Paslora| Courc||.
Vs. Ferrer |s correcled al preserl W|lr 8ureau ol lrlerra| Reverue (8lR) |r Caoaraluar C|ly as Reverue 0ll|cer lv.

Annex 3 Description of ASKI microfinance methodologies

A3Kl uses lWo oas|c r|crol|rarce relrodo|og|es: lre AKP rode| ard lre lrd|v|dua| Lerd|rg relrodo|ogy.
Trey are or|el|y descr|oed oe|oW:

A. A|a|ay 8a Kabuhayan Programme or AKP. Tr|s |s oas|ca||y a rod|l|ed 0rareer 8ar| relrodo|ogy.
A3Kl lorrs oorroWers |rlo sra|| groups, ard lre groups are grouped |r cerlers. Eacr cerler cors|sls ol up lo
8 groups, or a rax|rur ol 10 reroers. C||erls ava|| ol |oars lor sra|| ous|resses or |rcore-gereral|rg
acl|v|l|es. Tre prograr |rlegrales corrur|ly orgar|z|rg |rlo soc|o-ecoror|c acl|v|l|es ol c||erls lrereoy
prorol|rg ur|ly, cooperal|or, srared |eadersr|p, ard respors|o|||ly arorg group reroers ard lre corrur|ly.
Tre |oars are co||alera| lree. lr p|ace ol co||alera|, peer pressure ard rulua| guararlee are erp|oyed oy se|l-
re|p groups. Tre Tao|e oe|oW sroWs lre |oar lerrs ard po||c|es urder AKP:

Table 22 - Loans under AKP
E||g|b|e Projects Loan 6e|||ngs ( 1
st
Loan}

1. Vercrard|z|rg/Trad|rg
1 Veal/l|sr/vegelao|e/lru|l verd|rg
2 0ry goods/var|ely slore
3 0erera| rercrard|ze

V|r|rur ol Prp 3,000.00
Vax|rur ol Prp 5,000.00

3|x rorlrs lerr
Wee||y payrerls

Varulaclur|rg
1 Ta||or|rg
5 0ressra||rg
3||pper ra||rg
Z Food Process|rg
8 0arrerls
9 Vela| Crall
10 Furr|lure


3|x rorlrs lerr
wee||y payrerls

3erv|ces
11 Carleer/ Ealery
12 vu|car|z|rg srop
13 8eauly 3rop


3|x rorlrs lerr
wee||y/Payrerls

A|| |oars e|lrer reW or rereWa| W||| serve as add|l|ora| Wor||rg cap|la|. Ar |rleresl rale ol lrree per cerl (3)
per rorlr |s crarge or |oars grarled. A pera|ly ol 2 per rorlr |s |rposed lo ary reroer W|lr de|ayed
payrerl.

Ar |rlegra| parl ard esserl|a| lealure ol AKP |s lre prorol|or ard roo|||zal|or ol sav|rgs lrrougr so-ca||ed
Cap|la|-8u||d -up (C8u) ard Erergercy Furd. Tre 6U |s corpu|sory sav|rgs requ|red oy A3Kl lror lre
oorroWers. ll a|rs lo |rsl||| va|ue ol lrr|ll ard sav|rgs arorg c||erls. Eacr oorroWer sel as|de a rodesl arourl
Page 83 of 96
Page 83
ol lre |oar arorl|zal|or lor r|s or rer C8u lurd. Veroers are requ|red lo save al |easl 15 ol lre lola|
approved |oar. C8u sav|rgs car or|y oe W|lrdraWr Wrer lre c||erl ro |orger Warls lo ava|| |oar. Tre
Emergency Fund |s a|red al ercourag|rg sav|rgs, lo re|p reel sudder or erergercy reeds, sucr as
ca|ar|ly, educal|ora|, red|ca| ard olrer surv|va| reeds. Erergercy lurd car oe W|lrdraWr oul ras lo oe pa|d
oac| oased or agreed l|re. Eacr persor |s requ|red lo save al |easl 10 ol lre lola| approved |oar.

Ar |rlegra| parl ol lre AKP |s lre Hutua| A|d Fund (HAF} prograr Wr|cr a|rs lo ass|sl c||erls |r l|res ol
dealr ard d|sao|||ly W||| oecore parl ol lre |erd|rg operal|ors. C||erls W||| dorale Prp 300.00 upor re|ease ol
|oars ard W||| oe erl|l|ed lo l|rarc|a| oerel|ls as:
a) Prp 0,000.00 lor ra|r oorroWer
o) Prp 30,000.00 lor reroer's spouse
c) Prp 30,000.00 lor reroers' |eg|l|rale cr||d

. |nd|v|dua| |end|ng Programme (|LP}. Tr|s prograr a|rs lo prov|de r|cro, sra|| ard red|ur erlerpr|ses
W|lr add|l|ora| ous|ress cap|la| ard erlreprereur|a| lra|r|rg lor ous|ress expars|or. Trese |r lurr re|p slao|||ze
or creale joos ard |rcrease |rcore. lLP ras lrree l|rarc|a| serv|ces:

b.1 Regu|ar |nd|v|dua| |end|ng program. Tr|s erao|es erlreprereurs lo rave access lo |oars
rarg|rg lror Prp 5,000.00 lo |ess lrar 50,000.00. Co||alera| |s parl ol lre requ|rererl. 3a||erl crarges
|rc|ude:

lrleresl rale ol lrree per cerl (3) per rorlr.
Loar payrerl or a da||y, Wee||y, o|-rorlr|y, rorlr|y oas|s
3|x rorlrs lo ore year |oar lerr.
TWo percerl pera|ly per rorlr.
Crarges ol Prp 50.00 Nolary, Prp 30.00 F|||rg Fee ard 2 3erv|ce Fee

b.2 8ma|| Harket Vendors Lend|ng Program. Tr|s prograr a|rs lo ass|sl verdors Wro rave sla|| |r
lre rar|el sucr as Wel ard dry goods, grocer|es, var|ely slores, rel producls, lru|l ard vegelao|e verdors ard
olrers. C||erls cou|d ava|| a r|r|rur ol Prp 5,000 lo a rax|rur ol 10,000. Terrs ard cord|l|ors |rc|ude:

lrleresl rale ol lrree per cerl (3) per rorlr.
0a||y ard/or arorl|zal|or.
Trree lo lour rorlrs |oar lerr.
Crarges ol Prp 50.00 Nolary, Prp 30.00 F|||rg Fee ard 2 3erv|ce Fee

b.3 Fu||y 8ecured Loans. Tr|s erao|es erlreprereurs lo rave access |oars rarg|rg lror Prp
50,000.00 lo 150,000.00. loWever, lr|s prograr requ|res co||alera| ard Posl 0aled Crec|s (P0C). Loar lerrs
ard po||c|es as lo||oWs:

lrleresl rale ol lWo per cerl ( 2) per rorlr
Vode ol payrerl or o|-rorlr|y or rorlr|y oas|s.
0re year |oar dural|or.
Crarges lor Nolary ard process|rg lee lor ercurorarce; F|||rg lee equa| lo 1 ol lola|
|oar approved; ard 1 3erv|ce Fee.

Page 84 of 96
Page 84
Annex 4 Suggestions to improve MIS of ASKI

wr||e lre currerl Vl3 |s good, |l car slard sore rore |rprovererl. 8ased or a superl|c|a| ooserval|or ol lre
Vl3, lrere Were a leW lr|rgs ooserved oy lre Corsu|larl, as lo||oWs:

a) Tre currerl Vl3 produces ar aggregale c||erl case|oad l|gure lor a|| lre P0s. Tre c||erl
case|oads ol P0s are |urped logelrer, Wr|cr srou|d rol oe dore oecause lrere are lWo lypes ol
P0s - lre AKP P0 ard lre lLP0. 0ue lo lre ralure ol lre relrodo|ogy lrey use, lre case|oads
ol lrese lWo lypes ol P0 W||| oe rea||y d|llererl ard d|vergerl. For exarp|e, lre AKP P0 srou|d
rave ar |dea| c||erl case|oad ol 100 Wr||e lre lLP0 W||| rave ar |dea| c||erl case|oad ol 200. Tre
lLP0 ras sra||er ruroer ol c||erls oecause lrey dor'l Wor| W|lr c||erls |r groups; lrey Wor| W|lr
lrer |rd|v|dua||y. Trey v|s|l c||erls rore lrequerl|y, ur|||e |r AKP Wrere lrey reel lre c||erls
orce a Wee| or|y. ll |s rol appropr|ale lo gererale ar aggregale average. Tre Vl3 srou|d
corpule a c||erl case|oad lor a|| AKP P0s ard arolrer sel ol average l|gure lor a|| lLP0s.
1

o) Fo||oW|rg lre suggesl|or aoove, lre F|e|dWor|er slall producl|v|ly ral|o (porllo||o case|oads per
P0) srou|d a|so oe corpuled separale|y lor lre AKP P0s ard lre lLP0s.

c) Corverl lo 'rea| l|re process|rg: wr||e lre suos|d|ary |edgers (|oar ard sav|rgs accourls ol lre
c||erl-reroers) are updaled al lre erd ol lre day, |l |s sl||| rol updaled al 'rea| l|re. For
exarp|e, a c||erl Wro pays rer |oar lu||y al 9 AV ol a g|ver day W||| rol oe ao|e lo gel a zero-oul
slalererl ol accourl oy 9:05 AV, oecause lre payrerl |s posled al lre erd ol lre day, Wr|cr |s
al 1 PV. Tre sysler Wou|d oe lar rore uselu|, espec|a||y |r lre lulure Wrer A3Kl dea|s W|lr
lrousards ol c||erls al |ls orarcr oll|ces, lo rave lre lrarsacl|ors posled lo lre suos|d|ary |edgers
|r 'rea| l|re. lr lre lulure, |l A3Kl Warls lo gererale rore vo|urlary sav|rgs accourls
lrarsacl|ors, lre rea| l|re process|rg ard posl|rg ol lrarsacl|ors W||| oe exlrere|y |rporlarl ard
recessary.

d) Tre sysler gererales a Loar Ag|rg Ara|ys|s reporl, oul lre sa|d reporl car oe lurlrer |rproved
oy sroW|rg lre Porllo||o al R|s| (PAR) ral|os lor 30 days, 0 days, 90 days, 180 days ard 30
days. Tre slardard PAR oe|rg co||ecled ard corpared oy lre Pr|||pp|re V|crol|rarce Courc|| |s
PAR over-30 days, Wr||e |r |rlerral|ora| r|crol|rarce c|rc|es, lre slardard PAR oe|rg lrac|ed |s
PAR over-90 days. ll |s good lo rave sucr l|gures gereraled auloral|ca||y ard regu|ar|y oy lre
sysler.
5

e) 3ore ol process|rg porl|ors ol sore sollWare rodu|es car oe |rproved oy add|rg rore
'ver|l|cal|or roul|res lo preverl lre occurrerce ol posl|rg errors. For exarp|e, |l Was ooserved
lral, al lre erd ol lre day, lre posl|rg prograr |s rur. Tral prograr ras a porl|or Wrere |l lre
operalor acc|derla||y presses lre oullor lW|ce, a|| lre lrarsacl|ors lor lre day W||| oe posled lW|ce.
Tr|s ore sra|| l|aW car creale rajor errors lral car oe d|saslrous lo lre sysler. Tr|s sra|| l|aW
car oe eas||y cured oy add|rg a 'ver|l|cal|or roul|re al lral po|rl lral W||| rer|rd, requ|re ard
|rs|sl lral lre posl|rg oullor oe pressed orce or|y. Trere are prooao|y rary porl|ors |r lre Vl3
Wrere sucr roul|res car oe |rserled lo preverl errors lror rapper|rg.

64
Only when the Consultant requested the ASKI MIS Department was it able to search and generate
separate caseload averages for these two types of PO.

65
Currently, the widely-used and well-mentioned PAR indicator at ASKI is PAR-1 day, which is good
for internal management but which is very conservative when compared with other MFIs or when
external evaluators examine it. PAR-1 day is 28% which is too high, at immediate glance. The
industry standards are PAR-over 30 days and PAR-over 90 days. PAR-over 30 days should not be
more than 5%
Page 85 of 96
Page 85
l) ll Was ooserved lral, |r lre le||er|rg rodu|e, lre Te||er erlers lre |oar |rsla||rerl payrerls ard
C8u corlr|oul|ors lo lre accourl ol eacr c||erl. Tr|s |s a very led|ous ard l|re corsur|rg
acl|v|ly lral car resu|l lo sore posl|rg errors, due lo usua| rurar errors. ll |s suggesled lral lre
dala erlry rodu|e oe rev|sed so lral lre Te||er s|rp|y crec| Wrelrer lre lola| arourl (as
rel|ecled |r lre co||ecl|or sreel) ras oeer aclua||y co||ecled lor lre Wro|e group (group ol l|ve),
ard |l |l does, sre s|rp|y press ore oullor lral W||| posl lre payrerls accord|rg lo a pre-
prograrred rarrer, ard d|slr|oule lre payrerl lo eacr c||erl's accourls. Tr|s W||| reduce dala
erlry Wor| oy rore lrar Z5. 8ul lre dela||ed ore-lo-ore posl|rg erlry car oe rela|red as ar
opl|or, so lral |l lre co||ecl|or sreel arourl ard lre aclua| payrerl are rol equa|, lrer lre Te||er
car posl lre payrerl lo eacr c||erl's accourl |rd|v|dua||y. lrp|ererl|rg lr|s recorrerdal|or W|||
ra|e lre le||er|rg rodu|e rore l|ex|o|e al lre sare reduc|rg lre ellorl ard l|re lor dala erlry.

g) A reW sollWare rodu|e car oe crealed lral W||| corpule lre reeded |oar |oss prov|s|ors. Tre
sollWare rodu|e W||| accepl as g|vers lre dela||s ol lre |oar |oss prov|s|or|rg po||cy ol A3Kl, ard
lrer or a rorlr|y oas|s, ara|yzed a|| ol lre |oars (oased or ag|rg), ard lrer corpule roW rucr
prov|s|ors srou|d oe crealed or sel as|de. Trer |l W||| corpare lr|s reeded prov|s|or W|lr lre
'Prov|s|ors lor 8ad 0eols lral are a|ready crealed |r lre ooo|s. ll lr|s sollWare |s crealed ard
used, lrer ser|or raragererl W||| rave a reW loo| lral W||| sroW lrer Wrelrer lre prov|s|ors are
adequale or rol.

r) Tre currerl sysler does rol gererale |rd|v|dua| passooo|s lor eacr |rd|v|dua| c||erl, lor lre |oar,
C8u ard VAF accourls, a|lrougr eacr c||erl rece|ves ar oll|c|a| rece|pl (Wr|cr |s aclua||y lor lre
Wro|e group). To re|p lre c||erl lrac| r|s/rer |oar ard sav|rgs oa|arces, |l |s |rporlarl lo
gererale ar |rd|v|dua| slalererl ol accourl al lre erd ol eacr rorlr or quarler. To save or
paper ard l|re, lre slalererls car oe des|gred so lral severa| accourls car oe pr|rled or W|de
paper, ard or|y ore copy |s lurr|sred lo lre cerler lreasurer. Tre reroer |rleresled |r ver|ly|rg
r|s/rer accourl reed or|y lo go lo lre cerler lreasurer ard see lre pr|rlouls. lr case ol d|spules
or |oss ol dala al lre orarcr, lrer sucr paper W||| oe exlrere|y va|uao|e. ll car oe used lo
recorc||e accourls W|lr reroers. F|ra||y, |l W||| a|so gererale rore corl|derce or lre parl ol
reroers oecause A3Kl |s oe|rg rore lrarsparerl regard|rg |ls accourls.

|) Tre currerl sysler gererales a Repayrerl Rale lral |rc|udes a|| currerl |oars, a|| pasl-due ard
de||rquerl |oars, ard a|| |oars urder ||l|gal|or. lerce, lre Repayrerl Rale |l gererales |s qu|le
corserval|ve - 89. ll Wou|d oe oeller |l lre oad|y de||rquerl |oars (parl|cu|ar|y lrose Wr|cr are
a|ready cors|dered douollu| ol recovery) p|us a|| |oars urder ||l|gal|or oe exc|uded lror
corpul|rg lre Repayrerl Rale. A3Kl srou|d gererale lWo Repayrerl Rale l|gures: (a) ore lral
|rc|udes a|| currerl |oars p|us a|| |oars Wr|cr are rol oad|y de||rquerl (del|red as lrose W|lr |ess
lrar 30 days pasl due payrerls), ard (o) ore lral |rc|udes a|| oad|y de||rquerl ores p|us a||
|oars urder ||l|gal|or. A|| |oars urder ||l|gal|or srou|d oe Wr|ller oll ard p|ace oll ooo|s.

j) Tre orarcres ra|e oac|up cop|es ol lre|r Vl3 l||es per|od|ca||y lo prolecl lre |rlegr|ly ol lre
dalaoase. Tr|s |s good oecause dala |oss car oe avo|ded. loWever, |l |s suggesled lral lre
oac|up cop|es oe slored aWay lror lre oll|ce so lral |r case ol l|re, lre oac|up cop|es |s |epl
sale.

Annex 5 Sample reports generated by the MIS

See sample MIS reports in the following pages

66
The bulk of all past due loans were from the older versions of their Grameen model
implementation.

Page 86 of 96
Page 86

Annex 6 Recommendations regarding ASKI

A ||r|led ruroer ol recorrerdal|ors ard suggesl|ors are prov|ded rere oy lre Corsu|larl g|ver lral A3Kl ras a|ready
adopled rary good ard oesl pracl|ces. 3ore ol lre suggesl|ors / recorrerdal|ors lror lre Corsu|larl are lre lo||oW|rg:

1) |mprove m|x of board members sk|||s: V|x ard corpos|l|or ol lre ooard reroers' s||||s are la|r|y good,
oul lrere |s |ac| ol |aWyers ard oar|ers. ll |s recorrerded lral A3Kl lry lo l|rd lrese ||rds ol s||||s |r lre
lulure, lo errarce |ls r|x ol s||||s ard experl|se |r lre ooard.

2) |mprove board superv|s|on over management. Tre ooard d|scusses lre over-a|| perlorrarce ol A3Kl
arrua||y, Wr|cr serves as proxy eva|ual|or ol lre cr|el execul|ve. loWever, |l |s recorrerded lral A3Kl
|rsla|| a rore lorra| Way ol eva|ual|rg perlorrarce ol cr|el execul|ve ard lre lop ser|or raragers. 0re
Way lo do lr|s |s lo agree ard sel or a sra|| ruroer ol perlorrarce largels or oojecl|ves per ser|or
rarager ard lre cr|el execul|ve al lre oeg|rr|rg ol a l|sca| year. Trer, al lre r|dd|e ard erd ol l|sca|
year, lre ooard rev|eWs lre accorp||srrerls ol lre raragers. ll lrere |s a reed lo rod|ly ary ol lre
perlorrarce largels ol a rarager, lrer sucr car oe dore dur|rg lre r|d-year rev|eW.

3) 6onvert the HAF |nto a rea| |nsurance poo|. Currerl|y, lre Vulua| A|d Furd (VAF) operales |||e ar
|rsurarce poo| oul |l |s rol, lecrr|ca||y spea||rg, ar |rsurarce poo|. Tre reroers pay ar add|l|ora|
prer|ur eacr year (|r add|l|or lo lre |r|l|a| 300 pesos |rveslrerls lo lre VAF) oased or lre ruroer ol
aclua| dealrs |r a g|ver year; rerce |l |s lre reroers Wro oear lre r|s|s. lr a rea| |rsurarce poo||rg ol
r|s|s, a|| reroers pay a l|xed prer|ur eacr year, ard lre resu|l|rg poo| ol rorey la|es care ol lre oerel|l
payrerls lo lre lar|||es ol lre deceased. Trere are ro add|l|ora| prer|urs lo oe co||ecled, oecause |l ras
oeer carelu||y ca|cu|aled lral lre reserves |r lre poo| W||| oe rore lrar sull|c|erl lo cover oerel|l payrerls.
ll |s recorrerded lrerelore lral ar acluar|a| sludy oe corducled lo ra|e lre VAF a rea| |rsurarce poo|.
Tre oerel|l ol lr|s |s lral lrere |s or|y l|xed prer|ur lo oe pa|d oy lre reroers, ard |l W||| oe easy ard
s|rp|e lo adr|r|sler.

1) P|ace a t|ghter expense contro| over head off|ce and branches: Tre 0peral|rg Cosl Ral|o ol A3Kl, al
19, |s sl||| qu|le r|gr. 0ur|rg lre pasl l|ve years, lre experses ol A3Kl rave oeer |rcreas|rg al a rap|d
rale. 0|ver lral A3Kl ras jusl rel orea|-ever po|rl (100 033) |r Jure 2003, ard lre rel |rcore |s sl|||
very lr|r, |l |s recorrerded lral A3Kl pul rore ellecl|ve cosl-corlro| |r lre orgar|zal|or. A3Kl srou|d pul a
l|grler re|r or experses. For exarp|e, slardard oudgels rayoe dev|sed lor orarcres, ard 8rarcr
Varagers W||| oe re|d ||ao|e |l lre var|arces exceed 10. var|ous Ways ard rears srou|d oe |derl|l|ed lo
cul doWr cosls. ll |s lurlrer suggesled lral raragererl lr|r| lW|ce aooul purcras|rg rolor ver|c|es (cars)
rexl l|sca| year oecause lr|s W||| suoslarl|a||y |rcrease operal|ora| experses.

5) F|nd new ways of reduc|ng personne| expense costs: Persorre| experse |s lre o|ggesl experse ol
A3Kl, ard lr|s cosl |ler ras oeer |rcreas|rg rap|d|y dur|rg lre pasl lrree years. A3Kl srou|d reW ard
oeller Ways ol rarag|rg lr|s cosl. 3ore exarp|es or suggesl|ors are as lo||oWs: (a) Corverl|rg |r lre
lulure parl ol lre oas|c sa|ary pay ol l|e|d erp|oyees lo perlorrarce-oased |rcerl|ves. Tr|s W||| ellecl|ve|y
reduce lre l|xed sa|ary experse ol A3Kl Wr||e al lre sare l|re errarce lre |rcerl|ve recrar|sr; (o)
Reduc|rg oerel|l coverage ol |ls Ved|ca| ard losp|la||zal|or lrsurarce lo ersure or|y a r|r|rur salely rel
lor erp|oyees. Tre currerl prer|ur |s qu|le |arge. Va|e lre prer|ur corlr|oulory Wrere lre erp|oyees
pay lor a parl ol lre prer|ur cosls. (c) l|r|rg reW lrorl||re erp|oyees lror arorg lre rar|s ol lresr
graduales or ever lror r|gr scroo| graduales, Wrose derard lor pay Wou|d oe |oWer. (d) Reduc|rg lre
ruroer ol supporl slall lo a r|r|rur; lr|s |s poss|o|e due lo corpuler|zal|or ol lre orarcres.

) Requ|re secur|ty depos|ts from peop|e who hand|e money: ll |s recorrerded lral A3Kl adopl a po||cy
ol requ|re secur|ly depos|ls (|r casr) lror eacr reW erp|oyee Wro W||| oe Wor||rg |r lre l|e|d ard Wro W|||
rard|e casr. Al lre slarl, a reW erp|oyee ray oe requ|red lo pul |r 3,000 pesos as secur|ly depos|l.
Trer, every rorlr, lre secur|ly depos|l W||| oe |rcreased oy 250 pesos, url|| |l reacres 10,000 pesos. Tre
purpose ol lre depos|l |s lo creale a casr oord, a||oW|rg erp|oyees lo ra|e a rea| l|rarc|a| sla|e |r lre
orgar|zal|or. ll ar erp|oyee res|grs, lrer lre casr oord or depos|l |s re|eased lo r|r/rer p|us a||
Page 87 of 96
Page 87
accuru|aled |rleresls. A3Kl ray use sore ol lrese casr oord rorey lor |ls |erd|rg lurds, oul |l ras lo
pay |rleresl or lrose secur|ly depos|l lurds, prelerao|y al a rale a leW percerlage po|rls r|grer lrar rorra|
oar| |rleresl rales. Requ|re secur|ly depos|ls lror orarcr raragers ard se|ecled supporl slall ard
gradua||y reduce re||arce or l|de||ly oords. Tr|s |s lre sare casr oord suggesl|or, oul lre arourls
srou|d oe r|grer lor ur|l superv|sors, le||ers, ooo||eepers ard orarcr raragers.

Z) 0|str|bute some of the work of aud|tors: Tre 0peral|ors Varager, F|rarce Varager ard lre Cr|el
Accourlarl, Wrerever lrey v|s|l lre orarcres srou|d oe ao|e lo corducl surpr|se casr courls. Tr|s W||| re|p
ur|oad sore ol lre ourder ol lre |rlerra| aud|lors. Trey srou|d oe ao|e lo g|ve regu|ar leedoac|s lo lre
aud|l deparlrerl regard|rg lre r|s|s |r lre orarcres.

8) Use r|sk-based aud|t management: 0|ver lre sra|| ruroer ol ex|sl|rg aud|l slall, |l |s recorrerded lral
lre aud|l deparlrerl erp|oy a 'r|s|-oased approacr lo aud|l|rg. Tr|s s|rp|y rears g|v|rg rore pr|or|ly lo
orarcr oll|cers Wr|cr are cors|dered ol r|gr r|s|s, ard pull|rg |oWer pr|or|ly or |oW-r|s| orarcres. Tre r|s|s
rayoe ass|gred lo lre orarcres, dyrar|ca||y (prelerao|y rev|eWed or rorlr|y oas|s) oased or lre
leedoac| ard ror|lor|rg oy lre operal|ors rarager, ard olrer ser|or raragers |r lre l|e|d.

9) wr|te off a|| o|d bad |oans: ll |s recorrerded lral A3Kl, over a per|od ol 2 years, Wr|le oll a|| oad |oars
ol lre pasl, espec|a||y lrose W|lr s||r crarces ol oe|rg recovered.
Z
A|| |oars urder ||l|gal|or srou|d a|so
oe Wr|ller oll ard p|aced oll ooo|s.

10) Rat|o of F|e|dworkers: A c|oser exar|ral|or ol A3Kl slall|rg revea|s lral lre ral|o ol l|e|d slall lo lola|
r|crol|rarce slall |s Z1. ll |s recorrerded lral A3Kl asp|re lo |rcrease lre ral|o ol l|e|dWor|ers lo 80

11) Ut|||ze the |nsta||ed capac|t|es |n branches: Currerl|y, a|| orarcres ol A3Kl are lorralled |||e a rega-
orarcr oul lrere are orarcres Wrere or|y Projecl ur|l ex|sls, rerce lrose orarcres rave p|erly ol roor lor
expars|or, or |r olrer Words, A3Kl ras urul|||zed |rsla||ed producl|or capac|ly. ll |s recorrerded lral
A3Kl puls l|rsl pr|or|ly or lu||y ul|||z|rg lr|s urused producl|or capac|ly |r rexl leW years. 0o|rg so Wou|d
resu|l lo grealer ell|c|ercy ard W||| y|e|d lre |argesl producl|v|ly |rcrease |r lre orarcres.

12) Rea|-t|me process|ng |n the Hanagement |nformat|on 8ystem: wr||e lre suos|d|ary |edgers (|oar ard
sav|rgs accourls ol lre c||erl-reroers) are updaled al lre erd ol lre day, |l |s sl||| rol updaled al 'rea|
l|re. For exarp|e, a c||erl Wro pays rer |oar lu||y al 9 AV ol a g|ver day W||| rol oe ao|e lo gel a zero-oul
slalererl ol accourl oy 9:05 AV, oecause lre payrerl |s posled al lre erd ol lre day, Wr|cr |s al 1 PV.
Tre sysler Wou|d oe lar rore uselu|, espec|a||y |r lre lulure Wrer A3Kl dea|s W|lr lrousards ol c||erls al
|ls orarcr oll|ces, lo rave lre lrarsacl|ors posled lo lre suos|d|ary |edgers |r 'rea| l|re.

13) Emphas|ze sav|ngs mob|||zat|on to ba|ance the heavy cred|t focus. Currerl|y, lre producl rarge ard
relrodo|ogy ol A3Kl ra|es |l a reavy cred|l-dr|ver orgar|zal|or. Erpras|s |s or gell|rg lre |oars oul,
reel|rg d|soursa| largels, co||ecl|rg oac| 100 ol lre |oars ard reel|rg |rleresl |rcore largels. 8ul cred|l
|s or|y ore s|de ol lre co|r. Poor peop|e, espec|a||y lre pooresl rousero|ds, preler lo save |rslead ol
oorroW|rg. To |rcrease |ls sav|rgs porllo||o, |l |s recorrerded lral A3Kl oeg|r erpras|z|rg sav|rgs
roo|||zal|or, ard A3Kl ras lour opl|ors, Wr|cr are rol rulua||y exc|us|ve: Tre opl|ors are: (1) errarc|rg
lre lealures ol lre currerl 'Erergercy Furd lo ra|e |l rea||y access|o|e; (2) creal|rg a separale vo|urlary
sav|rgs accourl producl Wr|cr |s lu||y access|o|e oy reroers aryl|re; (3) a||oW|rg so-ca||ed 'assoc|ale
reroers Wr|cr car la|e parl |r lre vo|urlary sav|rgs accourls; ard (1) creal|rg spec|a| sav|rgs groups.
0r opl|or 1, A3Kl ray lorr spec|a| groups W|lr|r lre ex|sl|rg cerlers. Trese spec|a| groups are urder ro
oo||gal|or lo oorroW, lor lre l|rsl 2 years ol lre|r parl|c|pal|or. Trey car or|y save rorey |r A3Kl lrrougr
lre Erergercy Furd recrar|sr. Trey ray depos|l lre|r sav|rgs dur|rg lre cerler reel|rgs, ard |l lrey
reed lo W|lrdraW sav|rgs, lrer lrey s|rp|y go lo lre A3Kl orarcr lo W|lrdraW lre|r rorey.

Tre advarlages ol lr|s sav|rgs-locused approacr are rary, ard |rc|udes lre lo||oW|rg: (a) |rcrease |r
c||erl ruroers; (o) rore ol lre pooresl rousero|ds car oe reacred oecause lrere are ro pressures lo

67
It was reported that around 2 million pesos worth of bad loans are still in the books but which
should be written off the books. The chances of recovering them are already very slim.
Page 88 of 96
Page 88
oorroW; (c) |rcrease |r lre sav|rgs porllo||o ol A3Kl, Wr|cr W||| erao|e A3Kl lo |rcrease |ls |oar porllo||o; (d)
|rcreas|rg lre ruroer ol polerl|a| lulure oorroWers.
8

11) |ncrease |oan portfo||o: A3Kl ras a la|r|y good s|ze porllo||o, oul g|ver lre currerl slall|rg slruclure ol
A3Kl ard g|ver lre urder-ul|||zed producl|or capac|ly |r lre orarcres, A3Kl reed lo lurlrer |rcrease |ls
porllo||o s|ze lo arourd 100 r||||or pesos W|lr|r lre rexl 2 or 3 years.

15) watch out for excess|ve pro||ferat|on of center-managed funds: A3Kl a||oWs |ls reroers lo creale ard
rarage lre|r oWr spec|a|-purpose lurds. Trose are se|l-raraged oy lre cerlers. ll |s recorrerded lral
A3Kl Walcr oul lor excess|ve pro||leral|or ol lrese se|l-raraged lurds oecause ol lre lo||oW|rg: (a)
ror|lor|rg lrose lurds car la|e a greal dea| ol l|re ard ellorl ol A3Kl l|e|dWor|ers;
9
(o) lre cerler-
raraged lurds ray dup||cale lre spec|a| sav|rgs lurds oe|rg ra|rla|red oy A3Kl; (c) lrose lurds reeds
lo oe aud|led or exar|red a|so, al |easl orce a year, oy A3Kl aud|lors, la||rg prec|ous l|re aWay; ard (d)
ary r|sraragererl ol lrose lurds W||| erode lre cred|o|||ly ol A3Kl |r lre corrur|ly.

1) |ncrease earn|ng assets rat|o to 907 Tre earr|rg assels ral|o |s lre ral|o ol earr|rgs assels lo lre lola|
assels ol lre orgar|zal|or. ll |rd|cales roW rucr ol lre assels ol ar orgar|zal|or are creal|rg pos|l|ve
reverues lor lre orgar|zal|or. 8y 'earr|rg assels, |l |rc|udes lre |oar porllo||o, l|re depos|ls, ard olrer
assels ol lre orgar|zal|or Wr|cr gererale |rcores. A3Kl's currerl earr|rg assel ral|o |s al 787, Wr|cr |s
rea|lry ard rear|rg lre |dea| ral|o ol 80. 0|ver lre r|gr cosls ol operal|ors al A3Kl, |l |s recorrerded
lral A3Kl a|r lor ar earr|rg assel ral|o ol 90 W|lr|r rexl 3 years.

1Z) us|ness deve|opment serv|ces: A3Kl ras arrarged ard sporsored lre corducl ol spec|a| ser|rars
ard s||||s deve|oprerl c|asses lor |ls c||erls. Exarp|es are rards-or ser|rars or card|e-ra||rg, real
process|rg, soap-ra||rg, oas|el Weav|rg, elc. rave oeer corducled, ard c||erls gerera||y apprec|ale lr|s
||rd ol lra|r|rg. wr||e lr|s |s good ard uselu|, A3Kl srou|d oe carelu| |r rol |os|rg locus, or ol over-
ourder|rg lre l|e|dWor|ers. Corducl|rg sucr ser|rars car d|slracl lre allerl|or ol l|e|dWor|ers aWay lror
lre|r pr|rary Wor|. A3Kl srou|d oe se|ecl|ve |r prov|d|rg lrese serv|ces; locus or sra|| ruroer ol Worer
ard rer Wro rave sroWr rea| erlreprereur|a| ao|||ly, ard lrose Wro rave sroWr / expressed rea| |rleresl
|r |earr|rg reW ||ve||rood s||||s. L|ve||rood s||||s lra|r|rg srou|d oe derard-dr|ver, ard prov|ded or|y |r
cerlers or p|aces Wrere lre peop|e Warl lrer. A sra|| ol lee srou|d a|so oe crarged lo parl|a||y recover
cosls.

18) 8tandard|ze the deve|opment |essons. ll |s recorrerded lral A3Kl slardard|ze lre deve|oprerl-
or|erled |essors, lor easy ard ur|lorr de||very oy P0s. Currerl|y, lrere are p|ars lor deve|op|rg a Projecl
0ll|cers Lessor 8oo|, Wr|cr W||| corla|r deve|oprerl ressages ard |essors good lor ore Wro|e year or
52-Wee|s. 0lrer VFls, |||e A3A, CAR0, elc. rave deve|oped lr|s, ard lrere |s ro reed lor A3Kl lo
re|rverl lre Wree|. Tre P|ar lrlerral|ora| Nepa| ard N|rdrar oar| |r Nepa| ras a|so corp||ed sucr
deve|oprerl ressages |r lre lorr ol |arge p|clures, ard lrose rave oeer prover ellecl|ve |r de||ver|rg
slrorg ressages lo poor Worer. Tre p|clure a|ds |r corvey|rg slrorg ressages, espec|a||y Wrer sroWr
ard Wrer slor|es are lo|d |r lre cerlers. A3Kl car as| P|ar lo gel cop|es ol lrese raler|a|s.

Annex 7 Survey questionnaire: Microfinance Survey in Isabela

Purpose ol lr|s sludy: To |derl|ly lre ex|sl|rg l|rarc|a| serv|ce prov|ders |r lre largel areas ard lo delerr|re
lre spec|l|c reeds ol poor rousero|ds lor l|rarc|a| serv|ces. Tre resu|ls ol lr|s
sludy W||| oe used oy P|ar lor lulure p|arr|rg purposes.

Name of enumerator: Municipality:

Code Number:

68
Many of these special groups will eventually take out loans from ASKI after they have generated
savings and after they have developed enough confidence to start their own small businesses.
69
During the center meeting in San Carlos, Talavera, the Consultant observed that more than 90%
of the time was consumed on discussing about the center-managed funds.

Page 89 of 96
Page 89
Checked by: Barangay:

Processed by:

First, introduce yourself and this survey, especially, the purpose or objective of this study.

*** Gather basic socio-economic data about household:

1. Ask:
First name or nickname of respondent:

Number of children:

Gender:

High school graduate?
Age:

Occupation:
Married?

Occupation of spouse:

*** Existing providers of financial services in the community:

2. What are the existing providers of financial services in this community / barangay
/ municipality?

Formal financial institutions (get names) Informal sources of credit /
Commercial Bank Relatives
Rural Bank Friends and neighbors
Credit cooperative Bodegas / Agri Trader-
Financiers
Microfinance NGO Bombay
Pawnshop Local moneylenders
Lending investor Paluwagan / ROSCA
Dept of Agriculture
Insurance company
Page 90 of 96
Page 90

3. What are the services being offered by formal providers of financial services?

4. Are you using the financial services of these formal financial institutions? If not,
why are you not using them?

5. Do you borrow money from banks or cooperatives? ________ If not, why? _____

_______________________________________________________________________

_______________________________________________________________________

6. Do you save in banks or cooperatives? ___________ If not, why? _____________

_______________________________________________________________________

_______________________________________________________________________

*** Informal sources of credit:
Agricultura
l
Loans
Small
Business
Loans
Multi-
purpose
loans
Savings
accounts
Others
Commercial Bank
Rural Bank
Credit cooperative
Microfinance NGO
Pawnshop
Lending investor
Dept of Agriculture
Insurance
Company

Using Formal financial institutions
Ye
s
No
Reasons why not using services
Commercial Bank

Rural Bank

Credit cooperative

Microfinance NGO
Pawnshop
Lending investor
Dept of Agriculture
Insurance company
Page 91 of 96
Page 91

7. Which informal sources of credit do you regularly use and indicate the reasons
why you borrow from them? (Check all that applies)

Ask #7-A below if applicable:

7-A. If you are using bodegas for your credit needs, do you find their loans cheap
or expensive? What are the advantages and disadvantages of borrowing from them?

Cheap? (y/n) Advantages Disadvantages

*** Estimation of household loans and savings:

8. Do you have some outstanding loans or utang? (both from formal and informal
sources) _________ If so, how much is the outstanding or unpaid balance of all
your loans? ________________ (Rough estimate is OK)

9. Where do you get your loans? _________________________________________

10. Do you get loans from Bombay or 5-6 lenders? ____________ If so, why?
_____________________________________________________________________

Informal sources of
credit
Reasons why you use this source
Relatives
Friends and neighbors
Bodegas / Agri-Traders
Bombay
Local moneylenders
Paluwagan / ROSCA

Page 92 of 96
Page 92

11. How much agricultural loans do you get or need every year? (These are loans used
for agricultural production) Php______________ (Rough estimate is OK)

12. How much small business loans do you need every year? (These are loans used to
set up or increase / improve small business) Php______________ (Rough estimate is OK)

13. How much emergency or common household loan do you need every year?
(These are loans used to meet common emergency and household needs) Php___________
(Rough estimate is OK)

14. If there is an opportunity for you to save and deposit your daily savings with a
nearby bank or cooperative, how much savings do you think you can save in one
month? Php__________ (Rough estimate is OK)

*** Informal ways of saving:

15. Do you save in assets? (like pigs, chicken, goats, fletches of hardwood, etc) _________
If so, what kinds of assets do you save in and why? _______________________
__________________________________________________________________

Other comments / opinions made by the respondent:

*** Thank the respondent.

Annex 8 Agriculture production loans (APL)

As descr|oed |r lre reporl, lrousards ol poor larrers |r lsaoe|a are oe|rg exp|o|led oy agr|cu|lura| lraders ard
|oca| rorey|erders ca||ed 'oodegas. ll |s recorrerded lral A3Kl deve|op a spec|a| suo-prograrre |r lre
secord year ol lre PLAN-A3Kl parlrersr|p projecl |r order lo address lr|s very o|g reed |r lsaoe|a, |.e. larrers
oe|rg exp|o|led oy lre 'oodegas. Tre |ey lealures ol lr|s APL (agr|cu|lura| producl|or |oar) screre are as
lo||oWs:

Adequale soc|a| preparal|or srou|d oe dore, Wrere A3Kl W||| |derl|ly larrers |r lre largel areas Wro rave
rea||zed lre reed lo gel aWay lror lre c|ulcres ol lre oodegas;
3ra|| groups ol larrers W||| oe orgar|zed, Wrere sav|rgs W||| oe co||ecled lror lrer, ard lre poo| ol sav|rgs
rorey W||| oe lre ra|r corpus ol rorey lral W||| oe used lor exlerd|rg APL |oars;
Loars sra|| oe exlerded lo lre larrers a leW Wee|s oelore lre aclua| p|arl|rg seasor; |oars W||| oe |r casr;
A3Kl W||| ra|e arrargererls so lral larrers W||| gel r|gr qua||ly larr |rpuls al lre |oWesl poss|o|e pr|ces;
Payrerl ol lre |oar W||| oe |r-||rd; Wrere lre larrer-reroers W||| oe requ|red lo 'surrerder pracl|ca||y a|| ol
lre|r produce lo lre projecl, Wr|cr |r lurr W||| se|| |l lo lre lrader lral ollers lre oesl pr|ce;

Page 93 of 96
Page 93
Tre very ralure ol agr|cu|lure as ar ecoror|c acl|v|ly ra|es lre APLs rore r|s|y lrar lrad|l|ora||y ror-larr|rg
sra|| erlerpr|se |oars. Trere are |rrererl r|s|s re|aled lo pesls, drougrls, lyproors, p|urrel|rg larrgale
pr|ces, elc. A3Kl ray r|l|gale sucr r|s|s lrrougr a coro|ral|or ol lre lo||oW|rg:
a) Farrers parl|c|pal|rg |r lr|s APL prograrre W||| oe requ|red lo save rorey pr|or lo oorroW|rg APLs, ard lre|r
sav|rgs W||| corsl|lule lre pr|rary |oar lurds ol lr|s suo-prograrre, lurd|rg arourd 30 lo 10 ol lre |oars.
o) us|rg rol or|y r|gr-y|e|d|rg corr or r|ce var|el|es, oul a|| crops lral are prover lo oe pesl-res|slarl. Tr|s W||| re|p
reduce lre r|s|s ol pesl darage or crops. Tre r|gr y|e|ds W||| a|so courler-oa|arce lre |osses due lo pesls.
c) A3Kl W||| lap N00s or groups lral prorole susla|rao|e agr|cu|lura| lecrr|ques, |rc|ud|rg ellecl|ve pesl corlro|, |r
order lo reduce lre r|s|s lurlrer. Trese N00s (|||e Vas|pag group |r Vuroz) car leacr larrers or ellecl|ve
Ways ol pesl corlro|.
d) A3Kl W||| re|p lre larrers lo ra|e Wro|esa|e procurererl arrargererls, lo reduce lre pr|ces ol |rpuls, rerce
reduc|rg lre |oar s|zes.
e) A3Kl W||| re|p larrers lo ra|e Wro|esa||rg ol lre|r larr produce, lo gel lre oesl poss|o|e pr|ces lor lre|r larr
producls / rarvesl.

R|s|s re|aled lo Wealrer (lyproors ard drougrls) are rore d|ll|cu|l lo r|l|gale ard rarage; rerce, lrere
W||| sl||| oe res|dua| r|s|s |rvo|ved. A corl|rgercy lurd rayoe crealed, lo re|p recover |osses, or A3Kl ray
||r| lre larrers lo PClC- Pr|||pp|re Crop lrsurarce Corporal|or.

Annex 9 Profile of the Rural Bank of Mallig Plains Inc. (RBMPI)

Tre rosl ser|ous r|crol|rarce p|ayer ard lre o|ggesl prov|der ol r|crol|rarce serv|ces |r lsaoe|a |s urdouoled|y lre Rura|
8ar| ol Va|||g P|a|rs lrc. (R8VPl). Tr|s secl|or descr|oes or|el|y |ls prol||e, operal|ors, ard perlorrarce.

R8VPl |s a rura| oar|, W|lr read oll|ce |r lre loWr ol Va|||g, lsaoe|a. ll ras 13 orarcres, a|| ol Wr|cr operales
r|crol|rarce prograrre.
Z0
Tre oar| ras 19 lu||-l|re oar| persorre| ass|gred lo lre r|crol|rarce prograr.

Tre oar| |s a cordu|l parlrer ol PCFC, W|lr Wr|cr |l a 112 r||||or peso cred|l ||re.
Z1
Tre oar| erp|oys lre 0rareer
rode| lor exlerd|rg r|crol|rarce serv|ces. ll ras lorred rurerous cerlers, cover|rg a lola| ol 10 oarargays (sore
cerlers cover rore lrar ore oarargay). Tre oar|'s operal|ors rave gore oeyord lsaoe|a. ll ras a orarcr |r Tuguegarao,
serv|rg parl|a||y Cagayar prov|rce. ll covers sore loWrs |r Nueva v|scaya lrrougr |ls orarcr |r Cordor, lsaoe|a. ll
covers a leW loWrs ol llugao, lrrougr |ls Aurora, l|agar orarcr. ll covers sra|| parl ol Ka||rga Apayao lrrougr |ls 0uezor,
lsaoe|a orarcr.

Tre r|crol|rarce prograr Was slarled oy lre oar| |r 1998 |r Cordor, lsaoe|a. ll ras exparded lo olrer p|aces s|rce lrer.
Tola| c||erl oulreacr |s 13,185 Worer, as ol Jure 30, 2003. A|| c||erls |r lre r|crol|rarce prograr are Worer. Tre oar|
ras served a lola| ol 25,200 peop|e, courl|rg a|| persors lral |l ras served (|rc|ud|rg lrose lral dropped oul). Tr|s sroWs
lral drop-ouls rave oeer rass|ve, al rear|y 50. 0rop-oul ral|os exceed|rg 15 |s aororra| ard |s a s|gr ol oad rea|lr.
wr||e lre oar| ras lorred a |ol ol cerlers, recerl|y, lre oar| dec|ded lo slop creal|rg reW cerlers ard jusl corcerlrale or
salural|rg lre oarargays Wrere lrey currerl|y rave cerlers.

Tre oar| ras r|crol|rarce operal|ors |r rary loWrs ol lsaoe|a, oul |l ras ro operal|ors |r 3ar Var|aro (oecause |l |s
qu|le rerole ard |so|aled). lr Turau|r|, |l ras ro operal|ors a|so, oecause ol |ls reroleress, excepl lral a leW lar|||es
lrere rave jo|red lre oar|'s cerlers |r lre rexl loWr. Tre Wor| |r Turau|r| |s covered oy lre l|agar orarcr. lr l|agar,
lre oar| covers 15 oarargays oul repayrerl |r a|| 15 oarargays |s rol good.

70
The branches are located in Cauayan, Burgos, Ilagan, Alicia, Cordon, Cabaroquis, Aglipay,
Quezon, Tuguegarao, Quirino and Mallig.

71
More data is probably available from PCFC head office, in Manila. The bank is also a member of
the Philippine Microfinance Council, but it has not submitted financial or performance reports to the
Council for the past two years.

Page 94 of 96
Page 94
Trere |s a d|recl corre|al|or oelWeer lre vo|ure ard v|orarcy ol ecoror|c acl|v|ly ol lre loWr lo lre repayrerl
perlorrarce ol r|crol|rarce cerlers. A o|g v|orarl rar|el loWr rears good |rcores lor ous|resses - oolr o|g ard sra||.
Tre oar| ras |earred lral a loWr W|lr a |ol ol ecoror|c acl|v|ly, lre repayrerl perlorrarce ol cerlers |r lral loWr W||| oe
gerera||y good. Tre oesl perlorr|rg r|crol|rarce orarcres are |ocaled |r Cauayar, Aurora, A||c|a ard Roxas, Wrere
lrere are |arge rar|els ard v|orarl |oca| ecoror|es. Corverse|y, |r p|aces Wr|cr are |so|aled, rerole ard Wrere
ecoror|c acl|v|ly |s very |oW, lre r|crol|rarce repayrerl Wou|d oe |oW. Tr|s ras oeer derorslraled |r lre loWr ol
0u|r|ro, lsaoe|a, Wr|cr |s qu|le |so|aled ard Wrere lrere are ro v|s|o|e ecoror|c acl|v|l|es |r lre ra|r loWr / poo|ac|or.
Arolrer rajor delerr|rarl |s lre all|lude ol peop|e |r lre corrur|ly. Trere are loWrs or p|aces Wrere poor peop|e are
gerera||y rol good payers ol |oars. Trere are loWrs Wrere all|lude |s pos|l|ve ard corduc|ve lo groWlr.

Tre PCFC corducls regu|ar coord|ral|or reel|rgs lor a|| |ls cordu|l parlrers. lr lrose reel|rgs, lrey d|scuss lre
'ass|gred lerr|lor|es ol lre var|ous VFls. A reW or expard|rg VFl srou|d 'as| perr|ss|or lror lr|s oody, lo ersure lral |l
does rol over|ap W|lr lre olrer ex|sl|rg VFls.
Z2

Tre l|rsl |oar cyc|e slarls al a |oar s|ze ol 5,000 pesos, lrer |l goes up lo ,000 pesos or lre secord cyc|e, lrer lo 8,000
pesos, lrer lo 10,000 pesos, lrer lo 12,000 pesos, lrer lo 15,000 pesos, lrer lo 20,000 pesos, lrer lo 25,000 pesos,
Wr|cr |s lre rax|rur |oar lre oar| a||oWs. Average |oar s|ze |s 10,000 pesos, rear|rg rosl c||erls are roW or lre|r 3rd
ard 1
lr
cyc|e.

Tola| |oar porllo||o |s arourd 53 r||||or pesos; repayrerl |s al 85 or|y. (ll curu|al|ve repayrerl rale |s cors|dered, lre
oar| ooasls ol a 95 repayrerl or |oars.) Tre Porllo||o al R|s| ral|o Was rol d|vu|ged oy lre oar|, ard |l |s |||e|y lral |l
|s qu|le oad, prooao|y al rore lrar 35.

Tre Corsu|larl v|s|led lre R8VPl 0u|r|ro orarcr, Wr|cr a||oWed a deeper |rs|grl |rlo lre oar|'s r|crol|rarce operal|ors.
Tre orarcr ras recru|led rary c||erls (1,500) s|rce 2000 oul drop-ouls rave oeer qu|le r|gr (rore lrar 55) |eav|rg
loday ar acl|ve c||erle|e ol Z00 c||erls or|y. Tre 0u|r|ro orarcr erp|oys lrree lu||-l|re l|e|dWor|ers Wro reel W|lr lre
cerlers, orce a Wee|. Tre 0u|r|ro orarcr ras covered pracl|ca||y a|| oarargays ol lre loWr, ard ras gore oeyord 0u|r|ro
lo |oo| lor rore good c||erls.
Z3
Tre r|crol|rarce |oar porllo||o ol lr|s orarcr |s roW rore lrar 5 r||||or pesos.

Repayrerl rale ras oeer |oW, al 80. Loar de||rquercy ard delau|ls are corror.
Z1
Tre oar| ras c|osed doWr rary
cerlers dur|rg lre pasl year. Tre usua| reasors lor |oar delau|ls are: poor rarvesls due lo drougrl, daraged crops due lo
lyproors, pesl |rleslal|ors, ous|ress d|d rol Wor|ed oul, sore c||erls do rol rea||y rave good l0As Wr|cr ra|es |l d|ll|cu|l
lor lrer lo reel lre Wee||y |rsla||rerl payrerls, elc. 8ul lrere are deeper reasors lor |oar de||rquercy.

Tre Corsu|larl Was ao|e lo spea| W|lr lorrer c||erls ol lre oar| (lrose Wro dropped oul) ard lrey gave lre|r reasors Wry
lrey |ell (see rexl secl|or lor dela||s).

0re prooao|e rajor cause lor poor perlorrarce |r 0u|r|ro |s lral |l accepls parl|a| payrerls lror lre cerlers.
Z5
ll serds
lre Wrorg s|gra|. ll s|rp|y lo|erales de||rquercy. Furlrerrore, oased or aclua| c||erl leedoac| galrered |r lre l|e|d,

72
If PLAN or ASKI wants to start operations in any part of Isabela, it would be good to coordinate
with this body.

73
The Quirino branch covers: barangay Guibay in Gamu, barangays Nam-ay, Ramayan and Burgos
in the town of Naguillian, and barangays Sta Isabel, Norte, Sta Isabel Sur, and Naguillian Sur in the
town of Ilagan.

74
According to RBMPI, according to their own analyses, the usual reasons for defaults are: poor
harvests due to drought, damaged crops due to typhoons, pest infestations, business did not worked
out, some clients do not really have good IGAs which makes it difficult for them to meet the weekly
installment payments, etc.

75
This is in contrast to CARD, ASKI or LifeBank where the policy is that the fieldworkers will not
leave the center until the stipulated total loan installment is fully paid.

Page 95 of 96
Page 95
sore ol lre oar| l|e|dWor|ers are a|so ur-proless|ora| (lor exarp|e, oar| l|e|dWor|ers do rol sroW up or l|re).
Z
Tre
oar| ras |oosered |ls oWr ru|es s|rce |asl year, ard overa|| d|sc|p||re ras gore doWr cors|derao|y. Tre oar| rarager
adr|ls lral allerdarce ol reroers |r lre Wee||y cerler reel|rgs rave gore cors|derao|y ard lre oar| l|e|dWor|ers are
lorced lo do rouse-lo-rouse co||ecl|or, regal|rg lre so||dar|ly group corcepl. C||erl leedoac| galrered lror lre l|e|d a|so
sroWs lral lrere are corlus|ors, |rregu|ar|l|es |r sore ol lre cerlers, ard lral rary reroers do rol apprec|ale lre
so||dar|ly group corcepl ard lre var|ous deducl|ors, espec|a||y lre Vulua| A|d Furd ol lre oar|.

Ta|er logelrer, lrese prooao|y exp|a|r lre |oW repayrerl perlorrarce ol lre oar|.

Annex 10 Terms of Reference:

TERH8 0F REFEREN6E: Assessrerl ol Proposa| lor V|crol|rarce Parlrersr|p |r P|ar-ass|sled Corrur|l|es

ackground

P|ar |s a cr||d locused |rlerral|ora| deve|oprerl orgar|zal|or. Cr||d sporsorsr|p |s lre oas|c lourdal|or ol lre
orgar|zal|or. P|ar ras Wor|dW|de corr|lrerl lo rore lrar a r||||or sporsored cr||drer ard lre|r |oW |rcore
corrur|l|es. P|ar serves aooul 12,000 sporsored cr||drer |r 9 prograr areas |r lre Pr|||pp|res.
P|ar ras |derl|l|ed l|ve prograr areas ca||ed 0ora|rs: lea|lr, Learr|rg, lao|lal, 8u||d|rg Re|al|orsr|ps (oelWeer
sporsored cr||drer ard sporsors) ard L|ve||rood. lr 3epleroer 199, P|ar eroar|ed or ar |r|l|al|ve lo |rlroduce r|gr
perlorrarce r|crol|rarce |rlo lre overa|| prograrr|rg slralegy. urder lre L|ve||rood 0ora|r, ore ol lre corporale
slraleg|c oojecl|ves |s '.ro ra|se o|sposao|e nouseno|o |ncome ol P|an lam|||es rnrougn |ncreas|ng access ro l|nanc|a|
serv|ces lor rne poor ano encourag|ng rne|r use. lr parlrersr|p W|lr r|crol|rarce |rsl|lul|ors, P|ar a|rs lo eslao||sr
susla|rao|e l|rarc|a| serv|ces progrars Wr|cr rave r|gr |rpacl or cr||drer.
lr lre prov|rce ol lsaoe|a, P|ar Pr|||pp|res allerpls lo |rlroduce lWo approacres lo r|crol|rarce: [a| group |erd|rg |r
access|o|e, rura| corrur|l|es; ard, [o| v|||age oar||rg (F|rarc|a| 3erv|ces Assoc|al|or rode|) lo serve lre l|rarc|a|
requ|rererls ol |so|aled, sparse|y popu|aled areas.
Tre A|a|ay 3a Kaur|arar sa 0|lrarg Luzor, lrc. (A3Kl) Was lourded |r 198 lrrougr Tu|ay sa Pag-ur|ad, lrc. lo supporl
ellorls ol lre goverrrerl |r a||ev|al|rg lre poor ||v|rg cord|l|ors ol peop|e espec|a||y |r Nueva Ec|ja. A3Kl slarled lo
operale as a ror-sloc|, ror-prol|l soc|a| serv|ce corporal|or |r Ju|y 198Z, locus|rg or cred|l ard ||ve||rood supporl
acl|v|l|es. As ol Varcr 2003, A3Kl serves 11,58 c||erls |r lre prov|rces ol Nueva Ec|ja, 8u|acar, Tar|ac, Pargas|rar ard
Aurora W|lr a |oar porllo||o ol Ps 19.095 r||||or.
A3Kl suor|lled a proposa| ($rrengrnen|ng 0ommun|r|es ano Fam|||es rnrougn F|nanc|a| $erv|ces ano Enrerpr|se
0eve|opmenr) lo P|ar Pr|||pp|res lor lre expars|or ol lre|r prograr lo lre prov|rce ol lsaoe|a. A leas|o|||ly sludy W||| oe
corducled oy ar |rdeperderl corsu|larl, lo ara|yze lre l|rarc|a| projecl|ors, delerr|re |l lre relrodo|ogy car supporl lre
proposed acl|v|ly, ard assess |l lre proporerl ras lre capac|ly lo carry |l oul. Tre assessrerl W||| a|so l|rd oul |l lrere |s
sull|c|erl derard |r lre largel corrur|l|es lo supporl lre projecl|ors. Fror lr|s sludy, |l ray oe delerr|red |l ard roW a
parlrersr|p oelWeer P|ar ard A3Kl srou|d advarce.
8cope of work

Tre oojecl|ves ol lre acl|v|ly are:
1. Assess lre goverrarce ol A3Kl ard raragererl slruclure al lre read oll|ce ard orarcr |eve|s;
2. Exar|re A3Kl's raragererl |rlorral|or sysler ard l|rarc|a| raragererl sysler, |rc|ud|rg |rlerra| corlro|;
3. Assess lre derard lor l|rarc|a| serv|ces ard corpel|l|or |r P|ar-ass|sled areas;
1. Eva|uale lre sav|rgs ard cred|l producls ol A3Kl ard delerr|re |ls appropr|aleress |r respord|rg lo lre reed lor
l|rarc|a| serv|ces |r P|ar-ass|sled corrur|l|es;

76
It was reported by clients who dropped out from RBMPI microfinance program, the fieldworkers
does not show up in the center for the scheduled meetings. They show up 3 hours late or never at
all. Sometimes they show after 2 or 3 days.

Page 96 of 96
Page 96
5. Ara|yze lre pr|c|rg po||c|es ard operal|ora| p|ar ol A3Kl lo delerr|re lre exlerl lo Wr|cr |l car susla|r l|rarc|a|
serv|ces ard lra|r|rg lror |oca||y gereraled |rcore;
. Rev|eW l|rarc|a| projecl|ors lor lre proposed expars|or |rlo P|ar-ass|sled areas ard delerr|re lre|r corp|eleress,
accuracy ard re||ao|||ly;
Z. Prov|de ar overa|| assessrerl ol lre leas|o|||ly ol lre proposa| ol A3Kl, ra||rg recorrerdal|ors lor ary crarges
lral Wou|d |rcrease crarces lor |ls success;
8. Fac|||lale lre preparal|or ol ous|ress p|ar lor lre A3Kl prograr |r P|ar-ass|sled areas (|l oulcore ol lre leas|o|||ly
sludy |s pos|l|ve).

Expecled oulpuls ol lre corsu|larcy:
1. wr|ller reporl or:
a. goverrarce, raragererl ard orgar|zal|ora| slruclure ol A3Kl;
o. prograr approacr lo lre de||very ol l|rarc|a| serv|ces (|rc|ud|rg sav|rgs ard |erd|rg procedures, po||c|es);
c. raragererl syslers lral supporl |rp|ererlal|or ol lre prograr, |rc|ud|rg:
|. l|rarc|a| raragererl ard |rlerra| corlro|;
||. raragererl |rlorral|or sysler (|rc|ud|rg appropr|aleress lor produc|rg l|re|y ard accurale
|rlorral|or or prograr oulcores, ard exlerl lo Wr|cr |rlorral|or |s used oy prograr
raragererl);
|||. rurar resource raragererl;
d. assessrerl ol lre prograr proposa|, |rc|ud|rg:
|. ara|ys|s ol lre derard lor l|rarc|a| serv|ces |r P|ar-ass|sled corrur|l|es ard corpel|l|or |r lre
area;
||. adequacy ard re||ao|||ly ol l|rarc|a| projecl|ors (ard |l recessary, a preserlal|or ol rore rea||sl|c
esl|rales);
|||. polerl|a| lor prograr v|ao|||ly ard susla|rao|||ly;
|v. adjuslrerls recessary |r lre prograr approacr lor |rproved ell|c|ercy ard ellecl|veress (e.g.
c||erl oulreacr, largel|rg, lecrr|ca| supporl, sav|rgs ard cred|l procedures, elc.);
e. polerl|a| lor v|ao|||ly ard susla|rao|||ly ol l|rarc|a| operal|ors |r areas lor expars|or;
l. adjuslrerls reeded |r lre expars|or p|ars ol A3Kl;
2. 8us|ress p|ar lor lre A3Kl Prograr |r lsaoe|a, |rc|ud|rg:
a. ara|ys|s ol c||erl reeds;
o. assessrerl ol exlerra| |rsl|lul|ora| ard rar|el erv|rorrerls;
c. ara|ys|s ol currerl capac|ly ol lre orgar|zal|or;
d. slralegy lor respord|rg lo c||erl reeds ard rar|el derard;
e. projecl|ors ard slraleg|es lor oulreacr;
l. l|rarc|a| projecl|ors lor reacr|rg susla|rao|||ly

Tre corsu|larl |s expecled lo coord|rale W|lr represerlal|ve/s ol lre A3Kl ard Wor| c|ose|y W|lr P|ar slall lor lre
producl|or ol lre |rcepl|or reporl, dala galrer|rg ard ara|ys|s. Tr|s ergagererl |s largeled lo slarl |r Jure 2003 W|lr a
rax|rur l|re lrare ol 8 Wee|s.
Reporl|rg: Trree cop|es ol reporls (drall ard rev|sed) W||| oe suor|lled lo P|ar Pr|||pp|res ard lo A3Kl.

Feasibility ASKI Isabela Philippines

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FeasIbIIIty oI EstabIIsbIng a MIcroIInance Programe In IsabeIa, PbIIIppInes

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