Assessing the Islamic Lending Practices in General Santos City: The Case of Katiyakap,

Inc.
Nor-Aiza R. Unas1, Jon Marx P. Sarmiento1*, Prof. Thaddeus R. Acua1, and Prof. Anne
Shangrila Y. Fuentes2
1

School of Management, University of the Philippines Mindanao, Mintal, Davao City, 8022,
Philippines
2
College of Humanities and Social Sciences, University of the Philippines Mindanao, Mintal,
Davao City, 8022, Philippines
*Corresponding author. +6382-295-2750. marx_jon@yahoo.com

Abstract
Microfinance is considered as a poverty alleviation tool. It provides small loans to people
with insufficient income which hinders them from making self-employment projects. Informal
sector in the Philippines is comprised of microenterprises in a form of small vendors usually
situated in public markets. They rely heavily on financing which usually comes from informal
financiers. Muslim microentrepreneurs are predominant in public markets. Due to religious
principles, they require a different type of financing, especially in lending. The elimination of
riba or interest is the salient feature of Islamic lending. Islamic lending can provide assistance to
Muslim microentrepreneurs who are rejecting the conventional lending. Katiyakap Inc., a nongovernment organization, offers 3 modes of Islamic financing; Musharaka or profit and loss
sharing, Ijarah or leasing, and Murabaha or cost plus margin sale. This study was conducted to
assess the Islamic lending practices in General Santos City. A total of 120 Muslim
microentrepreneurs were interviewed. Cronbachs Alpha was used as a reliability test. Tobit and
multinomial logistic regression were both employed. The results show that the practice of
Islamic lending is prevalent in General Santos City public markets. Even though it is an informal
transaction, 55% of the total sample preferred to borrow from their relatives while still adhering
to the concept of Islamic lending. Among the modes of financing, Musharaka was the most
preferred by those who have more years of business experience and Murabaha for those who are

in the early years of business. For future studies, Muslim entrepreneurs operating in both small
and large scale operation should be considered.
Keywords: Cronbachs Alpha; Islamic Lending; Logit; Microentrepreneurs; Microfinance; Tobit
Abbreviations:
MFI Microfinance Institution
PEF Peace and Equity Foundation

Introduction
Microfinance is known to be a powerful poverty alleviation tool. It involves provision of
financial services such as loans, savings, insurance, remittances, and transfers to low-income
people whose economic standing excludes them from formal financial systems (Obaidullah &
Khan, 2008). It extends small loans to people with insufficient income for self-employment
projects that generate returns in allowing them to take care of themselves and their families
(Rahman, 2007). It has been proven successful to many countries in addressing the problems of
poverty.
According to the report of the Economic Intelligence Unit, the business information arm
of the Economist Group, Philippines is rated as the best in the world in terms of regulatory
framework and practices in microfinance and top four best performing country in the overall
business environment (Malaya Business Insight, 2012). However, Philippines is still considered
as a developing country due to its informal sector comprised of microenterprises.
Most of these microenterprises are severely resource-constrained small vendors operating
in different public markets in the country (Kondo, 2003). These small vendors rely heavily on
access to financing to make their business survive which usually comes from informal financiers
called 5-6. This form of financier is found in Philippine public markets with a distinctive
lending mechanism for Filipino and Indian lenders. The nature of this informal financing is
2

similar to those of formal. Money lenders charge a nominal interest rate over an agreed period of
time. However, this type of financing access does not require collateral or documents from their
borrowers unlike in the formal sector. Furthermore, the ability of the borrowers loan payment
history will determine the borrowers credibility.
In a country like Philippines where there is a significant Muslim population, the concept
of Islamic financing is significant. The concept of Islamic microfinance is different from the
conventional types of institutions that offer financial assistance. It adheres to the principles of
Islam and is a form of socially responsible investing. Investors who use their wealth for Islamic
microfinance projects only involve themselves in Halal projects which benefit the community at
large. Such projects include Zakat or charity, or trade and industry projects to develop a country's
economy (Nazeer, 2012). The lending in Islamic microfinance differs from the conventional
form due to the prohibition of riba or interest. It presents an alternative pattern for millions of
people who are currently not served by conventional microfinance. It is imperative for the
industry to adopt innovative and sound practices and prove that this type of financing assistance
work to fully access sustainable services. This therefore requires the industry for a deeper and
comprehensive market research to develop and implement appropriate business models for all
levels.
The Filipino Muslim population in the Philippines comprised 10% of the total population
or 10.3 million Muslims in 2011 (National Commission on Muslim Filipinos, n.d. as cited in
Philippines 2012 International Religious Freedom Report, 2012). In Mindanao, where most of
the Filipino Muslim ethnicities are located, lies a limited number of financial assistance that
would address to their specific needs. There are very few examples of microfinance institutions
(MFIs) operating in the field of Islamic finance and Islamic banks (Segrado, 2005). Out of the
forty six (46) microfinancing institutions nationwide, there are thirty nine (39) MFI NGOs

providing credit to the poorest of the poor. However, only eleven (11) out of the latter are based
in Mindanao and not all are operating in the field of Islamic finance (Lacorte, 2010).
Most of the microenterprises all over Mindanao are usually found in the public markets,
in the form of small vendors. In General Santos City public market, Muslim microentrepreneurs
are predominant. These microenterprises, among many others, are in need of financial assistance
to survive in the long run. These microentrepreneurs require a different kind of financing
assistance due to their religious principles.
One of the social enterprises situated in General Santos City is the Katiyakap Inc. which
caters financial assistance to Muslim microentrepreneurs specifically to Muslim women. It was
built primarily to look after the welfare of the Muslims that covered the provision of basic
services and also poverty alleviation. As of today, Katiyakap Inc. has a total of seventeen (17)
clients. Katiyakap Inc. started to tender Islamic finance last September 2012, with the help of the
Peace and Equity Foundation (PEF). Currently, the Katiyakap offers three (3) modes of Islamic
finance; Musharaka or profit and loss sharing, Ijarah or leasing, and Murabaha or cost plus
margin sale. Under the project entitled Profit Sharing Micro-financing for Women
Entrepreneurs of SOCSARGEN headed by the Peace and Equity Foundation, Katiyakap is one
of the included social enterprises.
As mentioned above, the clients of Katiyakap Inc. are Muslim women. The loan
applications are managed by these microentrepreneurs. It is the preference of the Katiyakap Inc.
to deal with Muslim women to make them economically empowered. Nevertheless, literature
would tell us that a womans testimony is half of the man in terms of financial matters (RafiqulHaqq & Newton, 1996).
Islamic financing has become widespread in both Muslim and non-Muslim communities.
However, there are still Muslims who are using the conventional type of financing which is
considered as Haram or forbidden in Islam. This practice may be a result of lack of awareness on

the existing types of Islamic financing. This study will introduce the different modes of financing
which are Halal or accepted in Islam. It would give a better understanding of the existing Islamic
financing practices to those Muslims who still engage in the conventional type of financing.
Hence, this study explored the different practices of Islamic lending and its prevalence in
General Santos City and Lagao public markets. Furthermore, the different Islamic lending
practices among the Filipino Muslim ethnicities were taken into consideration. The attitudes and
characteristics of Katiyakap clients, informal Islamic lending clients, and Islamic lending nonclients were highlighted. The participation of Muslim women in decision-making with regards to
financial matters was also determined.
The findings of this study will help the Katiyakap, Inc. improve their operation as an
Islamic microfinance. Being the only established Islamic MFI in General Santos City, their
knowledge of the current practices of the Muslim microentrepreneurs can aid them from
constructing appropriate financial assistance strategies for their clients. On the other hand, this
information can provide business opportunities for the clients of Katiyakap Inc., specifically the
Muslim women which can uplift their economic situation. In general, the practice of Islamic
finance can help the Muslim microentrepreneurs in maintaining their business operation and at
the same time ensuring that they are practicing the accepted form/s of financing under the
Islamic law.
The Islamic financial system supports the concept of participation in a transaction backed by
real assets and at the same time, employing the funds in a profit and loss sharing foundation
(Institute of Islamic Banking and Insurance, n.d.). Thus, Ahsan (n.d.) identified five (5) Islamic
contracts for commercial transactions:

1. Musharaka or profit and loss sharing In this contract, all participants share in the capital
as well as the profits and losses incurred. The profits will be distributed as per agreed
ratio while the losses are distributed as per capital ratio. Since both participants share the
profit and loss, every participant of the contract is agent of the other.
2. Mudaraba or profit sharing There are two (2) participants under this contract; the
person who contributes the capital and the person who contributes his/her skills or
services to the venture. The profits are shared by both of the participants in a pre-agreed
ratio. On the other hand, losses are distributed to the person who contributed the capital
while the other loses his/her services.
3. Ijarah or leasing An asset is passed to other participant against a periodic rent payment.
The asset under this contract must be tangible. The rights will remain with the original
owner of the asset and therefore will bear all the risks related to the ownership.
4. Salam or advance payment This contract is the exception to the general principle of
instant exchange of counter values in a contract of sale. In the case of paying in advance,
full payment must be observed. Installment in advance, however, is not allowed.
5. Murabaha or cost plus margin sale It is a sale of a commodity at cost plus margin and
has fulfilled all the conditions of a valid sale. It may be a credit sale but deferred price
becomes a debt and shall be dealt as a loan transaction. Under this contract lies the
following conditions: a) it must fulfil all the conditions of a valid sale, b) the bank should
purchase the asset from a third party and not from the customer itself, c) the bank must
own the asset before it sells to the customer, d) the seller must know and disclose the cost
including freight, insurance, taxes, etc., and e) profit may be fixed in aggregate sum or
through agreed ratio to be charged over the cost.
Materials and Methods

The study was conducted in General Santos City, also known as Dadiangas, a part of the
SOCCSKSARGEN region. It is situated at the southernmost tip of the archipelago. The
respondents of the study were Muslim microentrepreneurs located at General Santos City and
Lagao public markets.

Figure 2. Map of General Santos City, Philippines

Source: Google Maps, 2013
Complete enumeration was used as the sampling method in this study. A total of one
hundred twenty (120) respondents were interviewed; seventeen (17) under the profile Katiyakap
clients, forty (40) informal Islamic clients, and sixty three (63) non-clients. The data gathering
activity was done during the last week of December 2013. Both primary and secondary data were
employed in this study. Primary data were obtained with the use of structured survey
questionnaires. Secondary data related to this study were acquired from electronic books,
journals, and other online resources.
The conceptual framework used in this study is consist of (3) divisions; factors, attitude,
and practices (Figure 1). Under the factors, the socio-demographic which include age, sex, civil
status, ethnicity, and household size and economic profile such as years in business, type of
business ownership, capitalization, household income, and source/s of income were taken into

account. These factors determined the different attitudes of the Muslim microentrepreneurs.
Different attitude statements of the respondent were reflected under the four (4) categories: 1)
cultural attitudes which described the respondents manner towards Islamic lending, 2) profit
orientation attitudes described the respondents business orientation approaches, 3) risk attitudes
explained the respondents behavior towards decision-making regarding his/her business, and 4)
information seeking attitudes considered the respondents approach in searching for financial
institutions that would help his/her business and other matters that are essential for the survival
of the business. The lending practices of the respondents were either Islamic (no interest
involved) or Non-Islamic (with interest). Both practices have formal and informal choices.

Figure 1. Conceptual Framework for Assessing the Islamic Lending Practices in General Santos
City, Philippines: The Case of Katiyakap, Inc.
Cronbachs Alpha was used to determine the internal consistency of the items in the
survey instrument or how closely related the set of items were as a group. The alpha coefficient
ranges in value from 0 to 1 which may be used to describe the reliability of the factors extracted
from a dichotomous or questions with two (2) possible answers and/or multi-point formatted
questions (Pankhania & Jani, 2012). The closer Cronbachs Alpha coefficient is to 1, the greater
the internal consistency of the items in the scale. The rule of thumb for the value of alpha used in
this study was 0.6. The following twenty (20) attitude statements were used as items for the
different analyses throughout the study:

Cultural Attitude

Profit Orientation Risk Attitude

Attitude

Information
Attitude

Seeking

It is important
that the terms
of the lender
are based on
Islamic
lending.
It is important
that I borrow
and/or
lend
money only to
Muslims.
It is important
that I only
engage
in
Halal ventures.
It is important
that I do not
give interest if
I lend money to
others.
When
borrowing
money, I only
ask to those
who
have
Islamic
financial
assistance.

It
is
important to
receive the
highest
possible
amount that
can
be
borrowed.
The period
extended to
repay
the
loan
is
always
enough.
The
loan
amount
given
is
always
enough
to
meet
my
business
needs.
The process
in acquiring
the loan was
smooth.
The loan as a
whole
has
been
so
helpful
to
my business.

It
is
important to
avoid risky
loans in the
business
decisionmaking.
It
is
important to
borrow
money only
when it is
needed.
It
is
important
that
my
business is
not always
indebted.
It
is
important to
be cautious
in borrowing
money
for
the business.
It
is
important to
check
the
background
of the people
whom I lend
money to.

There is a
limited access
to
financial
services
in
General Santos
City.
There is a
limited access
to
financial
services that
caters
my
needs as a
Muslim.
I consult with
other
businesses in
my
loan
portfolio.
As
an
entrepreneur, I
know
my
options when I
need financial
assistance.
I have gained
knowledge to
help
me
manage
my
loan portfolio.

Results and Discussion

A total of 120 respondents were interviewed and distributed to the following respondentcategories: (1) 17 Katiyakap clients, (2) 40 informal Islamic lending clients or respondents who
asked for financial assistance from family, relatives, and/or friends while following the concept
10

of Islamic lending during the period of January-December 2013, and (3) 63 Islamic lending nonclients or respondents who did not seek for financial assistance and/or did not engage in the
conventional type of lending during the same period.
On the average, a client coming from Katiyakap and informal Islamic is 38 and 30 years
old, respectively while an average non-client is 32 years old. Majority of the respondents are
female and married. The ethnicity of the respondents for each category varies. For the Katiyakap
clients, majority were Maguindanaon (9). On the other hand, majority of the respondents from
the informal Islamic clients (38) and non-clients (54) were Maranao. The average number of
household members of a Katiyakap client, informal, and non-client are 5, 6, and 6. In terms of
educational attainment, the Katiyakap clients had the highest number of years in education (12).
Majority of these microentrepreneurs did not hold any leadership position in their respective
community. In this profile, some variables under the civil status such as single and widowed and
ethnicity such as Maguindanaon, Maranao, and Others appeared to be statistically significant.
Among the three (3) respondent-categories, the non-clients had the highest number of
years in business with an average of eight (8) years, followed by the informal Islamic clients
with an average of six (6) years, and Katiyakap clients with three (3) years. The difference of the
respondent-categories of Katiyakap clients and non-clients is statistically significant at 5% level.
This implies that the higher the number of business years a Muslim microentrepreneur has, the
more likely he/she will not seek financial assistance. Majority of the respondents are sole
proprietor of their respective business. To maintain the operation of their business, both the
Katiyakap and informal Islamic clients needed financial assistance. However, majority of the
total population indicates that the non-clients do not need this form of assistance for their
business. Roughly one (1) in every two (2) Muslim microentrepreneurs (53%) needs financial

11

assistance. Meanwhile, three (3) in every ten (10) or 31% Muslim microentrepreneurs need
Islamic financial assistance whether from formal or informal institution. Among the three (3)
respondent-categories, the non-clients received the highest household income which amounts to
PhP 54,604/month. The informal Islamic clients received PhP 41,287 followed by the Katiyakap
clients with PhP 18,582/month. The difference of the incomes between Katiyakap clients and
informal Islamic clients and Katiyakap clients and non-clients are statistically significant at 5%
and 1% levels, respectively. Thus, Katiyakap clients had lower income compared to the informal
Islamic clients and non-clients. This information implies that the Katiyakap Inc. is serving the
lower income population of the Muslim society. In terms of business performance, the nonclients received the highest sales every month (PhP 50,484) followed by the informal Islamic
clients (PhP 38,150) and Katiyakap clients (PhP 12,082). The difference of the sales between the
respondent-categories is statistically significant at 1% level. The Katiyakap clients had the least
amount of expenses among the three (3) groups. These clients are still developing
microentrepreneurs which can be explained by their current business performance. These results
explain that those respondents who are operating in their early years in business are more likely
to seek for financial assistance. In addition, these respondents also received the lowest household
monthly income and monthly business profit which will eventually encourage them to ask for
financial aid. It can also be observed that the higher the number of years in business, the more
expenses is needed for the business. These expenses may be used for expansion of the business.
Overall, the non-clients obtained the highest profit among the three (3) groups. Most of these
non-clients had multiple businesses which caused their good economic performance.
Islamic Lending Awareness, Experience, and Preference

12

One of the factors that will greatly affect the respondents involvement in Islamic lending
is their awareness of the said practice. Out of 17 Katiyakap clients, 14 or 12% of the total sample
heard about the concept of Islamic lending prior to the orientation given by the said organization.
On the other hand, majority of the informal Islamic and non-clients have not heard of such kind
of lending. Majority of the respondents from the three (3) categories are aware of the prohibition
of interest in Islam. In terms of practice, both Katiyakap and non-clients answered 3.94 in
average while informal Islamic clients answered 4 in average (1 for No to 4 for Always).
The lending history of the respondents during the period of January to December 2013
was evaluated. The results show that majority of both Katiyakap and informal Islamic clients
borrowed money during the said period. Majority of the Katiyakap clients borrowed from a
formal sector while informal Islamic clients borrowed from their relatives. In the case of nonclients, majority did not borrow. However, the non-clients borrowed the highest amount (PhP
96,500) followed by the Katiyakap clients (PhP 18,050) and informal Islamic clients (PhP
14,282) in average. The non-clients also had the highest amount of balance in their debt (PhP
81,250). In terms of their instalment, the Katiyakap clients had the lowest amount paid per
instalment (PhP 2,765) in average, for twelve (12) instalments. Since Katiyakap Inc. is
considered as a formal sector specifically an Islamic microfinance, the number of instalments
and amount for each instalment are all included in the terms and agreements between them and
the client and must be observed properly. In their transaction, majority of the respondents from
the three (3) categories did not have a co-borrower. Among the respondents, the Katiyakap and
informal Islamic clients still have their outstanding balance. In terms of having interest in the
loan that they acquired, both the Katiyakap and informal Islamic clients loan did not have any
interest. A total of four (4) or 8% of the total sample were given interest in their loan. These

13

respondents were under the non-client respondent-category which refers to those who engage in
borrowing and/or lending with interest. However, 1 (2%) Katiyakap client also had loan from
informal non-Islamic scheme.
Currently, the Katiyakap Inc. offers three (3) modes of Islamic finance; the Musharaka or
profit and loss sharing, the Ijarah or leasing, and Murabaha or cost plus margin sale. In addition
to these three (3), the Mudaraba or profit sharing and Salam or advance payment were also
included in this study. Many of Katiyakap clients have experienced Murabaha as mode of
financing. The informal Islamic clients experienced Salam while the non-clients experienced
Mudaraba, Musharaka, and Salam. On the other hand, some of the informal Islamic clients
experienced Murabaha and Salam as modes of financing in terms of lending. In terms of
preference, majority of Katiyakap clients preferred Murabaha. It is commonly applied by the
Katiyakap clients since it provides items which are used in the business. These clients are still in
their early years which require them to invest for equipment needed for the business. Some of the
items that were already provided by the Katiyakap to their clients were motorcycle, refrigerator,
airconditioner, heat press and printer, among others. Since it is a cost plus margin sale, the
amortization is 30% plus the cost of the item provided by the Katiyakap. For transparency
purposes, the Katiyakap Inc. let the clients canvass for the item/s that they want. The schedule of
the amortization will start thirty (30) working days after the transaction was made. This
information is manifested in the contract provided by the microfinance. Furthermore, a total of
four (4) clients or 3% of the total population prefer the Musharaka as a mode of financing for
their business. In this financing, the Katiyakap and the borrower shares the profit and loss of the
business by a given ratio; 30% for Katiyakap and 70% for the client. The schedule of the
amortization will start after ninety (90) working days of the transaction. This information is

14

evident in the contract provided by the microfinance. The computation of the profit from the
business will be every three (3) months. Lastly, a client from Katiyakap Inc. preferred Ijarah
among the five (5). In the Katiyakap experience, the clients applied for Ijarah usually for their
farm redemption. In the case of the informal Islamic and non-clients, the common preference of
the majority from these two (2) is the Musharaka. Since the businesses of these respondents are
already established and have been operating for 6-8 years, they do not encounter much on
problems such as acquiring equipment for their business unlike the Katiyakap clients. Their
preference among the five (5) modes of financing, the profit and loss sharing, can lead to
expansion of business. In this venture, the microentrepreneurs might choose to engage in
partnership to properly manage the business especially in the taking part of capital.
Women Participation
Decision-making, in general, is one of the activities that need to be done in every
household. In this study, the participation of women in household decision-making is
highlighted. The answers of both male and female respondents are presented to check the
consistency of the results. The results show that majority or 96% of the male respondents make
decisions regarding the seeking of financial assistance with their spouse. This information is
consistent with the response coming from the female respondents (93%). In addition, having the
final say in the decision was not participated by the female respondents, according to 56% of
them. It can be observed that majority from the respondents let the females do the request of the
loan whenever they seek for financial aid. This is evident in both male and female responses. In
the case of Katiyakap Inc., they let the female member of the household act upon the application
of the loan since Muslim women entrepreneurs are their target clients. The Katiyakap Inc.
preferred the females to manage the application because they believe that it is easier to make

15

transactions with women. In addition, it is in the nature of Katiyakap Inc. to make the women
economically or financially empowered. In the case of the non-clients, majority of the male
respondents or 24% (6) of the total sample do not let the female of the household process their
loan/s. As seen in the earlier part of this chapter, the non-clients applied the highest amount
during the period of January-December 2013. This practice can be associated by the custom that
Muslim men are in-charge of the household and therefore takes responsibility especially in
financial matters. According to Dhami and Sheikh (2000), the economic responsibility for
maintaining the household falls squarely on the shoulders of the man regardless if the wife is
earning money or not. In lending money to other people, this decision is participated by both the
male and female, according to 92% of the total population. The results also show that majority or
82% of the total population did not receive benefits from having financial access. However, in
the case of Katiyakap Inc., the total population of its clients received benefits from the financial
assistance that was offered to them. Since Katiyakap Inc. helped these seventeen (17) clients in
the operation of their business in terms of acquiring items, partnership ventures, and farm
redemption, it is in the clients advantage when it comes to having stable income. However,
majority of the respondents or 33% and 49% of the total sample from informal Islamic and nonclients, respectively affirmed that there are no benefits from having financial access. Unlike
Katiyakap clients, these two (2) respondent-categories do not have access from established
microfinance institutions.
Islamic Lending Attitudes
With the use of a 5-point Likert scale (1 for Strongly Disagree to 5 for Strongly Agree),
the four (4) Islamic lending attitude-categories were employed with five (5) statements each.
These categories are the cultural, profit orientation, risk, and information seeking attitudes.

16

Under the cultural attitude, the informal Islamic clients had the highest mean rank (4.47). This
result shows that informal Islamic clients were the most culturally inclined when it comes to
seeking financial assistance by still applying the notion of what lending in Islam should be.
Statements such as It is important that I only engage in Halal ventures and It is important
that I do not give interest if I lend money to others support the impression that these clients opt
to follow the Islamic lending concept.
The Katiyakap clients had the highest mean rank in profit orientation (4.54), risk attitude
(5.0), and information seeking (4.19). For the profit orientation, the result shows that Katiyakap
clients were the most profit oriented. Statements such as statements The loan amount given is
always enough to meet my business needs, The process in acquiring the loan was smooth, and
The loan as a whole has been helpful to my business confirm their commitment with
Katiyakap, Inc. specifically in their loan transactions. Moreover, the result under risk attitudecategory implies that these clients were risk averse. They tend to avoid decisions that would put
their business into a risky position since they are still developing. Hence, chose to start operating
in a smaller scale. Lastly, the statements under the information seeking category such as There
is a limited access to financial services in General Santos City, There is a limited access to
financial services that caters my need as a Muslim entrepreneur, As an entrepreneur, I know
my options when I need financial assistance, and I have gained knowledge to help me manage
my loan portfolio prove that Katiyakap clients were able to ask for financial assistance from an
Islamic microfinance. In this category, the non-clients were the least information seeker (3.61)
which may led to their participation to informal sector such as the 5-6 lending scheme.
Reliability Analysis

17

To test the internal consistency of the statements used under the four (4) attitudecategories, Cronbachs Alpha was employed as a reliability test. Each category has five (5)
statements. As mentioned earlier, 0.60 is the rule of thumb used in this study. Since the value of
alpha appeared to be lower than 0.60, one of the items was removed thus, giving .608 as its new
value for cultural attitudes. For the profit orientation attitudes, the value of Cronbachs Alpha
(.803) satisfied the accepted reliability coefficient and therefore all of the items were retained.
Moreover, the value of Cronbachs Alpha for the items under the risk attitudes is .903. All items
were considered. For the information seeking attitudes, the value of alpha is less than the
accepted reliability coefficient (.541). One of the items was removed thus, giving .672 as the new
value of alpha. The reliability analysis reduced the attitude statements from twenty (20) to
eighteen (18). The remaining statements satisfied the rule of thumb value of Cronbachs alpha.
These results show that the questions used in the survey instrument were consistent internally
except for two (2) items. These results also explain how closely related the set of items are in
each group or category. The remaining attitude statements were employed for other analyses.
Tobit Analysis
The remaining statements from the reliability test were then employed for tobit analysis.
The socio-demographic and economic profiles were used as independent variables. For the
dependent variables, the cultural, profit orientation, risk, and information seeking attitudes were
used as the dependent variable for each model, giving us a total of four (4) models. For the
cultural attitude model, the results show that Maranao respondents had the lowest cultural
attitude level. This is consistent with the results from the other analyses in this study. This model
is significant at 5% level. For the profit orientation model, the results show that respondents who
need financial assistance are most likely to have high scores in profit orientation attitudes. This

18

model is significant at 1% level. Moreover, the results from the risk attitude model explain that
Maranao and Iranaon respondents are less risk averse among the ethnicity groups. This model is
significant at 1% level. Lastly, the information seeking attitude model shows that Maranao
respondents are most likely to be not information seekers which explains their engagement in the
conventional type of lending instead of the Islamic microfinance. This model is significant at 1%
level.
Multinomial Logit Analysis
This analysis was used to model the attitudes that explain the preference of the
respondents among the different modes of financing. In general, the results show that if a
respondents score is high in a cultural attitude statement, he/she will most likely favor
Musharaka or Salam. On the other hand, a respondent will most likely favour Mudaraba if
he/she has a high score in a profit orientation attitude statement. Furthermore, Ijarah is the most
likely preference of a respondent with a high score in a risk attitude statement. Lastly, a
respondent with a high score in information seeking attitude statement most likely prefer the
Mudaraba.
Conclusion and Recommendation
The basis of the current lending practices of the Muslim microentrepreneurs in General
Santos City public markets is still associated with their religious principles. Out of the total
sample, majority or 150 affirmed their constant engagement in Islamic lending, formal or
informal. In general, roughly one (1) in every two (2) Muslim microentrepreneurs (53%) needs
financial assistance. Specifically, three (3) in every ten (10) or 31% of these microentrepreneurs
need Islamic financial support whether from formal or informal institution. The practice of
Islamic modes of financing were also observed. Katiyakap clients favor the Murabaha. In the

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case of the informal Islamic clients and non-clients, they favor the Musharaka. For future
studies, Muslim entrepreneurs operating in both small and large scale operation should be
considered. Financial institutions such as banks and microfinance can make use of these findings
as a baseline for a possible adoption of Islamic finance to cater the needs of the Filipino Muslim
population.
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