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Financial Literacy Campaign

The Philippine Consulate General


Jeddah
Kingdom of Saudi Arabia
24 April 2009
Invocation
National Anthem
Welcome Remarks

Consul General Ezzedin H. Tago


Philippine Consulate General
Jeddah
Audio Visual Presentation

Paghahanda Sa Kinabukasan
The BSP’s
Financial Learning
Campaign (FLC)

DEPUTY GOVERNOR DIWA C. GUINIGUNDO


22-
22-25 April 2009
Kingdom of Saudi Arabia
Outline

I. Importance of Remittances
II. Significance of Financial Planning
III. Types of Financial Instruments
IV. Source of Financing for Business

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1
Importance of
Remittances
Benefits of Remittances
• Promote
economic activity through higher
consumption
• Generate employment
• Increase foreign exchange supply
• Contribute to savings
• Provide additional funds for the government
Remittances can be harnessed for investments, in the
form of:

 human resource capital investments through education and


health care for beneficiaries;
 physical capital investments through acquisition of real
properties, including land purchases and home construction;
 financial capital investments through savings in bonds and
other financial instruments; and
 investments in business ventures such as in small- and
micro- enterprises (SMEs).

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2
Significance of
Financial Planning
FINANCIAL PLANNING

Importance

1. To save for the future

2. To acquire protection against unforeseen


untoward events

3. To achieve financial independence

13
Three STEPS to achieving
FINANCIAL FREEDOM

3
Invest
2
Save

1
Plan
Setting--up Family Goals
Setting
Family goals are usually centered on the following:

a. Education
b. Housing
c. Health
d. Retirement
e. Protection against unforeseen events
YOUR FINANCIAL PLAN

IMMEDIATELY 2 years 10 years 20 years

TIMELINE
Graduation Fund Funds for Build Dream LIFE
GOALS Retirement
for Child 1 Business House Fund
(P 50K) Undertaking (P 3 Mn.) (P 3 Mn.)
Mn.)
(P 100K)

 Create a timeline on when you want it to happen


 Specify amount needed
Why Families are not able to Save

a. Dependency on family member working


overseas
b. Luxurious lifestyle
c. Other family issues that drain resources
 Early marriage
 Family break-up
 Lack of interest in school
 Personal problems, vices
FINANCIAL PLANNING

Income – Expense = Savings 


Income – Savings = Expense


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April 2009 Can be used for:
Income 1. Tuition fees
Target Savings xxx 2. Housing
Expenses 3. Investments
Food 4. Business
venture
School Allowance
Electricity
Water
Transportation
Clothing
Entertainment
Others
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3
Types of Financial
Instruments
PESO REMITTANCE

CONSUMPTION SAVINGS SMEs/MICROFINANCE

Bank instruments (TD/SD/ Savings in Cooperatives


Mutual funds/UITF) TD/SD Agri--business
Agri

Treasury instruments
T-bills, RTBs, T-
T-notes Stock Market Retail business

Insurance (life, non-


non-life,
Education, pension) Real Estate Lending business

Others Others

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LOWER YIELD BUT HIGHER YIELD BUT NO
GUARANTEED RETURN GUARANTEED RETURN OF
OF PRINCIPAL PRINCIPAL

1. Savings Deposit 1. Mutual Funds


2. Time Deposit 2. Unit Investment Trust
3. Treasury--bills
Treasury Funds (UITFs)
4. Retail treasury bonds (RTBs) 3. Stocks
5. Long-term Negotiable
Long- 4. Insurance
Certificates of Deposit
(LTNCD)

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INVESTMENT INSTRUMENTS
RTBs TBills UITFs Mutual Variable
Funds Insurance
Who May
Buy
Individual     
Institutional   
Where to GSEDs GSEDs Banks •Brokers Insurance
Buy •Banks cos.
•Ins.
agents
Minimum P5,000 P100,000 P10,000 P1,000 ---
Investment
As of February 6, 2009
INVESTMENT INSTRUMENTS
RTBs TBills UITFs Mutual Insurance
Funds
Yield Fixed- Zero NAVPU NAVPS NAVPU
rate coupon
coupons
Guaranteed Yes Yes No No No
Return of
Principal
Tax Feature 20% 20% 20% --- ---

Holding 3 and 5 91-, 82-, 5 to 365 --- ---


Period years 364- days days
RETAIL TREASURY BONDS

Example: 5-
5-year RTB with 5.875% coupon rate

P30,000 x 5.875% x 5 years = P8,812.50


(investment) (coupon rate p.a.) (total income)

After--tax Income:
After
*/
P8,812.50 - P1,762.50 = P7,050.00
(total income) (20% tax)

*/ Credited quarterly
RETAIL TREASURY BONDS

Quarterly Coupon:

P7,050.00 ÷ 20 = P352.50/quarter
(after--tax income)
(after (# of quarters in 5 years)

Return on Investment:
= P352.50 (proceeds per quarter) x 100
P30,000 (initial)
= 1.18% per quarter for a 5-
5-year RTB,
5.875% coupon rate
TREASURY BILLS
Selling Price
Formula:
SP = PP + [(PP) (i
(i) (h/360)]
i = (SP – PP) / PP x (360/h)

Where,
SP: selling price
PP: purchase price */
i : yield for holding period
h : holding period
*/ Calculated based on present value formula
TREASURY BILLS
Example: 91-
91-day T-
T-bill at 13% yield

P1,000,000.00 - P981,994.75 = P18,005.25


(investment) (selling price) (discount/interest
earned)

After--tax Interest Earned:


After

P18,005.25 - P3,601.05 = P14,404.20


(discount/interest earned) (20% tax)
TREASURY BILLS

Return on Investment:

= P1,014,404.20 (proceeds) – P1,000,000 (initial) x 100


P1,000,000 (initial)

= 1.44% for a 91-


91-day T-
T-bill, 45-
45-day holding period, 13% yield
UNIT INVESTMENT TRUST FUND
Example: 30-
30-day UITF

P100,000.00 ÷ 1.157867 = 86,365.71


(initial investment on (NAVPU) (units of participation)
Feb. 20, 2009)

P102,490.19 = 1.1867 x 86,365.71


(proceeds on investment (NAVPU) (units of participation)
on March 22, 2009)
UNIT INVESTMENT TRUST FUND

Return on Investment:

= P102,490.19 (proceeds) – P100,000 (initial) x 100


P100,000 (initial)
= 2.49% for a 30-
30-day UITF
MUTUAL FUND
Example: 60-
60-day Mutual Fund

P100,000.00 ÷ 1.2341 = 81,030.71


(initial investment on (NAVPS) (shares)
Feb. 20, 2009)

P102,309.37 = 1.2626 x 81,030.71


(proceeds on investment (NAVPS) (shares)
on April 21, 2009)
MUTUAL FUND

Return on Investment:

= P102,309.37 (proceeds) – P100,000 (initial) x 100


P100,000 (initial)
= 2.31% for a 60-
60-day MF
MUTUAL FUNDS

Medium to
Types High Risk Low Risk

Bond Funds (Fixed) 


Money Market Funds 
Equity (Stock Funds) 
Balanced Funds 
VARIABLE INSURANCE / INVESTMENT
LINKED INSURANCE
Example: One-
One-year Variable Insurance with a P750,000 face amount

P23,655.00 ÷ 1.8924 = 12,500


(regular annual premium (NAVPU) (units of participation)
payment on Jan. 10,
2009)

P24,842.50 = 1.9874 x 12,500


(proceeds on investment (NAVPU) (units of participation)
on Jan. 10, 2010)
Return on Investment:

= P24,842.50 (proceeds) – P23,655 (initial) x 100


P23,655 (initial)

= 5.02% for a one-


one-year Variable Insurance */

*/ Income could cover for future premiums


4
Source of Financing
for Business
MICROFINANCE 101
Broad range of financial services such as deposits, loans, payment services,
money transfers and insurance products offered to the poor and low-income
households for their small enterprises.

Unique Characteristics:
• Open to small savers or micro-borrowers
• Approval and disbursement of loans are fast
• Individual borrowers can avail of loans
• Grant of loans based on the borrowers’ and household’s expected project
cash flow
• Small loans ranging from as low as P2,000-P5,000 to a maximum of
P150,000 (collateral-free)
• Unsecured and short-term loans
SNAPSHOT OF MICROFINANCE IN THE BANKING SECTOR
(As of 31 December 2008)

Micro Loans Portfolio Savings


No. of
Banks Component
Banks Amount No. of (in millions)
(in millions) Borrowers
Microfinance Oriented
Banks
Rural Banks 5 724.10 128,494 445.76
Thrift Banks* 4 192.93 57,780 57.95
TOTAL 9 917.02 186,274 503.70
“Regular” Banks with
Microfinance
Operations
Rural Banks 167 4,046.63 580,532 1,073.99
Cooperative Banks 25 913.28 88,198 167.34
Thrift Banks 19 342.53 10,170 4.04
TOTAL 211 5,302.44 678,900 1,245.37

TOTAL 220 6,219.46 865,174 1,749.07


CREDIT SURETY FUND PROGRAM

• Allows MSMEs who are members of a cooperative to gain access


to credit from banks in the absence of acceptable hard collaterals.
• MSMEs defined (under Small and Medium Enterprise Development Council
Resolution No. 01 Series of 2003 dated 16 January 2003)
By Asset Size:
Micro : Up to Php 3,000,000
Small : Php 3,000,001 -- Php 15,000,000
Medium : Php 15,000,001 -- Php 100,000,000
Large : above Php 100,000,000

Based on the number of employees:


Micro : 1 -- 9 Employees
Small : 10 -- 99 Employees
Medium : 100 -- 199 Employees
Large : More than 200 Employees

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CREDIT SURETY FUND PROGRAM

• A multi-sectoral program composed of:


- Creation of a trust fund that will serve as security for the loans:
(1) national government through the Industrial Guaranty and Loan Fund (IGLF)
(2) the local government led by the Provincial Governor
(3) MSMEs under the cooperatives
- Provision of loans:
(4) participating banks
- Provision of rediscounting for up to 80% for the MSME loans
(5) Bangko Sentral ng Pilipinas (BSP)

41
CREDIT SURETY FUND PROGRAM

• Granting of Loans:
- Managed and administered at the provincial level to be more responsive to the
credit needs of the MSMEs in each province.
- Loans to be approved by the CSF Oversight Committee
- Loanable amount: depends on the evaluated project loan proposal
- Interest rate: 8-12% per annum
- Additional fee: guarantee fee of 2-5% of the loan
- In case of borrower default, CSF will cover the debt while cooperatives will run
after their members.
- Banks that extend loans secured by the CSF can rediscount up to 80% of
such loans with the BSP.

42
CREDIT SURETY FUND PROGRAM

• Participating Banks:
- Allied Bank
- United Coconut Planters Bank
- Land Bank of the Philippines
- Development Bank of the Philippines
- BPI Family Bank
- Rural and cooperative banks with rediscounting line with the BSP

43
CREDIT SURETY FUND PROGRAM

• Provinces that launched the program:


- Cavite
- Aurora
- Bohol

• Provinces to replicate the program:


- Davao City
- Davao del Sur
- Cotabato
- Batangas
- Bulacan
- Laguna
- Quezon
- Mindoro
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The Financial Learning
Campaign is a flagship program
of the BSP to promote
Financial Planning, Savings
and Investments
PERANG PADALA, BIGYAN
NG HALAGA,

TIPIRIN, PALAGUIN AT
PAGYAMANIN,

PARA MAGANDA
KINABUKASAN NATIN !

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Website: www.bsp.gov.ph
E-mail: bspmail@bsp.gov.ph
Audio Visual Presentation

Entrepinoy
Remittance & Investment
Protection Tips

Dottie M. Bernas
Bank Officer III
Bangko Sentral ng Pilipinas
Open Forum

Rosabel B. Guerrero
Deputy Director
Bangko Sentral ng Pilipinas
Closing Remarks

Juanita D. Amatong
Monetary Board Member
Bangko Sentral ng Pilipinas
Thank You

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