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CHAPTER I

THE PROBLEM AND ITS BACKGROUND

Introduction

The economic progression talks about how efficiently and solvent a

certain aspect is to sustain the needs of its environment. The

volatility of economy is one of the factors that a society should

investigate. In many developing countries, microfinance plays a vital

role in providing the poor (small farmers, fishermen, and micro-

entrepreneurs) with access to credit.

It has also proven to be “a potent tool for poverty reduction by helpin

g the poor increase their income, smooth consumption, build assets,

and reduce their vulnerabilities in times of contingencies. Once

educated on how the process works, customers are then allowed

access to loans. Just as one would find at a traditional bank, a loan

officer approves and helps borrowers with loan applications and

oversight. These micro loans will support the creation or expansion

of small enterprise and generate jobs. With the help of these lending

businesses, borrowers will be able to sustain their livelihood in times

of economic shock with even a small amount of readily available

funds.

In spite of these achievements in the microfinance sector, however,

Mandaluyong still has a long way to go in its journey towards

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financial inclusion, which can be considered in terms of supply and

availability of financial products and services from formal institutions,

the levels and patterns of use of different financial products and

services and the experience of the consumer, demonstrated in

attitudes and opinions. But it cannot be denied that micro finance

institutions provide resources to households that otherwise face

limited access to finance.

Microfinance subsidizes resources to households that otherwise

features guarded access to finance. Many low-income households

are searching access to finance to construct their businesses, but

they generally lack the security to access financial resources.

Because microfinance has collateral requirements that are more

flexible than those of traditional banks, it can help promote

productive behavior and foster income-generating activities among

low-income households. As a result, the Philippines have been

recognized for providing a business environment within which

microfinance institutions.
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Background of the Study

Recently, succeeding entrepreneurs have been the center of

newspaper and magazines, just like how famous businessmen

reached the top of the ladder. Poverty is the main problem in

improving the economic status of the country. Most of those trapped

in poverty do not have enough income to provide their basic needs

so that many people are engaging in small trading businesses for it

is one of the main sources of their livelihood. Enterprises are the

promoters for economic growth in many economists and a key

component for their success is the availability and provision of

finance for their operation. This study will examine the impact of

micro finance institution in Mandaluyong City. Micro finance

institutions have great impacts at the local level through the growth

of small businesses. When a micro loan is extended to a borrower

who starts a business in a town jobs are created, revenue is

generated, taxes are collected, and the local economy of that town

grows.
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However, certain global or regional events – such as the

sharp decline in commodity prices often have a direct impact on

micro finance clients. It all comes down to the nature, and

Therefore consequences, of the crisis at hand: for instance, an

external event that alters the value of a country’s currency. This

leads to a drop in their consumption of goods and services, including

those offered by micro-entrepreneurs.

Microfinance starts by educating borrowers about the basics

of how money and credit work, and how to budget and manage debt.

Following this, the borrowers are provided access to the capital so it

will not be hard for them to settle the risks in putting up a business. A

microfinance institution is an organization that offers financial

services to low income populations. Almost all give loans to their

members, and many offer insurance, deposit and other services.

Historically, the goal of microfinance was the alleviation of

poverty. For many years, microfinance had this primary social

objective and so traditional MFIs consisted only of non-governmental

organizations (NGO), specialized microfinance banks and public

sector banks.

Lending Company shall refer to a corporation engaged in granting

loans from its own capital funds or from funds sourced from not more
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than nineteen (19) persons. It shall not be deemed to include

banking institutions, investment houses, savings and loan

associations, financing companies, pawnshops, insurance

companies, cooperatives and other credit institutions already

regulated by law. The term shall be synonymous with lending

investors. A lending company may only be established as a

corporation. This excludes a sole proprietorship or a partnership from

operating a lending business. No lending company shall conduct

business unless granted an authority to operate by the SEC.

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Conceptual Framework

This study was comprised of the concept that micro finance

institutions have role of micro finance institutions to mandaluyong

market vendors' financial needs

Mandaluyong, City. Economic perspective changes every time and

so the environment that will be affected by its volatility. For instance,

commodities will raise its prices; people who are capable of taking

them will step at the safe line. On the other hand, those who aren’t

competent will be left.

According to (BSP, 2012 In terms of usage of banking

services, various studies show that a small segment of the

population have savings accounts or have availed of loans, although

majority of the population has availed of domestic payment services.

According to the 2009 Consumer Finance Survey (CFS), 8 in 10

Filipino households did not have a deposit account; roughly, 93-

percent of those with no deposit accounts said they did not have

enough money for bank deposits.

The quality and welfare dimensions, the BSP explained, are “co

mplex topics both conceptually and in terms of measurement,

which require demand-side surveys and the use of qualitative

indicators.” The BSP acknowledged “adequate demand-side

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information is lacking and may not be in sufficient depth to measure

inclusion.

As stated by (Quiñones & Seibel, 2000, p.425)

Considered as one of the

World’s

successful microfinance institutions, Grameen Bank in Bangladesh p

roved “that a bank catering solely to the poor can become a

significant player in the financial market”. Launched in June 1979, it

has become a model for credit NGOs working with the poor in other

developing countries. Among its features that have been

successfully replicated by MFIs in the Philippines are: (a) a focus on

poor women, (b) gathering detailed target group information and

using rigid selection criteria to bar the non-poor from access to its

services; (c) internal resource mobilization through a compulsory

savings component, supplemented by external donor or commercial

resources; (d) reliance on peer pressure and joint liability of solidarity

groups; (e) strict credit discipline with absolute insistence on timely

repayment; and (f) intensive training of members and staff to adopt

the attitudes, practices, and underlying norms and values of the

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Grameen approach (CARD, 1998, as cited by Quinones & Seibel,

2000).

Based on Bhatt & Tang (2001), It is evident that the microfinance

policy of the Philippines has moved away from a

dominantly ‘welfarist’ approach from the 1950s up to the Early 1990s

to a more ‘institutionalist’ approach. Welfare-oriented programs

prioritize depth of outreach and utilize subsidies in providing financial

and nonfinancial services for the poor, which were the original

thrusts of the DCPs. However, institutionalists argue, “the key

role of microfinance is financial ‘broadening’; That is, helping build a

system that can provide financial services to large numbers of poor

people on a sustainable basis.” Success is thus generally gauged

“by institutional movements toward achieving financial sustainability”

(p.326).
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INPUT PROCESS OUTPUT

1. demographic
profile of 1. Survey. Action plan for the
respondents
Gathering of
improvement and
A. Age questions though
B. Gender broadening of
3. Interview
C. salary Basis financial services by
4. Observations
institutions toward
2. Micro-finance
Services achieving financial

sustainability

3. role of micro
finance institutions .
to mandaluyong
market vendors'
financial needs

The paradigm of the study used was the input-process-output

model. This model identified the inputs, outputs, and required

processing task required to transform input into output.

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Statement of the Problem

The purpose of this study was to evaluate the role of micro finance

institutions to mandaluyong market vendors' financial needs. More

specifically it sought to answer the following questions:

1.What is the demographic profile of the borrowers?

In terms of:

1.1 Age

1.2 Gender

1.4 Salary basis

2. What are the Micro Finance Services for Mandaluyong city market

vendors that are recognized?

3. How does Micro Financing Affect the profit margin of selected

market vendors of Mandaluyong City? In terms of:

2.1 Business capitalization

2.2 Level of borrower’s satisfaction

4. How do the micro finance institutions maintain good relationship

with its borrowers?

In terms of:

3.1 Initial approach and credibility check

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3.2 Benefits offered

3.3 Ambulant vendors

5. Is there a significant role to mandaluyong market vendors' financial

needs the micro finance institutions?

Hypothesis

There is no significant role to mandaluyong market vendors' financial

needs the micro finance institutions.

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Significance of the study

This study was essential to know the role of Micro finance

Institutions to Mandaluyong City Markey vendors' financial needs

and enhancement of financial inclusion. This research was useful to

Municipality of Mandaluyong. Was able to focus on the possible

outcomes that will affect the market vendor’s financial inclusion.

Micro finance Institutions. was functional to more potential

borrowers will be enhanced to borrow funds and take whatever the

risks are.

Entrepreneurs. was educated to better understand what helped

them grow their business and make profits so they will not be

considered as businesses that are just taking space.

Unemployed citizens. was educated about the micro finance

services available that are willing to help and lend them capital at a

low interest rate and the risk behind these offers.

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Students and Future Researchers. were able to find it interesting

to study this kind of research and be more beneficial for additional

data.

Scope and Delimitation of the study

In this study, the researcher focused on the role of the micro

finance institutions to market vendor’s financial needs.The

researchers conducted a survey to selected market area in

Mandaluyong City, the entrepreneurs who are borrowing or have

experienced to borrow capital from financing institutions. The

respondents will be asked to answer survey questionnaires that will

be provided by the researchers and the study related the role of

Micro finance Institutions to Mandaluyong City Markey vendors'

financial needs.

Definition of terms

For a better understanding the following were clearly defined

Alleviate to make easier to endure; lessen; mitigate:

to alleviate sorrow; to alleviate pain.

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Credit Scoring is a statistical analysis performed by lenders and

financial institutions to access a person's credit worthiness.

Development Bank of the Philippines is the country's most

progressive development

Banking institution DBP assist critical industries and sectors,

promoting entrepreneurship particularly in the countryside, helping

build more productive communities, advancing environmental

protection and contributing to the improvement of lives of Filipino

across the nation.

Economy is the large set of inter-related production and consumption

activities that aid in determining how scarce resources are allocated.

This is also known as an economic system.

Economic shock is the rapid devaluation of a currency would

produce a shock for the import/export industry because a nation

would have difficulty bringing in foreign products.

Economic Turmoil is a situation in which the economy if a country

experiences a sudden shut down brought on by a financial crisis.

Entrepreneur is an individual who, rather than working as an

employee, runs a small business and assumes all the risks and
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rewards of a given business venture, idea, or good or service offered

for sale.

Financial inclusion means that individuals and businesses have

access to useful and affordable financial products and services that

meet their needs – transactions, payments, savings, credit and

insurance – delivered in a responsible and sustainable way.

Microfinance institution is an organization that

offers financial services to low income populations

Non-governmental organization (NGO) is any non-profit, voluntary

citizens' group which is organized on a local, national or international

level.

Potent means strong, but not like a body builder. Use potent instead

to describe things like intense smells, powerful magic potions, and

very influential people.

Poverty is about not having enough money to meet basic needs

including food, clothing and shelter. However, poverty is more, much

more than just not having enough money.

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Securities and Exchange Commission (SEC) is an independent,

federal government agency responsible for protecting investors,

maintaining fair and orderly functioning of securities markets, and

facilitating capital formation.

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CHAPTER II

REVIEW OF RELATED LITERATURE

This chapter presented the summary of review of related literature on

both foreign and local which the researchers have been reviewed.

Financing a Revolution: An Overview of the Microfinance

Challenge in Asia-Pacific

Prior to the Asian financial meltdown of 1997—8 and the

deepening political and economic crisis that befell Indonesia

following the collapse of international confidence in the Indonesian

Rupiah, the World Bank estimated that there were 800 million people

in absolute poverty in the Asia-Pacific region, more than two-thirds of

them women or girls. Chronic balance of payments problems in the

Asian Tiger-economies in the latter years of the 1990s, especially in

Indonesia and South Korea, and to lesser extent in the Philippines,

Thailand, Taiwan and Malaysia, has seen the Asian miracle come

unstuck. In Indonesia, where the crisis was more severe than

elsewhere, the collapse of the Rupiah saw three-quarters of the GDP

wiped out almost overnight. Inevitably, the human tragedy of these

events deepened as people who had worked hard to achieve

livelihoods well above the poverty line again found themselves in the

poverty mire. The incidence of poverty spread as the crisis

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deepened. For those people robbed of their wealth and livelihoods

by these events, access to locally administer and managed

microfinance services are more crucial than ever if they are to rebuild

their lives and reclaim the standards of life that the world now

acknowledges as a basic human right. To describe the Asian

meltdown as a regional crisis of unparalleled 4 Mike Getubig, David

Gibbons and Joe Remenyi proportions does not overstate the case.

If the number of people dispossessed of what they had worked so

hard to achieve was the result of a natural disaster or a war, the

world would have rushed to assist and mobilize the impressive global

phalanx of relief services that now exists to help the victims of

natural disasters. However, because this crisis was wrought by

policymakers and bankers, no such response has been forthcoming.

This too is a tragedy. At no time in recent decades has the need for

financial assistance to the poor of Asia been more apposite a

response to a situation over which the poor had no control or

warning. As economic victims they need help to recover and there is

no more effective way to deliver this help than through a dramatic

scaling-up of access by poor people to microfinance services.

Microfinance in general and microfinance for the poor are relatively

new fields without a body of established theory to guide us. Only fifty

or so microfinance institutions in the Asia-Pacific region account for

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more than three-quarters of all microfinance activity in the region,

and not one of these institutions was in existence prior to 1970. Most

microfinance providers have been operating for ten years or less. In

this brief time the accomplishments of the leading microfinance

providers have defied extant theory on banking; concerning the

necessity of securing loans with collateral, the ability of the poor to

repay their loans in full and on time, and the efficacy of concentrating

on female clients. In so doing, the poor, and especially poor women,

have defied logic in becoming good clients for sustainable

microfinance and sustained rural poverty reduction. Poverty existed

in all countries in the Asia-Pacific region prior to the Asian meltdown

of 1997-8, including those countries which experienced the most

rapid and impressive economic growth during the years since 1985.

The UNDP Human Development Report for 1997 indicates that at

least one fifth of the population of Asia and the Pacific remains below

the poverty line. But this is an incidence that is a substantial

improvement on the individual country rates of poverty which, in

many Asian economies, exceeded 50 per cent of households only a

generation ago. Following the Asian financial meltdown, the

incidence of poverty has deteriorated yet again and may have

increased three- or four-fold in Indonesia, the worst-affected

economy. Economic ground gained in the course of the past two

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decades of consumption growth and economic development must

now be regained, and microfinance will have an important role to

play. The spread of poverty does not rob the people only of their

wealth, but also of their dignity. Poverty is the leading cause of

death, especially among children. It is a lamentably neglected source

of tension in poor households and renders ordinary people

vulnerable to exploitation because of their inability to resist duress.

Poverty is also a gender issue. Poverty afflicts women much more

than men. Worldwide, women and girls comprise 70 per cent of the

poor and two thirds of the world's illiterate. The economic and social

burden of structural Financing a Revolution 5 adjustment is carried

disproportionately by the female population and their babies,

exacerbated by the persistence of rapid population increases,

especially in some of the poorest economies, including Bangladesh,

China, India, Indonesia, Papua New Guinea, the Philippines and

Thailand. Unless the creation of sustainable livelihoods proceeds at

rates that exceed growth in the absolute number of people below the

poverty line, the incidence of poverty will remain at unacceptably

high levels and will not be reduced. Microfinance providers are

excelling in addressing this problem because nearly all have learnt

that if one's objective is poverty reduction through the provision of

financial services to the poor, women are their best clients. If

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sustainable livelihoods are to be created at a much faster rate than

past growth in numbers of absolute poor, it is essential to involve the

poor themselves. The poor need the respect and dignity that flows

from identifying and creating their own livelihood sources. Success in

self-help is a powerful motivator and builder of social capital, the web

of local and social assistance networks that distinguishes one

cultural community from another. It is social capital that substitutes

for the absence of broad-based social 'safety-net' systems in poor

economies. Sustainable poverty reductions must be firmly based on

the social capital and institutional structures that characterize the

communities where poor households predominate. Too often history

records that government and well-meaning voluntary agencies have

failed in attempting to eradicate poverty by doing everything for the

poor. This only succeeds in replacing one set of dependencies with

another. Success in self-help, on the other hand, leads to self-

reliance and growth in the sort of household-level robustness that

poor members of poor communities need to weather the storms of

misfortune that so often is part of the normal timbre of life below the

poverty line. In this book the contributors record the results of an

extensive study of the activities of 44 microfinance providers in

eleven countries in the Asia Pacific region, including today's

microfinance leaders and pioneers in the field from Bangladesh,

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Indonesia, Malaysia and the Philippines. The case studies and the

analysis of the data presented are a solid foundation for the belief

that Microfinance for the Poor offers a proven alternative strategy to

the paternalism of government welfare or private charity.

Microfinance gives poor people access to resources in ways that

enables them to identify their own livelihood projects, create

sustainable sources of income and provide self-employment for

themselves and their children, and mobilizes underemployed local

resources for the sustained benefit of even the poorest microfinance

participants and local residents. It is to be lamented, therefore, that

so few poor households - less than 3 per cent in the Asia-Pacific

region - have access to user-friendly banking services. Not until the

footprint of microfinance providers on the landscape of poverty in

developing countries is substantially enlarged will the impact of

microfinance on the reduction of poverty in the region realize its

potential.

(Francis Taylor, 2004 Financing a Revolution: An Overview

of the Microfinance Challenge in a Asia-Pacific)

Is Microfinance an Effective Strategy to Reach the Millennium

Development Goals?
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The United Nations' Millennium Development Goals

(MDGs) have galvanized the development community with an urgent

challenge to improve the welfare of the world's neediest people.

Donor agencies are orienting their programming around the

attainment of the MDGs and are mobilizing new resources to reduce

hunger and poverty, eliminate HIV/AIDS and infectious diseases,

empower women and improve their health, educate all children, and

lower child mortality.

1 The MDGs are framed as concrete outcomes in the areas

of nutrition, education, health, gender equity, and environment. Thus,

work in these specific areas will be a large part of any development

strategy driven by the MDGs. But decades of experience have

shown that that progress in these areas is powerfully affected by

other factors in the broader context, such as a functioning

government, physical security, economic growth, security, and basic

infrastructure (for example, transportation). This paper reviews the

mounting body of evidence showing that the availability of financial

services for poor households ("microfinance") is a critical contextual

factor with strong impact on the achievement of the MDGs.

Microfinance, and the impact it produces, go beyond just business

loans. The poor use financial services not only for business

investment in their microenterprises but also to invest in health and

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education, to manage household emergencies, and to meet the wide

variety of other cash needs that they encounter. The range of

services includes loans, savings facilities, insurance, transfer

payments, and even micro-pensions. Evidence from the millions of

microfinance clients around the world demonstrates that access to

financial services enables poor people to increase their household

incomes, build assets, and reduce their vulnerability to the crises that

are so much a part of their daily lives. Access to financial services

also translates into better nutrition and improved health outcomes,

such as higher immunization rates. It allows poor people to plan for

their future and send more of their children to school for longer. It

has made women clients more confident and assertive and thus

better able to confront gender inequities. Microfinance clients

manage their cash flows and apply them to whatever household

priority they judge most important for their own welfare. Thus,

microfinance is an especially participatory and non-paternalistic

development input. Access to flexible, convenient, and affordable

financial services empowers and equips the poor to make their own

choices and build their way out of poverty in a sustained and self-

determined way. Microfinance is unique among development

interventions: it can deliver these social benefits on an ongoing,

permanent basis and on a large scale. Many well-managed

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microfinance institutions throughout the world provide financial

services in a sustainable way, free of donor support. Microfinance

thus offers the potential for a self-propelling cycle of sustainability

and massive growth, while providing a powerful impact on the lives

of the poor, even the extremely poor. Evidence shows that this

impact intensifies the longer clients stay with a given program, thus

deepening the power of this virtuous cycle. Unfortunately, poor

people in most countries have virtually no access to formal financial

services. Their informal alternatives such as family loans, savings

clubs, or moneylenders are usually limited by amount, rigidly

administered, or available only at exorbitant interest rates. The

challenge ahead is to ensure access to financial services for the poor

majority. This note reviews the evidence on the impact of

microfinance as it relates to the attainment of the MDGs.2

Specifically it assesses impact in the areas of eradicating poverty,

promoting children's education, improving health outcomes for

women and children, and empowering women. Finally, the note

addresses the feasibility of reaching significant numbers of the

absolute poor with financial services on a sustainable basis and on a

massive scale. [Return to Top] Eradicating Poverty Microfinance

allows poor people to protect, diversify, and increase their sources of

income, the essential path out of poverty and hunger. The ability to
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borrow a small amount of money to take advantage of a business

opportunity, to pay for school fees, or to bridge a cash-flow gap, can

be a first step in breaking the cycle of poverty. Similarly, poor

households will use a safe, convenient savings account to

accumulate enough cash to buy assets such as inventory for a small

business enterprise, to fix a leaky roof, to pay for health care, or to

send more children to school. Microfinance also helps safeguard

poor households against the extreme vulnerability that characterizes

their everyday existence. Loans, savings, and insurance help smooth

out income fluctuations and maintain consumption levels even during

the lean periods. The availability of financial services acts as a buffer

for sudden emergencies, business risks, seasonal slumps, or events

such as a flood or a death in the family that can push a poor family

into destitution.

(Littlefield L.; Murduch J., 2003. Is Microfinance an Effective

Strategy to reach the Millennium Development Goals?)

Social capital in microfinance: Case studies in the Philippines

A fundamental form of social capital in microfinance is the

institutional and policy framework, the set of formal rules and norms

(constitution, laws, regulations, policies) that regulate public life in a

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society. The World Bank calls this `macro-level social capital.'

Financial regulations may form the legal basis for contractual

arrangements and interactions between entities from different

sectors, such as the terms and conditions of financial contracts

between cooperatives or banks and individuals. They represent a

resource that facilitates coordinated action by citizens, and as shown

in this study, they can also influence the formation of social capital

among poor households. There may be a hierarchy of three or more

levels of regulation pertinent to the microfinance sector:

governmental regulation, e.g., by the legislature (policymaking) and

by the central bank or bank superintendence as a crst-tier regulatory

authority (bank supervision); nongovernmental regulation as

delegated to a second-tier regulatory authority such as an auditing

federation of a network of financial institutions; and self-regulation of

microfinance programs or microcredit outlets by formal or informal

financial institutions through their own rules and regulations, which in

the absence of standards may vary from one organization to another.

Ideally, all three levels are integrated through an effective

management information and reporting system. The microfinance

situation in the Philippines is quite far from the ideal. The obvious

need is for capital transfer from rich to poor countries and the

disbursement of cheap credit to the poor. Special development

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finance institutions were created at international, bilateral, and

national levels to channel the credit, such as the World Bank, the

Asian Development Bank, Kreditanstalt fu«r Wiederaufbau, the

Development Bank of the Philippines, and the Land Bank of 195

[421] Policy Sciences 33: 421^433, 2000. ß 2001Kluwer Academic

Publishers. Printed in the Netherlands. the Philippines. In the

process, national governments took upon themselves the combined

roles of planner, banker, supplier, marketing agency, producer, and

welfare provider. Among their main financial instruments were

interest rate ceilings and subsidies, credit targeting, credit rationing,

and agricultural price controls. Subsidizing interest rates on loans and

directing subsidized credit to priority crops and borrowers became

major development strategies, with agricultural production, rather

than rural development, the objective. Institutions were

instrumentalized as conduits of government funds, hampering the

growth ^ at times even the emergence ^ of self-reliant local financial

intermediaries. As credit was only available for government-directed

purposes, farmers tended to take advantage of the fungibility of

money, diverting it to other purposes and subverting project

additionally. Due to resource scarcity, subsidized lending projects

were narrow in scope and void of dynamic growth. Given a wide

discrepancy between credit supply and demand, credit rationing

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became a principal strategy. Administered credit showed a persistent

tendency of reaching the wrong recipients in wrong quantities at the

wrong time for wrong objectives. The policy of financial repression

helped create favored groups of non-poor people who benefited from

government rationing of choice projects and low-cost funds. In turn,

the favored groups ensured economic support to those in power and

abetted rampant political interference in economic and lending

decisions. Government officials and experts substituted their own

rationality and decisions for those of the farmers and the market. It

might also be noted that the absence of democratic control over

political and economic processes contributed to the rise of the

Marcos dictatorship. Ceilings on interest rates prevented financial

institutions from significantly expanding outreach to poor households.

As transaction costs tend to be constant per loan independent of loan

size, interest rate ceilings and credit subsidies led to concentrations

in the loan portfolio, allocating relatively large loans to a few big

farmers, neglecting the small and the poor. Banks shifted transaction

costs to borrowers, including legal and illegal charges, making cheap

credit expensive to the end-user. As banks acted as conduits for

government funds, rather than applying credit policies of their own,

subsidized credit created its own high risks and associated default

rates.
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Other Criticisms

On top of the divide between non- and for-

profit microfinance enterprises, other criticisms exist.

Because microfinance loans are typically in the range of $100 or less,

some critics say this is not enough money to provide stability while

also keeping recipients working in subsistence-level trades. They cite

the examples of China and India, where millions have emerged from

the lowest levels of poverty due to the development of large

industries. The jobs created by constructing new factories and

producing new goods have led to stable employment and higher

wages for employees.

The Bottom Line

Microfinance provides small loans to the world's poorest

people, either through nonprofit organizations or through larger

commercial lenders. Whether providing financial services to groups

that traditionally could not access them helps these people or only

puts them further in debt is still up for debate. What is certain is that

this relatively new industry is in it for the long haul.

(Investopedia, 2018. Microfinance)

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Microfinance in the Philippines: Report Card

Poverty rates in the Philippines have generally declined in

the last 20 years, but it remains a persistent, widespread problem in

the country. The Philippine government has made poverty reduction

a high priority.

Microfinance, or the provision of financial services such as

loans to poor families, is recognized as a potent method of directly

improving the lives of those most in need. When managed correctly,

these small loans can be used to build small businesses and develop

other income-generating activities that have a long-lasting impact.

The Philippine government has recognized the efficacy of

microfinance and has made progress in promoting the development

practice. It has also prioritized the need to accelerate the use of

microfinance and expand its reach across the country. In 2005, more

than two-thirds of poor families, or 17 million people, did not have

access to microfinance.

Micro Finance institution as a Strategy

To help the Philippines expand its use of microfinance to

assist poor families, ADB in November 2005 began the Microfinance

Development Program. The program, supported by a $150 million

loan from ADB, sought to help the Philippines achieve the Millennium
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Development Goals, including the eradication of extreme hunger and

poverty, and the empowerment of women, using microfinance.

Specifically, the program sought to increase the number of

users of microfinance and expand financial literacy and consumer

protection for the poor. It also sought to build viable institutions that

could provide efficient and cost-effective microfinance services and

improve the policy and regulatory oversight of the industry.

After the completion of the program in December 2007,

efforts continued to align the new laws, manuals, and government

agencies associated with microfinance. There were also efforts to

maintain market-based principles in the conduct of microfinance,

particularly in dealing with micro, small, and medium-sized

enterprises.

As the number of microfinance clients increased under the

program, the need for an efficient microfinance credit system became

clear and was identified as a priority for future work. A need was also

recognized for an expansion of micro insurance in the Philippines and

for an increase in support for the financing of microenterprises.

Credit-Scoring on Small and Medium Enterprise (SME) Lending in

the Philippines
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How does access to credit affect the growth of small and

medium enterprises, both firms receiving loans as well as their

competitors, suppliers, and customers? Limited access to credit is

commonly identified as a key constraint to SME growth, but little

evidence exists of the direct and indirect effects of loans on small

firms in a given market. Researchers are working with a large bank in

the Philippines, using random assignment to offer loans to SME

applicants who fall just below the threshold to be automatically

approved for a loan. Comparing firms that received the loans to a

similar group that did not will allow for a better understanding of the

impact of loans on firm performance and growth as well as any

additional effects on firms in the same market or in the loan

recipient’s supply chain.

Policy Issue

Small businesses are often thought to be an important

source of employment, innovation, and economic growth. In many

developing countries, small and medium enterprises (SMEs) make up

a large share of registered businesses, but a much smaller share of

GDP. Data from several countries suggest that few SMEs grow to

become larger businesses. One reason could be that unlike larger

businesses, SMEs have limited access to credit, preventing them

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from making larger investments to improve their operations, upgrade

to new technologies, or expand.

Most SMEs’ financing needs exceed the small loans that

microfinance institutions provide. Yet larger commercial banks often

find it too expensive to lend to SMEs because the cost of assessing

whether an SME is creditworthy is high relative to the return banks

could earn by lending to them. Many banks also perceive SMEs as

being too risky and more likely to default on loans. Credit scoring has

been used extensively in developed countries to reduce the cost and

time required to process loan applications and to assess the riskiness

of loan applicants in order to make small business and consumer

lending profitable for banks. Can a credit-scoring system increase

lending to SMEs in emerging markets, and does access to credit

improve these businesses’ profitability? How does increased access

to credit affect other businesses in the same market, namely the

competitors, suppliers, and customers of businesses receiving loans?

Context of the Evaluation

In the Philippines, most registered enterprises are small or

medium sized. Nationwide, there are over 800,000 micro, small, or

medium enterprises. These businesses span a range of industry

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sectors, including wholesale and retail trade, manufacturing, and

services. Promoting SME growth is a central focus of national policy

and all banks are mandated to set aside at least 8 percent of their

total loan portfolios for SMEs. The Development Bank of the

Philippines (DBP) is a development banking institution mandated to

provide medium- and long-term loans to SMEs. In 2013, DBP began

to roll out its new Retail Lending Program for Micro and Small

Enterprises in 45 bank branches across the country. Under this

program, DBP will make lending decisions using credit scoring

software, which will determine loan approvals based on verifiable

client information and an objective credit score, replacing the current

approval process which relies on loan officers’ perceptions about

applicants’ creditworthiness.

How to Open a Lending Investor in the Philippines

Corporate Name Requirement

The corporate name must include the words “Lending

Company” or “Lending Investor” or any other word descriptive of its

primary activity of granting loans to the public except words

commonly used to identify financing companies shall always be

included in the corporate and trade name.

Minimum Capital Requirement

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The minimum required paid-in capital is One Million Pesos

(PHP1,000,000.00) for the head office. Additional capital is required

for each branch, extension, satellite office or unit established, the

excess of the required minimum paid-up capital may be applied to the

additional capital requirement as follows:

Php 300,000.00: Metro Manila and other first-class cities;

Php 150,000.00: Second class and other cities;

Php 75,000.00: Municipalities.

Foreign Ownership of a Lending Investor

100% foreign ownership of a lending investor is allowed.

No foreign national may be allowed to own stock unless the country

of which he is a national accords reciprocal rights to Filipinos. More

than 40% foreign ownership requires a minimum paid-in capital of

US$ Two Hundred Thousand (USD200, 000.00).

Size of Loan and Interest

A lending company may give loans in such amounts and

reasonable interest rates and charges as may be agreed upon

between the lending company and the debtor: Provided, That the

agreement shall be in compliance with the provisions of Republic Act

No. 3765, otherwise known as the “Truth in Lending Act” and

Republic Act 7394, otherwise known as the “Consumer Act of the

Philippines”. As of August 19, 2013, there are no usury laws which

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limit the interest rate a lending investor my charge loan recipients.

The Supreme Court has reduced the interest rate, in some cases as

being excessive, iniquitous, unconscionable and exorbitant, hence,

contrary to morals (“contra bonos mores”), if not against the law.

In accordance with the Truth in Lending Act and prior to the

consummation of the transaction, a lending company shall furnish

each debtor a disclosure statement, setting forth, to the extent

applicable, the following information:

i. The principal amount of loan;

ii. Rate of interest of the loan;

iii. Service or processing fee, if any;

iv. Amortization schedule;

v. Any penalty charge for late amortization payment;

Requirements for Securing an Authority to Operate a Lending

Investor from the SEC

i. Information Sheet;

ii. NBI clearance of Filipino directors/officers;

iii. Foreign directors/officers, shall submit a clearance from

the Bureau of Immigration (BI), a photocopy of his passport showing

a valid visa or stay in the Philippines, ACR i-card, and a work permit

issued by the Department of Labor and Employment;

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iv. President’s Sworn Statement and Undertaking that the

corporation will not accept or solicit investments, other than loans,

from more than 19 persons without SEC approval, and upon

presentation of valid claims, it shall immediately indemnify or return

the investments of persons from said unauthorized public solicitation

of funds; Moreover, the sworn statement shall likewise contain an

undertaking that the country or state of the foreign applicant allows

Filipino citizens and corporations to do lending business therein.

v. Business plan including method of marketing its product

and sources of the funds and maturities of credit; and

vi. Statement of its compliance with Rule 17.1(2)(A)(i) and

(ii) of the Amended Implementing Rules and Regulations of the

Securities Regulation Code.

Commencement of Operations

A corporation/company that has been duly registered and

granted a Certificate of Authority to operate as a Lending Company

shall commence operations within one hundred twenty (120) days

from date of grant of such authority. Failure to commence operations

within said period shall be a ground for the suspension of its CA.
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Usage of Funds

Lending Companies shall use at least 51% of their funds

for direct lending purposes.

The total investment of a lending company in real estate

and in shares of stock in a real estate development corporation and

other real estate-based projects shall not at any time exceed twenty-

five (25%) percent of its net worth.

Maintenance of Books of Accounts and Records

(a) Every lending company shall maintain books of

accounts and records as may be required by the SEC and prescribed

by the Bureau of Internal Revenue and other government agencies.

In case a lending company engages in other businesses, it shall

maintain separate books of accounts for these businesses.

(b) The Manual of Accounts prescribed by the BSP for

lending investors shall continue to be adopted by lending companies

for uniform recording and reporting of their operations, until a new

Manual of Accounts shall have been prescribed by the SEC.

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Microfinance and Economic Cycles How Are They Related

However, certain global or regional events – such as the

sharp decline in commodity prices or the recent turmoil in Russia –

often have a direct impact on micro finance clients. Indeed, over 90

% of the 36 experts interviewed for this study find the correlation

between a country’s

Macroeconomic environment and its microfilm finance

market to be at least of “moderate” strength.

Strong correlation 45 %Moderate correlation 45 %loose

correlation 10 %Source: Experts interviewed, responsibility

environment and micro finance

WHY DO THESE NARRATIVES DEVIATE?

It all comes down to the nature, and therefore

consequences, of the crisis at hand: for instance, an external event

that alters the value of a country’s currency vis-à-vis the USD or that

dampens demand for domestic goods and ser-vices will likely impact

microfinance clients. External events with a limited impact on the real

economy, however such as heightened volatility on mature financial

markets – will not. As an example of the former, consider the effects

of currency depreciation. As currencies weaken against the USD, the

cost of living increases for every borrower in the country. This leads

to a drop in their consumption of goods

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And services, including those offered by micro-

entrepreneurs. On top of that, for clients that have their loans

denominated in a foreign currency, the effects are especially

pernicious as a weaker currency translates into higher repayment

costs. This reduces a borrower’s income even further and limits his or

her demand for additional loans. Or consider the political and

economic turmoil currently engulfing Russia. Russia employs many

migrants from neighboring countries that regularly send portions of

their income back home. These transfers known as remittances –

constitute an important cash source for micro-entrepreneurs

Realizing the Sustainable Development Goals through

Microfinance: The 2016 MCPI Annual Conference

September 25, 2016

The Microfinance Council of the Philippines, Inc. (MCPI)

held its 2016 Annual Conference with the theme realizing the

Sustainable Development Goals through Microfinance on July 28-29,

2016 at the Century Park Hotel, Manila. The conference convened

more than 400 microfinance practitioners, funders, government

institutions, donors, investors and other development organizations to

discuss the Sustainable Development Goals (SDGs) and the role of

microfinance in achieving these key development targets.

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In his keynote speech, Senator Paulo Benigno “Bam”

Aquino IV talked about the journey taken by supporters of

microfinance in the legislative branch and key microfinance leaders

for the approval of Republic Act No. 10693, also known as the

Microfinance NGOs Act. Senator Aquino underscored the need to

explain and clarify misconceptions about the microfinance sector

which helped push the microfinance agenda in the Senate and

Congress. Senator Aquino assured his continuous support to nanays

so they can graduate from micro to SMEs.

Vice President Maria Leonor “Leni” Robredo, through her

representative, Ms. Georgina Hernandez, lauded MFIs for their

contribution to poverty reduction and noted MFI’s perfect position to

help since they know the landscape of the poor. In her new role as

overseer of housing programs, the VP said she has a lot to learn from

the successes of microfinance in the Philippines. In addition to

managing loan portfolios, the VP indicated that the poor should also

be taught the value of savings and use of market-based principles in

managing their businesses.

The two-day conference was devoted to breakout sessions

that tackled areas within the key development targets the

microfinance sector can contribute to, including sustainable

agriculture, water and sanitation, health, clean energy, resilient

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human settlements, and disaster risk reduction and management.

The insights of speakers were complemented by the sharing of

experiences of microfinance clients, including Persons with

Disabilities (PWDs) currently being served by one MFI, Kasagana-ka

Development Center, Inc. (KDCI).

At the end of the conference, the importance of a multi-

stakeholder approach in achieving the key development goals was

emphasized and the support of the microfinance sector in

government’s initiatives to end poverty was reassured. It was

concluded that the microfinance sector can help achieve the SDGs

through implementation of services beyond microfinance, enhancing

relationship with clients, and maintaining linkages with government,

private sector, and local communities.

(Microfinance Council of the Philippines, Inc. 2016. Realizing the

Sustainable Development Goals through Microfinance: The 2016

MCPI Annual Conference)

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CHAPTER III

RESEARCH METHODOLOGY

This chapter described the method and procedures used to answer

the specific problem of the study.

Research Method to be used

The study anchored the role of Micro finance Institutions to

Mandaluyong City Market vendors' financial needs. The researchers

used descriptive method on this study. The descriptive research was

defined by Calderon (2008) as a purposive process of gathering,

analyzing, classifying and tabulating data about prevailing conditions,

practices, beliefs, processes, trends and cause effect relationships

and then making adequate accurate interpretations about such data

with or without the aid of statistical methods. Calderon (2008), as

cited by Alberto et al (2011)

The design used to this research was the descriptive survey

design, (for a detailed discussion refers to Jackson, 2009). In survey

method research; participants answer questions administered

through interviews or Questionnaires. After they have answered the

questions, researchers will describe the responses given. For the

survey to be both reliable and valid it is important that the questions

are constructed properly. Questions should be written so they are

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clear and easy to comprehend. This will be used to collect data In

order for the survey to be both reliable and valid it is important that

the questions are constructed properly. Questions should be written

so they are clear and easy to comprehend. Hale, J. (2018). The 3

Basic Types of Descriptive Research Methods

Population Frame and Sampling Scheme

The survey was conducted in the public market of

Mandaluyong City that will provide the sources of information.

A purposive sample by Ashley Crossman Updated March 02,

2017 is a non-probability sample that is selected based on

characteristics of a population and the objective of the study.

Purposive sampling is also known as judgmental, selective, or

subjective sampling.

This type of sampling can be very useful in situations when you

need to reach a targeted sample quickly, and where sampling for

proportionality is not the main concern.

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Description of the Respondents

The respondents of this study were once unemployed but

became the owners of developing businesses, and the potential

borrowers. These respondents will be described using certain

demographic variables such as age, gender, and the rate of salary

they are receiving. capital shortage faced solvency and liquidity.

During the survey, the respondents were asked about the benefits

and how the transactions are being done.

Instrument to be used

Research made questionnaires provided for data gathering in

line with this study. Answers obtained through closed-ended

questions with multiple choice answer options were analyzed using

quantitative methods and they may involve pie-charts, bar-charts and

percentages, whereas answers obtained to open-ended

questionnaire questions are analyzed using qualitative methods and

they involve discussions and critical analyses without use of numbers

and calculations.

Mark Walker Quantitative vs Qualitative Research: What, Why,

Where, When and How to Use Each

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Statistical Treatment of Data

The demographic profile of the respondents was analyzed

through encoded data and will be structured into frequency and

percentage distribution. Based on Australian bureau of statistics. A

frequency distribution of data can be shown in a table or graph. Some

common methods of showing frequency distributions include

frequency tables, histograms or bar charts.

Formula:

Where: % = percent of distributions

f = Frequency of distributions

N = number of respondents

(Course Hero, Inc. 2019. The formula is formula f n x 100

where percentage f)

2. From the assessment of the respondents the average

weighted mean was computed to measure the impact of micro

finance institutions in the economic progression of the city. A

weighted mean is a kind of average. Instead of each data point

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contributing equally to the final mean, some data points contribute

more “weight” than others. If all the weights are equal, then the

weighted mean equals the arithmetic mean (the regular “average”

you’re used to). Weighted means are very common in statistics,

especially when studying populations. This will be computed using

the following formula,

Where:

WM = Weighted mean

N = number of items

(Statistics How To. 2019. Weighted Mean: Formula: How to

Find Weighted Mean)

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CHAPTER IV

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

1. What is the demographic profile of the borrowers?

In terms of:

a. Age

AGE FREQUENCY PERCENTAGE (%)

20 to 29 years old 25 41.67

30 to 39 years old 22 36.67

40 to 49 years old 10 16.67

50 to 59 years old 3 5.00

Total 60 100.00

Table shows the demographic profile of the respondents in terms of

age.

Majority of the borrowers are 20 to 29 years old which represent 25 or

41.67% of the respondents followed by the age group of 30 to 39 years

old which constitutes 22 or 36.67% of the respondents. The age groups

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40 to 49 years old constitutes 10 or 16.67% of the respondents, and 3

or

5% were from the age group of 50 to 59 years old.

b. Educational attainment (no data)

c. Salary basis

SALARY BASIS FREQUENCY PERCENTAGE (%)

Below Minimum 30 50.00

Minimum 11 18.33

Above Minimum 19 31.67

Total 60 100.00

Table shows the demographic profile of the respondents in terms of

gender. Majority of the borrowers were female who constitutes

41 or 68.33% of the respondents and the remaining 19 or 31.67%

of the respondents were male.

2. What are the Micro Finance Services for Mandaluyong city

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Market vendors that are:

2.1 Recognized

2.2 Utilized

MICROFINANCE
FREQUENCY PERCENTAGE (%)
INSTITUTIONS

ASA Philippines 8 13.33

Cooperative Banking 33 55.00

Rural Bank 22 36.67

Ahon sa Hirap, Inc. 6 10.00

Card Mutually Reinforcing

10 16.67
Institutions

Table shows the micro finance institutions. Majority of the

vendors recognized cooperative banking which represents 33 or 55%

of the respondents. Then 22 or 36.67% recognized rural banks as

Micro finance institution. 10 or 16.67% of the vendors are familiar to

card mutually reinforcing institutions. 8 or 13.33% of the vendors are

Familiar with ASA Philippines. 6 or 10% of the vendors were familiar

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With Ahon sa Hirap, Inc.

3. How does Micro Financing Affect the profit margin of

selected market vendors of Mandaluyong City?

3.1Financial inclusion

3.2 Level of Poverty

4. How do the micro finance institutions maintain good relationship

with its borrowers?

In terms of:

a. initial approach and credibility check

b. Special Security Risks for micro finance lenders

c. Ambulant vendors

5. Is there a significant impact in the economic progression

of Mandaluyong City with the influx of micro finance institutions?

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Results for SOP 3, 4, 5

Le

STRONGL gen
STRONGL VERBAL
AGRE DISAGRE Y WEIGHTE d:
Y AGREE INTERPRETATI
E (3) E (2) DISAGRE D MEAN 1.0
(4) ON
E (1) 0 to

S 1.7
22 37 0 1 3.333 Strongly Agree
1 5

S Str
11 32 1 1 3.178 Agree
2 ong

S ly
29 28 3 0 3.433 Strongly Agree
3 Dis

S agr
25 31 4 0 3.350 Strongly Agree
4 ee;

S 1.7
14 42 2 2 3.133 Agree
5 6 to

S 2.5
22 32 4 2 3.233 Agree
6 0

Dis
Strongly Agree
OVERALL WEIGHTED MEAN 3.277
agr

ee; 2.51 to 3.25 Agree; 3.26 to 4.00 Strongly Agree

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CHAPTER V

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

The respondents strongly agree, with a weighted mean of 3.333,

that borrowing in microfinance institutions is one way to fund business.

The respondents agree, with a weighted mean of 3.178, that micro

finance institutions help poor people to engage with business. With

a weighted mean of 3.433, the respondents strongly agree that

micro finance leaders offer many benefits for their clients. With a

weighted mean of 3.350, the respondents strongly agree that micro

finance lenders offer good service to their clients in terms

of accommodation and pleasant approach. The respondents agree,

having a weighted mean of 3.133, that microfinance help the no

permanent vendors to develop their business by financing them. Also,

the respondents agree that microfinance institutions are a great help

to engage with business in terms of financial assistance.

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REFERENCES:

https://content.taylorfrancis.com/books/download?dac=C200

4-0-07344-9&isbn=9781317762591&format=googlePreviewPdf

Francis Taylor, 2004 Financing a Revolution: An Overview

of the Microfinance Challenge in a Asia-Pacific

https://www.mikrofinanzwiki.de/file/570/is_mf_an_effective_s

trategy_to_reach_the_mdg_2003.pdf

Littlefield L.; Murduch J., 2003. Is Microfinance an Effective

Strategy to reach the Millennium Development Goals?

http://www.investopedia.com/articles/economics/08/microfin

ance.asp

Investopedia, 2018. Microfinance

http://www.microfinancecouncil.org/realizing-sustainable-

development-goals-microfinance-2016-mcpi-annual-conference

Microfinance Council of the Philippines, Inc. 2016.

Realizing the Sustainable Development Goals through Microfinance:

The 2016 MCPI Annual Conference

https://www.coursehero.com/file/p3k7s5nu/The-formula-is-

Formula-F-N-x-100-Where-Percentage-F-Frequency-N-Number-of/

Course Hero, Inc. 2019. The formula is formula f n x 100

where percentage f
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http://www.statisticshowto.com/weighted-mean/

Statistics How To. 2019. Weighted Mean: Formula: How to

Find Weighted Mean

1] Ethridge, D.E. (2004) “Research Methodology in Applied

Economics” John Wiley & Sons, p.24[2] Fox, W. & Bayat, M.S. (2007)

“A Guide to Managing Research” Juta Publications, p.45

2] Calderon (2008), as cited by Alberto et al (2011),

3] Hale, J. (2018). The 3 Basic Types of Descriptive

Research Methods
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ROLE OF MICRO FINANCE INSTITUTIONS TO MANDALUYONG

MARKET VENDORS’ FINANCIAL NEEDS

I. Put a check in the box that corresponds to your answer

Age

20-29 30-39 40-49 50-59

Gender

Male Female

Salary basis

Below minimum Above minimum Minimum

Borrowing?

Yes No
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Put a check if these Micro finance institutions are familiar to you

ASA Philippines

Cooperative Bank

Rural banking

Ahon sa Hirap, Inc

CARD Mutually Reinforcing Institutions

If not, please Specify_______________________

Part II. Put a check in the box that corresponds to your answer

This will discuss the opinions of the respondents about the impact of

microfinance institutions in their part.

Economic Strongly Agree Strongly Disagree

Development Agree disagree

1. Borr

owing in Micro

finance

institution is one
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way to fund

businesses.

2. Micro

finance Institutions

help poor people to

engage with

business.

3. Micr

o finance lenders

offer many

benefits for their

clients.

4. Micro

finance lenders offer

good service to their

clients.

5. Micr

o finance No

permanent

vendors to
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develop their

business by

financing them.

6. Micr

o finance

institutions are a

big help to S

vendors if

Mandaluyong

city.