Microcredit Business Plan for Cooperatives

8/10/2019 Microcredit Business Plan for Cooperatives

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Japan Social Development Fund The World BankJSDF Grant Social Inclusion and Alternative Livelihoods for the Informal Waste Sector Project

(JSDF Grant No. TF012037)

No. 7-A South J Street, Quezon City

http:/www.swapp.org.ph

PAYATAS ALLIANCE RECYCLING EXCHANGE

MULTI-PURPOSE COOPERATIVEVisayas St. Group 3 Payatas B. Quezon City

CDA # 9520-160150021; TIN # 262-593-678-000Email arem c@ mail.com

Cooperative Microcredit

BUSINESS PLAN

Prepared by: Carlos O. Tulali

August 14, 2014

Email:[email protected]

Quezon City, Philippines

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mailto:[email protected]:[email protected]:[email protected]:[email protected]


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Contents Page

Executive Summary ... 3

Brief Description of the Project

Brief Profile of the Cooperative

Project Benefits

Business Framework

Section 1.

Operations Plan ... 6

Loan Products and Services

Computation of Loan Interest and Other Charges

Loan Application

Credit Investigation

Loan Approval

Loan Disbursement

Loan Collection

Loan Renewal

Loan Monitoring

Savings Accounts

Section 2.

Marketing Plan ... 13

Business Location

Area of Business Coverage

Main Customers

Target Borrowers

Marketing and Recruitment Strategy

Section 3.

Organization and Management Plan ..... 15

Form of Business

Organizational and Management Structure

Section 4.

Financial Plan .. 18

Savings Mobilization/Capital Build Up Component

Donor Agencies and External Funding

Financing Plan and Project Cost

Security for Loan

Loan Repayments and Restructuring

Financial Analysis

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EXECUTIVE SUMMARY

1. Brief Description of the Project

Microcredit is the extension of small loans to entrepreneurs too poor to qualify for traditional

bank loans. It has proven an effective and popular measure in the ongoing struggle against

poverty, enabling those without access to lending institutions to borrow at bank rates, and start

small business. Microcredit usually refers to small loans offered, often without collateral, to an

individual or through group lending. Microfinance, however, refers to a broader range offinancial products and services, including loans, savings, insurance, transfer services and other

financial instruments targeted at low-income clients.

Poverty reduction remains as the main challenge of the Philippine government. Microcredit is

considered as an innovative financial intermediation scheme aimed to reduce incidence of

poverty. In the Philippines, there are three major providers of microfinance services: NGOs, rural

banks, and cooperatives. The microcredit business of the Payatas Alliance Recycling Exchange

Multi-Purpose Cooperative (PARE MPC) aims to provide access to small loans to its enterprising

poor members. A common characteristic of members of the informal waste sector (IWS) is their

exclusion from the traditional banking system because of their perceived credit risks, inability to

provide loan collateral and generally, low incomes.

The financial requirements of the informal sector differ significantly from those of the formal

sector and even from enterprises classified as cottage or small. Loans are needed for start-up

and working capital primarily in the trade of goods and services. Loan size requirements are very

small, starting from as low as PhP1,000 or even lower. Opportunity windows can be seasonal

and very short in duration. Turnaround can normally be expected within the day or at most a

week. Those who sell barbecue on the streets, for example, borrow their capital in the morning

to buy the necessary materials and turns around at the end of the day to pay off his/her loan.

The PARE MPC shall charge interest rates on loans to members at 3 percent per month. The

cooperative will additionally charge an upfront service fee of 3 percent on loans. Collection

frequency on loans is weekly, bi-weekly or monthly. Total financial requirement needed by the

coop to be able to serve its existing and prospective members is at least PhP100,000.00 and the

proposed cost-sharing arrangement is that the members savings/CBU will finance the total loan

fund comprising 75% (PhP75,000.00) of the total project cost, while the coop will allocate

PhP25,000.00 from its annual operating budget and net surplus from the microcredit business.

Under the JSDF Grant Social Inclusion and Alternative Livelihoods for the Informal Waste

Sector Project being implemented by the Solid Waste Management Association of the

Philippines (SWAPP), the microcredit project of recycling cooperatives is a means to provide

financial services to its members from the informal waste sector (IWS). The project aims to

enable these cooperatives and their members to improve their livelihood activities, and increase

their household savings.

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2. Brief Profile of the Cooperative

The Payatas Alliance Recycling Exchange Multi-Purpose Cooperative (PARE MPC) is duly

registered as a legitimate primary cooperative with the Cooperative Development Authority

under registration number 9520-160150021 dated March 14, 2008. Its principal office is in

Visayas St., Payatas, Quezon City. The cooperative which is currently engaged in scrap buying

and job contracting, has 108 regular members.

One of the objectives of PARE MPC is to grant loans to its members. Loans will be granted from

the members' accumulated savings through capital build-up (CBU) contributions. Obviously, notall the members can take out loans, or obtain them immediately or simultaneously. Members

will be granted loans in accordance with their seniority within the cooperative and the amount

of their savings. The size of loans granted to members does not exceed the total of their

savings/CBU.

3. Project Benefits

Cooperatives with microcredit activities have established themselves to be effective vehicles in

the improvement of the social and economic conditions of their members. By providing their

members access to financial services including savings, cooperatives have encouraged thrift andopened opportunities to the poor that other formal financial institutions may not be willing to

provide.

Microcredit has successfully enabled the enterprising poor, especially women, to increase their

household income above the poverty threshold, improve their living conditions and enabled

them to graduate into having continuous access to commercial banking facilities. However,

microcredit is not designed to respond to the daily survival needs of the non-enterprising poor,

the poorest and most vulnerable sectors. Thus, the success of microcredit as a tool for the

eradication of poverty is limited only to the credit needs and financial capabilities of the

enterprising poor.

4. Business Framework

Effectiveness, Reach, Efficiency, Viability and Sustainability

Effectiveness is defined to mean the ability of the service provider to design and deliver financial

products and services that meet the needs and requirements of the target client system. Ease of

access to credit would mean that the product is characterized by:1

- small loan size

1These criteria are based on Analyzing the efficiency of credit-granting NGOs: A technical guideby Martin Holtmann andRochus Mommartz. Interdisziplinare Projekt Consult GmbH.

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-

reasonable cost- short processing time

- reasonable collateral requirements.

The second issue is that of outreach. Given the magnitude of the need for financial services

among the informal waste sector (IWS), the ability to reach significant numbers of clientele is

very important. Secondly, scarce resources dictate the need for earmarking those to reach the

intended target groups, who need the resources the most, and to avoid the leakage to

unintended clients.

Efficiency is defined as the ability to maximize output per unit of input. Operational indicators

would include the ratio of staff to clients, staff to loan amounts, and costs per unit of outputsuch as number and amount of loans released. Microcredit poses a special challenge due to the

small size of loans, the frequency of repayment and the short maturity. In fact, high transaction

cost of retail loans are frequently cited by banks as one of their main reasons for not entering

the market. Following the same rationale, banks have also set minimum deposit levels for

savings accounts.

Viability means the ability to cover costs of operations from revenues. It can be described by the

following equation:

where Y = income, OC = operating costs, CK = cost of capital, and CBL = cost of bad loans

Interest income from loans and related fees and charges must be greater than total operating

costs, the cost of the capital employed, and the cost of bad loans. Operating costs include all

personnel and non-personnel expenses incurred in the course of providing the service. Cost of

capital includes not only actual costs incurred on borrowings but also the imputed cost of

capital. Imputed cost of capital accounts for inflation indicating the extent to which the real

value of capital employed is maintained. Viability is thus a function of pricing (interest rates and

fees), operational efficiencies, cost of capital, and quality of the loan portfolio. Except for the

cost of capital, the other three variables are within the control of the cooperative as the

microcredit service provider.

Sustainability goes beyond the issue of financial viability. It is the ability of the organization togrow and adapt to changes. It is the ability to ensure the continuity of its services, to expand,

and to adjust to changing circumstances. The issue of sustainability has to do with good

leadership, organization and strategic management.

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Section I

OPERATIONS PLAN

1.1

Loan Products and Services

There shall be two (2) kinds of loans to be offered to coop members: a) regular loan, and b)

enterprise loan or small business loan.

Regular Loan

The coops regular loan facility is intended for household needs or for starting a small income-

generating activity (IGA) of members of the cooperative. Regular loan amount depends on the

savings balance of the member. The maximum loan shall be based on the total CBU

contribution of the member, with a 1:3 maximum ratio (or depending on the coops existing

lending policy). Salient features include:

- Eligible member-borrower should have paid in full at least the minimum amount of his/her

subscribed share, based on the coop bylaws.

- Interest rate of three percent (2.5%) per month.

- Minimum loan size of P500.00.

- Maximum loan cycle is four (4) months.

-

Service charge is 2% of the approved loan amount for loan cycle of less than six months.

- Penalty charge of three percent (3%) every month for delayed payment of weekly

amortization for all loans.

- Loan payment on weekly basis: Fixed weekly installment but there will be some flexibility

in the weekly payment. The weekly installment may vary depending on the income of the

member but at the end of every thirty (30) days, the whole installment due for that period

should be repaid. Otherwise, the account will be considered delinquent.

Small Business Loan

The small business loan is intended for the existing small business or micro-enterprises of the

coop members. This will enable member-entrepreneurs to expand or improve their existing

business. Requirements and loan terms will be:

- Eligible member-borrower should have paid in full at least the minimum amount of his/her

subscribed share, based on the coop bylaws.

- Member-borrower has an existing business where the cash flow has been verified.

- Member-loan applicant is actively involved in an income generating activity (IGA) or

business.

- Member-loan applicant is of legal age and is not a known loan defaulter.

- Member-loan applicant should have successfully completed at least one regular loan.

- Interest rate of three percent (2.5%) per month shall be charged.

- Minimum loan size is P5,000.00.

-Maximum loan cycle is four (4) months.

- Service charge is 2% of the approved loan amount for loan cycle of less than six months.

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-Penalty charge of three percent (3%) every month for every month of delayed payment ofweekly amortization for all loans; wherein, a fraction of a month is considered as one

month.

- Loan payment on weekly basis: Fixed weekly installment but there will be some flexibility

in the weekly payment. The weekly installment may vary depending on the income of the

member but at the end of every thirty (30) days, the whole installment due for that period

should be repaid. Otherwise, the account will be considered delinquent.

The basis for the small business loan size is the balance in the members CBU account and on

verified needs based on the business plan or proposal with a maximum ratio depending on the

cooperatives existing lending policy.

Table 1. List of Loan Interest and Other Charges

Loan Interest and Charges Remarks

2.5 % interest per month Add on

2% service charge for loans less than six months Add on

4% compulsory savings based on the loan amount Add on

5% compulsory CBU retention based on the loan amount Add on

1.2. Computation of Loan Interest and Other Charges

The tables below shows the computation of interest and other charges for a loan of

PhP10,000.00 loan with 2.5% interest to be paid weekly in four months.

Table 2. Computation ofLoan Interest and Other Charges

Rate Months Weeks Weekly Repayments

Interest 2.5% per month 4 16 (10,000*2.5%*4)/16 = 62.50

Service Charge 2% per cycle 4 16 (10,000*2%)/16 = 12.50

Savings 4% per cycle 4 16 (10,000*4%)/16 = 25.00

CBU Retention 5% per cycle 4 16 (10,000*5%)/16 = 31.25

Table 3. Sample Amortization Schedule and Payment

Date Principal Interest Service

Charge

Savings Insurance CBU Balance

0 10,000

1 625 62.5 12.5 18.75 6.25 31.25 9,375

2 625 62.5 12.5 18.75 6.25 31.25 8,750

3 625 62.5 12.5 18.75 6.25 31.25 8,125

416 625 62.5 12.5 18.75 6.25 31.25 0

The cooperative shall charge 3% penalty per month calculated on all missed payments from

the time of first missed payment until the loan amount is fully paid.

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1.3.

Loan Application

The credit investigation (CI) is conducted within three (3) days after the filling up of the

application form was accomplished. The purpose of the CI is to verify whether the information

provided by the client in his/her loan application form is true and correct; gather information

about the borrowers character and credit history; and to analyze the borrowers cash flow

and loan repayment capacity.

The loan officer should plan the first interview at the borrowers place of business. Conducting

the interview at the borrowers place of business serves two purposes. First, it puts the loan

applicant to be at ease because he/she is in his/her own familiar environment, and it also gives

the loan officer the opportunity to observe the business and assess whether and how thecooperative should assist the applicant by providing him/her with a loan for his/her small

business.

A visit to the applicants residence is also necessary if it is located separately from the place of

business. The loan officer should be able to determine the applicants type of housing, its

structure and condition, household fixtures and appliances (or lack thereof) as an indicator of

the applicants permanency of residence in the community. If possible, the applicants spouse

or other family members should be present during the home visit and interview.

1.4.

Credit Investigation

First time borrowers shall accomplish the loan application form by providing information to

the coop loan officer. The loan application form for first time borrowers shall focus on

character-based lending which measures the stability and responsibility, entrepreneurship,

repayment behavior and reputation of the member-borrower in the community. The loan

officer fills out the application form as he/she interviews the applicant.

After the interview, the loan officer will summarize the contents of the loan application form

and asks the loan applicant to sign the loan application form. The loan officer assesses

whether the applicant is eligible for the loan. If the applicant is eligible to apply, then, the loan

officer schedules a visit to the applicants home and place of business within three (3) daysfrom the date of the loan interview. The loan applicant will also be given a checklist containing

the following requirements:

Any form of identification

Business license or registration, if any

Stall holder lease agreement, if any

Last three months utility bills for light and water as proof of residence and

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1.5.

Loan Approval

The loan officer reviews all documentary requirements for accuracy of information and its

completeness. All required documents must be signed and completed to merit approval. It is

best that the cooperative develops a checklist of all the loan application requirements and

activities for quicker loan processing. The loan officer also files all documents in the applicants

credit folder: Loan Application Form; Completed CI Form; Proof of Payments and other

supporting documents.

The approval committee composed of the chairman of the board or chairman of the credit

committee, loan officer and general manager reviews the loan application folders, checks the

credit investigation report, cash flow analysis, and adjusted repayment capacity that wereaccomplished by the loan officer. The approval committee must carefully inspect any missing

information that may affect the loan application. In cases where information is incomplete,

the loan officer should go back to the field to obtain the required information about the loan

applicant and his/her business. The approval committee shall meet at least once a week or

more often as the need arises.

The approval committee should focus on the following when approving loans:

- Review the loan applicants credit history, business performance, management skills and

standing in the community. The applicant must, of course, meet the established eligibility

criteria.

-

How did the applicant and his business perform financially? Is the business growing, with astrong market potential? Are there risks to the business (supplies, sales, etc.)?

- Is the revenue currently generated by the applicants business and his/her family sufficient

to meet expenses inclusive of the weekly loan payment? Are there risks that might affect

the borrowers repayment capacity (e.g., being a widow/widower or single parent, illness,

sole income earner of the family, etc.)?

The approval committee may approve, defer, or disapprove the loan application. All members

of the approval committee must agree unanimously.

1.6.

Loan Disbursement

Once a decision to approve the loan has been handed down, the loan officer will facilitate the

opening of savings account of the borrower. At the same time, the bookkeeper shall prepare

all the necessary accounting documents such as individual ledgers for savings and loans of

every borrower. The loan officer then requests for the release of the loan to the borrower, in

cash (or in check if available). Loan disbursement shall be conducted inside the premises of

the coop office only. In this manner, there is no need for the loan officer to carry cash outside

the coop office and at the same time, the loan disbursement done inside the coop office

becomes an opportunity to conduct the loan pre-release counseling and make reminders

regarding the loan terms and conditions.

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1.7.

Loan Collection

The loan officer should visit the borrower at his residence or place of business within a week

after the loan was released to convey a message to the concerned borrower that the

cooperative is serious in the loan collection and keeping a close eye on the borrowers.

It is important that all borrowers realize the importance of making loan repayments on time.

The loan officer must monitor his/her loan portfolio closely, particularly those of the new

borrowers, to ensure that they do not become delinquent in their amortization. Once the

amortization schedule is set and agreed between the cooperative and the borrower, the loan

officer should strictly enforce it by reminding the borrowers that late payments through poor

cash flow management will not only negatively impact his/her own credibility and chances forloan renewal but also his/her ability to build up his/her asset base.

1.8. Loan Renewal

Repeat borrowers are the best clients, and therefore deserve priority service. Borrowers who

request for a repeat loan and who have maintained a sound credit history shall be given the

special privilege of access to additional loan. Processing of repeat loans will be much quicker

than the first loan which shall commence before the maturity of the previous loan. The loan

officer should meet with the borrower at least one week before the end of the existing loan

cycle to start the processing of the new loan application.

Provided that the clients request continues to fall within established criteria, processing of

repeat loans will be much shorter than the first loan. It should commence before the maturity

of the previous loan. The loan officer should meet with the client at least one week before the

end of the loan to start the process of issuing the next loan.

Increase in loan amount on succeeding loans shall be based on, but not limited to, the

repayment behavior of the client. The table below shows the repayment behavior of the client

and the corresponding increase in loan amount.

Table 4. Loan Repayment Behavior of Borrowers and Implication on Loan RenewalLoan Repayment Behavior Implication on Loan Renewal Application

No missed payment and no delayed payment Maximum of 20% increase from the last loan

amount approved

1- 2 delayed payments Maximum of 15% increase from the last loan

amount approved

1-2 missed payments or 3-4 delayed payments Maximum of 10% increase from the last loan

amount approved

3 missed payment or 5 delayed payments No increase in loan amount or decrease in loan

approved

> 3 missed payments or > 5 delayed payments Not qualified to get a new loan

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1.9.

Loan Monitoring

Information System Requirements

Loan reports and documents must be designed to be able to:

- track the status of the microcredit portfolio in a timely, accurate and comprehensive

manner;

- ensure better monitoring of the loan officers portfolio;

- assist the approval committee to make timely and well-informed operational, strategic

and policy decisions;

- enable loan officers to provide more efficient services to a greater number of members;

and- enable the general manager to monitor progress of the microcredit operations and to

send alarm signals on borrowers that need immediate attention.

Bookkeeping

All daily loan transactions shall be posted before the end of office hours to ensure accuracy

and timely tracking of the cooperatives microcredit operations. The bookkeeping system

need not be automated. Manual bookkeeping system may be adopted as long as the system

generates relevant, accurate and timely information to aid the cooperative in decision-making.

The bookkeeping process should also be able to follow generally acceptable accounting

standards. At the minimum, the four books of accounts should be maintained (cash receiptsbook, cash disbursement book, general journal and general ledger) and individual/subsidiary

ledgers are updated on time.

1.10. Savings Account

The cooperative shall offer four kinds of savings accounts, namely: a) budget savings account,

b) capital build-up account, and c) investment savings account.

Budget savings account

It is mandatory for all members. This is a demand deposit account, where one can deposit any

amount at any time, and withdraw any amount at any time. See features below:

- Account opening fee: P50 per passbook

- Withdrawal fee: P10 per withdrawal

- Earns interest at 5% per annum

- Fee for replacing a lost budget savings passbook: P100

- Maintaining balance: P100

Capital build-up (CBU) account

This is mandatory for all coop members, as prescribed in the coop bylaws, The CBU will also bethe basis for determining the maximum loanable amount that a member can apply for, as

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provided by the coop microcredit policy. Any amount of CBU contribution, on top of thesubscribed share, can be made. If a member has an outstanding loan, his/her CBU shall be

frozen; a lien is placed on it and no withdrawals are allowed until the loan is fully paid.

Investment Savings Account (ISA)

This is optional for members to open. The purpose is to allow members to save up for major

investments. It works like a time-deposit.

- Account opening fee: P50 per passbook

- Withdrawal fee: P10 per withdrawal

-

Earns interest at 8% per annum- Fee for replacing a lost budget savings passbook: P100

- Maintaining balance: P500

Printouts of statements of accounts on any of the savings accounts can be made upon request

by the member for a fee of P20 per statement.

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Section 2

MARKETING PLAN

2.2. Business Location

PARE MPCs microcredit business shall be administered at its principal office in Visayas St.,

Group 3, Payatas B, Quezon City.

2.3. Area of Coverage

As of this writing, PARE MPCs microcredit operations will be limited within Barangay Payatas,

Quezon City, as provided in the cooperatives existing bylaws and articles of cooperation. In

2014, the general assembly has amended its bylaws and articles of cooperation for the

cooperative to be able to expand the coops area of operation to cover the entire Metro

Manila. PARE MPCs microcredit operations can only be carried out in the new expansion areas

once the Cooperative Development Authority (CDA) approves the cooperatives application for

amendments of its bylaws and articles of cooperation.

2.3. Main Customers

The cooperatives regular members will be the main customers of the cooperatives

microcredit business. The economically active IWS people in Payatas who are not yet regular

members of the coop will be recruited to the coop. They constitute a large and potentially

lucrative market segment to serve because they constitute the significant mass of the

population in the community (2,000) by their sheer number thus, can provide economic

viability to the microcredit project of the coop.

2.4. Target Borrowers

One of the objectives of the PARE MPC is to grant loans to all its members (108 as of June 30,

2014). Loans will be granted based on the members accumulated savings. Obviously, not all

the members of the cooperative can take out loans, or obtain them immediately or

simultaneously. Members are granted loans in accordance with their seniority within the

cooperative and the amount of their savings.

Existing coop members and prospective IWS applicants who meet the following criteria will be

the target clients of the cooperatives microcredit services:

Legal age but not more than 60 years old

Engaged in business activities that regularly generate daily or weekly sales/income

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Operates a small business for at least one (1) year Business location is within the coops area of operation

A bonafide resident of the coops area of operation for at least three (3) years

Has some form of valid identification card (e.g. SSS/GSIS, Philhealth, BIR/TIN, Drivers

License, Voters ID, employers ID)

Must have savings account and CBU with the PARE MPC

Possesses good community standing

Other target beneficiaries are the low income women and men from the IWS communities

where the coop will recruit new members who are willing to join and actively participate in the

affairs of the coop. These IWS men and women may or may not be formally employed, or may

or may not have any visible income-generating activity at the time of joining the cooperative.As a minimum requirement, the household should be receiving or earning cash income from

any source, regardless how small or irregular. While the microcredit project is open to the

Payatas residents in general, it is giving priority to organizing the informal waste sector (IWS)

because they are the most vulnerable subsector within the informal sector.

2.5. Marketing and Recruitment Strategy

The coop shall carry out recruitment campaigns all throughout Payatas and neighboring

communities through conduct of coop pre-membership education seminars (PMES) and

promote its microcredit services to prospective members. Posters shall be posted in strategiclocations throughout Payatas that indicate the schedule and venue of PMES and the coop

products and services, including microcredit.

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Section 3

ORGANIZATIONAL AND MANAGEMENT PLAN

3.1. Form of Business

The microcredit project will be managed by the Payatas Alliance Recycling Exchange Multi-

Purpose Cooperative (PARE MPC). In the cooperative, member share capital represents

individual member commitment to the cooperative form of business. It also identifies the

individual members financial stake. It is withdrawn only when the member leaves the

cooperative. Some other forms of member contributions, usually related to patronage, are

more variable but once given cannot be withdrawn and hence are a particularly useful form of

cooperative capital.

The structural characteristics of the cooperative show how the microcredit business will be

managed and how it differs from other types of business:

- Nature of the coop enterprise

a)

User-benefit principle: benefits are transferred to the members based upon the

percentage of use or patronage

b)

User-ownership principle: members own the organization and they are obliged to

provide financing (CBU) in proportion to their use of the coop services because their

organization has to acquire assets in order to operate and expand

c)

User-control principle: governance of the coop remains with the owner-member

implying that the members have to be aware that the achievement of their coops

objectives does not depend solely on the hired managers but also on their own

behavior and active participation

- The coordination process: coordination is attained through the flow of information as

having a continuity that is stable (the cooperative is organized to provide goods and

services to its members who delegate power to the Board of Directors (BOD) who in turn

hire and delegate power to the general manager)

-

Democratic decision making: ensures that the coop operates in members interest.

3.2. Organizational and Management Structure

The General Assembly (GA) is the highest policy-making bodyof the cooperative. The general

assembly has the following powers:

- To determine and approve amendments to the articles of cooperation and by-laws

- To elect or appoint the members of the board of directors, and to remove them for cause.

- To approve developmental plans of the cooperative

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The officers of PARE MPC include:

- Chairman, Vice-Chairman and other members of the board of directors

-

Chairman of the different committees created by the general assembly- General manager

- Coop Secretary

- Coop Treasurer

- Other positions as maybe provided for in the coop by-laws

The direction and management of the affairs of the PARE MPC is vested on the board of

directors (BDO) which is composed of 7 members and headed by the Chairman of the Board.

The BOD is responsible for the strategic planning, direction-setting and policy-formulation of

the cooperative.

The by-laws of PARE MPC provides for the creation of the following committees:- Audit committee - elected by the general assembly (GA)

GENERAL ASSEMBLY

Board of DirectorsAudit Committee

Accoun

-tant

Cashier

Election Committee

Mediation &

Conciliation

Committee

Credit

Committee

Education &

Training

Committee

Admnis-

trative

Officer

Other

staff

Treasurer Secretary

Other

staff

Book-

keeper

Coop Management Team

General Manager

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-

Election committee - elected by the GA- Mediation and Conciliation committee appointed by the BOD

- Ethics committee - appointed by the BOD

- Education committee - appointed by the BOD

- Other committees as may be necessary for the conduct of the affairs of the cooperative

(e.g. credit committee)

PARE MPCs management team (COMAT) is composed of the general manager, loan officer,

bookkeeper and cashier.

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Section 4

FINANCIAL PLAN

4.1. Savings Mobilization/Capital Build Up Component

PARE MPCs microcredit business must promote a savings mobilization or capital build-up

program. The savings performance of borrowers will manifest their savings discipline and

readiness to assume the responsibilities of a good borrower. Thus, equity contribution shall be

established and required from the borrowers. The savings mobilization/capital build-up (CBU)

component may provide the mechanism for borrowers to be able to raise an equity

counterpart for the project. Such contributions lessen the debt burden of the borrowers, and

also increase the probability of repayment.

4.2. Donor Agencies and External Funding

In addition to institutional capital and members capital through savings/CBU generation, the

cooperative can make use of external sources of funds to finance its microcredit business.

These non-member sources of funds may include other cooperatives or commercial banks,

government or donor agencies. External funding for the microcredit business may be provided

in different ways: as a grant, short-term loan, or long-term loan.

The Philippines has several sources of overseas development assistance (ODA) and technical

assistance including those from USAID, Australian Agency for International Development

(AUSAID), UNDP, ADB-IFAD, European Union (EU), Canada Fund, and World Bank. In addition,

international organizations with local offices in the Philippines also provide wholesale fund

and technical support to microfinance institutions (MFIs), cooperatives and other forms of

social enterprises. These are Plan International, Oikocredit, CARE Philippines, World Vision,

and Catholic Relief Services (CRS). Local organizations such as the Peace and Equity Foundation

(PEF) , Foundation for Sustainable Societies, Inc. (FSSI), and the Federation of Peoples

Sustainable Development Cooperatives (FPSDC), cater to the capital needs of relatively smaller

MFIs and cooperatives.

Government or donor agencies and external funding are welcome to support the following

components of PARE MPCs microcredit business:

- development of the coop in delivering credit to disadvantaged sectors

- project development and packaging

- group/organization/training

- feasibility study/preparation

- technical and management assistance

-

monitoring cost- project modeling/pilot-testing

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-

input assessment costs- market access

- communication

4.3. Financing Plan and Project Cost

PARE MPC shall charge interest rates on loans to members at 3 percent per month. The

cooperative will additionally charge an upfront service fee of 3 percent on loans. Collection

frequency on loans is weekly, bi-weekly or monthly.

Total financial requirement needed by the coop to be able to serve its existing and prospective

members is at least PhP100,000.00 (see table 5) and the proposed cost-sharing arrangement isthat the members savings/CBU will finance the total loan fund comprising 75%

(PhP75,000.00) of the total project cost, while the coop will allocate PhP25,000.00 from its

annual operating budget and net surplus from the microcredit business.

Table 5. Cooperatives Microcredit Project Cost

Purpose Pesos (PhP Percentage

Loan fund 75,000.00 75%

Planned capital expenditures 5,000.00 5%

Operating and administrative costs 16,000.00 16%

Training and capability building program 4,000.00 4%

Total financial resources needed 100,000.00 100.00 %

Operating and administrative costs include all personnel and non-personnel expenses incurred

in the course of providing the service. Cost of capital includes not only actual costs incurred on

borrowings but also the imputed cost of capital. Imputed cost of capital accounts for inflation

indicating the extent to which the real value of capital employed is maintained.

4.4. Security for Loan

PARE MPC member-loan applicants are required to submit the following securities for their

loans:

Spouses signature as a co-borrower. For single or widowed applicant, a relative as a co-

borrower

Two (2) co-makers who can be anyone of the following:

i. Individuals (friends, neighbors, and relatives) not living with the member-loan applicant

who are willing and have a sufficient and stable source of income to repay the loan, in

case the client is unable to do so.

ii. Other clients receiving loans through PARE MPCs microcredit services

Deed of assignment of savings account and/or CBU

The cooperative is authorized by law to collect savings and capital build-up (CBU) from its

members. The CBU will also be the basis for determining the maximum loanable amount thata member can apply for, as provided by the coops microcredit policy. Any amount of CBU

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contribution, on top of the subscribed share, can be made. If a member has an outstandingloan, his/her savings/CBU shall be frozen; a lien is placed on it and no withdrawals are

allowed until the loan is fully paid.

Lending to Women

PARE MPC may predominately lend to women members because of a mission to serve the

very poorest, most marginalized, sectors of society and because of the common conception

that women spend more money on their children than men do, which benefits societal

development.2 Nonetheless, lending to women also takes on a business motivation.

Microfinance institutions (MFIs) have discovered that women are more likely to pay back loans

than men and are more responsible in how they use the money. Furthermore, womenborrowers are said to be less physically threatening, less arrogant, and less mobile, so they can

be found more easily if they do not pay.

4.5. Loan Repayments and Restructuring

The profitability and sustainability of PARE MPCs microcredit business will depend on the full

repayment of small loans by the non-bankable but creditworthy IWS borrowers. Ultimately,

microcredit and public support services will enable the graduation of beneficiaries from the

poverty trap and will facilitate their participation in the mainstream commercial banking

system.

The cooperative shall use continued access to credit and mandatory savings/CBU to help

ensure repayment. In the event a borrower defaults on his/her loan, the money in his/her

savings account and CBU will be garnished and used to repay the loan. Loan restructuring will

not be regularly practiced by the cooperative except in cases of major, unexpected natural

disasters such as strong earthquakes and typhoons; and serious illness or accident that

required the member-borrower to close or slow down his/her small business over an extended

period of time. PARE MPC shall recognize all the events described above. Restructuring shall

be approved by majority of the board of directors (BOD) together with the general manager

(GM). The cooperative can only restructure a loan once.

4.6. Financial Analysis

For the cooperatives microcredit business to succeed, interest income from loans and related

fees and charges must be greater than total operating costs, the cost of the capital employed,

and the cost of bad loans. Operating costs include all personnel and non-personnel expenses

incurred in the course of providing the service. Cost of capital includes not only actual costs

incurred on borrowings but also the imputed cost of capital. Imputed cost of capital accounts

for inflation indicating the extent to which the real value of capital employed is maintained.

Viability is thus a function of pricing (interest rates and fees), operational efficiencies, cost of

2 Brau, J. and Woller, G. (2004) 'Microfinance: A Comprehensive Review of the Existing Literature,' Journal ofEntrepreneurial Finance and Business Ventures, Vol. 9 Iss.1, p. 1-26.

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capital, and quality of the loan portfolio. Except for the cost of capital, the other threevariables are within the control of the cooperative as the microcredit service provider.

Over-all financial and operational self-sufficiency is expected to be achieved on or before the

18th month of microcredit operations. Thereafter, the cooperative would be able to cover all

operational costs of the project. The financial projections indicate that the microcredit

business should continue to be financially viable and sustainable after the SWAP-JSDF project

assistance. Thereafter, the cooperative will be able to provide increasing number of loans to

its members at a steadily increasing average loan size.

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Documents

Microcredit Business Plan for Cooperatives