AN EVALUATION OF THE EFFICIENCY OF LOAN COLLECTION POLICIES AND PROCEDURES AMONG SELECTED MULTI-PURPOSE COOPERATIVES OFFERING CREDIT SERVICES

IN TAGBILARAN CITY

Comment [Miko1]: In your literature review, you should be able to address what you meant by efficiency, especially in the context of lending activities. For example, what measures of evaluation will you use here? Will it be turnover? Second, is it the efficiency of loan collection polic and procedures that you would like to assess? Or the implementation of these policies? Because th might be a big variance here.

Comment [Miko2]: Cooperatives may offer credit to members (meaning, its some kind of clos cooperative in terms of lending) or open to the public. In this case, efficiency may be different, because in closed cooperatives (as in the case of HOMCO), the collection is efficient because it is attached to the payroll system of the school. So y may address this variation in the research.

Ararao, Cathylene Campecio, Nia Joy Dungog, Maximo Jr. Idong, Rodel

CHAPTER 1 INTRODUCTION

Rationale In the earlier times, even as late as the years before the last world war, credit was synonymous with debt with all its negative connotations. Thus, to the rich and poor alike, it was more of a stigma to avail of credit which mean being in debt, no matter how promptly one pays his indebtedness. Conversely, to have no debt was viewed as a status symbol. True to this common belief, credit transactions then attracted mostly people with not so good credit standing who incurred debts out of pure necessity, or worse, with intent to defraud creditors. Examples of these are the poor tenants who are perpetually indebted to their landlords or the poor labourers who live hand-to-mouth existence, and had to depend on credit to survive. (Apolo,2003) With this, one can easily deduce the importance of credit in the peoples daily lives. More often than not, people rely on credit especially in times of financial difficulties. An economy without credit transactions is a moribund nation. (Ibid) Technically, credit is a term derived from the Latin word Credo which means to believe and to trust. Trust is the fundamental element of credit. (Ibid) On the part of the creditor, what he has is the confidence in the debtors willingness and ability to pay his obligation. The challenge is on how to demand payment from the debtors efficiently which would mean of lesser cost and at a reasonably acceptable collection period. Furthermore, every business, regardless of its form, needs appropriate management policies and procedures for its every distinct procedure because having such aids the organization in achieving an orderly and organized flow of operations. The same goes in terms of the collection of the credit extended by the firm to its customers. It is noticeable that credit procurement is one of todays most rampant sources of financing not only for business establishment but also for individual households. Large number of credit institutions has been emerging occupying a significant niche in the society. One of these institutions are credit and multi-purpose cooperatives; the latter referring to the cooperatives engaging in diversified nature of operations. The primary objective of every cooperative is to help improve the quality of life of its members. (http://www.cda.gov.ph/website/html/about%20coops.html#). Since it plays a vital role to the development of the society, their operation must be properly managed so that the
Comment [Miko4]: Is it? So why have banks existed even before the age of enlightenment? Comment [Miko3]: What early times?

Comment [Miko5]: This is highly debatable. Where are your sources? Apolo, below, did not t about defrauding creditors. He was talking about clientelism using indebtedness as a tool.

Comment [Miko6]: Why does he have to be your sole source? Why not go back to what Apolo referenced in his piece?

Comment [Miko7]: What do you mean to say be this? Procuring credit?

Comment [Miko8]: This is not the proper way to do this. Please see the book of Kate Turabian o Manual for Writers of Term Papers, Theses, and Dissertations.

contribution from its members placed as capital together with donations and grants will be expected to generate returns. And in case of credit cooperatives, these are made available for credit. With this, returns heavily depend on how collections of these receivables are done. This research project is geared towards the evaluation of the collection policies and procedures employed by the selected multi-purpose cooperatives rendering credit services with a corresponding assessment of the degree its implementation efficiency.

Comment [Miko9]: Please see my comment o the title above.

Review of Related Literature The cooperative credit idea in general, however was introduced in the Philippines as early as 1907. The first cooperative credit society was organized in Cabanatuan, Nueva Ecija, under the Act No. 2508 (Rural Cooperative Credit Law) on October 19, 1916. The term cooperative was derived from a French word co-operari which means to work together. This meaning has been expanded to convey the primary aims of the various types of objectives. (Fajardo and Abella, 1981) Moreover, a cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of risks and benefits of the undertaking in accordance with the universally accepted cooperative principles. (http://www.cda.gov.ph/website/html/about%20coops.html#) The primary role that the credit and collection unit must play in a business enterprise is to maximize profits and minimize bad debts losses through proper credit evaluation of each application and through efficient and consistent collection follow-up. (Apollo, 2003) A number of collection techniques, ranging from letters to legal action, are employed by firms in order to provide efficiency in the collection process. This also includes collections by telephone calls, personal visits, and collection agencies. As an account becomes more and more overdue, the collection efforts become more personal and more intense.(Gitman, 2009) According to Ross, 2005, the firm usually employs the following step-by-step
Comment [Miko10]: Please see similar comment above.

Comment [Miko11]: This is a backtrack. Because you already introduced cooperatives in t previous paragraphs, you should refer more to a specialized literature that on Apollo again. Look f a paper on the role of credit in cooperatives, than Business, more particularly in the context of the Philippines.

procedures for customers that are overdue: First, the entity must send delinquency letter information to customers past overdue accounts. Second, call the customer through telephone. Third, employ collection agency to collect the receivable. Lastly, if no response is received from

the customer after exhausting the prior ways, the entity must take legal actions against the customer. In his book, Judge Jose Apolo enumerated the following collection efficiency criteria: 1. Collection Efficiency- The relationship (percent) between monies collected and the money available to collect 2. Aging of Receivable- Money amounts and percent past due beyond terms of sale. Emphasis is on the older aging of accounts. 3. Turnover- Number of months sales (invoicing) in receivables. This is more of an assessment of the total investment in receivables to include terms of sale, than it is a reflection of the credit functions operating efficiency. The most effective utilization of turnover is for purposes of comparison with reporting from competitive and related industry sources. 4. Bad debts loss ratio- The ratio between total credit sales/loans to bad debts. In their Study on the Performance of Selected Credit Cooperatives in the Philippines, Julius P. Relmpagos, Mario B. Lamberte and Douglas H. Graham claimed that despite the impressive growth rates in nominal assets achieved by the 12 credit cooperatives in the past five years, a number of them still have not sustained a continuous increase in their net incomes/savings .Thereby motivating the researchers to look into loan collection policies of the cooperative. With the above mentioned related literatures, the researchers took the opportunity to study about the efficiency of the collection policies of some cooperatives offering credit services in the City of Tagbilaran. Research Questions This study attempts to provide an adequate understanding about the collection policies and procedures currently employed by selected multi-purpose cooperative offering credit services. Specifically, it attempts to answer the following questions:

Comment [Miko12]: Does this mean that this will be the criteria that you will use? Why do you decide to use Judge Apolo? There are other measures. You can example see the no-nonsense book on credit management produced by FINEX.

Comment [Miko13]: This is jumping to conclusion. You are presuming here that the reas for the unsustainable increase in savings is the collection efficiency, especially because you attached this to the statement in the immediately succeeding paragraph. Comment [Miko14]: This is a fragment. Consider revising. This is according to MSWORD.

Comment [Miko15]: You actually do not nee to say this.

1. What are the collection policies and procedures employed by multi-purpose cooperatives offering credit services in Tagbilaran City? 2. What among these policies and procedures is critical as to the collection of loans receivable? 3. What is the degree of implementation of these policies and procedures?

Comment [Miko16]: Does this mean also tha this is implemented? How will your research deal with the possibility that the policies do not coincid with the practice?

Comment [Miko17]: Are you presupposing th there are policies employed by cooperatives tha are not critical to collection? Comment [Miko18]: How will you assess degree? What is your scale?

4. What are the problems encountered by these cooperatives when it comes to collection? 5. How much are the recognized bad debts or what is the rate of bad debts that the cooperatives recognize? 6. How fast is the Loan Receivable Turnover of these cooperatives? 7. What is the managements evaluation about the efficiency of the collection of loans? Are they assessing themselves as efficient or not? Why or why not? Significance of the Study Once credit or loan is extended inevitably, the responsibility to collect ensues. The need for a collection system is more acute in the Philippines at this present age and time since the responsibility to collect is greater than the responsibility to pay. In other words, one has to run after his peso to be able to collect. A sale is not complete until the last peso is collected. It is therefore imperative that a collection system should be set up if a company is to be assured of efficient collection. The specific objective of collection management is to see to it that the unit or the department tasked with the responsibility to collect is able to obtain payment promptly at a minimum cost and to maintain the goodwill of the customer or client at the same time., (Apolo,2003). As what the title of this study suggests, the primary goal of the researchers is to determine the current collection policies and procedures of multi-purpose cooperatives extending credit services in Tagbilaran City and to evaluate how efficient they are in the implementation of their loan collection policies and procedures. The study also aims to produce valuable information that will aid in the improvement of these collection policies and procedures. Specifically, this study aims to equip relevant information to the following users: To the respondent cooperatives: Members in the cooperative will be able to know how efficient the existing collection policies and procedures. The result of this study can be used as a control tool for the enhancement of the firms current collection to improve the policies they are currently implementing

Comment [Miko19]: Why does this question suddenly appear here, after the implementation? you want to know their problems, this may be related not only to efficiency, but also, effectiveness, which is measured more by portfol at risk.

Comment [Miko20]: This is a little off-tangen in your progression of questions.

Comment [Miko21]: Again, how is this quest placed in the total context of the research?

Comment [Miko22]: I thought you will be the one to assess them? Are you telling me you will b asking them instead? What is your question here the end about what you proposed at the beginnin of this chapter?

Comment [Miko23]: Now, I am beginning to hate Apollo. It seems that among the gods and goddesses, he is the only one you have read abou Poor research. Tsk tsk tsk.

Potential Debtors

The information regarding the credit collection policies and procedures will serve as a basis for them to decide in whether to procure credit/debt in a particular credit institution such as a cooperative.
Comment [Miko24]: Why do you have to provide them this?

The information generated will also provide the potential debtors with protection as to their interest especially in cases when the existing collection policies and procedures of a particular cooperative are not favourable to them.

Other credit institutions Similar lending agencies may use the information gathered as a benchmark in assessing the efficiency of their current collection policies and procedures. The researchers recommendations may be of significant help in the enhancement of the existing policies and procedures.

Scope and Limitations With the nature of the multi-purpose cooperatives whose operation is made up of at least two business activities, the researchers are only focusing on the collection policies and procedures of loans receivable. Other receivables as a result of their other operations are not included in the scope of this study. The respondents of this study are selected multi-purpose cooperatives extending credit services located in Tagbilaran City only. The evaluation of the degree of compliance with the particular cooperative-based collection policies and procedures and its corresponding implementation will be based only from the information gathered through questionnaire and interview. The project is only up to the determination of problems regarding the collection policies and procedures and not on the causes of such problems.

Comment [Miko25]: What among them? Wh will be participants to this study? Dont tell me it the cooperative, because it will not be able to answer your questionnaire.

Comment [Miko26]: Then better not to discu the problems.

Proposed Research Methodology This study will use descriptive type of research methodology which measures the status rather than the prediction. The Delphi Method is applied which is a survey technique that

involves the use of questionnaires in an attempt to get consensus on a topic. Subjects respond to a first questionnaire, then, based on these responses a second questionnaire is developed and administered. Each time the questionnaire is administered is called a "round." Responses will be acquired through written and oral means. At the same time, a supplemental interview will be administered personally by the researchers so as to clarify points regarding their responses. The first questionnaire will be distributed to the cooperative personnel who has an access to the information needed. This may involve but not limited to those handling treasurership functions. The succeeding questionnaire shall be given to the personnel directly involve in the implementation of the loan collection policies and procedures with direct reference to the information gathered in the first questionnaire. The first and second questionnaires will be composed of open-ended and closed questions. Open-Ended Questions allow the responder a variety of response options. The good part is that responders are free to say what they like. On the other hand, Closed Questions direct responders to certain choices among provided options. The researchers can ask responders to rank order choices, select a score on a scale, or respond to provided categories.

Comment [Miko27]: If this is your method, it as if you are not evaluating at all.

Bibliography Apolo, J. 2003. Credit And Collection Management. Gitman, L. 2009. Principles of Managerial Finance, 12th Edition. Pearson Education, Inc. Publishing as Addison-Weasly, Copyright 2009 Fajardo, F., et al. 1981

Ross, S. 2005. Corporate Finance, 7th Edition. MacGraw Hill Relampagos, J., et al. A Study on the Performance of Selected Credit Cooperatives in the Philippines. Working Paper Series No. 90-23. http://www.cda.gov.ph/website/html/about%20coops.html#