Microcredit Business Plan For Cooperatives

Japan Social Development Fund The World Bank
JSDF 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 COOPERATIVE
Visayas St. Group 3 Payatas B. Quezon City
CDA # 9520-160150021; TIN # 262-593-678-000
Email parempc@gmail.com

Cooperative Microcredit
BUSINESS PLAN

Prepared by: Carlos O. Tulali
August 14, 2014
Email: cjtulali@gmail.com
Quezon City, Philippines
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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 of
financial 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, not
all 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 and
opened 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:
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- small loan size
1
These criteria are based on Analyzing the efficiency of credit-granting NGOs: A technical guide by Martin Holtmann and
Rochus 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 output
such 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 to
grow 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 of
weekly 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 of Loan 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 the
cooperative 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) days
from 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 were
accomplished 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 a
strong 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 for
loan 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 Renewal
Loan 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 receipts
book, 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 be
the 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 the
subscribed 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 strategic
locations 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 body of 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 Directors Audit 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 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.

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 that
a member can apply for, as provided by the coops microcredit policy. Any amount of CBU
19


contribution, on top of the subscribed share, can be made. If a member has an outstanding
loan, 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, women
borrowers 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,' J ournal of
Entrepreneurial Finance and Business Ventures, Vol. 9 Iss.1, p. 1-26.
20


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.

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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Microcredit Business Plan For Cooperatives

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Japan Social Development Fund The World Bank

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