Chapter I INTRODUCTION

Knowledge is a fundamental driver of increased productivity and global competition. It is seminal to invention, innovation, and wealth creation. Information and communication technologies provide a foundation for building up and applying knowledge in the private and public sectors. Countries with pervasive information infrastructures that use innovative information technology applications possess advantages for sustained economic growth and social development. In this rapidly evolving environment, developing countries face opportunity costs if greater access to and use of information infrastructure and information technology are delayed, which together make up information and communication technologies. Indeed information and communication technologies: are a key input for economic development and growth; offer opportunities for global integration while retaining the identity of traditional societies; can increase the economic and social well-being of poor people, and empower individuals and communities; and enhance the effectiveness, efficiency, and transparency of the public sector (including the delivery of social services). Because of these factors, information and communication technologies are central to meeting both microfinance institutions (MFI) priorities: building the climate for investment and sustainable growth; and empowering and investing in poor people. As proof to the preceding statement, a number of international and local MFI web sites have already been existent and operationally active since the conception of the distributed electronic commerce over the Internet. Example of a foreign MFI that avails

the influence of ICT in conducting its business is the Spratt Savings and Loan (http://www.sprattsavingsandloan.com), considered the oldest savings and loan institution in South Carolina, USA. Among its components are e-Thrift, Personal Banking, Business Banking, Mortgage Services, Safe Deposit Boxes and Debit Cards. A number of local MFIs in the Philippines have also considered the employment of web sites to augment its operational scope and functionalities. These include the Perpetual Help Credit Cooperative Incorporated Multi Purpose Cooperative (PHHCIMPC) - (http://phcci.com.ph) with its main office in Tacloban City and four (4) branch offices in Sogod, Alang-alang, Dulag, and Ormoc and two (2) satellite branches in Babatngon and Carigara, Leyte; and the Ramon Aboitiz Foundation Incorporated (RAFI) (http://rafi.org.ph/) with branches in Ormoc, Sogod, Baybay, Maasin, Albuera, Bato, Merida, Kanangga in Leyte and in the municipalities of Ubay, Tubigon, Talibon, and Dawis in Bohol.

a. Background of the Study

Microfinance can be dened as a provision of extending credit and other nancial services and products of very small amounts to the poor in rural, semi-urban or urban areas to enable them to raise their income and improve their living standards. MFIs are the institutions which extend credit to that category of people. Information users in MFIs include all those people in and outside the institution that require information from the institution for planning, research, etc. In most developing countries, the low income people (small scale business persons, peasants and small scale farmers) form at least eighty percent of the adult population. Governments in those countries assumed that in order to achieve real economic growth, the majority of the adult population should be

empowered to produce more goods and services. One of the ways to empower them is to extend credit services to the latter. Unfortunately commercial banks cannot extend credit to the majority of these people because they lack the required security or collaterals for the loans. Therefore most developing countries, including the Philippines, have earmarked the microfinance sector as the sector to extend small loans on exible terms to that category of people. One such institution in the Philippines is the Center for Agriculture and Rural Development (CARD), Inc. CARD, Inc. was organized in December 1986 by 15 rural development practitioners as a social development foundation to address the need of a growing number of poor Filipinos in depressed communities. In 1989, CARD pilot-tested solidarity group lending, modifying the Grameen credit methodology to suit the context of the Philippines. In 1990, it launched the Landless Peoples Development Fund (LPDF) as its flagship program. Through the years, the LPDF program has evolved into the CARD microfinance program. In December 1995, the Board of Directors of CARD started to discuss the establishment of a bank. This was meant to address CARDs expansion plan of reaching 1 million poor people through savings mobilization. In August 1997, CARD obtained a license to operate as a rural bank from the Bangko Sentral ng Pilipinas. At that time, four of thirteen CARD branches were transformed into banks. Presently, CARDs non-

government organization entity (CARD NGO) continues to co-exist with CARD Bank, CARD Mutual Benefit Association, and CARD MRI Development Institute under the group known as CARD Mutually Reinforcing Institutions (CARDMRI). The institutions aim to provide the poor with diverse financial and non-financial services.

While its loan products were initially adopted from the Grameen model, CARD NGO recently institutionalized the use of the Association for Social Advancement (ASA) methodology. This methodology is a shift from group to individual liability. CARD NGO offers two major loan programs: Sikap Loan. This loan can be utilized by microenterprises such as vending, crop and livestock projects, hollow block making, bakery operation, dressmaking, and fish drying for their business ventures. This may also be extended to finance larger business investments. Sagip Loan. This is a second loan that a client can avail for emergency and social obligation use such as education and health. CARD NGO operates in the provinces of Laguna, Quezon, Masbate, Occidental Mindoro, Oriental Mindoro, Bicol, Camarines Sur, Camarines Norte, Batangas, Samar, Leyte, and Metro Manila. CARDs microinsurance program is being handled by CARD Mutual Benefit Association. CARD MBA is a non-stock, non-profit mutual benefit association formed to promote the welfare of marginalized women; to extend financial assistance to its members in the form of death benefits, medical subsidy, pension and all loans redemption package; and to actively involve the members in the direct management of the association. CARD MBA started in April 1994 as CARD Members Mutual Fund (MMF) that aimed to provide benefit to members in case of death. The management of the MBA was turned over to its members on September 9, 1999. Although CARD Inc. has an active web site (http://cardbankph.com/ wp_cardbankph/ngo) that cater information about the institution, most, if not all, of the associated process involved in the current loan and savings scheme are carried out

manually. These include several policies being implemented to standardize the loan and savings processes of the institution by which all the stakeholders are compelled to follow. The following are policies of the CARD Inc. as far as loan and savings are concerned: a. Criteria for Loan Applications 1. Borrowers must form into groups with 5 to 10 members 2. Any male or female member with existing business, who is physically fit and in good health, and without existing debt with other MFI or individual, is eligible to borrow. 3. Borrowers are required to attend weekly group meetings and training 4. Borrowers are willing to deposit PhP 50.00/week in regular savings with the Coop. 5. The groups commitment to pay the obligation of each member is required. Each member acts as co-maker for each member. 6. Documentary requirements for individual borrowers include the following: 2 pieces 2 x 2 photo, barangay clearance, residence certificate; and payment of PhP 20.00 for credit and savings passbook Accomplished Loan Application and Simple Business Plan forms. b. Loan Amounts per Borrower 1. Loanable amount per borrower ranges from PhP 4,000.00 to PhP 10,000.00, subject to a 2 percent service fee. Increase in loan amount is dependent on previous loan performance.

2. Loans are subject to insurance under the Loan Protection Plan of CARD MBA. c. Collection and Monitoring System for Repayments 1. Loan amortization payment schedule is weekly. 2. Penalty surcharge of 1.5 percent will be imposed on late payments based on amount due. d. Loan Procedure 1. Conduct of baseline investigation 2. Conduct of group orientation and formation 3. Attendance of borrowers in training programs 4. Submission of application and other requirements 5. Credit committee action and 6. Approval and release of loan. On the other hand, due to the ongoing evolution of the industry, MFIs such as CARD Inc. and similar institutions face difficulties in defining business objectives, needs, priorities and limitations for acquisition of a suitable software solution. There is lack of standardization within the microfinance sector and business practices of MFIs differ from one another thus application development becomes a serious endeavor. The most challenging characteristic of MFIs for most systems and software developers is that though simple in structure, MFIs are individually distinctive. Therefore wrong assumptions are made and as such, the resulting application does not meet all the intended functional features and routines. As such, the proposition of the Center for Agriculture and Rural Development (CARD) Online Loan Savings System that highlights diversified characteristics of most

MFI loan and savings systems in its functional features is presumed to meet the intended functional features and routines. The proposed system would have the following benets: i) detailed information can be captured on clients and their activities can then be used to assess client business; ii) transactions, such as disbursements, repayments, deposits, withdrawals and money transfers can be completed faster, better controlled and with minimum errors; iii) information can be produced in user-required formats, which facilitates better understanding, setting priorities, objectives and strategy; iv) key performance indicators are possible which provide an overview of the institutions performance, efficiency and effectiveness of business procedures so that timely adjustments can be made; v) operational costs would be signicantly reduced, since less manpower would be required, and also paper work would be reduced; vi) monitoring would be much faster and more accurate; vii) forecast for business trends would be possible and more timely and viii) work would be carried out more efficiently.

b. Statement of the Problem

The study seeks to identify the operational status of the current loan and savings system employed by CARD, Inc. Specifically, the study intends to find answers to the following questions: 1. What are the constraints and limitations of the current loan and savings system employed by CARD, Inc.? 2. What are the causes to the constraints and limitations, if any, to the current loan and savings system utilized by CARD, Inc.? 3. What alternatives can be formulated to resolve the constraints and limitations apparent in the current loan and savings system employed by CARD, Inc.?

4. What are the pre-requisites needed to implement the best alternative or solution to the issues concerning the current loan and savings system of CARD, Inc.?

c. Objectives of the Study

The general objective of the study is to investigate the operational status of the current loan and savings system employed by CARD, Inc. and design an online, webbased system that would lessen, if not eradicate, the constraints and limitations evident in the aforementioned system. Specifically, the study aims to achieve the following objectives: 1. Identify the probable constraints and limitations of the current loan and savings system utilized by CARD, Inc.; 2. Identify the causes of the problems that hold back the operational functionalities of the current loan and savings system; 3. Identify and formulate probable alternatives that would resolve the constraints and limitations evident in the current loan and savings system; and 4. Identify the pre-requisites needed to implement the best alternative or resolution to the issues concerning the current loan and savings system of CARD, Inc.

d. Significance of the Study

The study is deemed to benefit the following individuals or institutions as far as the Online Loan and Savings System of CARD Inc. is concerned: CARD Inc. Policy Makers. The study will pave the way to the formulation of contemporary policies that will boost the operational competitiveness of the institution as far as loan and savings scheme is concerned. Moreover, the study will provide policy

makers viable alternatives to the current loan and savings system thereby augmenting the maintainability of the products and services rendered by the institution to its customers. CARD Inc. Affiliate Institutions. The study will provide the affiliate institutions of CARD Inc. translucency in its operations and functionalities concerning loan and savings system. This will also allow the affiliate institutions to render intelligent decisions involving varying transactions based on reliable and accessible resources via the proposed loan and savings system. CARD Inc. Members and/or Customers. The study will provide CARD members and customers unfaltering and reliable products and services through a consistent and accessible loan and savings system. The resulting transparency of the business transactions through a dependable loan and savings system will promote the mutual interest of both the microfinance institution and its members/customers. Other Microfinance Institutions. The study will offer insights on the availability of other alternatives to resolve issues concerning customers loan and savings accounts. The study will also pave the way for the reconsideration of lending strategies that would further the profitability of the institution and augment the chance of surviving unexpected economic lapses. Future CARD Inc. Members and Customers. The study will provide future members ideas and related concepts concerning loan and savings schemes employed by CARD Inc. This opportunity will offer them preparedness and awareness on the internal workings of a loan and savings system thus allowing them to be more productive and valuable to the institution.

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e. Scope and Limitation of the Study

The study covers the identification of the constraints and limitations evident in the current loan and saving system employed by CARD Inc. Eventually, the study will include the analysis of the said constraints which would then serve as the foundation for the synthesis of viable alternatives for the current system. In so doing, the proposition of a web-based system necessitates the inclusion of varying activities involved in the System Development Life Cycle (SDLC). These activities or system development phases will include Requirement Definition, System Design, Coding and Implementation, Debugging and Testing and Installation and Maintenance. Discussions on the preceding development phases will be specifically tackled in the following chapter. Moreover, data flows and related activities concerning loan and savings scheme of the microfinance institution will also be taken into consideration. Since the proposed system will be designed to be usable to all the CARD Inc. branches throughout the country based on the assumption that the processes entailing loan and savings of the said institution will be more or less similar among the branch offices, the proponents deemed it practical and economy-wise to select a single branch office from a nearby location as the locale of the study. The said CARD Inc. branch office is located in Brgy. Naga-naga, Tacloban City and the personnel and customers alike will be the respondents of the study selected through random sampling garnering a total of 30 individuals. Survey questionnaires and informal written interviews will be used to elicit data regarding the standard operating procedures involved in the current loan and savings system used by CARD Inc. Moreover, data from related studies and literature

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downloaded and browsed over the Internet will also be used to extract necessary data and information. On the other hand, the development of the proposed online loan and savings system for CARD Inc. will include several computer software and hardware components. Software will include several scripting languages related technologies such as PHP: Hypertext Processor (PHP), Javascript (jQuery), Apache Web Server, HTML 5,

Cascading Style Sheets, Notepadd++, Internet Browers (Mozilla Firefox, MS Internet Explorer 9 or Google Chrome), among others. Hardware components include the computer system and its peripheral devices.

f. Definition of Terms
The following are technical terms used in the study with their corresponding operational and/or conceptual definitions to facilitate the understanding of the manuscript contents: Code. A system of symbols and rules used to represent instructions to a computer; a computer program. Web-based system. Complex system in which computers play a major role. While complex physical systems and sophisticated software systems can help people to lead healthier and more enjoyable lives, reliance on these systems can also result in loss of money, time, and life when these systems fail. Database server. A computer in a LAN dedicated to database storage and retrieval. The database server is a key component in a client/server environment. It holds the database management system (DBMS) and the databases. Upon requests from the

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client machines, it searches the database for selected records and passes them back over the network. Debugging. The process of attempting to determine the cause of the symptoms of malfunctions in a program or other system. These symptoms may be detected during testing or use by real users. Discussion Database. An abstract venue for the proponents to exchange ideas and propose concepts related to the development of the proposed system. Research documents, manuscript drafts, software and hardware components issues are presented and elaborated for confirmation and finalization. Grameen Credit Methodology. The Grameen model emerged from the poorfocused grassroots institution, Grameen Bank, started by Prof. Mohammed Yunus in Bangladesh. It essentially adopts the following methodology:

A bank unit is set up with a Field Manager and a number of bank workers, covering an area of about 15 to 22 villages. The manager and workers start by visiting villages to familiarize themselves with the local milieu in which they will be operating and identify prospective clientele, as well as explain the purpose, functions, and mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to rules of the bank. Only if the first two borrowers repay the principal plus interest over a period of fifty weeks do other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense , collective responsibility of the group serves as collateral on the loan.

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Information and Communication Technology (ICT). The study of the technology used to handle information and aid communication. The phrase was coined by Tevenson in his 1997 report to the UK government and promoted by the new National Curriculum documents for the UK in 2000. Internet. The worlds largest computer network, consisting of millions of computers supporting tens of millions of users in hundreds of countries. Microfinance. Any mode of finance designed to provide low-income individuals with the means to become self-sufficient. Microfinance institutions issue small loans to those marginalized from normal modes of finance with the intention of helping the poor prosper by allowing them to save or borrow money. Microfinance Institution. Within the microfinance industry, the term microfinance institution has come to refer to a wide range of organizations dedicated to providing these services: NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions (some that have transformed from NGOs into regulated institutions) and parts of state-owned banks, for example. Microinsurance. Is a term increasingly used to refer to insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes. Online. It refers to being connected to the Internet or any remote service where there is no delay in accessing the network. For example, with cable modem and DSL service, you are online all the time. On the other hand, when you connect via a dial-up

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analog modem, you are online after you dial in and log in to your Internet provider. When you log out, you are "offline."