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CHAPTER I

INTRODUCTION

Background of the Study

In many developing countries, microfinance plays a vital role in providing the

poor, such as, small farmers, fishermen, and micro-entrepreneurs with access to credit

and helping them improve their lives by encouraging entrepreneurial activity (Bhatt &

Tang, 2011). It has also proven to be a potential tool for poverty reduction by helping

the poor to increase their income, smooth consumption, build assets, and reduce their

vulnerabilities in times of contingencies and economic shocks (Micu, 2010).

This study finds relevant information about microfinance and seeks to identify the

factors that triggers borrowers to avail the financial services offered by the Kabalikat

para sa Maunlad na Buhay, Inc. (KMBI). It also aims to measure KMBI’s effectiveness

to its borrowers and how they enable to overcome poverty.

In present time, microfinance services able to extent its help in the community

that leads to the development of skills of their borrowers. It also creates a wide range of

opportunities to our economy that could lessen poverty. As viewed, poverty is one the

world’s major problem. An epidemic disease that arises from one nation to another.

According to Mayoux (2001), microfinance services contributes to the smoothing out of

peaks and lower points of income and expenditure thereby enabling the poor to cope

with unpredictable shocks and emergencies.

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In a comprehensive study on the use of microfinance to combat poverty, argue

that well-designed programmes can improve the incomes of the poor and can move

them out of poverty. They state that there is clear evidence that the impact of a loan on

a borrower’s income is related to the level of income as those with higher incomes have

a greater range of investment opportunities and so credit schemes are more likely to

benefit the middle and upper poor (Hulme and Mosley, 1996).

Statement of the Problem

This study aims to answer the following:

1. What are the profile of the respondents in terms of the following:

1.1 Age

1.2 Gender

1.3 Employment Status

2. What are the types of financial services offered by the KMBI to its borrowers?

3. What are the reason for availing the financial services offered by the KMBI?

4. What are the benefits of the borrowers of KMBI after availing the financial

services?
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Significance of the Study

This study will be significant to the following:

To the Management of KMBI. This study will give them a detailed information

on how borrowers maximizes the loan they granted and measures the capabilities of

their borrowers to repay their loans.

To the Microfinance Institutions. This study will serve as a tool that enables

them to determine the efficiency and effectiveness of their program. It will also open a

great opportunity for them to extent their hands of service towards the poor as well as

the economy.

To the Public. This study will give them an idea about the importance and the

effectiveness of the microfinance and why is it consider as a tool to alleviate poverty.

To the Researchers. This study will help the researchers to gain more

knowledge about the microfinance. It will enable to answer the questions that the

researchers come up with and develop a better prospective towards our economy.

Scope and Delimitations

This study limits its coverage on the borrowers of Kabalikat para sa Maunalad na

Buhay, Inc., a microfinance institution located in the Koronadal City. Its main purpose is

to identify how its borrowers able to alleviate poverty with the help of KMBI. This study

considers every aspect of student’s personal information that has an impact on their

academic performance. Each respondents will be given questionnaires to answer, that

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enables researchers to answer the problems stated above. This study will cover the

entire academic year, 2017-2018.

Definition of Terms

Microfinance is used to provide investments for low-income people for support.

Microfinance Institution (MI’s) is an institution that provides microfinance services.

Financial services are the different types of loans offered by MI’s.

Poverty is a state of not having enough money to take care of the basic needs.

Alleviate is defined as to lessen something such as pain or hardships.

Borrow is defined as to be given money or received money by banks and other

Financial institution.

Borrower is a person who borrows money from a microfinance institution.

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CHAPTER II

REVIEW OF RELATED LITERATURE AND STUDIES AND CONCEPTUAL

FRAMEWORK

Presented in this chapter is related literature of the study which are relevant to

the present undertaking. Literature and studies cited enables the researcher to have a

better understanding and a wider perspective on this study.

Foreign Literature

Microfinance and its Importance

Microfinance, according to Otero (1999) is the provision of financial services to

low-income poor and very poor self-employed people. These financial services

according to Ledgerwood (1999) generally include savings and credit but can also

include other financial services such as insurance and payment services. Microfinance

as an attempt to improve access to small deposits and small loans for poor households

neglected by banks and involves the provision of financial services such as savings,

loans and insurance to poor people living in both urban and rural settings who are

unable to obtain such services from the formal financial sector (Schreiner and

Colombet, 2001).

Microfinance has a very important role in the development of our economy. First,

it helps very poor households meet basic needs and protects against risks, secondly it

is associated with improvements in household economic welfare, and lastly it helps to

empower women by supporting women’s economic participation and so promotes

gender equity (United Nations Development Programme, 2004). Various ways were
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illustrated in which microfinance, at its core combats poverty. It stated that microfinance

creates access to productive capital for the poor, which together with human capital,

addressed through education and training, and social capital, achieved through local

organization building that enables people to move out from poverty. By providing

material capital to a poor person, their sense of dignity is strengthened and this can help

to empower the person to participate in the economy and society (Otero, 1999).

Littlefield and Rosenberg (2004) stated that the poor are generally excluded from

the financial services sector of the economy so, microfinance institutions (MFIs) have

emerged to address this market failure. By addressing this gap in the market in a

financially sustainable manner, Otero (1999) further stated that, MFIs can become part

of the formal financial system of a country and so can access capital markets to fund

their lending portfolios, allowing them to dramatically increase the number of poor

people they can reach.

Microfinance is a key strategy in reaching the people and in building global

financial systems that meet the needs of the poorest people (Simanowitz and Brody,

2004). Microfinance is also a critical contextual factor with strong impact on the

achievements of the Millennium Development Goals (MDGs) and it is unique among

development interventions, because it can deliver social benefits on an ongoing,

permanent basis and on a large scale (Littlefield, Murduch and Hashemi, 2003).

Wright (2000) further stated, that much of the scepticism of MFI’s stems from the

argument that microfinance projects fails to reach the poorest people that, generally

have a limited effect on income and it drives women into a greater dependence on their

husbands and fail to provide additional services desperately needed by them. In

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addition, Wright (2000) says that many development practitioners not only find

microfinance inadequate, but it actually diverts funding from more pressing or important

interventions such as health and education.

Money is fungible and therefore it is difficult to isolate credit impact, but also

because the definition of poverty itself, it is measured on how and who constitutes in it

(Sinha, 1998). Poverty may relate to income and measured based on the percentage of

people living below a fixed amount of money (World Bank).

The impact of microfinance on poverty alleviation is a keenly debated issue as

we have seen and it is generally accepted that it is not that easy, and it has not lived up

in general to its expectation (Hulme and Mosley, 1996). There is a greater need for

MFIs to carefully design services that meet the needs of the poor and this can only be

done when MFIs understand their needs and the context within which the poor are

working (Morduch, 2004). MFIs understand the needs of the poor and try to meet those

needs, and projects that can have a positive impact on reducing the vulnerability, not

just of the poor, but also of the poorest in society. If MFIs are to meet their overall

development objectives then they need to ensure financial sustainability and outreach of

financial services designed to meet the needs of those most in need of such services.

And when it is implemented and managed carefully, and when services are designed to

meet the needs of clients, microfinance has had positive impacts, not just on clients, but

on their families and on the wider community as well as the entire economy. However, a

need for greater assessment of these wider impacts if the true value of microfinance to

the development of its clients is to be understood (Zohir and Matin, 2004).

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Asian Literature

Microfinance in the Asian Region

Microfinance mainly supports informal activities that often have a low return and

low market demand. It may therefore be hypothesized that the aggregate poverty

impact of microfinance is modest or even non-existent. Thus, the impact of microfinance

on poverty observed at the participant level represents either income redistribution or

short-run income generation from the microfinance intervention. Microfinance thus helps

not only poor participants but also the local economy (Khander, 2005).

According to Mayoux (2001), over 900 million people in about 180 million

households in the region live in poverty. Most of the Asian Region are poor or more than

670 million people, live in rural areas, although urban poverty is also a growing problem

in virtually developing member countries (DMCs). Most rural poor people are engaged

in agricultural or related activities such as labourers or small-scale farmers. Many are

also involved in a variety of microenterprises. In many countries, women, whose plays

are a significant proportion of the poor and suffer from unappropriated poverty, operate

many of these microenterprises. Most formal financial institutions do not serve the poor

because of perceived high risks, high costs involved in small transactions, perceived

low relative profitability, and inability of the poor to provide the physical collateral usually

required by such microfinance institutions (MFIs).

The business culture of these institutions is also not geared to serve poor and

low-income households (Kabeer, 2003). Lacking access to institutional sources of

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finance, most poor and low-income households continue to rely on a very small self-

finance or informal sources of microfinance. However, these sources limit their ability to

actively participate in and benefit from the development process. Thus, a segment of

the poor population that has worthy investment opportunities persists in poverty for lack

of access to credit at reasonable costs. The poor also lack access to institutional credit

for consumption smoothening and to other services such as payments, money

transfers, and insurance (Zohir and Matin, 2004).

Most of the poor households also find it difficult to accumulate financial savings

without easy access to safe institutions that provide deposit services. It pointed out the

negative effects of borrowing. The usefulness of microcredit as a tool for reducing

poverty depends on local circumstances. Poverty is often the result of low economic

growth or high population growth or very unequal distribution of wealth or resources.

The immediate determinants of poverty are unemployment or under-employment. When

poverty results from unemployment creating jobs is appropriate. When poverty results

from low productivity or low income, increasing productivity through training, capital

investment is a key (Khandker, 1998).

Local Literature

Poverty remains a crucial problem in the Philippines (National Statistics

Authority). The Philippine government has long recognized the critical role of

microfinance in its poverty alleviation efforts (Arch 2005). In 1990s, microfinance

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emerged as the leading development strategy adopted to alleviate poverty and

empower the poor (Milgram, 2012).

The Philippine government, recognizing the importance of microfinance in

poverty reduction and the need to support capacity building of microfinance institutions

(MFIs) , ranked microfinance as its top priority in the Medium-Term Philippine

Development Plan (MTPDP) in 2005 (Impreo, 2007). Several factors have contributed

to the growth of the microfinance industry in the Philippines. The adoption of a sound

business model that caters to a large untapped market, assistance from government or

donor agencies, a supportive policy and regulatory environment, and innovations based

on Internet and mobile technology. However, microfinance institutions (MFIs) continue

to face challenges that could affect their ability to reach more poor people even as they

strive to achieve financial sustainability (Valdemar, 2010).

The Philippines still has a long way to go in its journey towards financial

inclusion, which can be reckoned in terms of access where the supply and availability of

financial products and services from formal institutions. By usage of the levels and

patterns of use of different financial products and services, the quality that experienced

by the consumer, demonstrated in attitudes and opinions towards those products that

are currently available to them and the welfare on the impact of a financial product or

service on the lives of consumers, including changes in consumption, business activity

and wellness (Bangko Sentral ng Pilipinas).

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RELATED STUDIES

Foreign Studies

According to the study of Belgaroui (2012) he attempted to analyse the

performance of micro finance institutions in Tunisia and evaluates the micro credit on

different basis like jobs created, promoter’s education, sector credits and gender basis.

It shows that credits are generated to promoters with academic level and even to

illiterates. Promoters having a secondary level of education are generally the most

beneficiaries and the statistics reveal that it has been efficient in resources utilization

through targeting several categories of deprived citizens as well as maintaining a certain

financial viability through funding and self-refinancing.

Lucas (2009), studied about the profitability and productivity of microfinance

funded in a honey production projects in South Africa were evaluated in terms of their

profitability and factor productivity. The cost and production data of a sample of twenty

MFI financed honey production project in South Africa were collected during the

summer of 2008. Thus, microfinance funded honey production project are neither

profitable nor productive.

Nishtar (2001) stated about persistent poverty is one of the crucial problem in

Pakistan and hence, it has re-engineered its public policy paradigm in order to bring

poverty alleviation to the forefront of development action. The banking sector plays a

vital role in the development of any economy and as a part of the reform process the

government of Pakistan has initiated the restructuring of the banking sector to vitalize it

and make it a more productive partner in the development process of the country. It
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shows that microfinance in particular has proven to be an effective tool for poverty

alleviation and creation of employment opportunities.

Asian Studies

The field of micro finance has grown in size and stature since its humble origins

in the Asian region. The Micro Finance world of today is a world of fast growth, changes

in the market and most importantly rigid competition. In this environment achieving and

staying in tune with the mission is a real challenge.

Moses (2011) focuses on the origin and concept of micro finance, features and

role of microfinance in India, reviewing the progress and weakness followed by

suggestion for making micro finance as an effective instrument of poverty elevation,

women empowerment and rural development in India. Thus, micro finance is being

viewed as one of the most powerful tools for uplifting the economic conditions of the

asset-less poor through group approach that ensures active participation and

involvement of the beneficiaries in effective implementation of the program.

Nasir (2013) tried to outline the prevailing condition of the microfinance in India in

the light of its emergence until now and its aim is to provide a cost effective mechanism

for providing financial services to the poor. It discovered the prevailing gap in

functioning of MFIs such as practices in credit delivery, lack of product diversification,

customer overlapping and with practicable suggestions to overcome the issues and

challenges associated with microfinance in India.

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Haque and Harbin (2009) stated about the micro-credit approach to get money in

to the hands of the poor by extending credit to them. It shows that the issue of micro

credit in other countries proves that the poor people can be just as credit worthy as the

others. An essential ingredient to make it a success is for the micro credit

establishments to work with the borrowers and make them feel they can be part of

success.

Local Studies

The Philippine microcredit program had a significant impact on the number of

microenterprises and the number of persons employed in them, reflecting that the

program was designed to cater to the entrepreneurial poor. In terms of outreach, the

rural microenterprise finance project was able to reach poor households, but not in

significant numbers. Based on the Philippine official poverty line, the household survey

found that only 10% of the respondents were classified as poor and 4% as subsistence

poor. This is an important finding since the project was originally designed to reach the

ultra-poor. There is a need to re-examine the targeting approach and mechanisms used

by the microfinance institutions, and as to whether microfinance institutions have

incentives to reach poor households given their concerns about loan repayment and

their financial sustainability (Kondo, 2007).

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CONCEPTUAL FRAMEWORK

This chapter represents a figure that shows the following variables; the

Dependent Variable, Independent Variable and intervening Variable. It will illustrate the

effectiveness of the financial services of Kabalikat para sa Maunlad na Buhay Inc.

(KMBI) among its borrowers in Koronadal City.

INDEPENDENT VARIABLES DEPENDENT VARIABLE

1. Effectiveness of Financial
services
 Requirements needed Borrowers of Kabalikat para sa
 Credit Investigation Maunlad na Buhay Inc. (KMBI) in
 Credit Policy Koronadal City
 Types of Loan
 Payment of Principal
and Interest
 Savings
 Benefits
 Return of Investments
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CHAPTER III

METHODOLOGY

Presented in this chapter are the methods used in this study which are relevant

to present the undertaking.

Research Design

This study used the descriptive method of research. It describes the

effectiveness of Kabalikat para sa Maunlad na Buhay Inc. (KMBI) towards its borrowers

in Koronadal City. This method enables the researchers to interpret theoretical meaning

of the findings and development for further understanding. Descriptive method

encompasses all the data gathered useful in adjusting or meeting the existing

phenomenon. It also examined the factors on how strongly significant the KMBI’s

effectiveness towards its borrowers in Koronadal City.

Research Locale and Respondents

The study was conducted in the different barangays of Koronadal City. The

researchers selected the borrowers of KMBI, for the year 2016 to 2017, and as well as

the management of KMBI as the respondents of this study.

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Sample and Sampling Technique

The population for the study includes the borrowers of KMBI in Koronadal City.

The sampling frame was for the borrowers who acquired loan for the year 2016 to 2017.

Random sampling was used in choosing the respondents.

Research Instrument

The researchers used a modified questionnaire to gather data. The

questionnaires that the researchers used in this study is designed to obtain the goals of

this study and provide a qualitative and quantitative information for data analysis. The

questionnaires is based from the related literature and studies of different authors.

Data Gathering Procedures

The procedures below are used in this study:

1. Identifying the respondents.

2. Getting the sample size.

The researchers get the sample size by random sampling.

3. Distribution of the questionnaires.

The researchers distributed the questionnaires personally and conduct

an interview at the same time.

4. Collect data from the questionnaires.

5. Interpret and analyse the data gathered.

6. State the findings and make conclusions and recommendations.

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Statistical Method

The data collected in this study were organized and classified based on the

research designs and the problems formulated. The data are tallied and tabulated to

facilitate the presentation and interpretation of the results using the following.

5 Very Effective

4 Slightly Effective

3 Somewhat Effective

2 Needs Development

1 Unsatisfactory
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CHAPTER IV

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA

This chapter presents the presentation, analysis and interpretation of the results

taken from 25 respondents from the different barangays of Koronadal City.

The three (3) illustration below shows the demographic profile of the 25

respondents.

AGE
12

10

0
25-30 31-40 41-50 51-60 61 & Above

AGE

Table 1.1

Table 1.1 shows that the ages 31-40 years old has the highest total number of

borrowers.
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GENDER

30
25
25
20
15
10
5
0
0
MALE FEMALE GENDER

Table 1.2

The table above shows that 100% of borrowers of KMBI are females. It is one of

the credit policy of KMBI that only female borrower can avail their financial services. It

promotes women empowerment that gives rise to their rights.

EMPLOYMENT STATUS
10
8
6
4
2
0
TEACHER FARMER BUSINESS OWNER HOUSEWIFE OTHERS

EMPLOYMENT STATUS

Table 1.3

Table 1.3 shows the employment status of borrowers. It shows that more farmers

are engaging in the financial services offered by the KMBI.

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The following tables below shows the effectiveness of the financial services of

KMBI among its borrowers.

Table 2.1

0
TEACHER FARMER BUSINESS OWNER HOUSEWIFE OTHERS

YES NO

Table 2.2

0
TEACHER FARMER BUSINESS OWNER HOUSEWIFE OTHERS

Less than 1 year 1-3 Years 3-5 Years More than 5 years
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Table 2.1 shows if the borrowers have availed the loan before. Out of 25

respondents 17 of them have availed the loan before or 68%, while 8 of them or 32%

availed the loan for the first time. Table 2.2 shows the number of times the borrowers

availed the loan.

0
TEACHER FARMER BUSINESS OWNER HOUSEWIFE OTHERS

Educational Loan Business Loan Housing Loan Farming Others

Table 2.3

The table above shows what encourages the borrowers to avail the financial

services offered by the KMBI. Farming loan has the highest rate of percentage in the

table 2.3.
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Table 2.4

AMOUNT OF LOAN
6

0
TEACHER FARMER BUSINESS OWNER HOUSEWIFE OTHERS

P3,000.00-P5,000.00 P6,000.00-P10,000.00 P11,000.00-P15,000.00 P16,000.00 & Above

Table 2.4 shows the amount of loan granted to the borrowers. Amount of loan

granted will be based on the number of times you availed the loan.

The table below shows the different criteria’s of availing the financial services

offered by the KMBI. It measures the KMBI’s effectiveness towards its borrowers.

LEGEND:
5 – Very Effective 2 – Needs Development
4 – Capable and Effective 1 – Unsatisfactory
3 – Somewhat Effective
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Table 2.5

CRITERIA 5 4 3 2 1 TOTAL

1 Requirements needed - 14 8 3 - 25

2 Credit Investigation 4 12 8 1 - 25

3 Credit Policy 5 13 7 - - 25

4 Type of Loans 20 5 - - - 25

5 Payment of Principal & Interest 2 18 5 - - 25

6 Savings 15 6 4 - - 25

7 Benefits 22 3 - - 25

8 Return on Investment 5 16 4 - 25

The table above shows that in requirements needed only 56% of the 25

respondents says that it is slightly effective. On the credit investigation 48% have said

that it was slightly effective and 16% have said that it was very effective. On the credit

policy 52% of the population have agreed that it was slightly effective, while on the

types of loan offered by the KMBI 80% of the population said that it was very effective.

In terms of payments 72% of the respondents says it was slightly effective. While, on

the savings and benefits, 60% and 88% respectively said that it was very effective.

Lastly, on the return of investments only 5 out of 25 respondents or 20% have said that

it was very effective.

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CHAPTER V

SUMMARY OF FINDINGS, CONCLUSION AND RECCOMENDATION

Summary

The main purpose of this study was to measure the effectiveness of the financial

services of Kabalikat para sa Maunlad na Buhay Inc. (KMBI) among its borrowers in

Koronadal City.

1. The findings revealed that the great majority respondents in this study were

female.

2. The majority age of the respondents is in the range of 31-40 years old.

3. The highest number of the respondents are farmers and majority of the

respondents have availed the loan before.

4. Most number of respondents availed the farming loan.

5. Lastly, majority of the respondents said that the types of loan, savings and

benefits offered by the KMBI are the most effective.

Conclusion

Based on the relevant information that we gathered, we conclude that many of

the borrowers in Koronadal City availed the farming loan. Researchers also finds out

that most of the borrowers are farmers. Therefore, many farmers are availing this

financial services offered by the KMBI to help them in finance their crop.
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We also conclude that, for borrowers there is a great effect on them on the

savings and benefits that they can get. They also considers the return on investment

and as well as the types of financial services offered by the Kabalikat para sa Maunlad

na Buhay Inc. (KMBI).

Recommendations

The researcher further recommends future study regarding the effectiveness of

financial services of other microfinance institutions in Koronadal City to determine its

overall impact on their borrowers.

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Brau, James C; Woller, Gary M (2008). Microfinance: A review for existing literature.
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