Taytay sa Kauswagan, Inc. (TSKI) - B: Scaling up · Taytay sa Kauswagan, Inc. (TSKI) - B Scaling Up Boracay, ... concluded its strategic planning workshop in the vacation island of

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This case was written by Goldelino Chan under the supervision of Prof. Ronald Chua of the Asian Institute of Management with funding support from the Microfinance Management Institute, a joint venture of the Open Society Institute (OSI) and the Consultative Group to Assist the Poor (CGAP). All case materials are prepared solely for the purposes of class discussion. They are neither designed nor intended to illustrate the correct or incorrect management of problems or issues contained in the case. Copyright 2005, Asian Institute of Management, Makati City, Philippines, http://www.aim.edu.ph, e-mail: [email protected]. No part of this publication may be reproduced, stored in a retrieval system, under in a report or spreadsheet, or transmitted in any form or by any means--electronic, mechanical, photocopying, recording, or otherwise—without consent form the Asian Institute of Management. To order copies or request for the reproduction of case materials, write to Knowledge Resource Center, AIM, MCPO Box 2095 Makati City, Philippines or e-mail: [email protected]

Taytay sa Kauswagan, Inc. (TSKI) - B Scaling Up

Boracay, February 2001

The Alliance of Philippine Partners in Enterprise Development (APPEND) had just concluded its strategic planning workshop in the vacation island of Boracay where its 10 members, all of them microfinance institutions (MFIs), agreed to a new target of one million clients by the end of 2006. One of these MFIs, Taytay sa Kauswagan, Inc. (TSKI), committed to a target of 250,000 (or 25 percent of the total APPEND target).

“Money is a major factor in scaling up,” Mr. Angel de Leon, TSKI Executive Director, recalled telling the TSKI Board of Trustees before they left for the workshop. “If our partners are willing to fund the network’s expansion, then we can commit to more than the 14-percent share we pledged in Subic in 1997.”

But as they headed home from Boracay, Mr. de Leon knew that they would have other challenges ahead of them, even if fresh funds for expansion were forthcoming. They would have to study deeper the implications of scaling up. For one, what should the mix be between the main scaling up strategies of expanding membership within existing branches and opening new branches? What organizational adjustments needed to be made?

APPEND’s 2002–2006 expansion plan overlapped with its original Philippine

Scaling-Up Program which was supposed to run from 1998 to 2002, but was later moved to 1999-2003. For TSKI, the new target meant adjusting the milestones for 2002 (from 30,000 to 50,000) and 2003 (from 35,000 to 100,000). The adjustment for 2003 was especially crucial for TSKI’s microfinance project—Proyekto Kauswagan sa Katilingban1 (PKK)—as it was the first year when the full net increase of 50,000 clients was targeted.

1 Community Development Project, an adaptation of the Grameen Banking Approach

AIM-3-05-0003-CS Taytay sa Kauswagan, Inc. (TSKI) – B 2

Asian Institute of Management Copyright 2005

2002 2003 2004 2005 2006

Old target outreach by year end 30,000 35,000

New target outreach by year end 50,000 100,000 150,000 200,000 250,000

TSKI had targeted 20,000 clients by the end of 2000; its actual outreach was 19,348

clients in 7 branches. (Please see Exhibit 1 for the location of the branches.) While this was slightly lower than target, Mr. de Leon was nonetheless glad that they had almost completely cleansed the membership list of inactive members and dropouts. He hoped that by the end of 2001, TSKI would be halfway between the old 2001 target of 25,000 and the new 2002 target of 50,000.

Scaling-Up Strategy Mix

Based on TSKI’s experience, it was possible for a new branch to have a minimum of 2,500 members by the end of the first year. Thereafter the branch was likely to grow by 3 percent per month (via an increase of 2 centers per month and/or an increase in center membership from 30 to 45 members) until the optimum branch size2 was reached. Branches that had reached their optimum size remained static thereafter,3 in the sense that any recruitment of members was done merely to replenish turnover. To achieve significant increases in outreach, new branches had to be opened; but opening new branches cost money. TSKI’s PKK model, for example, called for an investment of more than P10,000,000 per branch during the first seven months of operations.

“Obviously, we have to increase the number of branches to meet our scaling-up

commitment of 50,000 per year. I mean, a new branch would bring in 2,500 or 3,000 clients right away. But we could not just keep on opening new branches as that would require a lot of funds,” Mr. de Leon said. “We also have to increase the load in the old branches.”

He added, “We are all conscious of the need to find the proper mix between opening

new branches and expanding within existing branches. That is the focus of our planning.” According to Mr. de Leon, planning was deliberately done twice a year, in June and

December, for TSKI to know how many branches it needed to open in January and July. He said, “It’s easier for us to track viability this way. When we open in January then the branch will already be generating income by June or July, thus increasing our overall operational self-sufficiency. In addition, loan renewals could be expected and, consequently, a fresh cycle of monthly income. The same would be true for a branch opened in July: it would be earning by December or, at the very least, would see a trend of declining losses.”

2 TSKI’s viability model called for 5,600 members, but TSKI considered 4,450 acceptable. 3 Unless the branch was large enough to split into two. When a split was effected, each of the resulting branches

went through the growing process again, with one of the branches classified as new.



Mr. de Leon shared, “During planning, we would look at the capacity of our existing branches. For example, our 2002 target is 50,000 and let’s say, we had 10 branches by end of 2001. I would ask the branch managers then ‘With our 10 branches, could we meet the 50,000 target by just increasing membership?’ If they say ‘yes’, well, okay; but we would still plan to open one or two new branches as backup, just in case some of the managers were being over-optimistic. But, if they say ‘We could meet 44,000 only,’ then that meant a shortfall of six thousand, which would indicate a need to put up two new branches with 3,000 clients each, within the year. Or make that three new branches, one of them a back-up.”

Mr. de Leon was aware of the natural tendency of existing branches to be

“lukewarm” about the idea of increasing their caseload. He pointed out, “We have to take that into account during planning. From our end, we would challenge the branch managers to commit to a bigger target; while on their part, they would try to negotiate for a lower target.”

According to Mr. de Leon, “We don’t make the mistake of assuming that opening

new branches is the easy way out. Nor do we automatically equate a higher target with more staff.”

TSKI was aware that, sooner or later, because of its expansion either by way of

opening new branches or expanding the existing ones, it would find itself rubbing elbows with its competitors. In Panay Island,4 competition was growing. In Iloilo alone, several microfinance institutions and lending corporations were present. In Antique, the federation of cooperatives piloted microfinance, besides which a Luzon-based microfinance institution began operations upon the invitation of a foreign-assisted project. In Aklan, a cooperative rural bank was similarly engaged.

But Mr. de Leon was worried less about the competition than about increasing staff workload for if membership had to be expanded within an existing branch, then the Project Assistants (PAs) would have to increase their efficiency. It was not easy to demand the same uniform performance from each PA. The more experienced PAs could probably cover 350 clients or more, but new PAs could cover only around 250 clients. In 2000, the average client-to-PA ratio was only 276:1. Furthermore, even the more experienced PAs did not entirely control the recruitment process as the real recruitment was done by the clients themselves who chose the members of their group. The PAs merely oriented and motivated potential clients to join TSKI.

Dropouts were also a problem. After each loan cycle, an average of 6 to 7 percent of

the members dropped out, mostly because they were delinquent and therefore kicked out by the other members. The dropout rate after the first cycle was actually much higher; it could be double the average. On the other hand, the dropout rate tended to taper off by the fifth or sixth loan cycle.

4 Panay Island is composed of 4 provinces: Iloilo, Capiz, Antique, and Aklan. Panay Island, the western part of Negros Island (Negros Occidental), and Guimaras Island made up Region 6 or Western Visayas.



Expanding membership within an existing branch, while calling for much less investment than opening a new branch, clearly had its own share of problems and limitations. Viability Projection

Mr. Angelo Solarte, TSKI Deputy Executive Director, attributed much of PKK’s success to the branch viability model they had developed. Recruitment of clients either through the opening of new branches or improving efficiency in old branches, as well as the retention of clients, were key assumptions in TSKI’s viability projections.

“An essential factor in the viability model is outreach. How fast is center formation? What is the caseload of the PKK PA?”, said Mr. Solarte. “We assumed that center formation would proceed at 3 centers every 2 months per PA or, arithmetically, 1.5 centers per month. So by the 7th month, the PA would have her or his maximum coverage of 10 centers. We are talking here of 30 clients per center at first. Once the PA had 10 centers then she or he could begin bringing up the number of clients per center from 30 to, ideally, 45. But 40 is already acceptable to us. The PA would then again proceed with center formation at a pace of 1.5 centers per month, which meant another seven months before the PA could attain an optimal caseload of 400 clients. After the first cycle however you could expect some original members to drop out, say 6 or 7 percent of the batch, making it necessary to recruit new members to compensate for the drop outs starting on the seventh month.”

“We can assume the average size of PKK first-cycle loans to be P4,000 and that of second-cycle loans to be P6,000. Third-cycle loans average P9,000. Interest is at a flat rate of 16 percent for the 6-month term. CBU per member comes in two forms: a 5 percent deduction from the loan amount and a minimum compulsory savings of P25 to P50 per week, depending on the size of the center. Savings can be assumed to be P50 per week from the second to the seventh month and P25 per week thereafter.”

Mr. Solarte added, “In the case of MEDP, its PA has a target of 10 clients per month. The average first loan is P30,000 and the loan term is 12 months. Subsequent loan terms range from 12 to 18 months. A flat rate of 27 percent is charged per annum. Like in PKK, the service fee is 4 percent of the loan amount while the filing fee is P12.50 per loan application. Borrowers have the option to pay monthly or quarterly; but for the first loan, we usually require monthly payments. Unlike in PKK, we don’t deduct 5 percent from the loan right away as compulsory CBU but we allow the client to amortize a CBU equivalent to 10 percent of the loan over one year. This translates to a monthly CBU of P250 starting the 2nd month for a loan of P30,000. As with PKK, the MEDP CBU earns an interest of 4 percent per annum computed daily on a 360-day per annum basis.”

“With these assumptions”, Mr. Solarte continued, “we can project our monthly outreach, loan releases, outstanding loans, CBU or savings, interest income, and income from service fees. We don’t factor in anymore contributions for notarial fees and filing fees because these are spent right away and the amounts involved are small as these are per center.”



“It becomes a matter now of projecting our expenses. Our biggest expense, of course, would be the salaries and employee benefits of the 21 people in the branch. The minimum wage in our region, Western Visayas, for non-agricultural workers is P190 per day. At 22 working days per month, that translates to a monthly pay of P4,180. The basic-monthly salaries of our staff are certainly much more than that. The current monthly basic payroll of a branch is P157,400. In addition, there are employee benefits, which include incentives, amounting to 49.4 percent of the basic salary. We also set aside funds for the retirement of our employees at 6 percent of basic salary.”

Still on the matter of expenses, Mr. Solarte related, “The branch has to pay the head office 1-percent interest monthly on the loan portfolio advanced to the branch. Interest is computed based on the outstanding balance of the loan. The branch also has to pay the head office a supervision and management fee amounting to 20 percent of the monthly gross income of the branch. TSKI head office can provide the branch around P10,000,000 as start-up capital. Since this constitutes a loan that has an interest of 1-percent per month, the branch should avail only of the amount it actually needs at the time it needs the money.”

Mr Solarte added, “In a typical rural area, office and staff house rental would be around P10,000 per month. Expenses for electricity and water would be around P5,000 per month. We would usually spend P100,000 for leasehold improvement before we move in and then spend P335,000 for office equipment, which include 3 computers and 2 printers. We would also provide the branch one motorcycle on the fourth month of its operation and then add another motorcycle during the seventh month. A motorcycle costs around P70,000 and 2 helmets – P3,000. Of course, we have to factor in depreciation. We depreciate leasehold improvement over 1 year only which translates to 8.33 percent per month and office and transportation equipment at 20 percent per annum or 1.67 percent per month.”

“Transportation and travel expenses amount to P40,000 per month, plus P5,000 per month for gasoline. Office supplies and communication expenses run to around P100,000 per year. Repair and maintenance is at P2,000 per month. We allot P106,000 per year for meetings and conferences, an amount evenly disbursed during the year.”

“We budget P63,000 for the participation of the branch in the TSKI anniversary in

September. Since we open some branches in January and some in July, September can be the third month of operations for some and the ninth month for others. So, in our computations, we just divide the P63,000 budget and allot one-half to expenses for the third month and the other half to the ninth month. It’s the same case with the TSKI Christmas Party which can fall on either the sixth month or the twelfth month of operations of a branch, depending on when it was opened. We also split the P63,000 budget for the Christmas party into two.”

Going further, Mr. Solarte explained, “The training budget is 2 percent of gross income. Of the said budget, 40 percent is allotted to staff development, while 60 percent goes to the training of clients. Then you have all other miscellaneous expenses totaling around P23,000 per month. Oh, don’t forget that we also have to pay 4 percent per annum interest on the CBU. Per month that is one-third percent.”



“We have provisions for bad debt and this is set at 3 percent per annum based on the

loans released and amortized over the number of payments. It comes out to 0.25 percent per month. We start setting this aside as soon as the first amortization is due.”

In conclusion, Mr. Solarte declared, “By the seventh month, we’re in the black already; that is, for the first time, our monthly revenues exceed our monthly expenses. But since we have been losing during the first six months, it will only be by the fourteenth month that all losses are recovered.” Microfinance Methodology

TSKI’s Executive Director, Mr. Angel de Leon, cautioned, “If we have to open new branches in other areas, we have to see first whether our new PKK model would work under different conditions. We did that with Grameen banking: we first tried it out in three different areas when we initially adopted it in 1992.”

Mr. de Leon added, “We have tested our new PKK model and we have shown that it

worked in Roxas City and in Antique. But these are areas just two to three hours away from Iloilo City. What if the area is really far from the head office? What should our strategy be? What about our support system?”

Anxious about the competition in other provinces outside of Panay Island, he

recalled previous experiences which were not similarly situated, “In Roxas, we did not really have competition. Of course, there were others providing loans - cooperatives, lending investors - but not the kind of microfinance we introduced. In Antique, there was no overlap between our coverage area and those of our competitors.”

He then said, “So we still have to see how our new PKK model will fare against

serious competition from a microfinance institution providing a similar service. We have to test that, too. But we will do that step by step, one parameter at a time: first, distance; then competition. Then perhaps, others.”

A critical component of the new PKK model was the monitoring and reporting

system that was adapted to a much larger number of clients and a greater volume of transactions. Everybody in TSKI agreed that without the computer-based system, the new PKK model would not have worked. It was not a matter of simply having computers but also of having a good database so that the computer’s use was maximized. It did not merely serve as an expensive typewriter and calculator. Moreover, having two trained MIS5 tellers per branch helped speed up the entry of data and the generation of reports.

Advances in telecommunications helped the head office keep in touch with its

branches, all seven of which had landlines, mobile phones, or both. Five of the branches also had internet access.

5 Management Information System



Mr. Angelo Solarte claimed, “With our system, it is possible for the head office to monitor branch performance in real time, almost. But, of course, we don’t have to do that everyday; it’s the Branch Manager’s job to monitor daily performance. I rely more on the collection report which is updated weekly because, at a glance, I can see the daily performance for the entire week. I can check if payments are updated and if collections were promptly remitted. I can also see if the BM took action whenever there was a problem with loan collection or remittance. Actually, I hardly needed to call the attention of the BM; most problems spotted early in the week were acted upon before the week ended.”

“We have spelled out our systems in manuals,” continued Mr. Solarte. “Aside from our MIS manual, we also have a personnel manual. We patterned it after the personnel manual of the private telecommunication company where I came from. Of course, we did other researches and some form of job analysis. We also reviewed all past memorandums for issuances related to personnel.”

Before 1998, the only manual that TSKI had was an operations manual for the Grameen Banking approach. This manual was copied from a microfinance NGO which trained TSKI’s first project officers in 1992. By 1998, aside from the MIS and personnel manuals, TSKI also had a new PKK operations manual, a financial manual, and an audit manual.

Through it all, Mr. de Leon realized that aside from having the right methodology and systems, all elements of the organization had to work together for TSKI to meet the challenges of scaling-up: the Board and management, the staff, and the way they relate with each other through the organizational structure. Organizing for Scaling-Up

Scaling-up meant additional staff, especially if scaling-up involved opening new branches. If such were the case, new Program Assistants (PAs) had to be trained and tested. Experienced supervisors and managers had to be assigned to the new branches and their replacements in the old branches had to be trained. Correspondingly, adjustments became necessary at the head office as supervisory and monitoring work increased with scaling-up, just as the volume of financial transactions grew larger.

Mr. de Leon recalled with some amusement that there were only three of them when TSKI started in 1986: himself as Executive Director, a project officer, and a bookkeeper who acted as secretary and cashier simultaneously. In fact, it was only a year later that a full-time secretary was hired, a few months after which a full-time cashier was similarly taken in.

When PKK started in 1992, the bookkeeper of the head office handled the books of the field offices which were managed from the head office. The Project Officers (as the PAs were then called) reported to the head of operations, also at the head office. It was only in 1996 when the field offices became relatively autonomous and were thereafter referred to as “branches.” By then each branch had its own manager and bookkeeper.



“Now, my finance officer is telling me that we need an accounting supervisor

because the number of our branches is increasing. Our internal auditor is also hinting that we should hire more audit assistants,” said Mr. de Leon. He conceded: “It is this kind of adjustment in the head office that we have to consider. At the branch level, staffing is more or less already defined; but we might also have to look at it again.” The Branch

The branch office was the basic operational unit of TSKI. Typically, it had the following structure:

Branch

Manager

MEDP PA

Bookkeeper

Program Unit Supervisor

Program Unit Supervisor

MIS Teller

MIS Teller

2 Reserve PAs

7 Program Assistants

(PAs)

7 Program Assistants

(PAs)

2 Reserve PAs

During the setting up of the branch, a period of massive recruitment of member-

clients, each unit would be supplemented by two reserve PAs so the branch would have four reserve PAs in total. In the case of Roxas City,6 the branch asked to retain a reserve PA even after reaching viability. This PA coordinated the training of clients, especially the center management teams (CMTs), in addition to filling in for absent PAs or PAs who were stuck in a center because of the “walang uwian” policy.7

Most PAs were picked fresh from college, a bias on the part of TSKI which Mr. de Leon explained this way: “We would rather have young people we could mold than experienced community workers who already have different work habits and pre-conceived notions of what development is.”

6 The branch where the new PKK model was first tested in 1999. 7 Literally meant “no going home”. This policy stipulated that no one at the center meeting could go

home until all payments due were collected.



Applicants had to take an aptitude test, after which they were interviewed by a panel consisting of the branch manager and two senior representatives from the head office: the operations officer and the human resource development officer. The panel handled the selection from among qualified applicants.

The successful applicants underwent an intensive two-week, classroom-type training to familiarize themselves with TSKI as an organization, PKK, and MEDP (Micro-Enterprise Development Program). Thereafter, six weeks of on-the-job training (OJT) followed.

The applicants actually did the work of a PA - center formation, attending center meetings, processing loans, conducting inventories of client projects, and following up delinquent borrowers - under the close supervision of the PUS and/or the branch manager. Initially, the applicant-PA had to work in tandem with a regular PA.

“Sometimes a center wondered why their PA was changed after just a few weeks. Well, that happened because the applicant had dropped out,” Mr. de Leon said. “The six-week exposure worked two ways: through it TSKI could assess an applicant’s suitability for the job, just as the applicant could assess whether she or he liked the job.”

TSKI had a checklist of experiences an applicant should undergo: riding a

motorcycle, dealing with delinquent borrowers, etc. But there was also a formal OJT evaluation8 conducted by the branch manager. The BM was responsible for recommending the hiring of an applicant as a probationary PA after the OJT. At TSKI the probationary period lasted a year, which was twice as long as that in other organizations. Along with the regular PAs, the probationary PAs were evaluated monthly.9 (The probationary PAs received the same basic pay as regular PAs, but did not get any incentives.) After one year, the BM decided whether or not to recommend a probationary PA to become regular.

Mr. Ricarte Barredo, a branch manager, revealed that promotion was performance-based. He also explained: “To become regular, a probationary PA had to have at least 300 active clients. To be promoted to Program Unit Supervisor, a regular PA needed to have at least 350 active clients, and all of her or his centers had to have 100-percent repayment rates. I closely monitored a PA with potential. I would ask her or him to pitch in for an absent PUS or one who was away on leave or training to test his/her mettle. I put a premium on a PA’s initiative in handling problems, his/her willingness to put in additional effort, and his/her ability to get along with others in the office and the centers. Spirituality was also important but not to the point where too much compassion led to a lax credit discipline.”

Ms. Maria Fe Ubay, a PUS, added, “Seniority is just a minor consideration when

spotting PAs for promotion. I would give it a weight of 5 percent. Emotional or psychological maturity was more important. The PA should also have good leadership and organizing skills, as shown in the manner by which he/she handled the centers. The acceptance of management decisions and obedience were important. The willingness to be

8 Please see Exhibit 1. 9 Please see Exhibit 2



assigned to other areas had to be evident. Supervisors and BMs were routinely reshuffled to other branches or assigned to open new areas so there should be that willingness.”

A PUS was responsible for the following: coaching PAs, validating PA reports and monitoring centers (usually at a rate of 2 centers per day), consolidating the unit’s monthly performance report, and preparing comparative performance reports. The PUS or the BM also represented the branch if delinquencies had to be settled through a formal legal process.10

Meanwhile, Mr. Barredo described his functions as a Branch Manager as follows: “My principal task was strategic planning for the branch. We did that twice a year. We had to plan by how much we should grow, where to go, and how to improve performance. The targeted number of clients was usually an issue between the head office and the branch. Growth could be very rapid in a new branch, but in an old branch recruitment was mainly undertaken to cover for dropouts or dead members. So the overall expansion target could not be simply divided among the branches. Each branch had to negotiate with the head office.”

Mr. Barredo added, “My other principal task was to watch the cash flow in the branch. So I was always at the back of the bookkeeper and the cashiers or MIS tellers. Cash was the lifeblood of the branch. There should always be enough but not too much. You see, funds drawn from the head office were treated as loans with an interest of one percent per month. So we had to time our borrowings carefully. When we had extra cash, we sent it back to the head office to offset our loan. Then the head office could lend this money to the other branches.”

The branch office was not solely devoted to PKK. It also had a PA for MEDP whose target load was 120 clients. MEDP was one of the original projects of TSKI, coming even before the Grameen banking replication project. In contrast to PKK where there was center accountability for the loans of members, MEDP was a straightforward individual loan. It was extended only to clients with existing enterprises, but needed money to expand. Over time, more and more of the clients came from the ranks of successful PKK participants11 who found themselves limited by the loan cycles they had to go through (where the incremental increase in the loan ceiling was P5,000 per cycle).

The maximum loan obtainable under MEDP was P200,000. But the initial loan was limited to P20,000 (later increased to P30,000) only. Collateral was required. The flat interest rate was 27 percent per annum and a service fee of 4 percent was deducted from the loan. The loan term ranged from 12 to 18 months. Borrowers had to pay monthly or quarterly via post-dated checks. (Monthly amortizations were usually required for the first loan).

10 This process was initiated at the barangay or village level through arbitration by the barangay captain and, if warranted, by a conciliation committee (Pangkat ng Tagapagsundo).

11 Mr. de Leon estimated the number to be just around 3% of PKK clients. Many PKK clients did not proceed to MEDP because they were into trading and retailing which did not have as much potential for expansion as production or manufacturing.



As of the end of 2000, just before the APPEND strategic planning took place in Boracay, TSKI had seven branches in four Western Visayas provinces: four in Iloilo province and one each in Guimaras, Capiz, and Antique. Three (3) branches followed the staffing pattern consisting of a full complement of 21 staff of the new PKK model tested in 1999 in Roxas City. Four branches continued to operate under the staffing pattern (a staff of 10) of the original Grameen banking model. The total number of branch-based staff was 104. The Head Office

Until 1995, the TSKI head office located in Iloilo City directly managed all field operations. It was only in 1996 that the branch offices were formally created and given relative autonomy.

As of end of 2000, the head office had 18 people: three in Operations (the executive director, the chief operating officer,12 and the operations officer), six in finance and administration, four in management information systems (MIS), three in human resource, and two in audit.

While the ED and the COO were included in the operations department in the sense that they were involved in PKK and MEDP planning, monitoring, and evaluation, they were actually in charge of the entire organization. All the other department heads reported to the COO, who in turn reported to the ED.

The branch managers reported to the operations officer. The finance and administration department had technical supervision over the branch bookkeepers, thereby ensuring the standardization and timely preparation of financial statements, as well as the monitoring of cash flows in anticipation of the cash requirements of the branches. The branch MIS tellers, on the other hand, uploaded their reports to the MIS department at the head office.

Mr. de Leon projected: “As we add more branches and expand to other areas, it

might be more difficult to manage everything from the head office. Just as our PAs are organized in units of seven, maybe we need to group our branches in sevens too. We have to consider a new layer of management closer to the branches. But it should be small. And it can be based in the premises of one of the branch offices. There would be no need to rent another building.

He added: “We have to increase our client-to-staff ratio. Right now, it is only around 115:1 and that is quite low. When we expand, our head office staff, including that new layer of management we might need, should not grow in the same proportion as the branch-based staff. PAs bring in clients, not head office staff.”

12 Concurrently, Deputy Executive Director



The Board of Trustees

Over 300 field visits were made each year by members of TSKI’s Board. Not contented with simply meeting in the boardroom once a month, the Board members and top management also saw each other every Saturday for a fellowship meeting. Despite this dedication, the board members did not receive any salary or per diem allowance from TSKI.

All board members agreed it was the Christian aspect of the organization that drew them to TSKI, although these board members belonged to different denominations: some were Catholic, some were Protestant. The members also had varied professional backgrounds: two were from the academe but had businesses on the side; one was from the banking sector, two were businessmen and one was a lawyer. Of the six,13 two were former politicians.

Since the founding of TSKI in 1986, the board’s composition had undergone some changes. Mr. Jose Tajanlangit, its first chairperson, retired for health reasons. Another member died. Still another left for the United States while two resigned because they were too busy with their businesses. One of the two who resigned was the only female who had made it to the board thus far.14

“Our role as a board is to set policy,” said Mr. Demy Sonza, the chairperson. ”Management, took care of operations. Separate functions, no overlap. Regarding the staff, for example, though we set the qualifications, we never recommended anybody to any position. In that way we ensured the existence of a healthy respect between the board and management.”

“In a way, the 1997 downturn drew us closer,” acknowledged Mr. de Leon. “The board became more pro-active and, in fact, took the lead on many occasions. It was the same board that made the commitment in Subic in 1997 with regard to our first scaling-up program. The board likewise decided to target growth of up to 50,000 clients a year before we went to Boracay to formalize that commitment. Not only that. They also told me they wanted TSKI to be the first among APPEND’s members to reach 100,000 clients.”

Atty. Pablo Nava III, the Board Secretary, said, “We are dreaming big now. We will

be changing our defined area of operations in our charter, expanding from Panay Island to the entire Visayas and, perhaps, even to the whole country and beyond.”

13 Philippine regulations required an odd number of Board members so the Executive Director became

the 7th member of the Board, sitting in ex-officio capacity. 14 The Board was fully conscious of the lack of female representation and thus was trying to invite the

lady board member who left to come back.



Staff Development

Mr. de Leon reflected, “Another area we had to look at, as a consequence of our decision to scale up, was training. We have a human resource department but it is primarily concerned with the training of our own staff, not our clients. The idea is for us to train our PAs, and for them to train our clients, in turn. But that arrangement went only as far as center formation and strengthening. What about thereafter? We had to consider the other training needs of our clients, especially those related to running their business or even choosing the right project in the first place. These training needs should be our guide in planning our own staff development.

TSKI’s policy on staff development and career planning stated: “The organization places high value on its human resources and recognizes the importance of competent and committed staff. Hence, as much as possible, all employees are provided with training and other development inputs and opportunities to effectively and efficiently perform designated functions as well as to promote, facilitate and advance the professional and personal growth of the TSKI staff.”

In line with this, TSKI had a staff development training program for all departments and major position categories. For many positions, at least eight days in total per year were allotted to formal training. The training programs for PKK PAs and MEDP PAs were as follows:

PKK PA MEDP PA First Year First Year - Scale-up branch training - Scale-up branch training - Customer relations - Entrepreneurial training - Counseling, conflict management,

decision-making - Credit/background investigation, valuation

of collateral - Basic marketing, networking, linkaging - Client selection Second Year Second Year - Organizing - Presentation skills, advanced

salesmanship course - Character/background investigation - Legal obligation and contract - Basic trainer’s training, presentation skills - Loan portfolio management - Computer skills training - Leadership training Third Year Third Year - Documentation for loan processing and

release - Technical writing

- Faith-sharing - Training on motivation - Seminar on leadership

The following trainings were lined up for program unit supervisors and branch managers:



PUS BM First Year First Year - Basic management and supervisory training - Management and supervision - Mastery of PKK policy - Technical writing - Intermediate networking/linkaging - Time management - Intermediate trainer’s training, presentation

skills - Team empowerment

Second Year Second Year - Loan portfolio management, delinquency

management - Performance evaluation review

- Leadership training - Mastery of TSKI rules and regulations - Technical writing - Labor code - Team empowerment - Focus on productivity Third Year Third Year - Supervision - Developing competence - Focus on motivation - Seminar on business ethics - Seminar on business ethics - Team basics - Focus on productivity - Passion for integrity

A culture of excellence, according to Mr. de Leon, was critical because each and every PA represented TSKI before the clients and the community. TSKI knew this from a painful experience with staff malfeasance which triggered the 1997 crisis. Mr. de Leon said, “Developing that culture rested on three factors. We all had to believe in what we were doing. Then we should have the confidence that we could do it. Finally, we had to have a strong sense of mission because our work was not just another job but a calling.” The Transformation Program

A critical aspect of the microfinance programs of APPEND member-institutions was spiritual transformation in the pursuit of a more complete human development. In TSKI’s case, this was reflected in its mission statement: “To make the love of Jesus Christ be felt by the poor in our midst by providing opportunities that promote spiritual transformation and total human development.”

But it took TSKI some time to operationalize this mission. As Mr. de Leon put it, “We realized that before we could transform our clients, we needed to transform ourselves in TSKI first.” Among the first institutionalized practices was having Friday meetings ending with a prayer of thanksgiving and the “lifting to God” of the staff’s concerns.

In 1994, the head office also started to have daily morning devotionals that entailed prayers, community singing, scripture reading, sharing and reflection. But, as this exercise was optional, only a few attended. Still, some of the PAs started to have prayers and bible sharing during their center meetings.

MEDP, at this stage, was more systematic about the transformation process than PKK in that MEDP integrated in its trainings several modules on Christian values such as service, honesty, stewardship, valuing people over money, etc.



In 1997 the TSKI Board of Trustees took the lead in defining transformation and activities leading to “building God’s kingdom on earth”. Everyone in the organization was exhorted to consciously work towards transformation. Daily morning devotionals were institutionalized not only in the head office, but also in all branch offices. Attendance in them became compulsory.

The human resource department was tasked to plan and carry out transformational activities within TSKI. Transformation modules were developed and published to serve as guides for the staff. Program assistants and center chiefs were trained on these modules. Then a transformational monitoring tool was developed to measure the results of transformational activities among clients, especially those who had been with the program for more than a year. Starting 1998, branch retreats became a regular feature in the annual calendar of activities.

The transformation program for PKK clients was integrated with the center meetings. The program was designed to last for 75 weeks. The first sessions involved self-reflection, values clarification, and developing personal efficacy. The next set of sessions was on leadership development. The last set focused on spiritual guidance, communication, and mobilizing for community change. Signaling their serious intention about the transformation program, the Board allocated 2 percent of TSKI’s gross income to the program. Getting the Pieces to Work Together

Mr. de Leon reviewed the implications of TSKI’s commitment to reach 250,000 clients by the end of 2006. First, he saw the need to find out the extent to which membership in old branches could be expanded as such information could help determine how many new branches to open. Based on the new PKK viability model, on the other hand, the amount of new investment necessary could be pegged. The next question was whether there was still enough room for new branches in Panay Island. What the implications were of opening branches in the other islands needed to be studied.

The downturn of 1997 was still fresh in the mind of Mr. de Leon. He remembered it came during a period of rapid expansion. But many things have changed since then. TSKI’s first two years of scaling up (in 1999 and 2000) were well managed. The Roxas City branch, already two years old, was still having 100% repayment. The new Antique branch, only a year old, was also having 100% repayment.

Mr. de Leon knew that if they could get the pieces to work together – the new PKK model, their scaling-up strategy, the branches and the head office, the board, management, and staff, their systems, and their transformation program – then they could meet head-on the challenges of scaling up.



EXHIBIT 1: OJT Staff Evaluation Form – PKK PA [Taytay sa Kauswagan, Inc. (TSKI) On-the-Job Training Program]

Name: ____________________ Period Covered: _________________ Branch: ___________________ 1 – Poor 2 – Fair 3 – Good 4 – Very Good 5 – Excellent

AREAS OF TRAINING Trainee PA BM Total 1. Understanding TSKI’s Vision, Mission, and Organizational Goals 2. Adherence to TSKI’s Personnel Policies and Code of Ethics 3. Understanding the Scheme/Philosophy of PKK 4. Ability to conduct the following: 4.1. Area Mapping 4.2. Courtesy Call 4.3. Projection Meeting 4.4. Means Testing 4.5. Compulsory Center Training 4.6. Facilitation of Center Recognition Test 4.7. Preparation of Loan Documents (BPI, PN, Loan Proposal) 4.8. Weekly Center Meeting 4.8.1. Adherence to center discipline 4.8.2. Attendance check 4.8.3. Correct sitting arrangement 4.8.4. Proper collection procedure 4.8.5. Memorization of TSKI’s staff pledge 4.9. Preparation of Reports 4.10. Remittance of Collection to Cashier 4.11. Issuance of Official Receipts 4.12. Loan Utilization Check 4.13. Project Inventory 5. Demonstration of Proper Work Attitude 5.1. Punctuality and attendance 5.2. Self-Discipline 5.3. Organizing Work 5.4. Flexibility 5.5. Initiative 5.6. Resourcefulness 5.7. Cooperativeness 5.8. Establishment of Rapport with Others OVER-ALL TOTAL E = 337 to 420 Recommendation from Branch Manager / OIC: VG = 253 to 336 G = 169 to 252 F = 85 to 168 P = below 85 ______________________________ Signature of Branch Manager / OIC Noted By: _______________________ _______________________________ AREA MANAGER HUMAN RESOURCE DEV. MANAGER



EXHIBIT 2: Monthly Staff Performance Evaluation Form (PKK Program Assistant)

Name: __________________ Period Covered: __________________ Branch: _________________ Please encircle the number in the space corresponding to each item of your performance indicator. The personnel concerned should use blue or black ink while the immediate supervisor should use red ink. What are the headings of the numbers on the right side of the chart? I. NUMERICAL 1. Output and Accomplishments 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 1.1. Recognized clients <80 80 105 130 155 180 205 230 255 280 300 1.2. Updated clients with loans <80 80 105 130 155 180 205 230 255 280 300 1.3. Collection rate (%) <77 77 80 83 85 88 90 93 95 98 100 1.4. Collection of W/O accounts (%) 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 1.5. Centers with regular meetings & 100-percent attendance 0 1 2 3 4 5 6 7 8 9 10

1.6. Loans disbursed this month (P’000) 0 5 15 25 35 45 55 65 75 85 90 1.7. Loans outstanding (P’000) 0 30 60 90 120 150 180 210 240 270 300 1.8. Training conducted 0 1 2 3 4 5 6 7 8 9 10 1.9. Submission of accurate reports on time (WCS/Ledger, OR/BDS, Collection Status Summary, MPR, Finalized Report)

0 1 2 3 4 5

1.10. Updated, complete accurate data in clients’ records 0 1 2 3 4 5

SUBTOTAL (max. 50): / II. BEHAVIORAL/ATTITUDINAL 0 1 2 3 4 5 6 7 8 9 10 2.1. Attendance/Punctuality (%) 0 20 40 60 80 100 2.2. Violation of Code of Discipline 10x 9x 8x 7x 6x 5x 4x 3x 2x 1x 0 2.3. Ability to work with the team (Never, Only When Reminded, Sometimes, Most of the Time, Almost Always, Always)

N O W R

S MT AA A

2.4. Proactive conflict resolution and dealings with clients N

O W R

S MT AA A

SUBTOTAL (max. 40): / III. TECHNICAL & ADMINISTRATIVE 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 3.1. Contributions to overall branch management (SA – strict adherence to policy, MT – adherence most of the time, ST – adherence sometimes, AWR – adherence when reminded, AFI – always forgets instructions, DFP – does not follow policy)

D F P

A F I

A W R

ST MT SA

3.2. Contribution to branch viability P F G VG E SUBTOTAL (max. 10): / TOTAL SCORE: / PKK PA Score x 40% = PUS Score x 60% = FINAL PERFORMANCE RATING:

NARRATIVE OVER-ALL ASSESSMENT: 96-100 = Excellent 90-95 = Very Good 85-89 = Good 80-84 = Satisfactory 75-79 = Fair <75 = Poor RECOMMENDATION: [ ] Promotion [ ] Merit Increase [ ] Regular Position [ ] Change Position Effectivity Date: _________ Staff Conforme: __________ Evaluated by: __________ Noted by: _________ Approved by: ________ Date: _____________ Date: _____________ Date: _____________ Date: ____________



EXHIBIT 3: Statement of Assets, Liabilities, & Fund Balances 1990 1997 1998 1999 2000 as of Jun 30 as of Dec 31 as of Dec 31 as of Dec 31 as of Dec 31 CURRENT ASSETS

Cash 58,440 6,676,051 10,813,643 21,787,097 14,467,907

Loans Receivable 2,138,715 23,696,379 26,403,180 47,504,883 57,741,037

Less: Doubtful Accounts 763,869 2,370,187 2,613,425 1,016,157

Advances to Employees/Officers 11,575 2,323,715 3,534,590 3,884,559 5,159,358

Prepaid Expenses 3,600

Total Current Assets 2,212,330 31,932,276 38,381,226 70,563,114 76,352,145

DUE FROM GENERAL FUND 5,830,484 13,886,026 29,146,503 31,854,145

PROPERTY & EQUIPMENT 90,644 3,433,633 4,290,652 5,304,282 6,102,995

(Net of Depreciation)

OTHER ASSETS 163,314 119,448 422,733 1,381,893

Total Assets 2,302,974 41,359,707 56,677,352 105,436,632 115,691,178

CURRENT LIABILITIES

Accounts Payable and 25,696 1,530,023 1,421,113 1,943,501 1,355,600

Accrued Expenses

Notes Payable 1,510 1,500,000 1,101,211 701,211 701,211

Due to Beneficiaries 5,642,666 5,598,728 13,232,700 19,195,611

Due to Others 1,802,000

Current Portion Loans Payable 11,770,227 7,967,059 9,034,537 11,356,485

Total Current Liabilities 1,829,206 20,442,916 16,088,111 24,911,949 32,608,907

DUE TO RESTRICTED FUNDS 5,830,484 13,886,026 29,146,503 31,854,145

LOANS PAYABLE 200,000 5,769,037 16,593,031 41,480,457 34,794,857

(Net of Current Portion)

FUND BALANCES 273,768 9,317,270 10,110,184 9,897,723 16,433,269

Total Liabilities and Fund Balances 2,302,974 41,359,707 56,677,352 105,436,632 115,691,178



EXHIBIT 4: Loans Payable (1999 & 2000)

1999 2000 Interest Rate General Fund Department of Trade and Industry 312,500 62,500 12% APPEND 1,333,333 18% Pilipinas Bank 1,000,000 13% Less: Current Portion 1,791,667 Subtotal 854,166 62,500 Restricted Fund Asian Development Bank 30,104,350 34,382,934 12% Opportunity International 7,043,985 7,043,985 6% European Union 4,250,000 4,250,000 12% People's Credit and Finance Corp. 6,470,826 411,923 12% Less: Current Portion 7,242,870 11,293,985 Subtotal 40,626,291 34,794,857 TOTAL LOANS PAYABLE 41,480,457 34,857,357



EXHIBIT 5: Statement of Revenues and Expenses 1988-89 1989-90 1992-93 1997 1998 1999 2000 ending Jun 30 ending Jun 30 ending Jun 30 ending Dec 31 ending Dec 31 ending Dec 31 ending Dec 31

REVENUES Donations 242,306 243,698 548,993 1,754,153 6,336,717 5,849,976 5,066,366 Interest Income From Loans 171,115 220,681 892,879 6,572,404 8,528,752 14,490,970 21,998,673 On Deposits 24,644 Other Income 33,154 46,748 162,823 294,819 821,125 1,542,665 6,480,737 Total Revenues 446,575 511,127 1,629,339 8,621,376 15,686,594 21,883,611 33,545,776 EXPENSES Project 1,242,428 4,127,422 6,567,037 4,564,285 8,881,443 General/Administrative

372,153 446,648260,431 4,858,610 6,373,728 6,409,971 7,013,218

Interest 8,421,816 10,146,341 Provision for Doubtful Accounts 720,017 1,952,915 2,700,000 969,228 Total Expenses 372,153 446,648 1,502,859 9,706,049 14,893,680 22,096,072 27,010,230 EXCESS/(DEFICIENCY) OF REVENUES OVER EXPENSES 74,422 64,479 126,480 -1,084,673 792,914 -212,461 6,535,546



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PPAANNAAYY IISS..

VVIISSAAYYAASS

IIllooiilloo CCiittyy

PHILIPPINE

Roxas

PANAY ISLAND

MMIINNDDAANNAAOO

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Sara

Pototan

JaroJordanMiagao

GUIMARAS

EXHIBIT 6: TSKI Branches as of February 2001



EXHIBIT 7: Potential Outreach (as of end of 2000)

Poverty Population Potential Served by PCFC Incidence below MFI Client PCFC Conduits Poverty Line Base Conduits REGION IV-B 48.1% 1,105,705 184,284 Marinduque 55.5% 120,653 20,109 14% 1 Occidental Mindoro 48.8% 185,562 30,927 7% 2 Oriental Mindoro 51.7% 352,500 58,750 3% 2 Palawan 35.9% 271,193 45,199 5% 1 Romblon 66.5% 175,797 29,300 4% 2 REGION V 56.2% 2,627,269 437,878 Masbate 70.9% 501,737 83,623 9% 1 Sorsogon 51.4% 334,401 55,733 REGION VI 45.5% 2,827,528 471,255 Aklan 42.9% 193,614 32,269 67% 3 Antique 45.9% 216,229 36,038 8% 4 Capiz 57.4% 375,486 62,581 6% 6 Guimaras 28.3% 40,030 6,672 22% 1 Iloilo 37.1% 714,176 119,029 11% 5 Negros Occidental 50.2% 1,287,993 214,665 6% 5 REGION VII 37.6% 2,144,336 357,389 Bohol 53.6% 609,576 101,596 4% 3 Cebu 32.7% 1,097,457 182,909 13% 17 Negros Oriental 36.4% 409,886 68,314 5% 4 Siquijor 33.6% 27,417 4,569 REGION VIII 45.4% 1,640,889 273,481 Biliran 45.1% 63,264 10,544 2% 3 Eastern Samar 57.1% 214,594 35,766 <1% 1 Leyte 41.9% 667,189 111,198 3% 8 Northern Samar 50.4% 252,322 42,054 3% 1 Southern Leyte 37.7% 135,780 22,630 13% 3 Western Samar 48.0% 307,740 51,290 4% 4 REGION IX 44.4% 1,374,002 229,000 Basilan 32.7% 108,835 18,139 Zamboanga Norte 51.9% 427,204 71,201 1% 4 Zamboanga Sur 43.3% 837,963 139,661 4% 7 REGION X 38.7% 1,063,315 177,219 9% 10 CARAGA REGION 50.2% 1,051,874 175,312 15% 13



EXHIBIT 8: Institutional Brief

Taytay sa Kauswagan, Inc.

Taytay sa Kauswagan, Inc. (TSKI) or “Bridge to Progress” was registered with the Securities and Exchange on September 15, 1986 as a non-stock, non-profit, Christian development organization. Prominent businessmen established the NGO that was patterned after the concept promoted by Tulay sa Pag-unlad, Inc. (TSPI), an institution based in Manila, Philippines, to help the poor by providing livelihood through microfinance. TSKI was provided with technical and financial support by TSPI in the same manner it did four other NGOs around the country. As a TSPI partner in the Visayas, TSKI set up its headquarters in Iloilo City in Panay island which lies south of Manila. Its operations started in October 1986 with Angel de Leon, Jr. as Executive Director. A Board of Trustees composed of seven members, with the NGO’s executive director as ex-officio member, governed the NGO.

Launched with a start-up capital of Php2.5 thousand in 1986 and financial support for its operations from TSPI, TSKI’s total assets amounted to Php115.6 million (US$ 2.31 million) by end 2000. From an initial personnel complement of three people, by 2000, the organization had a contingent of 122 personnel and active clients numbering 19,348. Its outstanding loan portfolio stood at Php57.7 million (US$ 1.16 million) on the same year.

TSKI’s History at a Glance

From Its 1986 Inception up till 1992. Operations began in Iloilo City with the Micro-Enterprise Development Program (MEDP) through which loans were extended to individual microentrepreneurs who had existing enterprises but lacked access to formal credit for their expansion plans. The loan amounts ranged from Php6 thousand to Php20 thousand. The pilot test of MEDP in 1986 started with 37 clients. By mid-1992, MEDP’s clients numbered 204.

The Adaptation of the Grameen Banking Approach from 1993 to 2000.

In early 1993, Prof. Mohamad Yunus, a guest speaker of a forum sponsored by AIM-USAID in Iloilo, declared that the group lending scheme he developed in Bangladesh could be an effective means to address the needs of more poor people. Inspired by the professor’s thesis and wishing to determine its applicability in the local setting, TSKI pilot-tested the Grameen Banking Approach (GBA) in three sites, two of them rural and one urban. The experiment indicated excellent repayment patterns, thereby prompting its adoption in toto through what came to be known as “Proyekto Kauswagan sa Katilingban” (PKK) or “Project for Community Development”. Thereafter, the expansion of PKK using the GBA radiated from Iloilo to the other provinces of Panay Island. Outreach grew from 1,302 clients with loans receivables of Php6.049 million by mid-1993, to a record 10,000 clients with a loan



portfolio of Php23.696 million by the end of 1997. A problem in one branch, however, dragged the 1997’s yearend portfolio at risk (PAR >30 days) to 45 percent, necessitating a re-assessment of PKK branch operations, internal control systems and the GBA.

To instill in TSKI staff the conviction that the poor could pay, key personnel

of TSKI underwent a customized exposure program in CARD where the successful implementation of the GBA consistently yielded 100-percent repayments. Combining new insights gained with their own effective practices, TSKI introduced modifications to its group lending methodology. For instance, center liability replaced group liability. Checks were issued in lieu of cash. Automation simplified the recording of accounts and rendered end-of-day tracking by the branch and the head office more efficient. Daily reporting, clear accountabilities and audits strengthened internal control mechanisms. A mutual aid fund was established to reduce risks arising from vulnerability to events like sickness and death in the family. But ultimately, the key to portfolio quality was strict credit discipline. Implementation of the new PKK significantly improved performance.

Subsequently, the rapid growth of operations compelled the NGO to execute

a major re-engineering of its organizational structure. The new structure was expected to support further expansion. From 8,648 clients with a loan portfolio of Php26.403 million by end of 1998, TSKI’s client base grew to 19,348 with a loan portfolio of Php57.7 million by the end of 2000. PAR (>30 days) was at 10.5 percent.

Capital build-up or savings stood at Php229.7 million.

Trust banking methodology and its products

Both in its rural and urban areas of operation, TSKI employed what Opportunity International network partners referred to as “trust banking” or group loans, under the PKK. The basic principles of the program were as follows:

• The only collateral is trust • The group or center is accountable for the loan of each and every member.

These principles were inculcated during the orientation of new members and

reinforced through the loan collection procedures and the centers’ own internal policies.

Group loans intended for enterprise capital ranged from Php3,000 to

Php30,000, from which amounts a 4-percent service fee was deducted upfront. The balance of the loan was charged a flat rate of 16 percent for a term of six months (or 32 percent per annum). The said loan was repaid weekly for 25 weeks. TSKI also provided emergency loans—maximum of Php5 thousand—which were charged 9-percent interest deducted upfront, along with a 4-percent service charge. Mandatory savings or capital build up (CBU) was also collected weekly as a percentage of loan



repayments. They similarly functioned as collateral substitutes.

TSKI’s individual lending scheme in the MEDP, which catered to microentrepreneurs with existing businesses and required additional capital in order to expand, continued, thereby allowing clients to avail of loans ranging from Php15,000 to Php150,000. One-year loans were subject to a 4-percent service charge and an interest charge of 27 percent per annum. Clients were expected to issue post-dated checks for their monthly payments. Savings or CBU amounting to 10 percent of the loan amount was amortized along with monthly payments. The MEDP also served as the next stage for TSKI’s trust banking clients whose businesses had grown, thereby necessitating bigger financial requirements.

Programs and Services

In line with its vision “to see self-sufficient families responding to the needs of their community and pursuing collective effort for their development”, TSKI offered four major component services.

1) Seminars and skills training, particularly value formation seminars

and management and entrepreneurial skills training for clients. 2) Financial assistance, particularly loans and savings products. 3) Business development service, particularly an integrative approach

to the development of productive and sustainable client enterprise by means of infrastructure support, credit, product development, market linkages, training, technical assistance, input supply and advocacy.

4) Education program via short-term courses on microfinance-related topics. In addition, TSKI was a PCFC-accredited Grameen Banking Replicator (GBAR) Training Center in the Visayas.

Context

When TSKI began operations in 1986, the poverty incidence in the Visayas was close to 70 percent of total families. Poverty in the far-flung areas of the Visayas was linked in part to the people’s lack of access to formal credit and markets resulting from the isolation inherent to the islands’ location and mountainous topography. Still, TSKI managed to set up branches that offered microfinance services in hard-to-reach rural areas, including those that were without banks. For this feat it received a citation from PCFC. Conditions were worse in villages with poor infrastructure such as a lack of bridges and paved roads. A number of these villages were governed by unscrupulous politicians or were controlled by rebel groups, particularly the New Peoples Army (NPA).



TSKI belonged to an international network known as The Global Opportunity

Network. On the national level, TSKI was a member of the Alliance of the Philippine Partners in Enterprise Development (APPEND) and the Microfinance Council of the Philippines.

[This profile was prepared by Antoinette B. Bolaños, Program Director, Microfinance Management Project Office of the Asian Institute of Management, Makati City, Philippines.]



PKK Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month

14

Beginning Total 0 630 1,260 1,890 2,520 3,150 3,780 4,410 4,620 4,830 5,040 5,250 5,460 5,600

New PKK Clients 630 630 630 630 630 630 674 254 254 254 254 254 231 62

Less: Dropouts 0 0 0 0 0 0 44 44 44 44 44 44 91 62

Ending Total 630 1,260 1,890 2,520 3,150 3,780 4,410 4,620 4,830 5,040 5,250 5,460 5,600 5,600

Outstanding Loan Beginning 0 2,520,000 4,620,000 6,300,000 7,560,000 8,400,000 8,820,000 12,512,000 13,488,667 13,710,000 13,176,000 11,886,667 9,842,000 12,074,000

PKK Loan Releases 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 2,520,000 6,212,000 4,532,000 4,532,000 4,532,000 4,532,000 4,532,000 9,564,000 6,542,000

Cumulative Loan Releases 2,520,000 5,040,000 7,560,000 10,080,000 12,600,000 15,120,000 21,332,000 25,864,000 30,396,000 34,928,000 39,460,000 43,992,000 53,556,000 60,098,000

Repayment 0 420,000 840,000 1,260,000 1,680,000 2,100,000 2,520,000 3,555,333 4,310,667 5,066,000 5,821,333 6,576,667 7,332,000 8,926,000

Cumulative Repayment 0 420,000 1,260,000 2,520,000 4,200,000 6,300,000 8,820,000 12,375,333 16,686,000 21,752,000 27,573,333 34,150,000 41,482,000 50,408,000

Outstanding Loan Ending 2,520,000 4,620,000 6,300,000 7,560,000 8,400,000 8,820,000 12,512,000 13,488,667 13,710,000 13,176,000 11,886,667 9,842,000 12,074,000 9,690,000

PKK Capital Build-Up 126,000 252,000 378,000 504,000 630,000 756,000 1,066,600 667,600 688,600 709,600 730,600 751,600 1,024,200 887,100

Cumulative CBU 126,000 378,000 756,000 1,260,000 1,890,000 2,646,000 3,712,600 4,380,200 5,068,800 5,778,400 6,509,000 7,260,600 8,284,800 9,171,900

MEDP Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14

Beginning Total 0 10 20 30 40 50 60 70 80 90 100 110 120 120

New MEDP Clients 10 10 10 10 10 10 10 10 10 10 10 10 1 1

Less: Dropouts 0 0 0 0 0 0 0 0 0 0 0 0 1 1

Ending Total 10 20 30 40 50 60 70 80 90 100 110 120 120 120

Outstanding Loan Beginning 0 300,000 575,000 825,000 1,050,000 1,250,000 1,425,000 1,575,000 1,700,000 1,800,000 1,875,000 1,925,000 1,950,000 2,130,000

MEDP Loan Releases 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 300,000 480,000 480,000

Cumulative Loan Releases 300,000 600,000 900,000 1,200,000 1,500,000 1,800,000 2,100,000 2,400,000 2,700,000 3,000,000 3,300,000 3,600,000 4,080,000 4,560,000

Repayment 0 25,000 50,000 75,000 100,000 125,000 150,000 175,000 200,000 225,000 250,000 275,000 300,000 340,000

Cumulative Repayment 0 25,000 75,000 150,000 250,000 375,000 525,000 700,000 900,000 1,125,000 1,375,000 1,650,000 1,950,000 2,290,000

Outstanding Loan Ending 300,000 575,000 825,000 1,050,000 1,250,000 1,425,000 1,575,000 1,700,000 1,800,000 1,875,000 1,925,000 1,950,000 2,130,000 2,270,000

MEDP Capital Build-Up 0 2,500 5,000 7,500 10,000 12,500 15,000 17,500 20,000 22,500 25,000 27,500 31,667 33,333

Cumulative CBU 0 2,500 7,500 15,000 25,000 37,500 52,500 70,000 90,000 112,500 137,500 165,000 196,667 230,000

EXHIBIT 9: Viability Project (Operational Targets)



Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 Cash In Interest Income 0 73,950 147,900 221,850 295,800 369,750 443,700 548,903 609,307 669,710 730,113 790,517 850,920 944,357 Service Fee 120,800 120,800 120,800 120,800 120,800 120,800 269,030 196,580 196,580 196,580 196,580 196,580 404,660 281,668 Loan Repayment 0 445,000 890,000 1,335,000 1,780,000 2,225,000 2,670,000 3,730,333 4,510,667 5,291,000 6,071,333 6,851,667 7,632,000 9,266,000 CBU 126,000 254,500 383,000 511,500 640,000 768,500 1,081,600 685,100 708,600 732,100 755,600 779,100 1,055,867 920,433 Total Cash In 246,800 894,250 1,541,700 2,189,150 2,836,600 3,484,050 4,464,330 5,160,917 6,025,153 6,889,390 7,753,627 8,617,863 9,943,447 11,412,458 Cash Out Loan Releases 2,820,000 2,820,000 2,820,000 2,820,000 2,820,000 2,820,000 6,512,000 4,832,000 4,832,000 4,832,000 4,832,000 4,832,000 10,044,000 7,022,000 Operating Expenses 373,342 390,031 438,649 424,694 442,668 492,571 512,512 523,323 570,395 554,546 570,275 774,983 647,746 644,763 Capital Outlay 435,000 0 0 73,000 0 0 73,000 0 0 0 0 0 0 0 Total Cash Out 3,628,342 3,210,031 3,258,649 3,317,694 3,262,668 3,312,571 7,097,512 5,355,323 5,402,395 5,386,546 5,402,275 5,606,983 10,691,746 7,666,763 Net Cash Flow -3,381,542 -2,315,781 -1,716,949 -1,128,544 -426,068 171,479 -2,633,182 -194,406 622,758 1,502,844 2,351,352 3,010,881 -748,299 3,745,694 Net Release from Head Office 3,381,542 2,315,781 1,716,949 1,128,544 426,068 -171,479 2,633,182 194,406 -622,758 -1,502,844 -2,351,352 -3,010,881 748,299 -3,745,694 Add: Interest on Loan 0 33,815 57,311 75,054 87,090 92,222 91,429 118,675 121,806 116,796 102,936 80,452 51,147 59,142 Total Loan from Head Office 3,381,542 2,349,597 1,774,260 1,203,598 513,158 -79,258 2,724,611 313,081 -500,952 -1,386,048 -2,248,416 -2,930,429 799,447 -3,686,552 Outstanding Loan from HO 3,381,542 5,731,139 7,505,399 8,708,997 9,222,155 9,142,898 11,867,508 12,180,590 11,679,638 10,293,590 8,045,174 5,114,745 5,914,192 2,227,640

EXHIBIT 10: Viability Project (Cash Flow)



Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 OPERATING EXPENSES Salaries 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 157,400 Employee Benefits 77,756 77,756 77,756 77,756 77,756 77,756 77,756 77,756 77,756 77,756 77,756 235,156 77,756 77,756 Retirement Fund 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 9,444 Management/Supervision Fee 24,160 38,950 53,740 68,530 83,320 98,110 142,546 149,097 161,177 173,258 185,339 197,419 251,116 245,205 Office Rental 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 Water & Electricity 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Transportation & Travel 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 Gasoline 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Repair & Maintenance 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Office Supplies & Communication 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 8,333 Meetings & Events 8,833 8,833 40,333 8,833 8,833 40,333 8,833 8,833 40,333 8,833 8,833 40,333 8,833 8,833 Training 2,416 3,895 5,374 6,853 8,332 9,811 14,255 14,910 16,118 17,326 18,534 19,742 25,112 24,520 Interest on CBU 0 420 1,268 2,545 4,250 6,383 8,945 12,550 14,834 17,196 19,636 22,155 24,752 28,272 Other Expenses 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000 23,000

TOTAL EXPENSES 373,342 390,031 438,649 424,694 442,668 492,571 512,512 523,323 570,395 554,546 570,275 774,983 647,746 644,763

EXHIBIT 11: Schedule of Expenses



Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month

11 Month

12 Month 13 Month 14 Income Interest Income 0 73,950 147,900 221,850 295,800 369,750 443,700 548,903 609,307 669,710 730,113 790,517 850,920 944,357 Service Fee 120,800 120,800 120,800 120,800 120,800 120,800 269,030 196,580 196,580 196,580 196,580 196,580 404,660 281,668 Total Income 120,800 194,750 268,700 342,650 416,600 490,550 712,730 745,483 805,887 866,290 926,693 987,097 1,255,580 1,226,024 Expenses Operating Expenses 373,342 390,031 438,649 424,694 442,668 492,571 512,512 523,323 570,395 554,546 570,275 774,983 647,746 644,763 Depreciation 13,917 13,917 13,917 13,917 15,133 15,134 15,134 16,350 16,350 16,350 16,350 16,350 16,350 16,350 Provision for Bad Debt 0 7,050 14,100 21,150 28,200 35,250 42,300 52,280 58,060 63,840 69,620 75,400 81,180 130,740 Interest on Loan 0 33,815 57,311 75,054 87,090 92,222 91,429 118,675 121,806 116,796 102,936 80,452 51,147 59,142 Total Expenses 387,259 444,813 523,977 534,815 573,092 635,176 661,375 710,628 766,611 751,532 759,181 947,184 796,423 850,995 Net Income -266,459 -250,063 -255,277 -192,165 -156,492 -144,626 51,355 34,855 39,275 114,758 167,512 39,912 459,157 375,029

Cumulative Net Income -266,459 -516,522 -771,799 -963,964 -

1,120,455 -

1,265,081 -

1,213,726 -

1,178,870 -

1,139,595 -

1,024,837 -857,325 -817,413 -358,256 16,773

EXHIBIT 12: Viability Projection (Income Statement)