Taytay sa Kauswagan, Inc. (TSKI) - C: Scaling-up … · Taytay sa Kauswagan, Inc. (TSKI) - C Scaling-Up Results ... After making the scaling-up commitment in Boracay in February 2001,

AIM-3-05-0004-CS

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

Scaling-Up Results

Mr. Angel de Leon, TSKI Executive Director, knew that 2003 would be the most difficult year for TSKI in terms of the new scaling-up program of APPEND (Alliance of Philippine Partners in Enterprise Development). As he checked the figures of the past three years, he saw that, indeed, TSKI’s poorest performance was in 2003.

Table 1: Outreach under the 2002–2006 Scaling-Up Program

2002 2003 2004 2005 2006

Original Scaling-Up Target 30,000 35,000

Adjusted Scaling-Up Target 50,000 100,000 150,000 200,000 250,000

Actual Outreach 50,083 81,005 135,002

Percent Accomplishment 100% 81% 90%

In 1997, APPEND planned a five-year Philippine Scaling-Up Program that was to

run from 1998 to 2002 to increase its clients from 40,000 to 250,000. This target was divided among the members of APPEND, which were nine at that time. TSKI’s share was 35,000. It took some time for APPEND to mobilize funds so the actual start of the program was delayed by nearly 11 months. In effect the term of the program was adjusted to 1999-2003.

Midway through the program, APPEND decided to accelerate further its scaling-up,

partly in response to the thrust of the new national government (that took office in January 2001) to reach one million women via microfinance by 2004. So APPEND changed its target to 1,000,000 clients by 2006. Of this, TSKI’s share was 250,000.

This case was written by Goldelino Chan (MDM 2001) 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]

AIM-3-05-0004-CS Taytay Sa Kauswagan, Inc. (TSKI) – C 2

Prior to 1997, TSKI’s outreach grew by only around 1,000 clients net each year.

Under the original scaling-up program (1999-2003), TSKI committed to an increase of 5,000 clients each year. Now, under the new program, it was committing to an increase of 25,000 clients in 2002 and 50,000 every year thereafter until 2006.

“And we are talking about net increase here,” Mr. de Leon clarified. “That means we

have to compensate for drop-outs which average around 7 percent per cycle.” Under the original scaling-up program which, because it was delayed by a year,

actually started in 1999, TSKI had the following accomplishments:

Table 2: Outreach under the 1999–2003 Scaling-Up Program (up to 2001 only)

1999 2000 2001 Target Number of Clients 15,000 20,000 25,000 Actual Number of Clients 15,770 19,348 32,036 Percent Accomplishment 105% 97% 128%

“Though we had a target of 25,000 in 2001, we actually reached 32,000 so it made it

easier for us to reach 50,000 in 2002. But 2003 was another story.” Brief Background

In 1986, Taytay sa Kauswagan1, Incorporated started operating in Iloilo City, the regional center of Western Visayas in the Philippines.2 Its first project involved providing loans to individual entrepreneurs, market vendors, and transport utility drivers. In late 1992, TSKI adopted the Grameen Banking Approach (GBA) in a new project called Proyekto Kauswagan sa Katilingban3 or PKK. Because GBA required group accountability for the loan of a single member, GBA was called “group lending” within TSKI to distinguish it from TSKI’s initial individual lending project. It did not take long, however, for group lending to supersede individual lending as TSKI’s main project.

In GBA, the clients, who were all women, were organized in groups of five.

Although loans were obtained individually, the whole group was responsible for ensuring that the loan of each and every member was repaid. GBA followed a 2-2-1 sequence in lending. Initially, two members would borrow. Then if they paid as scheduled, the next two members could borrow. Finally, if all four paid as scheduled, the group leader could borrow.

1 Bridge to Progress 2 The Philippines is divided into 14 administrative regions. Region VI is Western Visayas, which is

composed of the islands of Panay and Guimaras and the western half of Negros Island. Panay Island is made up of 4 provinces: Aklan, Antique, Capiz, and Iloilo.

3 Community Development Project

Asian Institute of Management Copyright Year 2005


The amount of the initial loan was P1,000, payable in 50 weekly amortizations. The amount was increased by P1,000 per succeeding loan cycle so, for example, the second-cycle loan was P2,000 and the third-cycle loan was P3,000. Members were required to save through automatic loan deductions and weekly deposits.

Five groups made up a “center”, while 40 centers made up a “branch”. TSKI’s initial experience with Grameen Banking proved successful. By 1996, it had

five branches. But staff malfeasance caused a downturn, affecting morale, credit discipline, and cash flow. GBA was vulnerable to fraud because loan releases, collection, and recording were all lodged in just one person.

Learning its lesson, TSKI decided to develop a new PKK model. TSKI also knew

that it had to have a working microfinance technology if it hoped to significantly scale up its outreach and improve its financial health. TSKI tested this new model in Roxas City, the capital of Capiz province, in 1999. The following year it tested the same in San Jose, the capital town of Antique province. In both cases, the new PKK model proved to be very successful.

With these initial successes, TSKI adopted the new PKK model in all its branches.

Equipped with the new microfinance methodology, TSKI faced the challenges of scaling-up per its commitment to reach 250,000 clients by 2006 with greater confidence. SCALING-UP IMPLICATIONS

Mr. de Leon listed the five key elements of the organization that were most affected by the scaling up: microfinance methodology, systems, organizational structure, staff, and the Board of Trustees.

ASPECT MUSTS LANDMINES MEANS BATTLECRY Methodology Finding the right

mix Resistance to change, failure

Testing with limited variables

Step by step!

Systems Standardization Resistance to change

Computerization, manuals, monitoring

Learn and simplify!

Structure “New wineskin”, Decentralization, Delegation

Overhead costs, Uncertainties

Motivation, capability building

Don’t let structure limit what you can do!

Staff Culture of excellence

Rivalry, miscommunication

Spotting leaders, molding staff, balancing task and relationship

Our work is a calling!

Board of Trustees

Ownership of vision

Complacency, lack of a sense of urgency

Strategic planning We want to be number one!



Planting the Seeds of Growth with the New PKK Methodology

Mr. Solarte attributed the success of TSKI’s new PKK model in Roxas City and Antique to several factors: (1) a clear viability plan; (2) committed new staff unaffected by the problems and demoralization that set in during the 1997 downturn; (3) full deployment right from the start; (4) computerization of record-keeping and reporting; (5) the new policy of “walang uwian”, which literally meant “no going home” until all center accountability for the week was settled; and (6) the new model itself which adhered to core Grameen Banking principles but incorporated changes born out of TSKI’s reflection on its experience or adopted from other microfinance practices.

In view of the risks inherent to lending, TSKI deliberately planned to shorten that

period where it was at greater risk by achieving operational self-sufficiency (the point where income covered operating costs) and financial self-sufficiency (where income covered operating costs, the cost of money, and subsidies) much earlier than under the old GBA. To this end, under the new PKK, staffing at the branch office was doubled from 10 to 21. Fourteen of the staff were Project Assistants (PAs) who did the actual field work. The caseload per PA was increased from eight centers to 10 centers. Optimum center size was also increased from 30 to 45. The initial or first-cycle loan which was fixed at P1,000 was increased to a minimum of P2,000 and a maximum of P5,000. And the loan term was shortened from 50 weeks to 25 weeks.

Straight-line interest remained at 32 percent per annum. Likewise, the service fee

remained at 4 percent of the loan amount. CBU (capital build-up) through loan deduction remained at 5 percent, but weekly deposits were adjusted depending on the size of the center. The fewer the members, the higher the savings. Required savings ranged from P25 to P50 per member per week.

After making the scaling-up commitment in Boracay in February 2001, Mr. de Leon

knew that TSKI would have to eventually expand beyond Panay Island if it were to meet the 250,000 target. The neighboring island of Negros was a possibility, but TSKI did not want to upset its friendly relationship with another MFI that had a major presence there.

“We did not have a firm idea as to where to go next, so the Board and I prayed for

guidance,” recalled Mr. de Leon. “Placing ourselves in the hands of God, we decided to go wherever the conference of the leaders of Couples for Christ4 would be held in 2001.” The conference venue turned out to be Bohol province in Central Visayas. But when TSKI went to explore Bohol, it discovered that another MFI, the First Consolidated Bank (FCB), was already operating in the province’s capital, Tagbilaran, and in the surrounding towns. So TSKI decided to start out in Talibon, which were two-and-a-half hours away from Tagbilaran.

4 Mr. de Leon and Mr. Solarte were members of this organization.



Mr. de Leon related, “Talibon, Bohol was the site of our eighth branch. It was the first outside Western Visayas. We really gave Talibon a lot of attention because, in a way, it was where we would test whether our new model would work in an area very far from the head office. And it was an area we were not very familiar with. Thankfully, we did well in Talibon.”

Mr. de Leon continued: “We opened only two branches in 2001: one in Talibon and

another in Boracay in Aklan.5 But we made up for that by opening seven new branches in 2002.”

In 2002, TSKI opened branches simultaneously in the cities of Ormoc and Tacloban

in Leyte province. Although Ormoc was a small city, it had six major microfinance institutions operating therein: Fourth District Foundation, Green Bank Microfinance, a big coop supported by PCFC, etc. - all of which provided big-time competition. So, Mr. de Leon decided, “We had proven that our new PKK worked in a distant area. Perhaps it was time to check if our methodology would also work well against competition.”

Thus challenged, Mr. de Leon decided to assign his best people to Leyte: “The

Branch Manager of Talibon, who was very much experienced, was assigned to Ormoc. The Area Manager here in Iloilo was assigned temporarily to head the Tacloban branch. I also sent two very experienced supervisors, one to Ormoc and the other to Tacloban. Then we had four reserve PAs6, instead of two, per branch. Full force right from the start; plus computerized MIS7.”

Mr. de Leon went on, “I think we took the competition by surprise. By the time they

realized what was happening, we were already firmly entrenched. We told ourselves, `If we could compete with six big-time MFIs in Ormoc, then we could go anywhere.’”

Five other branches were opened in 2002. With its tested methodology, TSKI

decided it could now apply the template in different areas almost routinely. Actual outreach in 2002 hit the target 100 percent. Then TSKI hit a snag the following year.

Hump on the Road

Mr. Solarte explained why TSKI was off target by a big margin in 2003, “We open branches only at the start and the middle of the year. But some openings could be delayed by as long as three months because we have to secure the necessary business permits and accreditation from the local government unit. That was the case in 2003. We opened eleven branches actually, but four started operations only during the last quarter of the year.”

“Then we also had the problem of dropouts which kept getting worse,” he added. “If

it were not for the dropouts, we would have met our target even if some branches started operating late in the year.”

5 With the opening of the Boracay branch, all 4 provinces of Panay Island were covered by TSKI. 6 Program Assistants 7 Management Information System



Table 3: Net Outreach

2001 2002 2003 2004

Scaling-Up Target 25,000 50,000 100,000 150,000 Total Recruitment 38,433 60,353 105,826 172,025 Dropouts 6,397 10,270 24,821 37,023 Outreach (Net) 32,036 50,083 81,005 135,002 Dropouts as % of Recruitment 16.6% 17.0% 23.4% 21.5% Returnees NA NA NA 2,880

Dropouts could generally be classified under three categories: delinquent clients

kicked out by their co-members in the center, new clients swayed by the competitors’ fewer or easier-to-meet loan requirements, or old members with large savings who wanted to withdraw all their savings.

Mr. Solarte revealed, “We suspected that some dropouts soon discovered that we offered better services than our competitors, so they came back. When we began tracking these returnees starting 2004, we found that there were nearly 3,000 of them, enough to make up a branch.”

TSKI also revised its policy regarding the withdrawal of savings. Before, a member could not withdraw her savings except when she leaves PKK. But starting 2004, TSKI allowed members to withdraw part of their savings. However, a member who made a withdrawal was required to go back to the first-cycle ceiling of P5,000 for her next loan. Then she had to work her way up again through succeeding loan cycles. But lately some members had been asking to be allowed to jump back in a shorter period of time, say one year, to the highest loan cycle they had already reached. Mr. Solarte admitted it was also to TSKI’s interest that good members who were already in their fifth cycle, or higher, when they withdrew part of their savings could avail again of bigger loans.

While the dropout rate was worrisome as seen in Table 3, Mr. Solarte remained hopeful that the remedial measures being initiated, as well as the improved identification and recruitment of clients, would lead to a lower dropout rate and/or a higher rate of returnees.

In the meantime, scaling up operations continued. Targeting 10 new branches in 2004, TSKI opened five in the first quarter and another five in the second half of the year. Systems Improvement

Everyone in TSKI acknowledged that without computerization, TSKI’s rapid expansion would not have been possible. By providing three computers to each branch, two of which were exclusively for MIS (management information system), TSKI significantly



reduced the time needed for the branch to prepare the center billing statements and to record collections from the 140 centers covered by the branch. Gone were the days when the branch staff had to work until 11:00 p.m. to straighten the records and prepare for the center meetings the next day.

At the end of the day the Branch Manager knew at a glance whether or not

collections reached 100 percent and were remitted, and whether savings were being deposited by center members according to agreed upon policies. Computerization allowed the BM to monitor not only the branch cash flow more easily, but also problematic members and centers. And since the branch records were uploaded or sent via e-mail to the head office, it became possible for top management to monitor branch performance in real time almost.

TSKI matched the growth in its number of clients with the standardization of

operations. Aside from the computer-based MIS, manuals were also prepared to guide everyone in the organization every step of the way. These manuals included the following: the PKK manual, the financial/accounting manual, the audit manual, and the personnel manual. A transformation manual was also being prepared.

The manuals were so explicit that, for example, in PKK it was almost possible to

time to the minute the flow of the center meeting and the tasks the PA was performing while the meeting was going on.

Changes in the Organizational Structure

As TSKI expanded, its structure had to undergo some changes. “Because we now have a lot more wine, so to speak, we really need a new wineskin lest our old wineskin burst,” said Mr. de Leon.

To this end, TSKI assumed the following strategy according to Mr. de Leon: “We

looked first at the branch office. Even when we were just starting to expand, there were already adjustments at the field level as we had to add reserve PAs and MIS-Tellers. And we continually reviewed and adjusted our structure. For example, in our Roxas branch, we added another PA in 2004 specifically to handle trainings. Another adjustment being considered at the branch level is the hiring of a driver to maximize the use of our motorcycles and management time. You see, in most cases the BM or the PUS acts as driver, ferrying the PAs to and from their scheduled center meetings.”

He added: “Then we created the position of Area Manager in 2001. I felt that in the

same way that the span of control for a PUS was limited to seven PAs only, the span of control over the branches should also be set at seven. So when our branches increased to nine in 2001, I felt that we needed a person to assist the head of operations because our branches already exceeded seven. But we did not create an entire office. We added only one Area Manager and one secretary who served as the Area Manager’s staff.”



With 36 branches as of end of 2004, TSKI had 4 Area Managers. According to Mr. de Leon, “At the head office, management responsibilities would

be more extensively delineated and delegated following the proposed creation of three major positions: director for operations, director for finance, and director for management services.”

But there had already been several changes in the head office as it was. Mr. de Leon

recalled, “At first, everything was under me. Well, operations, that is, while the rest were staff functions. Then Boy8 was placed in charge of operations, reporting directly to me. After a while, he was elevated to Deputy ED. But he remained in charge of operations. Later, we appointed somebody to head the operations department and Boy focused on being my alter-ego. Thus, everything went through him: operations, finance and administration, human resource development. Before long we encountered problems with the set-up. So we reverted back to the set-up where Boy handled operations while I handled the rest.”

As TSKI expanded, the departments within the head office underwent some staffing

changes, too. These changes (from 2000 to 2004) are noted in the following table:

Table 4: Head Office Staff per Department9

Year Operations Finance & Admin. MIS Audit HRD Training MSI-BDS

2000 3 6 4 2 3

2001 5 7 3 4 3

2002 6 8 5 5 2 3 2

2003 6 15 12 5 4 6 5

2004 7 16 17 7 5 13 1

As of end of 2004, TSKI had 932 employees, 66 of whom were in the head office.

Human Resource Development

“When we assigned experienced people in our old branches to set up new branches, we had to be sure their replacements were as good. So we initiated a program to develop second-liners to become managers and supervisors,” shared Mr. de Leon. “Of course, we already had a line-up of trainings for them, but these were only one or two-day trainings. As we had plans to go into banking, we thought it would be useful for our top people to have MBA degrees. So we forged a tie-up with the Philippine Christian University in Manila.”

8 Referring to Mr. Angelo Solarte 9 Acronyms: MIS (Management Information System), HRD (Human Resource Development), MSI-

BDS (Microfinance Success Institute – Business Development Service)



The whole MBA10 course was finished in one year at the rate of one subject per month. Classes were held in the TSKI premises. A subject was tackled in three straight days of classes: 5:00 p.m. – 10:00 p.m. on Friday then up to 16 hours on Saturday, as well as on Sunday too. Only one working day per month was actually sacrificed by enrolled TSKI staff as the other two days fell on a weekend. Professors from PCU flew in from Manila for the classes. But some subjects or topics were handled by senior TSKI personnel with master’s degrees themselves.

Mr. de Leon said, “I made it a point to have a managers’ meeting on the Thursday

afternoon or the Friday morning before the MBA classes so that those who were enrolled could come to the head office on official business, meaning they could charge their travel expenses to TSKI, and then they could proceed to their class. I also encouraged even those with an MBA already to sit in for a refresher of sorts.”

“Sometimes, I would ask the PCU professor to fly in earlier than Friday afternoon so

that he or she could still handle a one- or two-day training for us. By doing so, TSKI did not only have a free lecturer from Manila, but also avoided spending extra for the plane fare.”

There were 32 students in the first MBA batch of which 24 were TSKI staff while

eight were outsiders. By the second batch, the MBA offering had 38 outsiders attending as opposed to seven TSKI staff. Mr. de Leon admitted, “We are now actually earning a small profit from the MBA offering. So we have started to offer MPA11 as well,” said Mr. de Leon. “But profit is secondary. The formal schooling actually helps us sustain our growth.”

The Executive Director went on, “I realized that we were growing so fast and needed

to develop our best people apace with our growth. It is possible for a really good PA to become a PUS, then an officer-in-charge of a branch, just a little more than a year after joining us. Given the brief period for preparing the PA for his or her job as manager, we needed to supplement our internal training and coaching with the MBA course. Now, wherever you assign our managers, they perform well. By the way, our BMs get rotated every 12 to 18 months; and they all know that they can be reassigned anywhere as we expand.” The Board of Trustees

Mr. de Leon, the Executive Director, enjoyed the full confidence of the Board, a confidence that also somehow led to some degree of complacency on the part of the Board, which was secure in the knowledge that TSKI was in good hands. However, when TSKI experienced a downturn in 1996–97, the Board quickly rose to the occasion and became more pro-active.

10 Master in Business Administration 11 Master in Public Administration



The downturn notwithstanding, the Board committed TSKI to its first scaling-up target of 35,000 by 2002, from a base of fewer than 10,000 clients in 1997. To Mr. de Leon, this commitment was a clear signal of the Board’s continued confidence in the organization, despite the problems it was having at that time. Mr. de Leon appreciated the Board’s display of leadership and its vision of where to take TSKI.

The Board also took the lead in committing TSKI’s expansion by 50,000 per year

until it reached 250,000 clients in 2006. The goal was proof of the Board’s dreaming big and of its readiness to set its sights beyond Panay Island.

Mr. Demy Sonza, the Board Chairperson, said, “We have in fact already expanded

beyond the Visayas, working in Mindoro, Romblon, and Palawan which are part of Southern Luzon. We are also in Zamboanga in Mindanao. We would have expanded to the Bicol region had not the MFI operating there joined APPEND. And Opportunity International was actually sounding us out to assist in setting up new microfinance institutions in other countries, like Vietnam, for example.” Funding the Scaling-Up

A significant portion of the funds needed to scale-up was provided by the People’s Credit and Finance Corporation (PCFC). In 2003, PCFC made available a P210-million12 credit facility to TSKI. Part of the credit facility extended by PCFC to TSKI came from the Asian Development Bank which provided 13 million pesos in soft loan (at 3% p.a.) and 130 million pesos in regular loan (at 13% p.a.). The soft loan was set to mature in February 2005, while the regular loan was due to mature in August 2010.

Other funding were obtained by TSKI for specific areas: 11 million pesos from the

Peace and Equity Fund for Bohol (at 9% p.a.), 9 million pesos from the Small Business Guarantee Fund Corporation for Cebu, and 180,000 Australian dollars from AusAID for Capiz. TSKI also went into partnership with the PATSARRD (Philippine-Australian Technical Support for Agrarian Reform and Rural Development) project in Central and Eastern Visayas.

On some occasions, TSKI borrowed from local banks. Another source that it tapped

was the CBU of clients, which in 2004 amounted to more than P160 million. Grants constituted between 5 and 10 percent of the funding that TSKI received each year, but most of the amount was set aside for training and organizational development.

12 Around $3.87 M. The average dollar exchange rates for the period were as follows: 2001 –

Php50.99; 2002 – Php51.60; 2003 – Php54.20; and 2004 – 56.04.



Complementary Program: The Microfinance Success Institute-Business Development Service (MSI-BDS)

“Anything new is given to us,” joked Mr. Rey Ambao, the head of MSI-BDS. But there seemed to be some truth behind the statement. Not only was MSI-BDS responsible for business development per se but it was also into selling solar panels, raising hogs to be given out as incentives to best performing centers, building a training and trade center, administering an MBA program, and handling staff development. But in the midst of all these other concerns, Mr. Ambao was not losing sight of the primary purpose of his department - which was to help clients choose and run a good business so that they could really increase their income and at the same time repay their loan with TSKI.

Mr. Ambao continued, “It was and it continues to be a struggle to inculcate among

the staff the importance of clients having good business so that collection could be assured. Most of the PAs continued to focus on the release of loans and the collection of payments. There was no deeper investigation into how the business enterprises of clients were doing. It was only lately that skills trainings for clients became part of the key result areas for PAs and the branch. We had to offer incentives to the branches for them to conduct skills trainings.”

Mr. Agustin Lacson, an Area Manager, admitted that TSKI’s field people, himself

included, saw BDS as a separate product initially. According to him it was only later that they realized it was complementary to microfinance, an added value that made TSKI distinct. When the MSI-BDS department started to involve the Area Managers and Branch Managers in the planning and design of trainings, the field people learned to appreciate BDS even more.

TSKI maintained a “liquidity fund” for the training of clients. This fund was

accumulated by deducting one peso from every one thousand pesos of loans. Part of the fund was used to develop the center management team, starting with the center chief. The fund was also used to directly pay for skills trainings or as a counterpart to “livelihood skills summits” organized by local government units upon TSKI’s lobbying.

Mr. Ambao announced: “We are becoming more systematic in training needs

analysis. But we still need to develop a system for tracking our training ‘graduates’ and assessing how much they have been utilizing the skills they acquired.”

BDS was linked to the lending programs but it was not envisioned to be a pre-

requisite to acquiring a loan. The service was not designed as a package but rather as a menu from which clients could choose according to their particular needs.

When the training unit was integrated into the MSI-BDS department in 2004, there

was initially a clash of ideas. The old training unit saw themselves as trainers actually conducting trainings while MSI-BDS soon realized that there was no way they could cover all the centers themselves. MIS-BDS saw its real contribution to be the planning and design



of training programs for implementation by others – either from within the organization (such as the PAs, PUSs, Branch Managers, Area Managers, and head office staff) or from outside (as in the case of government trainers tapped by LGUs, or some experts from among the clients themselves). The MSI-BDS thinking eventually prevailed.

The MSI aspect of MSI-BDS referred to an institutional development and capacity

building program established by APPEND in 2001. The aim of the program was to produce well-trained and professional microfinance practitioners through formal and non-formal education courses on microfinance. Formal education was conducted in partnership with the Philippine Christian University (PCU) via an off-campus MBA offering.

On the non-formal side, MSI had a series of trainings lined up on microfinance,

business development, and leadership development. Only 10 percent of the trainings were done in-house, even as Mr. Ambao would have preferred more in-house training as TSKI had a unique organizational culture built on spirituality. This thrust did not receive as much attention in outside trainings or those handled by external resource persons.

MSI-BDS also launched “Establecimiento de un programa modelo de servicios de

desarrollo microempresarial en Filipinas13,” a project assisted by a Spanish foundation, Cooperacion al Desarollo y Promocion de Actividades Asistenciales (CODESPA) for which it had an initial grant of 93,000 Euros for one year (May 2004– April 2005). The project had two objectives: (1) to develop TSKI as a provider of business development services; and (2) to directly develop the skills of micro-entrepreneurs in business management and in the development and commercialization of their products.

The model program aimed to provide the following services: - Business consultancy (business management and development; financial

management; quality control and supervision). - Technical training (product design; packaging; quality control). - Product development (fruit processing, meat processing, soap production,

candle production, weaving of traditional bags, etc.). - Commercialization (trade fairs, e-commerce, development of a catalog of

available products). Impact

In 2002, TSKI commissioned an impact survey in its Antique branch, Antique being among the first sites where the new PKK model tested in Roxas City was replicated. Nearly 300 clients were interviewed and five focus group discussions were conducted. Only clients who had been with the project for more than two years were interviewed.

Among the benefits cited by TSKI clients who were part of the survey were the

following:

13 Establishment of a Model Program for Microfinance Development Services in the Philippines



1. 56.6 percent found it easier to send their children to school after they joined the

project. 2. Average weekly sales from “commercial enterprises” was P3,857, while average

weekly profit was P1,393. Average loan size at this point (that is, 2002) was P6,024 but more than half of the clients had a current loan of at least P8,000.

3. 62.2 percent had cash savings beyond the CBU they had in the project; 45.2

percent reported an increase in savings compared to what they had before joining the project.

4. 55.9 percent were able to repair, improve, or expand their house during the two

years immediately preceding the 2002 survey 5. More than half of the clients reported a slight improvement in their quality of

life, while 20 percent reported a significant improvement. Clients were generally satisfied with the initial loan size, interest rate, loan term,

savings service, access to savings, insurance service, frequency of meetings, activities during meetings, PA supervision, and the training provided them.

Future Plans Thrift Bank

TSKI’s journey toward a thrift bank actually started with one such thrift bank. In

2001, four APPEND members (including TSKI), and Opportunity International established the Opportunity Microfinance Bank (OMB), the first microfinance thrift bank in the Philippines. The plan was to integrate the branches of the four APPEND members into the bank. The APPEND members would also establish and strengthen branches in new regions and then pass these on to OMB. The target was 75 branches with one million clients in five years. In line with this plan, TSKI developed the PKK hatchery model14 for the seamless integration of its branches into OMB.

The integration of existing branches was first tried out in Metro Manila. But

apparently there were problems encountered there that led TSKI to reconsider its decision to integrate with OMB. Still, TSKI could see the advantages of a bank. The most obvious advantage was the added opportunity to mobilize capital through different deposit schemes and investment shares, not only from members but also from the public at large and from institutional investors. Raising capital through equity rather than through borrowing, which usually entailed higher interest, likewise became possible. Another advantage was the

14 This model sought to integrate the practices of other APPEND members into the PKK model of TSKI, standardizing loan cycles, interest, and conditions so that the bank would be dealing with only one system when it absorbs the branches.



chance a bank afforded to conduct business with non-members. Bigger loans could be secured through chattel mortgage and deposits would be insured by the PDIC (Philippine Deposit Insurance Corporation).

With its integration with OMB stalled, TSKI explored the possibility of setting up a

bank by itself. It first considered setting up a rural bank as this would require lower capitalization. But the Bangko Sentral ng Pilipinas,15 upon learning that TSKI’s intention was to open bank branches in three regions simultaneously, advised that a thrift bank was more appropriate because a rural bank could operate only within one region. Following Central Bank’s advice, TSKI decided on setting up a thrift bank that required a capitalization of P52 million for the head office and P5 million for each branch opened.

TSKI planned on opening four branches initially, in addition to the main branch or

head office, thereby needing an initial capitalization of P72 million. TSKI was prepared to pay for 55 percent of the P42 million common shares. Six local investors had expressed their commitment to buy around P6 million worth of common shares. Opportunity International would pay for the remainder of the common shares. The remaining P30,000,000 of the initial capitalization would be raised via the offering of preferred shares to PKK and MEDP members in branches to be integrated into the bank.

Ms. Judy Abellar, a former commercial banker who was hired by TSKI to process

the registration and setting up of the thrift bank, spoke of the challenges facing the new bank. “First, banking requires a different discipline and a different set of work ethics which have to be developed and inculcated in TSKI staff moving to the bank, as well as in new recruits. Second, the TSKI people have to be retooled, particularly in banking. While they would be tremendous assets to the microfinance side of the bank, they have to learn about the purely commercial side of banking. Third, new manuals of operations have to be formulated. Fourth, the commercial banking side also needs to be computerized even as the microfinance side could continue using the TSKI system with just a few adjustments. Last, and this is certainly not the least, the clients have to be thoroughly oriented, not only on the bank and its services but also on their role as shareholders.”

The new Kauswagan16 Bank was set to open around the middle of 2005.

Boracay Business Development Center TSKI acquired an 80-hectare lot17 in the famous resort island of Boracay where it

had a branch and where a member of its Board, Mr. Steve Tajanlangit, was operating a hotel. As an accredited GBAR18 training institute and with its own line-up of trainings, TSKI hoped to bank on Boracay’s appeal to draw participants to its courses. Thus the decision was made to construct a training center in the island. The training center and a number of trainings booked for 2005 were partly funded by CODESPA.

15 Central Bank of the Philippines 16 Progress 17 A hotel chain was negotiating to buy a portion of the land. 18 Grameen bank approach replicator



“As we would have high-end resorts as our neighbors in Boracay, establishing market linkages with tourists was too good an opportunity to ignore. So we also decided to set up a display center for products our clients were producing in line with the eco-village we would be establishing,” Mr. de Leon related.

The opportunity presented by Boracay was quickly seen by BDS. But what would

exactly happen to BDS when the bank was set up remained a subject of continuing discussions within TSKI. The emerging thinking was that - as branches were integrated into the Kauswagan Bank, TSKI would completely drop its microfinance operations (both PKK and MEDP) in the covered area and focus on business development services instead. In time, BDS would become TSKI’s core program. The investment in Boracay was seen to fit this scenario.

Mr. Rey Ambao’s department was considering publishing product catalogues and a

directory of client-producers aimed at both tourists and TSKI clients for market linkages and inter-trading purposes, respectively.

“If we could have a federation of MFIs organized to help in the marketing of client

products, we would have a really significant impact, possibly exceeding that which we have created thus far with our microfinance programs,” mused Mr. Ambao.

For TSKI, the challenges never seemed to stop.



EXHIBIT 1: Portfolio Trends

Oct-Dec 2001 Jan-Dec 2002 Jan-Dec 2003 Jan-Sep 2004 PKK

Active Clients as of end of period 24,709 40,643 67,951 98,717

No. of Loans during the period 10,288 64,844 116,239 129,598

Loan Value during the period PHP 52,318,017 PHP 330,601,254 PHP 628,753,353 PHP 712,153,400

Outstanding Loans as of end of period PHP 69,451,702 PHP 116,450,152 PHP 207,580,366 PHP 319,484,632

PIA>30 days as of end of period 1.99% 2.48% 1.83% 1.05%

PAR>30 days as of end of period 3.71% 2.99% 2.04% 1.17%

Loans to Women during the period 100.00% 100.00% 90.50% 86.70%

MEDP

Active Clients as of end of period 1,008 945 1,203 1,370

№ of Loans during the period 186 687 1,025 807






Other Lending Methodologies

№ of Loans during the period 299 1,238 1,525 1,162






PIA - portfolio in arrears PAR - portfolio at risk



EXHIBIT 2: Financial Trends

Oct-Dec 2001 Jan-Dec 2002 Jan-Dec 2003 Jan-Sep 2004 Gross Income from Lending 10,592,787 59,444,830 117,633,292 134,274,161

Gross Margin 8,498,036 49,705,556 96,179,217 105,780,562

Provision for Loan Loss 784,230 5,751,854 9,828,392 5,872,429

Operating Expense 6,770,136 39,896,145 75,385,561 95,160,414

Net Income from Lending 943,670 4,057,557 10,965,264 4,747,719

Other Income 187,003 3,250,362 4,902,701 5,249,029

31-Dec-01 31-Dec-02 31-Dec-03 30-Sep-04 Loan Portfolio 90,390,156 138,401,114 231,202,968 345,875,341

Loan Portfolio Net of Loss Reserve 89,843,952 137,223,977 228,247,867 338,859,352

Cash, Deposit, Other Current Assets 30,733,243 81,386,376 158,708,896 184,777,904

Long-Term Investment 8,300,000 8,300,000 8,300,000 8,348,829

Fixed Assets Net of Depreciation 7,718,345 11,427,542 17,362,040 24,055,518

Total Assets 136,595,540 238,337,895 412,618,803 556,041,603 Client Deposits 30,446,713 54,946,302 109,688,591 162,283,667

Other Current Liabilities 5,930,083 38,988,363 162,460,644 114,811,936

Long-Term Debt 61,447,535 98,887,609 80,329,041 210,052,342

Total Liabilities 97,824,331 192,822,274 352,478,276 487,147,945 Net Assets 38,771,209 45,515,621 60,140,527 68,893,658

Cost per Loan 895.68 829.54 897.96 984.49

Cost per Peso Lent 0.16 0.16 0.16 0.18

Imputed Cost of Capital 385,869 1,063,910 1,143,190 1,466,248

Operational Sustainabiity 109.78% 107.33% 110.28% 103.67%

Financial Sustainability 105.56% 105.30% 109.11% 102.51%

Return on Assets 1.70% 2.66%

Return on Equity 8.91% 18.23%

Current Ratio 3.31 2.33 1.42 1.89

Debt-to-Equity Ratio 2.52 4.24 5.86 7.07

Capital Adequacy Ratio 0.28 0.19 0.15 0.12



PHILIPPINES

Prior to 2001

2001

2002

2003

2004

Odiongan , Romblon

Metro Iloilo ( Molo )

Metro Iloilo ( Jaro )

Roxas , Capiz

Sara

Kulasi , Antique

Central Iloilo, ( Pototan )

Iloilo City

Jordan, Guimaras

Miag -ao , Iloilo

San Jose, Antique

Sigma, Capiz

Danao , Cebu

Catarman , Samar

Calbayog , Samar

Borongan , Eastern Samar

Tacloban , Leyte

Ormoc , Leyte

Naval, Biliran

Maasin , Southern Leyte

Minglanilla , CebuDalaguete , Cebu

BOHOL

PANAYCE

BU

Clarin , Bohol

Tagbilaran , Bohol

Siquijor Talibon , Bohol

Bulalakao , Oriental Mindoro

San Miguel, Jordan, Guimaras

Puerto Princesa , Palawan

Dipolog , Zamboanga Del Norte

Ipil , Zamboanga

MANILA

Boracay , Aklan

Prior to 2001

2001

2002

2003

2004

Prior to 2001

2001

2002

2003

2004

Odiongan,Romblon

Metro Iloilo, Molo

Metro Iloilo, Jaro

Roxas, Capiz,

Sara

Kulasi, Antique

Central Iloilo, Pototan

Iloilo City

Jordan, Guimaras

Miag-ao, Iloilo

San Jose, Antique

Sigma, Capiz

Danao, Cebu

Catarman, Samar

CalbayogSamar

BoronganEastern Samar

TaclobanLeyte

Ormoc,Leyte

Naval, Biliran

MaasinSouthern Leyte

Minglanilla, Cebu, Dalaguete, Cebu

BOHOL

PANAYCE

BU

Clarin, Bohol

Tagbilaran, Bohol

Siquijor Talibon, Bohol

Bulalakao,Oriental Mindoro

San Miguel, Guimaras

Puerto Princesa,Palawan

Dipolog, Zamboanga Del Norte

Ipil, Zamboanga

MANILA

Boracay, Aklan

Manila

LUZON

VISAYAS

MINDANAO

PHILIPPINES

Manila

LUZON

VISAYAS

MINDANAO

EXHIBIT 3: Location of TSKI Branches (as of September 2004)




EXHIBIT 4: Potential Outreach (as of 3rd Quarter 2004)

Poverty Population Potential Served by PCFC Incidence below MFI Client PCFC Conduits Poverty Line Base Conduits

REGION IV-B 48.1% 1,105,705 2299229 184,284

Marinduque 55.5% 120,653 217392 20,109 36% 7213 1

Occidental Mindoro 48.8% 185,562 380250 30,927 35% 10948 2

Oriental Mindoro 51.7% 352,500 681818 58,750 28% 16559 3

Palawan 35.9% 271,193 755412 45,199 10% 4378 3

Romblon 66.5% 175,797 264357 29,300 4% 1280 2

REGION V 56.2% 2,627,269 4674855 437,878

Masbate 70.9% 501,737 707668 83,623 20% 16568 1

Sorsogon 51.4% 334,401 650585 55,733 20% 10900 1

REGION VI 45.5% 2,827,528 6208733 471,255

Aklan 42.9% 193,614 451314 32,269 60% 19202 3

Antique 45.9% 216,229 471088 36,038 31% 11278 2

Capiz 57.4% 375,486 654156 62,581 23% 14220 5

Guimaras 28.3% 40,030 141450 6,672 61% 4096 1

Iloilo 37.1% 714,176 1925002 119,029 41% 49008 5

Negros Occidental 50.2% 1,287,993 2565723 214,665 16% 34954 3

REGION VII 37.6% 2,144,336 5701064 357,389

Bohol 53.6% 609,576 1137268 101,596 27% 27803 5

Cebu 32.7% 1,097,457 3356137 182,909 22% 39689 21

Negros Oriental 36.4% 409,886 1126061 68,314 13% 8669 5

Siquijor 33.6% 27,417 81598 4,569 51% 2311 1

REGION VIII 45.4% 1,640,889 3610355 273,481

Biliran 45.1% 63,264 140274 10,544 25% 2627 2

Eastern Samar 57.1% 214,594 375822 35,766 2% 650 4

Leyte 41.9% 667,189 1592336 111,198 18% 20442 9

Northern Samar 50.4% 252,322 500639 42,054 9% 3653 2

Southern Leyte 37.7% 135,780 360160 22,630 16% 3653 2

Western Samar 48.0% 307,740 641124 51,290 13% 6419 2

REGION IX 44.4% 1,374,002 3091208 229,000

Basilan 32.7% 108,835 332828 18,139 14% 2459 1

Zamboanga Norte 51.9% 427,204 823130 71,201 15% 10432 5

Zamboanga Sur 43.3% 837,963 1935250 139,661 10% 13990 7

REGION X 38.7% 1,063,315 2747585 177,219 36% 64437 31

CARAGA REGION 50.2% 1,051,874 2095367 175,312 38% 67483 22

Taytay sa Kauswagan, Inc. (TSKI) - C: Scaling-up … · Taytay sa Kauswagan, Inc. (TSKI) - C Scaling-Up Results ... After making the scaling-up commitment in Boracay in February 2001,

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