BIBLIOGRAPHY BUMATANG, NEREEN D., APRIL...
BIBLIOGRAPHY
BUMATANG, NEREEN D., APRIL 2013. Credit Management Practices of Micro-
entrepreneurs in Sagada, Mountain Province. Benguet State University, La Trinidad,
Benguet.
Adviser: David Joseph Bognadon, MSc.
ABSTRACT
This study was conducted for the following objectives: to know the profiles of the
micro-entrepreneurs and their businesses in Sagada; to find out their credit management
practices and the factors influencing their access to credit and to analyze the problems
encountered in their access and management of credit.
Sixty micro-entrepreneurs in Sagada, Mt. Province were surveyed using
questionnaires. The findings of the study show that: the micro-entrepreneurs are involved
in a variety of businesses and that tourism influences the volume of business and credit
demand; most of the micro-entrepreneurs practice good credit management because they
are planning on when, where and how much to borrow and to ensure that they can repay
their credit, they practice some strategies which include: saving from their income,
budgeting their resources and borrowing from other sources; there are available sources of
credit in the municipality but there are limitations on the part of the micro-entrepreneurs.
The micro-entrepreneurs need skills and trainings in the proper usage of credit. The micro-
entrepreneurs need to continue their good credit management practices and should establish
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
a good credit track record. The micro-entrepreneurs should organize into a group and work
with the lending institutions towards a better loaning procedure that is beneficial to both
borrower and creditor. The financial intermediaries should conduct seminars and training
regarding proper credit management and other small business management skills.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
INTRODUCTION
Rationale
Credit is an arrangement to recover cash, goods, or services now and pay for them
in the future (Dlabay et al., 2009). Ritter and Siber (1974), defined credit as the flow
concept involving transactions that take place over a period of time.
The principal function of credit is to transfer property from those who own it to
those who wish to use it, as in the granting of loans by banks to individuals who plan to
initiate or expand a business venture. The transfer is temporary and is made for a price
known as interest, which varies with risk involved and also with the demand for, and supply
of credit. The use of credit also makes feasible the performance of the complex operations
involved in modern business without the constant handling of money. Credit therefore is a
very important instrument in propelling economic growth via increase in production and
consumption (Supa, 2005).
Dlabay et al. (2009), mentioned some advantages and disadvantages of credit. The
use of credit provides immediate access to goods and services, flexibility in money
management, safety and convenience, a cushion in emergencies, a means of increasing
resources, and a good credit rating if you pay your debts back in a timely manner. But
remember, the use of credit is a two-sided coin. An intelligent decision as to its use
demands careful evaluation of your current debt, your future income, the added cost and
the consequences.
Credit gives the members of the society a chance to consume or make use of a
product now and then pay for them later. Credit helps a lot in many ways that is why almost
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
all entities access credit. But nowadays, with the use of the different ways to access credit,
people unconsciously tend to use more credit than to what they can actually pay. Bad credit
management can be one of the reasons as to why people exhibit problems on their credit
transactions. In regard with this problem, practices of the people, businesses, and other
entities need to be studied in order to find out appropriate solutions which can be used to
help solve these emerging problems on credit. Also, practices need to be studied for the
improvement of the credit management of the different entities.
Sagada is a fifth class municipality of Mountain Province located 151 kilometers
away from Baguio City. It is divided into nineteen barangays of which Madongo,
Tanulong, Bangaan, Fidelisan, Pide, and Aguid compose the northern barangays; Suyo,
Ankileng, Taccong and Nacagang, the southern barangays; Kilong, Antadao, Tetep-an
Norte and Tetep-an Sur, the eastern barangays; and Patay, Dagdag, Demang, Ambasing
and Balugan, the central barangays (Bakisan, 2005).
The sources of income and livelihood activities in the municipality are agricultural
production; weaving industry; backyard industry such as hog raising and cattle raising;
entrepreneurship such as managing lodging establishments; cooperatives, restaurants,
stores, artifacts and souvenir shops, wagwagan (2nd hand clothes shops), bakeries, rice
mills, hardware stores, and auto repair shops; making furniture, processing honey,
distributing veterinary and poultry supplies; employment in the private and government
sectors; pensions like veteran, Social Security System (SSS), Government Security
Insurance System (GSIS); self-employment such as carpentry, stone crushing,
stonewalling, babysitting, housekeeping, and daily wage labor; employment in automobile
business such as driving or assisting drivers of public utility vehicles.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Statement of the Problem
The study aimed to answer the following questions:
1. What are the profiles of micro-entrepreneurs and their businesses in Sagada,
Mt. Province?
2. What are the credit management practices of the micro-entrepreneurs?
3. What are the factors affecting the micro-entrepreneurs’ access to credit?
4. What are the problems encountered by the micro-entrepreneurs on their access
to credit and management?
Objectives of the Study
The study aimed to:
1. Know the profiles of micro-entrepreneurs and their businesses in Sagada, Mt.
Province;
2. Find out the credit management practices of the micro-entrepreneurs;
3. Determine the factors influencing micro-entrepreneurs’ access to credit; and,
4. Analyze the problems related to access to credit and management that are
encountered by the micro-entrepreneurs.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Importance of the Study
The results of the study would provide information that can be used to improve credit
services in the municipality by coming up with better credit policies that would be
advantageous to both the lenders and the borrowers.
In addition, it would also benefit students and other entrepreneurs who will be provided
ideas on the different practices of managing credit.
Also, the results would provide necessary data and information to students who
want to do researches and studies in the same field.
Scope and Delimitation of the Study
This study focused on the credit management practices, credit utilization, credit
accessibility and problems encountered by the micro entrepreneurs in the municipality.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
REVIEW OF LITERATURE
Philippine Financial System
Like other developing economies, the domestic financial system of the Philippines
consists of two major subsystems: the formal and the informal. The informal financial
system functions outside the purview of regulations imposed by regulatory agencies such
as Central Bank on the formal financial system with respect to capital, reserves and
liquidity requirements, ceilings on lending and deposit rates, mandatory credit targets, and
audit reporting requirements, ceilings on lending and deposit rates, mandatory credit
targets, and audit reporting requirements.
The formal financial system may be further divided into two components, namely,
the banking and nonbanking institutions. The banking system is composed of the
commercial banks, thrift banks, rural banks, and specialized government banks. On the
other hand, nonbank financial intermediaries include insurance companies, and other
financial intermediaries (Lamberto, 1999).
Financial Intermediaries
Hadjimichalakis et al. as cited by Supa (2005), revealed that financial institutions
such as commercial banks, credit unions, and savings and loan associations are known as
financial intermediaries. This means that they attract funds from savers, or persons who
spend less than their incomes. The funds that some of us place in saving account are just
circulating to other people who will be using the borrowed funds to buy securities that have
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
been issued by the federal government and state and local government. The financial
intermediaries offer deposits, including savings deposits and source funds.
Nature and Characteristics of Credit
A study of Miranda as cited by Bognadon (2006), expressed that since the use of
credit gives rise to a corresponding obligation, it becomes evident that risk is a
characteristic inherent to all credit transactions. Needless to say, until the obligation
becomes discharged or settled, there always remains the possibility that the debtor may
refuse to pay or could not pay his debt. This is the reason why an evaluation of the credit
standing of individuals or business firms is made from time to time if not on a continuing
basis. It is hardly necessary to point out that an individual’s credit risk which may be good
may suddenly be changed to that “poor credit risk”. Even where the credit rating may be
considered excellent, however, certain circumstances beyond the control of man may
induce him to fail in meeting his credit obligations. This may be best illustrated as when
an individual is thrown out of his job and thereby loses his only source of income.
One other characteristic of credit is the use of trust. Without it, credit and the
corresponding credit transactions will not exist. Judiciously used, credit is a cheaper and
doubtless a more effective means of carrying on a business than the exclusive use on one’s
own funds. However, the use of credit could be abused which would give rise to obligations
that will remain un-discharged regardless of the lapse of a long period of time just as they
could arise from misplaced trust.
Credit is elastic. Owing to such characteristics, it could be expanded or contracted.
Applied to everyday affairs of a business, credit helps expand the volume of operation
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
during periods of business boom, while during dull business periods, it could be contracted
to prevent further losses.
Credit gives rise to creditor-debtor relationship as evidenced by the use of a credit
instrument. Such relationship arises from the moment a creditor manifests his trust on his
debtor by parting with his money or services in exchange for a promise on the part of the
latter to his obligation on the date promised. Credit is a creation of a legal obligation. The
right of the creditor to compel the debtor to make payment on the due date has been always
recognized by courts, thus giving enforcement to obligations and contracts. Last but not
least, credit involves time or futurity. The creditor looks forward to the future a specified
in the credit instrument when he will receive payment from his debtor as promised.
Types of Credit
There are two types of credit namely closed-end credit and open-end credit. Closed-
end credit is used for a specific purpose and involves a specified amount. An agreement,
or contract, lists the repayment terms: the number of payments, the payment amount, and
how much the credit will cost.
The three most common types of closed-end credit are installment sales credit,
installment cash credit, and single lump-sum credit. Installment sales credit is a loan that
allows you to receive merchandise, usually high-priced items such as large appliances of
furniture. You make a down payment and usually sign a contract to repay the balance, plus
interest and service charges, in equal installments over a specified period. Installment cash
credit is a direct loan of money for personal purposes, home improvements, or vacation
expenses. You make no down payment and make payments in specified amounts over a set
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
period. Single lump-sum credit is a loan that must be repaid in total on a specified day,
usually within 30 to 90 days. Lump-sum credit is generally, but not always, used to
purchase a single item.
Open-end credit includes credit cards, department store charge cards, and check
overdraft accounts that allow you to write checks for more that your actual balance. You
can use open-end credit again until you reach a prearranged borrowing limit (Medina,
2000).
Kinds of Credit
According to Medina (2000), there are seven different kinds of credit. These are a)
consumer credit, b) trade credit, c) bank, d) investment credit, e) agricultural credit, f)
export credit, and g) public credit.
Consumer credit refers to credit given by shops, banks and other financial institutions to
consumers so that they can buy goods.
Trade credit is a credit offered by a company when trading with another. Trade credit
appears in the book of accounts of the creditor as accounts or notes receivable. On the book
of the debtor, they are entered as accounts or notes payable.
Bank refers to all types of lending granted by the banks to others or to one another. Among
the types of loans availed of by borrowers from banks are commercial loans, real estate
loans, agricultural loans., industrial loans, salary loans, automotive loans, deposits
collateral loans, and interbank call loans.
Investment credit refers to that type of credit required by businesses and the government
to finance the construction and operation of certain projects. Proceeds of the investment
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
credit are used for the fixed and working capital of businesses, for projects undertaken by
local, provincial, and the national government, and for the purchase and improvement of
real estate.
Agricultural credit refers to loans used to finance the production and marketing of
agricultural products. This includes the lending of funds for the purchase of farm
equipment and machinery, fertilizers, pesticides, seedlings, fingerlings, and others.
Export credit refers to credit extension provided to foreign buyers of local goods. Even if
prepayments by foreign buyers are preferred by exporters, credit extension is often
requested by the buyer.
Public credit refers to loans extended to the government whether at the national, provincial,
or municipal level. Borrowings by the government are used to finance operations when
expected revenues are not sufficient to cover expenditures.
Users of Credit
Medina (2000), expressed that credit is used by the following general groups a) consumers,
b) businesses, and c) government. Consumers use credit by purchases of goods and services
for household consumption. Businesses are users of credit in large amounts. It will be
extremely difficult to find a business, big or small, without debt of some kind. Businesses
avail of credit to finance the following: payroll, purchase of merchandise, construction of
building and facilities, purchase of equipment, and refinancing of maturing debts.
Government is one big institution that uses credit in big amounts.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Financial Markets in Low Income Countries
Ghate (1992), categorizes the market into two forms: formal and informal financial
markets. He defines formal financial markets as those financial market activities that are
controlled by government which are largely urban-oriented in terms of distribution of bank
branches and the concentration of deposits and lending activities. Informal financial
markets are defines as activities of various financial intermediaries ranging from farmers,
money-lenders, friends, relatives, shopkeepers, merchants, traders and Rotating Savings
and Credit Associations (ROSCAs). Quasi-formal financial intermediaries are therefore
falling between these two continuums and could include credit union, village banks and
various forms of credit schemes run by government or non-government.
Rural Credit in the Philippines
According to Tolentino as cited by Poliquit (2006), the formal credit system in the
Philippines consists of banks, non-bank financial institutions and cooperatives, while the
informal sources include friends, relatives, neighbors, private moneylenders, traders,
millers, input suppliers and other informal groups.
Based on one evaluation study by the International Fund for Agricultural
Development (IFAD), the Philippines was one of the most prosperous countries in South-
East Asia in the 1950s, but at present, it lags behind in terms of economic growth with half
the rural population living in poverty. Microcredit was tested as an anti-poverty tool in the
early 1990s but was not considered economically viable because the outreach to poor
people was insignificant and slow (International Fund for Agriculture, 2003).
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Micro, Small and Medium Enterprises (MSMEs)
Micro, small and medium enterprises (MSMEs) (Department of Trade and Industry,
2010),are defined as any business activity/enterprise engaged in industry,
agribusiness/services, whether single proprietorship, cooperative, partnership, or
corporation whose total assets, inclusive of those arising from loans but exclusive of the
land on which the particular business entity's office, plant and equipment are situated, must
have value falling under the following categories: by asset size – a) Micro: up to
P3,000,000; b) Small: P3,000,001 – P15,000,000; c) Medium: P15,000,001 –
P100,000,000; and, d) Large: above P100,000,000. Alternatively, MSMEs may also be
categorized based on the number of employees: a) Micro: 1-9 employees; b) Small: 10-99
employees; c) Medium: 100-199 employees; and, d) Large: more than 200 employees.
Role and Importance of MSMEs
MSMEs play a major role in the country's economic development through their
contribution in the following: rural industrialization; rural development and
decentralization of industries; creation of employment opportunities and more equitable
income distribution; use of indigenous resources; earning of foreign exchange (forex)
resources; creation of backward and forward linkages with existing industries; and
entrepreneurial development.
They are vital in dispersing new industries to the countryside and stimulating gainful
employment. A country like the Philippines where labor is abundant has much to gain from
entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus, they
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
generate jobs in the locality where they are situated. In this sense, they bring about a more
balanced economic growth and equity in income distribution.
MSMEs' Contribution to the Economy
MSMEs contribute to the creation of wealth, employment, and income generation, both in
rural and urban areas, thus, ensuring a more equitable income distribution. They also
provide the economy with a continuous supply of ideas, skills, and innovations necessary
to promote competition and the efficient allocation of scarce resources.
In the last five years, the MSME sector accounted for about 99.6% of the registered
businesses in the country by which 63% of the labor force earn a living. Around 35.7% of
the total sales and value added in the manufacturing come from MSMEs as well.
Access to Finance Related Issues
Ganbold (2008), stated that the access to finance is a subject of significant research interest
to academics and an issue of great importance to policy makers for both developed and
developing economies for many years. There are a number of factors that have contributed
to this. First, there is some empirical evidence that the expansion of access may reduce
prevailing poverty in developing countries. Second, the interest in access also comes from
the fact that arguments about the channels through which financial development may lead
to growth often include access related stories. A third reason is the widespread lack of
access to financial services in emerging economies, particularly when compared to the
extent of access in developed countries. Fourth, recent Investment Climate Survey
conducted by the World Bank shows that one of the major impediment of fostering firms
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
is lack of access to financial services which would expand economic growth and
employment generation as well as reducing poverty in many developing countries.
Improving access, then, means improving the degree to which financial services are
available to all at a fair price. It is easier to measure the use of financial services since data
can be observed, but use is not always the same as access. Access essentially refers to the
supply of services, whereas use is determined by demand as well as supply (Ganbold,
2008).
Factors Influencing Access to Credit
Mohamed (2003), established in his study five socio-economic factors that are
important in influencing individual chances to access credit from formal and quasi-formal
financial sources that include age, years of formal education, gender, income and degree
of awareness on available credit services. The level of education of an individual was found
to be an important factor in influencing individual chances to access credit as evidenced by
the borrowers group in the study sample who were found to be better educated than the
non-borrowers. His study also showed that lack of awareness of the respondents and
difficult loan conditions were the major factors that constrained the respondents’ access to
credit from formal sources.
Meanwhile, Poliquit (2006), found out that access to credit by farmers was limited
to the available credit services in her research area, thus farmers’ choice and preferences
were not well served which led to the borrowing from informal lenders, credit that requires
collateral, and lengthy and complicated procedures restricted the farmers from accessing
formal credit.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Factors Affecting Credit Management
Chong (2010), stated that numerous factors have been identified as having an impact on
credit management. Pang as cited by Chong (2010), proposed that collateral (assets to
secure the debt), capacity (sufficient cash flow to service the obligations), character
(integrity), condition of the economy as well as capital (net worth) need to be included in
the credit scoring model.
Weinberg as cited by Chong (2010), contended that two main determinants of household
repayment obligations are the amount of debt and the interest charged.
Factors Affecting Credit Management Practices
Chong (2010), found out in his study that a majority of the micro-enterprise founders
disclosed that it is difficult for them to obtain financing due to stringent measures taken
especially by established financial institutions in assessing credit risk.
He also found out that the proxy of wealth or repayment capability - household income -
was not significantly related to the credit performance.
He concluded that female respondents were found to be practicing better credit
management in relation to the male respondents. Educational attainment was shown to be
another factor that affected credit management practices.
He also concluded that the availability of credit is crucial as it allows the micro-enterprises’
financial flexibility in meeting their business obligations and expansion needs.
Nevertheless, "debt" is viewed as bad as it represents a lack of self-discipline.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
METHODOLOGY
Locale and Time of the Study
The study was conducted in nine different barangays of Sagada, which is one of the
municipalities in Mountain Province.
The study was conducted on December, 2012.
Respondents of the Study
The respondents of this study were 60 micro-entrepreneurs who were selected from
the different barangays of Sagada. The respondents were randomly but mostly selected at
the Central part of the municipality since most of the businesses are located in this part.
Central Sagada consists of five barangays namely: Balugan, Ambasing, Demang, Dagdag,
and Patay. These micro-entrepreneurs are owners of businesses which have 1-9 employees.
The respondents were classified as to the type of business owned.
Data Collection
Open and close-ended questionnaires were prepared in gathering information from
the respondents. These were supported by personal interviews that were used to validate
and verify information that were not clear to the researcher.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Data Gathered
The data gathered included the demographic profiles of the micro-entrepreneurs;
the credit management practices being done by the micro-entrepreneurs; factors
influencing access to credit and management encountered by the micro-entrepreneurs; and
the problems encountered by the micro-entrepreneurs regarding access to credit and
management.
Data Analysis
The data collected were consolidated, categorized and tabulated. Descriptive
analysis such as frequency counts, tables, percentages and means were used for the
interpretation of the data.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
RESULTS AND DISCUSSION
Profile of the Respondents
Table 1 presents the background information of the 60 respondents from the
different barangays in Sagada, Mt. Province. They were categorized according to age,
gender, educational attainment and average annual income.
Age. There are 60 respondents who revealed their respective ages. Sixteen
(26.67%) of the micro-entrepreneurs are in the age bracket of 21-30 years old. The findings
show that the mean age is 41 years which implies that the middle-aged respondents are
more interested in business activities than the younger and older ones.
Gender. Table 1 presents the gender of the respondents, 52 (87%) are females while
the remaining 8 (13%) are males. This shows that females nowadays are more engaged in
entrepreneurial activities than their male counterpart.
Educational attainment. As to educational attainment, 8.33% were elementary,
28.33% were secondary and 63.33% were college. This shows that all of the respondents
have their formal education however it also implies that a person does not need to have a
degree in order to engage in business.
Average annual income. Table 1 shows that 27 (45%) of the micro-entrepreneurs
have an average of P10, 000 and below as their annual income. Only 5 (8.33%) of the
micro-entrepreneurs revealed that they receive an average amount of over P100, 000
annually as their income.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 1. Profile of the respondents
PARTICULARS
FREQUENCY
PERCENTAGE
Age
21 – 30
16
26.67
31 – 40
15
25.00
41 – 50
15
25.00
51 – 60
9
15.00
61 – 70
4
6.67
71 - 80
1
1.67
TOTAL
60
100.00
MEAN 41 years old
Gender
Female
52
87
Male
8
13
TOTAL
60
100
Educational attainment
Elementary
5
8.33
High school
17
28.33
College
38
63.33
TOTAL
60
100.00
Average annual income
P10, 000 and below
27
45.00
P10,001 – P25, 000
8
13.33
P25, 001 – P50, 000
9
15.00
P50, 001 – P100, 000
11
18.33
Over P100, 000
5
8.33
TOTAL
60
100.00
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Business Profile
Tables 2, 3, 4 and 5 show the profile of the 60 respondents in the municipality of
Sagada, Mt. Province. This information includes the types of business, number of years of
operation, location and the number of employees of the businesses.
Type of business. Table 2 presents the different types of businesses owned by the
micro-entrepreneurs. The businesses were categorized into thirteen types in which Sari-
sari store dominated the businesses with a total of 24 (40%) out of sixty businesses. General
Merchandise totaled to six (10%). The results imply that of the total numbers of businesses
in the municipality, Sari-sari store is by far the largest in number.
Table 2. Types of business
TYPES OF BUSINESS
FREQUENCY PERCENTAGE
Backyard Hog Raising
3
5.00
Bakery
2
3.33
Buy and Sell of Agricultural Products
4
6.67
Computer Shop
3
5.00
Dry Goods
3
5.00
Feeds Selling
1
1.67
General Merchandise
6
10.00
Grocery Store
1
1.67
Inns
2
3.33
Poultry
1
1.67
Restaurant/Café/Eatery
6
10.00
Sari-sari Store
24
40.00
Souvenir Shops
4
6.67
TOTAL
60
100.00
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Number of years of operation. As shown in table 3, thirty-four (56.67%) of the businesses
have already been operating for less than five years. The youngest business has only been
operating for two months while the oldest has already operated for 28 years as of this date.
The computed mean is seven years and it reveals that the businesses are still young, they
are still new in the business.
Location of the business. In Table 4, the nine locations of the businesses are
presented. Many of the businesses (35%) are located in Barangay Patay. Barangay Dagdag
and Barangay Demang have 15 (25%) and 8 (13.33%) respectively.
Table 3. Numbers of years of operation
NUMBER OF YEARS OF OPERATION
FREQUENCY
PERCENTAGE
Below 5 years
34
56.67
6yrs – 10yrs
11
18.33
11yrs – 15yrs
9
15.00
16yrs – 20yrs
2
3.33
21yrs – 25yrs
3
5.00
26yrs – 30yrs
1
1.67
TOTAL
60
100.00
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 4. Location of the businesses
BARANGAY
FREQUENCY
PERCENTAGE
Demang
8
13.33
Dagdag
15
25.00
Patay
21
35.00
Bangaan
2
3.33
Aguid
2
3.33
Ambasing
6
10.00
Tetep-an Norte
1
1.67
Tetep-an Sur
1
1.67
Balugan
4
6.67
TOTAL
60
100.00
Number of employees. Table 5 presents the number of employees in each of the businesses.
Majority (61.67%) of the businesses do not have any employees, implying that all business
transactions are being administered by the micro-entrepreneurs themselves. One (1.67%)
business has 6 employees, which is by far the highest number of employees in the study.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 5. Number of employees
NUMBER OF EMPLOYEES
FREQUENCY
PERCENTAGE
Business owner operated
37
61.67
1
12
20.00
2
3
5.00
3
3
5.00
4
3
55.00
5
1
1.67
6
1
1.67
TOTAL
60
100.00
Credit Management Practices
The succeeding tables show the credit management practices of the micro-
entrepreneurs.
Main Source of Capitalization.
Table 6 shows the sources of capitalization for the businesses. Twenty-three (38.33%) of
the micro-entrepreneurs used their own savings to start their businesses, while 22 (36.67%)
loaned from banks or cooperatives. Seven (11.67%) borrowed from relatives/friends and
17 (28.33%) of the micro-entrepreneurs financed their businesses with the combination of
the above sources.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 6. Main source of capitalization
SOURCES
FREQUENCY*
PERCENTAGE
Own Savings
23
38.33
Borrowed from relatives/relatives
7
11.67
Loan from banks, cooperatives
22
36.67
Combination of the above sources
17
28.33
*Multiple responses
Planning on When, Where, and How Much to Borrow
Table 7 presents whether the micro-entrepreneurs plan or not on when, where, and how
much to borrow. Forty-seven (78.33%) said that they are planning while thirteen (21.67)
do not. Some of the micro-entrepreneurs, who plan on where they borrow, weigh the
requirements of the different financial intermediaries and select the one with the
requirements which they can provide. This indicates that while most of the respondents
consider the importance of planning, there are some who cannot see the significance of
such.
Table 7. Responses as to whether micro-entrepreneurs do credit planning or not
RESPONSES
FREQUENCY
PERCENTAGE
Doing credit planning
47
78.33
Not
doing
credit
13
21.67
planning
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
TOTAL
60
100.00
Table 8. Responses as to whether micro-entrepreneurs prepare budget or not
RESPONSES
FREQUENCY
PERCENTAGE
Preparing budget
56
93.33
Not preparing budget
4
6.67
TOTAL
60
100.00
Budget Preparation on Credit Utilization and Repayment
Table 8 presents whether they prepare a budget or not on the use and repayment of
their credit. There were 56 or 93.33% who prepare budget on the use and repayment of
their credit. Four (6.67%) revealed that they do not prepare a budget.
This finding concludes that some micro-entrepreneurs do not appreciate the value or
importance of budget thus, they do not give time to prepare it.
Specific Time in Availing Credit
Table 9 shows the responses of the micro-entrepreneurs if there is a specific time
when they usually avail credit or none. Of the 60 respondents, 60% of them revealed that
they are availing credit at a specific time. The other 40% said that they avail credit any
time. This further proves that most of the micro-entrepreneurs are planning when to borrow
which involves identifying the specific time of acquiring credit.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
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Table 9. Responses as to whether the micro-entrepreneurs avail credit in a specific time
RESPONSES
FREQUENCY
PERCENTAGE
Availing credit at a specific time
36
60
Not availing credit at a specific time
24
40
TOTAL
60
100
Specific Time and Reasons
Table 10 shows the specific times (months and occasions) when they avail credit
and Table 11 presents their reasons on why they avail credit at this time. The micro-
entrepreneurs have various dates when they avail credit but of the 36 respondents who
answered yes, 21 (58.33%) of them said that during peak seasons, they avail credit. This
is so because tourists flock in during peak seasons, and that the micro-entrepreneurs avail
credit to prepare for the high demand of products as mentioned by 58.33%. Some also avail
credit during the month of December because their customers need to purchase the products
they need in order to prepare for the different kinds of occasions which fall on this month.
One of the respondents said that he avails credit on August because his business has no
income during this month thus there is no cash to be used in operation.
This implies that tourism in Sagada greatly affects the transactions of the
businesses; tourists play a big part being viable customers for the micro-entrepreneurs.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 10. Specific time of availing credit
MONTH
FREQUENCY*
PERCENTAGE
January
2
5.56
February
3
8.33
March
2
5.56
April
7
19.44
May
5
13.89
June
3
8.33
August
1
2.78
September
3
8.33
October
2
5.56
November
3
8.33
December
12
33.33
Special occasions
Municipal Celebrations
6
16.67
Peak Season
21
58.33
Holidays
8
22.22
School Opening
4
11.11
Summer Vacations
2
5.56
Wedding Celebrations
1
2.78
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 11. Reasons for the specific time of availing credit
REASONS
FREQUENCY PERCENTAGE
There are more visitors/tourists in the area
25
69.44
There is no income during this time
1
2.78
Prices of stocks are usually lower
1
2.78
For the preparations on different occasions
6
16.67
High demand for school supplies (enrollment)
5
13.89
*Multiple responses
Loan Processing/Availing
According to the respondents, 54 (90%) avail the loan themselves. Eight (13.33%)
micro-entrepreneurs let their family members process the papers or avail the loan, while
none among the sixty micro-entrepreneurs let their employees or friends do the loan
processing.
Table 12. Loan processing/availing
WHO AVAILS THE LOAN
FREQUENCY*
PERCENTAGE
Self
54
90.00
Family
8
13.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Credit Availing
Table 13 presents the types and amount of credit usually availed by the micro-
entrepreneurs, it also presents credit repayment and its terms. Closed-end credit, which
includes loans from banks or other financial intermediaries, is the type of credit which is
usually availed by a great majority (78.33%) of the micro-entrepreneurs. Nineteen
(31.61%) said that they avail from informal lenders. Surprisingly, one (1.67) of the
respondents uses credit cards which fall under open-end credit.
Amount. Twenty-five (41.67%) respondents avail credit that amounts to P20, 000
and below. Sixteen (26.67%) of them avail credit of more than P50, 000. This result shows
that for some reasons, micro-entrepreneurs avail a low amount of credit for their businesses
as compared to their business expenses.
Terms. Table 13 also shows the terms of credit repayment by the micro-
entrepreneurs, 25 (41.67%) pay their credit for yearly while 17 (28.33%) pay their credit
within less than 6 months, usually monthly. This result shows that the micro-entrepreneurs
have various terms on the repayment of their credit.
Credit repayment. Most of the micro-entrepreneurs (90%) said that they pay their
credit on time. Their reasons for paying on time are for good credit standing, so that their
creditors will provide them credit when they intend to avail again, and to avoid penalties.
Seven (11.67%) admitted that they pay their credit a month after the due date while two
(3.33%) pay 2 months after due date. One of the reasons why they had not paid on time is
that they had forgotten to pay for the credit.
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Table 13. Types and amount of credit usually availed
PARTICULARS
FREQUENCY
PERCENTAGE
Type of credit*
Closed-end
47
78.33
Open-end
1
1.67
Informal
19
31.67
Amount of credit
P20, 000 & below
25
41.67
P20, 001 – P50, 000
19
31.67
Above P50, 000
16
26.67
TOTAL
60
100.00
Terms of credit repayment*
Less than 6 months
17
28.33
6 months
11
18.33
12 months
25
41.67
Over months
9
15.00
Credit repayment*
Pay on time
54
90.00
1 month after due date
7
11.67
2 months after due date
2
3.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Strategies Used to Ensure Repayment of Credit
Table 14 shows the different kinds of strategies used by the micro-entrepreneurs to
ensure that they can repay their credit. Ten (16.67%) respondents budget their resources so
that they will be able to pay their loans, 10 (16.67%) also said that saving is their way to
ensure that they can repay their loans. Proper allocation of the profit is said to be of help
as said by 7 (11.67%) of the micro-entrepreneurs. One (1.67%) respondent revealed that
she saves P100 a day from the profit and set it aside for the sole purpose of repaying her
loan. This result shows that even though the micro-entrepreneurs have different strategies,
they still use some strategies so that their credit is paid.
Table 14. Strategies used to ensure repayment of credit
STRATEGIES
FREQUENCY PERCENTAGE
Borrow money from other sources to be able to pay
2
3.33
Budgeting of resources
10
16.67
Collections are used for payment
5
8.33
Following the rules to avoid penalties
3
5.00
I ask my family for help if collection is not enough
1
1.67
I’ll pay the loan first before the needs
1
1.67
Not using the profit for personal use
1
1.67
Proper allocation of the profit
7
11.67
Save
10
16.67
Saving P100 daily to be used as payment for loan
1
1.67
Separate savings from profit every week
5
8.33
Setting aside an amount every day for loan
3
5.00
repayment
Setting aside an amount every month for payment
4
6.67
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Success in Loan Application Approval
Table 14 gives information on whether the loan applications of the micro-
entrepreneurs for credit are successful or not. It also shows the reasons why some of the
applications were not successful. Majority (68.33%) of the micro-entrepreneurs’ loan
applications were successful while none of their applications was rejected. Nineteen micro-
entrepreneurs’ applications were sometimes rejected of which 13 (68.42%) said that the
reason why their applications were rejected is that they do not have sufficient income or
assets to support their application.
Table 15. Success of application and reasons for not being successful
PARTICULAR
FREQUENCY PERCENTAGE
Rating on the success of application
Always successful
41
68.33
Sometimes successful
19
31.67
TOTAL
60
100.00
Reasons for not being successful*
Insufficient income/assets
13
68.42
Incurred previous loan (bad debt)
2
10.53
Had no collateral
3
15.79
Had difficulty in providing required documents
8
42.11
No co-makers
2
3.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
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Table 16. Responses as to whether the availed credit is sufficient or not
RESPONSES
FREQUENCY
PERCENTAGE
Credit is sufficient
42
70
Credit is not sufficient
18
30
TOTAL
60
100
Sufficiency of Availed Credit
Table 15 shows that 42 (70%) of the respondents said that the amount of credit they
received is sufficient while the other 18 (30%) were not satisfied with the amount.
Sources of Credit and Reasons for Taking from Sources
Table 16 gives information on where the micro-entrepreneurs usually avail credit
and their reasons why they avail credit on their sources.
Source. A great majority or 50 (83.33%) of the micro-entrepreneurs avail credit
from cooperatives. Twenty (33.33%) and 15 (25%) avail credit from relatives and friends
respectively. One (1.67%) respondent mentioned that she gets her credit from the supplier
of her stocks. This finding implies that the cooperatives have done a great job in providing
credit to their members.
Reasons. Table 16 also shows the given reasons by the micro-entrepreneurs on
why they avail credit on their sources. Forty-five (75%) said that they are already members
in the bank/cooperative that is why they avail their credit there. Twenty-one (35%)
mentioned that the less interest being charged is the reason why they avail credit
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
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Table 17. Sources of credit and reasons for taking from sources
PARTICULAR
FREQUENCY*
PERCENTAGE
Sources
Banks
5
8.33
Cooperatives
50
83.33
Friends
15
25.00
Relatives
20
33.33
Others
1
1.67
Reasons for taking from the source
Already a member
45
75.00
No interest
11
18.33
Less interest
21
35.00
No collateral
10
16.67
No many documents required
2
3.33
*Multiple responses
on their answers. This definitely shows that the micro-entrepreneurs consider many factors
before they avail credit.
Use of Collateral
Seventeen (28.33) micro-entrepreneurs do not use collateral when they avail
credit; but 32 (74.42) of the 48 who use collateral said that they use their share capital or
savings deposit as loan security. None of the micro-entrepreneurs uses salary deduction
and chattel mortgage as their collateral.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 18. Collaterals being used
COLLATERAL
FREQUENCY*
PERCENTAGE
Share Capital/Savings
32
74.42
Co-maker
21
48.84
Real estate Mortgage
4
9.30
Not Using Collateral
17
28.33
*Multiple responses
Usage of Credit
Table 15 shows where the loan fund is being used by the micro-entrepreneurs.
Thirty-two (53.33%) said that they use their loan fund in purchasing merchandise for their
businesses. Twenty-nine (48.33%) use it for business expansion while five (8.33%) use
their availed credit for their personal use.
The result shows that while most of them use their borrowed fund for business
purposes, some of them avail for other purposes.
Table 19. Usage of credit
USAGE
FREQUENCY*
PERCENTAGE
Building Construction
5
8.33
Business Expansion
29
48.33
Employees’ wages
1
1.67
Personal Use
5
8.33
Purchase of Merchandise
32
53.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 20. Sources of credit repayment
SOURCES
FREQUENCY*
PERCENTAGE
Personal Money
15
25.00
Business Money
58
96.67
Borrowed money from other sources
3
5.00
*Multiple responses
Sources of Credit Repayment
The above table shows the different sources of the micro-entrepreneurs’ sources
of funds in repaying their credit. Surprisingly, not all or fifty-eight (96.67%) of the micro-
entrepreneurs use money from their business operation to repay their credit. Fifteen (25%)
use their personal money as their payment. This implies that the respondents use different
strategies in repaying their credit and that not all of them use their business operation fund
to pay for their credit.
Problems Encountered in Repaying Credit
Table 17 presents the problems being faced by the respondents in the repayment
of their credit. Fourteen (23.33%) of them said that they did not face any problem in
repaying their credit. Forty-six answered that they have encountered problems, 34
(73.91%) of them stated that they do not have enough or even available money for
repayment. Six (13.04%) mentioned that the interests being charged are high.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 21. Problems encountered in repaying credit
PROBLEMS
FREQUENCY*
PERCENTAGE
No available money to pay
34
73.91
Difficult repaying schedule
2
4.35
High interest rates being charged
6
13.04
No problems encountered
14
23.33
*Multiple responses
Factors Affecting Access to Credit
Table 18 presents the different factors being considered by the micro-
entrepreneurs whenever they avail credit. Majority (55%) of the micro-entrepreneurs
mentioned that they always consider the allowable amount for credit that they can avail.
Twenty-one (35%) of them also said that they consider the credit with collateral
requirement since most of them do not have collaterals. Fourteen (23.33%) of the micro-
Table 22. Factors affecting access to credit
FACTORS
FREQUENCY* PERCENTAGE
Amount of allowable credit
33
55.00
Credit that requires collateral
21
35.00
Lengthy and complicated procedures
14
23.33
Insufficient documents to support loan application
6
10.00
No financial track record
3
5.00
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
entrepreneurs also commented on the length and complication of loaning procedures. This
finding implies that before the micro-entrepreneurs avail credit, they are making a thorough
consideration on the factors that will affect their credit approval.
Problems Encountered in the Management and Access to Credit
Table 19 shows the list of different kinds of problems faced by the micro-
entrepreneurs in the access and management of their credit.
Problems in accessing credit. Majority of the respondents stated that they did not
encounter problems in accessing credit. But of the 29 respondents who encountered
problems, 14 (48.28%) said that the allowable amount of credit is low or not enough. This
implies that many of the micro-entrepreneurs do not encounter problems and therefore are
satisfied with their credit sources and the amount acquired.
Problems in management. Twenty-one (35%) of the micro-entrepreneurs do not
have any problems in managing their credit which is a good sign for the business. Thirty-
nine (65%) micro-entrepreneurs mentioned that they have problems and that 26 (66.67%)
were not able to pay their loans and the required interests. This shows that most of the
micro-entrepreneurs have problems in managing their credit.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 23. Problems encountered in the access and management of credit
PARTICULARS
FREQUENCY*
PERCENTAGE
Problems in accessing credit
Low amount of allowable credit
14
23.33
Credit that requires collateral
9
15.00
Lengthy and complicated procedures
7
11.67
Insufficient documents to support loan
8
13.33
application
No financial track record
4
6.67
No available co-maker
2
3.33
No problems encountered
31
51.67
Problems in managing credit
Inability to avail desired credit
11
18.33
Inability to pay the loan and the required
26
43.33
interests
Improper usage of credit
14
23.33
No problems encountered
21
35.00
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Summary
This research was conducted to determine the credit management practices of the
micro-entrepreneurs in Sagada, Mt. Province. It also found out the factors affecting their
access to credit and the problems they encounter in the access and management of their
credit.
The respondents were the micro-entrepreneurs from the different barangays. The
data were collected with the use of survey questionnaires and personal interviews. The data
were analyzed using descriptive statistical tools such as frequency and percentage.
This research found out that the Sari-sari stores are the largest in number when it
comes to micro-enterprises. Almost all of the micro-entrepreneurs prepare budget for the
use and repayment of their credit. Majority of them also mentioned that they avail or apply
for credit during some particular events and that the time when they avail credit is highly
influenced by the number of tourists/visitors in the area.
Most of the micro-entrepreneurs avail the loan themselves. On the types of credit,
78.33% avail closed-end credit while 31.67% avail of the informal credit. More micro-
entrepreneurs avail credit amounting to P20, 000 and below. A great majority of the micro-
entrepreneurs pay their credit on time. The micro-entrepreneurs use different styles and
strategies such as budgeting of resources, saving every day, every week or every month so
that they can pay their credit on time.
Majority of the loan applications of the micro-entrepreneurs were successfully
granted. Most of the micro-entrepreneurs avail their credit from cooperatives, while only
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
five of them avail credit from banks. Being a member in the cooperative or bank is the
reason of the micro-entrepreneurs for availing credit from the cooperatives or banks.
Seventeen (28.33%) do not use collateral and majority of those who use collateral
use their share capital or savings deposit as loan security. Majority of the micro-
entrepreneurs use their loan money in purchasing merchandise and business expansion.
Almost all of the micro-entrepreneurs use money from their business operations to
pay for their credit. Some of them had no problems in repaying their credit but to some, no
available money is their main problem in repaying credit.
Different factors are affecting the access of credit by the micro-entrepreneurs, some
of these factors include: the amount of allowable credit, collateral requirements and the
length/complicated loaning procedures
Majority of the micro-entrepreneurs revealed that they have not encountered any
problems when they access or avail credit. Twenty-one (35%) of them did not have
problems in the management of their credit while majority of the micro-entrepreneurs who
encountered problems said that they were not able to pay the loan and the required interests.
Conclusions
Based from the findings of the study, the following conclusions were made:
1. Micro-entrepreneurs are involved in variety of businesses in the municipality.
Business transactions and credit demand by the micro-entrepreneurs are influenced by the
tourism industry in the locality;
2. Most of the micro-entrepreneurs practice good credit management because
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
they plan on when, where, and how much to borrow and they practice some strategies to
ensure that they can repay their credit. Saving from their income, budgeting their resources
and borrowing money from other sources are some of the strategies that they use;
3. There are available sources of credit like private lenders, relatives, rural bank
and cooperatives, but there are limitations on the part of the micro-entrepreneurs such as:
collateral requirements, insufficient income/assets and document requirements;
4. Various problems are encountered by the micro-entrepreneurs in their credit
management of which include: failure to pay for the loan principal and interest and the
improper use of credit/inability to pay; and,
5. Some of the micro-entrepreneurs need skills and additional knowledge on the
proper usage of their credit.
Recommendations
From the different findings of this study, the following are recommended:
1. The micro-entrepreneurs should continue their good credit management
practices. They can also organize themselves to support the tourism program of the
municipality since their businesses largely depend on it;
2. The micro-entrepreneurs can use alternative collaterals like savings and share
ownership from cooperatives. They can also maximize their properties by legalizing them
to be used as leverage in availing credit to any formal organization;
3. To address the problem on the limited amount of allowable credit, the micro-
entrepreneurs should establish track record by good credit repayment;
4. The micro-entrepreneurs can organize into a group for consultation with
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
government and lending agencies to come up with solution on the complicated loaning
procedures; and,
5. The Government and other financial intermediaries should conduct seminars
and trainings regarding proper credit management and small business management.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
LITERATURE CITED
BAKISAN, I. 2005. Status of Tourism in Sagada and the Influencing Factors to its
Changing Character. Unpublished Thesis. Open University - BSU. P. 48.
BOGNADON, D.J. 2006.The Credit Performance of Borrowers of the Northern Luzon
Federation of Cooperatives and Development Center in La Trinidad and Baguio City.
Unpublished Thesis. Open University - BSU. P. 38.
CHONG, F. 2010. Evaluating the Credit Management of Micro-entrepreneurs. University
Technology MARA, Malaysia. Pp. 151-152, 156-157.
DEPARTMENT OF TRADE AND INDUSTRY. 2010. Micro, Small and Medium
(MSMEs). Retrieved August 08, 2012 from http://www.dti.gov.ph/dti/index.php?p=532.
DLABAY, L., R. HUGHES, AND J. KAPOOR.2009. Personal Finance. McGrau-
Hill/Irwin, New York. Pp. 171-193.
GANBOLD, B. 2008.Improving Access to Finance for SME: International Good
Experiences and Lessons for Mongolia. Pp. 5-8.
GHATE, P. 1992. Interaction Between the Formal and Informal Financial Sectors: The
Asian Experience, in World Development. Pp. 859-872.
INTERNATIONAL FUND FOR AGRICULTURE. 2003. A winning development
strategy? Replicating Grameen in the Philippines. Vol. 2005.
LAMBERTO, M. 1999. Credit Unions as Channels of Micro-credit Lines: The Philippine
Case. Philippine Institute for Development Studies. P. 5.
MEDINA, R. 2000. Money, Credit and Banking. Mutya Publishing House, #6 Baltazar St.
Pacheco Village, Balubaran, Valenzuela City. Pp. 108-110.
MOHAMED, K. 2003. Access to Formal and Quasi-Formal Credit by Smallholder Farmers
and Artisanal Fishermen: A Case of Zanzibar. Unpublished Thesis. Zanzibar, Tanzania.
Pp. 29-30.
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POLIQUIT, L. 2006. Accessibility of Rural Credit Among Small Farmers in the
Philippines. Unpublished Thesis. Massey University, New Zealand. Pp. 31, 35, 82.
RITTER L. AND SIBER W. 1974.Principles of Money, Banking, and Financial Markets.
Basic Book, Inc., Publishers New York. Pp. 188-189.
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Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
BUMATANG, NEREEN D., APRIL 2013. Credit Management Practices of Micro-
entrepreneurs in Sagada, Mountain Province. Benguet State University, La Trinidad,
Benguet.
Adviser: David Joseph Bognadon, MSc.
ABSTRACT
This study was conducted for the following objectives: to know the profiles of the
micro-entrepreneurs and their businesses in Sagada; to find out their credit management
practices and the factors influencing their access to credit and to analyze the problems
encountered in their access and management of credit.
Sixty micro-entrepreneurs in Sagada, Mt. Province were surveyed using
questionnaires. The findings of the study show that: the micro-entrepreneurs are involved
in a variety of businesses and that tourism influences the volume of business and credit
demand; most of the micro-entrepreneurs practice good credit management because they
are planning on when, where and how much to borrow and to ensure that they can repay
their credit, they practice some strategies which include: saving from their income,
budgeting their resources and borrowing from other sources; there are available sources of
credit in the municipality but there are limitations on the part of the micro-entrepreneurs.
The micro-entrepreneurs need skills and trainings in the proper usage of credit. The micro-
entrepreneurs need to continue their good credit management practices and should establish
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
a good credit track record. The micro-entrepreneurs should organize into a group and work
with the lending institutions towards a better loaning procedure that is beneficial to both
borrower and creditor. The financial intermediaries should conduct seminars and training
regarding proper credit management and other small business management skills.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
INTRODUCTION
Rationale
Credit is an arrangement to recover cash, goods, or services now and pay for them
in the future (Dlabay et al., 2009). Ritter and Siber (1974), defined credit as the flow
concept involving transactions that take place over a period of time.
The principal function of credit is to transfer property from those who own it to
those who wish to use it, as in the granting of loans by banks to individuals who plan to
initiate or expand a business venture. The transfer is temporary and is made for a price
known as interest, which varies with risk involved and also with the demand for, and supply
of credit. The use of credit also makes feasible the performance of the complex operations
involved in modern business without the constant handling of money. Credit therefore is a
very important instrument in propelling economic growth via increase in production and
consumption (Supa, 2005).
Dlabay et al. (2009), mentioned some advantages and disadvantages of credit. The
use of credit provides immediate access to goods and services, flexibility in money
management, safety and convenience, a cushion in emergencies, a means of increasing
resources, and a good credit rating if you pay your debts back in a timely manner. But
remember, the use of credit is a two-sided coin. An intelligent decision as to its use
demands careful evaluation of your current debt, your future income, the added cost and
the consequences.
Credit gives the members of the society a chance to consume or make use of a
product now and then pay for them later. Credit helps a lot in many ways that is why almost
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all entities access credit. But nowadays, with the use of the different ways to access credit,
people unconsciously tend to use more credit than to what they can actually pay. Bad credit
management can be one of the reasons as to why people exhibit problems on their credit
transactions. In regard with this problem, practices of the people, businesses, and other
entities need to be studied in order to find out appropriate solutions which can be used to
help solve these emerging problems on credit. Also, practices need to be studied for the
improvement of the credit management of the different entities.
Sagada is a fifth class municipality of Mountain Province located 151 kilometers
away from Baguio City. It is divided into nineteen barangays of which Madongo,
Tanulong, Bangaan, Fidelisan, Pide, and Aguid compose the northern barangays; Suyo,
Ankileng, Taccong and Nacagang, the southern barangays; Kilong, Antadao, Tetep-an
Norte and Tetep-an Sur, the eastern barangays; and Patay, Dagdag, Demang, Ambasing
and Balugan, the central barangays (Bakisan, 2005).
The sources of income and livelihood activities in the municipality are agricultural
production; weaving industry; backyard industry such as hog raising and cattle raising;
entrepreneurship such as managing lodging establishments; cooperatives, restaurants,
stores, artifacts and souvenir shops, wagwagan (2nd hand clothes shops), bakeries, rice
mills, hardware stores, and auto repair shops; making furniture, processing honey,
distributing veterinary and poultry supplies; employment in the private and government
sectors; pensions like veteran, Social Security System (SSS), Government Security
Insurance System (GSIS); self-employment such as carpentry, stone crushing,
stonewalling, babysitting, housekeeping, and daily wage labor; employment in automobile
business such as driving or assisting drivers of public utility vehicles.
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Statement of the Problem
The study aimed to answer the following questions:
1. What are the profiles of micro-entrepreneurs and their businesses in Sagada,
Mt. Province?
2. What are the credit management practices of the micro-entrepreneurs?
3. What are the factors affecting the micro-entrepreneurs’ access to credit?
4. What are the problems encountered by the micro-entrepreneurs on their access
to credit and management?
Objectives of the Study
The study aimed to:
1. Know the profiles of micro-entrepreneurs and their businesses in Sagada, Mt.
Province;
2. Find out the credit management practices of the micro-entrepreneurs;
3. Determine the factors influencing micro-entrepreneurs’ access to credit; and,
4. Analyze the problems related to access to credit and management that are
encountered by the micro-entrepreneurs.
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Importance of the Study
The results of the study would provide information that can be used to improve credit
services in the municipality by coming up with better credit policies that would be
advantageous to both the lenders and the borrowers.
In addition, it would also benefit students and other entrepreneurs who will be provided
ideas on the different practices of managing credit.
Also, the results would provide necessary data and information to students who
want to do researches and studies in the same field.
Scope and Delimitation of the Study
This study focused on the credit management practices, credit utilization, credit
accessibility and problems encountered by the micro entrepreneurs in the municipality.
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REVIEW OF LITERATURE
Philippine Financial System
Like other developing economies, the domestic financial system of the Philippines
consists of two major subsystems: the formal and the informal. The informal financial
system functions outside the purview of regulations imposed by regulatory agencies such
as Central Bank on the formal financial system with respect to capital, reserves and
liquidity requirements, ceilings on lending and deposit rates, mandatory credit targets, and
audit reporting requirements, ceilings on lending and deposit rates, mandatory credit
targets, and audit reporting requirements.
The formal financial system may be further divided into two components, namely,
the banking and nonbanking institutions. The banking system is composed of the
commercial banks, thrift banks, rural banks, and specialized government banks. On the
other hand, nonbank financial intermediaries include insurance companies, and other
financial intermediaries (Lamberto, 1999).
Financial Intermediaries
Hadjimichalakis et al. as cited by Supa (2005), revealed that financial institutions
such as commercial banks, credit unions, and savings and loan associations are known as
financial intermediaries. This means that they attract funds from savers, or persons who
spend less than their incomes. The funds that some of us place in saving account are just
circulating to other people who will be using the borrowed funds to buy securities that have
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been issued by the federal government and state and local government. The financial
intermediaries offer deposits, including savings deposits and source funds.
Nature and Characteristics of Credit
A study of Miranda as cited by Bognadon (2006), expressed that since the use of
credit gives rise to a corresponding obligation, it becomes evident that risk is a
characteristic inherent to all credit transactions. Needless to say, until the obligation
becomes discharged or settled, there always remains the possibility that the debtor may
refuse to pay or could not pay his debt. This is the reason why an evaluation of the credit
standing of individuals or business firms is made from time to time if not on a continuing
basis. It is hardly necessary to point out that an individual’s credit risk which may be good
may suddenly be changed to that “poor credit risk”. Even where the credit rating may be
considered excellent, however, certain circumstances beyond the control of man may
induce him to fail in meeting his credit obligations. This may be best illustrated as when
an individual is thrown out of his job and thereby loses his only source of income.
One other characteristic of credit is the use of trust. Without it, credit and the
corresponding credit transactions will not exist. Judiciously used, credit is a cheaper and
doubtless a more effective means of carrying on a business than the exclusive use on one’s
own funds. However, the use of credit could be abused which would give rise to obligations
that will remain un-discharged regardless of the lapse of a long period of time just as they
could arise from misplaced trust.
Credit is elastic. Owing to such characteristics, it could be expanded or contracted.
Applied to everyday affairs of a business, credit helps expand the volume of operation
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during periods of business boom, while during dull business periods, it could be contracted
to prevent further losses.
Credit gives rise to creditor-debtor relationship as evidenced by the use of a credit
instrument. Such relationship arises from the moment a creditor manifests his trust on his
debtor by parting with his money or services in exchange for a promise on the part of the
latter to his obligation on the date promised. Credit is a creation of a legal obligation. The
right of the creditor to compel the debtor to make payment on the due date has been always
recognized by courts, thus giving enforcement to obligations and contracts. Last but not
least, credit involves time or futurity. The creditor looks forward to the future a specified
in the credit instrument when he will receive payment from his debtor as promised.
Types of Credit
There are two types of credit namely closed-end credit and open-end credit. Closed-
end credit is used for a specific purpose and involves a specified amount. An agreement,
or contract, lists the repayment terms: the number of payments, the payment amount, and
how much the credit will cost.
The three most common types of closed-end credit are installment sales credit,
installment cash credit, and single lump-sum credit. Installment sales credit is a loan that
allows you to receive merchandise, usually high-priced items such as large appliances of
furniture. You make a down payment and usually sign a contract to repay the balance, plus
interest and service charges, in equal installments over a specified period. Installment cash
credit is a direct loan of money for personal purposes, home improvements, or vacation
expenses. You make no down payment and make payments in specified amounts over a set
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period. Single lump-sum credit is a loan that must be repaid in total on a specified day,
usually within 30 to 90 days. Lump-sum credit is generally, but not always, used to
purchase a single item.
Open-end credit includes credit cards, department store charge cards, and check
overdraft accounts that allow you to write checks for more that your actual balance. You
can use open-end credit again until you reach a prearranged borrowing limit (Medina,
2000).
Kinds of Credit
According to Medina (2000), there are seven different kinds of credit. These are a)
consumer credit, b) trade credit, c) bank, d) investment credit, e) agricultural credit, f)
export credit, and g) public credit.
Consumer credit refers to credit given by shops, banks and other financial institutions to
consumers so that they can buy goods.
Trade credit is a credit offered by a company when trading with another. Trade credit
appears in the book of accounts of the creditor as accounts or notes receivable. On the book
of the debtor, they are entered as accounts or notes payable.
Bank refers to all types of lending granted by the banks to others or to one another. Among
the types of loans availed of by borrowers from banks are commercial loans, real estate
loans, agricultural loans., industrial loans, salary loans, automotive loans, deposits
collateral loans, and interbank call loans.
Investment credit refers to that type of credit required by businesses and the government
to finance the construction and operation of certain projects. Proceeds of the investment
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credit are used for the fixed and working capital of businesses, for projects undertaken by
local, provincial, and the national government, and for the purchase and improvement of
real estate.
Agricultural credit refers to loans used to finance the production and marketing of
agricultural products. This includes the lending of funds for the purchase of farm
equipment and machinery, fertilizers, pesticides, seedlings, fingerlings, and others.
Export credit refers to credit extension provided to foreign buyers of local goods. Even if
prepayments by foreign buyers are preferred by exporters, credit extension is often
requested by the buyer.
Public credit refers to loans extended to the government whether at the national, provincial,
or municipal level. Borrowings by the government are used to finance operations when
expected revenues are not sufficient to cover expenditures.
Users of Credit
Medina (2000), expressed that credit is used by the following general groups a) consumers,
b) businesses, and c) government. Consumers use credit by purchases of goods and services
for household consumption. Businesses are users of credit in large amounts. It will be
extremely difficult to find a business, big or small, without debt of some kind. Businesses
avail of credit to finance the following: payroll, purchase of merchandise, construction of
building and facilities, purchase of equipment, and refinancing of maturing debts.
Government is one big institution that uses credit in big amounts.
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Financial Markets in Low Income Countries
Ghate (1992), categorizes the market into two forms: formal and informal financial
markets. He defines formal financial markets as those financial market activities that are
controlled by government which are largely urban-oriented in terms of distribution of bank
branches and the concentration of deposits and lending activities. Informal financial
markets are defines as activities of various financial intermediaries ranging from farmers,
money-lenders, friends, relatives, shopkeepers, merchants, traders and Rotating Savings
and Credit Associations (ROSCAs). Quasi-formal financial intermediaries are therefore
falling between these two continuums and could include credit union, village banks and
various forms of credit schemes run by government or non-government.
Rural Credit in the Philippines
According to Tolentino as cited by Poliquit (2006), the formal credit system in the
Philippines consists of banks, non-bank financial institutions and cooperatives, while the
informal sources include friends, relatives, neighbors, private moneylenders, traders,
millers, input suppliers and other informal groups.
Based on one evaluation study by the International Fund for Agricultural
Development (IFAD), the Philippines was one of the most prosperous countries in South-
East Asia in the 1950s, but at present, it lags behind in terms of economic growth with half
the rural population living in poverty. Microcredit was tested as an anti-poverty tool in the
early 1990s but was not considered economically viable because the outreach to poor
people was insignificant and slow (International Fund for Agriculture, 2003).
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Micro, Small and Medium Enterprises (MSMEs)
Micro, small and medium enterprises (MSMEs) (Department of Trade and Industry,
2010),are defined as any business activity/enterprise engaged in industry,
agribusiness/services, whether single proprietorship, cooperative, partnership, or
corporation whose total assets, inclusive of those arising from loans but exclusive of the
land on which the particular business entity's office, plant and equipment are situated, must
have value falling under the following categories: by asset size – a) Micro: up to
P3,000,000; b) Small: P3,000,001 – P15,000,000; c) Medium: P15,000,001 –
P100,000,000; and, d) Large: above P100,000,000. Alternatively, MSMEs may also be
categorized based on the number of employees: a) Micro: 1-9 employees; b) Small: 10-99
employees; c) Medium: 100-199 employees; and, d) Large: more than 200 employees.
Role and Importance of MSMEs
MSMEs play a major role in the country's economic development through their
contribution in the following: rural industrialization; rural development and
decentralization of industries; creation of employment opportunities and more equitable
income distribution; use of indigenous resources; earning of foreign exchange (forex)
resources; creation of backward and forward linkages with existing industries; and
entrepreneurial development.
They are vital in dispersing new industries to the countryside and stimulating gainful
employment. A country like the Philippines where labor is abundant has much to gain from
entrepreneurial activities. MSMEs are more likely to be labor-intensive. Thus, they
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generate jobs in the locality where they are situated. In this sense, they bring about a more
balanced economic growth and equity in income distribution.
MSMEs' Contribution to the Economy
MSMEs contribute to the creation of wealth, employment, and income generation, both in
rural and urban areas, thus, ensuring a more equitable income distribution. They also
provide the economy with a continuous supply of ideas, skills, and innovations necessary
to promote competition and the efficient allocation of scarce resources.
In the last five years, the MSME sector accounted for about 99.6% of the registered
businesses in the country by which 63% of the labor force earn a living. Around 35.7% of
the total sales and value added in the manufacturing come from MSMEs as well.
Access to Finance Related Issues
Ganbold (2008), stated that the access to finance is a subject of significant research interest
to academics and an issue of great importance to policy makers for both developed and
developing economies for many years. There are a number of factors that have contributed
to this. First, there is some empirical evidence that the expansion of access may reduce
prevailing poverty in developing countries. Second, the interest in access also comes from
the fact that arguments about the channels through which financial development may lead
to growth often include access related stories. A third reason is the widespread lack of
access to financial services in emerging economies, particularly when compared to the
extent of access in developed countries. Fourth, recent Investment Climate Survey
conducted by the World Bank shows that one of the major impediment of fostering firms
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is lack of access to financial services which would expand economic growth and
employment generation as well as reducing poverty in many developing countries.
Improving access, then, means improving the degree to which financial services are
available to all at a fair price. It is easier to measure the use of financial services since data
can be observed, but use is not always the same as access. Access essentially refers to the
supply of services, whereas use is determined by demand as well as supply (Ganbold,
2008).
Factors Influencing Access to Credit
Mohamed (2003), established in his study five socio-economic factors that are
important in influencing individual chances to access credit from formal and quasi-formal
financial sources that include age, years of formal education, gender, income and degree
of awareness on available credit services. The level of education of an individual was found
to be an important factor in influencing individual chances to access credit as evidenced by
the borrowers group in the study sample who were found to be better educated than the
non-borrowers. His study also showed that lack of awareness of the respondents and
difficult loan conditions were the major factors that constrained the respondents’ access to
credit from formal sources.
Meanwhile, Poliquit (2006), found out that access to credit by farmers was limited
to the available credit services in her research area, thus farmers’ choice and preferences
were not well served which led to the borrowing from informal lenders, credit that requires
collateral, and lengthy and complicated procedures restricted the farmers from accessing
formal credit.
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Factors Affecting Credit Management
Chong (2010), stated that numerous factors have been identified as having an impact on
credit management. Pang as cited by Chong (2010), proposed that collateral (assets to
secure the debt), capacity (sufficient cash flow to service the obligations), character
(integrity), condition of the economy as well as capital (net worth) need to be included in
the credit scoring model.
Weinberg as cited by Chong (2010), contended that two main determinants of household
repayment obligations are the amount of debt and the interest charged.
Factors Affecting Credit Management Practices
Chong (2010), found out in his study that a majority of the micro-enterprise founders
disclosed that it is difficult for them to obtain financing due to stringent measures taken
especially by established financial institutions in assessing credit risk.
He also found out that the proxy of wealth or repayment capability - household income -
was not significantly related to the credit performance.
He concluded that female respondents were found to be practicing better credit
management in relation to the male respondents. Educational attainment was shown to be
another factor that affected credit management practices.
He also concluded that the availability of credit is crucial as it allows the micro-enterprises’
financial flexibility in meeting their business obligations and expansion needs.
Nevertheless, "debt" is viewed as bad as it represents a lack of self-discipline.
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METHODOLOGY
Locale and Time of the Study
The study was conducted in nine different barangays of Sagada, which is one of the
municipalities in Mountain Province.
The study was conducted on December, 2012.
Respondents of the Study
The respondents of this study were 60 micro-entrepreneurs who were selected from
the different barangays of Sagada. The respondents were randomly but mostly selected at
the Central part of the municipality since most of the businesses are located in this part.
Central Sagada consists of five barangays namely: Balugan, Ambasing, Demang, Dagdag,
and Patay. These micro-entrepreneurs are owners of businesses which have 1-9 employees.
The respondents were classified as to the type of business owned.
Data Collection
Open and close-ended questionnaires were prepared in gathering information from
the respondents. These were supported by personal interviews that were used to validate
and verify information that were not clear to the researcher.
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Data Gathered
The data gathered included the demographic profiles of the micro-entrepreneurs;
the credit management practices being done by the micro-entrepreneurs; factors
influencing access to credit and management encountered by the micro-entrepreneurs; and
the problems encountered by the micro-entrepreneurs regarding access to credit and
management.
Data Analysis
The data collected were consolidated, categorized and tabulated. Descriptive
analysis such as frequency counts, tables, percentages and means were used for the
interpretation of the data.
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RESULTS AND DISCUSSION
Profile of the Respondents
Table 1 presents the background information of the 60 respondents from the
different barangays in Sagada, Mt. Province. They were categorized according to age,
gender, educational attainment and average annual income.
Age. There are 60 respondents who revealed their respective ages. Sixteen
(26.67%) of the micro-entrepreneurs are in the age bracket of 21-30 years old. The findings
show that the mean age is 41 years which implies that the middle-aged respondents are
more interested in business activities than the younger and older ones.
Gender. Table 1 presents the gender of the respondents, 52 (87%) are females while
the remaining 8 (13%) are males. This shows that females nowadays are more engaged in
entrepreneurial activities than their male counterpart.
Educational attainment. As to educational attainment, 8.33% were elementary,
28.33% were secondary and 63.33% were college. This shows that all of the respondents
have their formal education however it also implies that a person does not need to have a
degree in order to engage in business.
Average annual income. Table 1 shows that 27 (45%) of the micro-entrepreneurs
have an average of P10, 000 and below as their annual income. Only 5 (8.33%) of the
micro-entrepreneurs revealed that they receive an average amount of over P100, 000
annually as their income.
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Table 1. Profile of the respondents
PARTICULARS
FREQUENCY
PERCENTAGE
Age
21 – 30
16
26.67
31 – 40
15
25.00
41 – 50
15
25.00
51 – 60
9
15.00
61 – 70
4
6.67
71 - 80
1
1.67
TOTAL
60
100.00
MEAN 41 years old
Gender
Female
52
87
Male
8
13
TOTAL
60
100
Educational attainment
Elementary
5
8.33
High school
17
28.33
College
38
63.33
TOTAL
60
100.00
Average annual income
P10, 000 and below
27
45.00
P10,001 – P25, 000
8
13.33
P25, 001 – P50, 000
9
15.00
P50, 001 – P100, 000
11
18.33
Over P100, 000
5
8.33
TOTAL
60
100.00
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Business Profile
Tables 2, 3, 4 and 5 show the profile of the 60 respondents in the municipality of
Sagada, Mt. Province. This information includes the types of business, number of years of
operation, location and the number of employees of the businesses.
Type of business. Table 2 presents the different types of businesses owned by the
micro-entrepreneurs. The businesses were categorized into thirteen types in which Sari-
sari store dominated the businesses with a total of 24 (40%) out of sixty businesses. General
Merchandise totaled to six (10%). The results imply that of the total numbers of businesses
in the municipality, Sari-sari store is by far the largest in number.
Table 2. Types of business
TYPES OF BUSINESS
FREQUENCY PERCENTAGE
Backyard Hog Raising
3
5.00
Bakery
2
3.33
Buy and Sell of Agricultural Products
4
6.67
Computer Shop
3
5.00
Dry Goods
3
5.00
Feeds Selling
1
1.67
General Merchandise
6
10.00
Grocery Store
1
1.67
Inns
2
3.33
Poultry
1
1.67
Restaurant/Café/Eatery
6
10.00
Sari-sari Store
24
40.00
Souvenir Shops
4
6.67
TOTAL
60
100.00
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Number of years of operation. As shown in table 3, thirty-four (56.67%) of the businesses
have already been operating for less than five years. The youngest business has only been
operating for two months while the oldest has already operated for 28 years as of this date.
The computed mean is seven years and it reveals that the businesses are still young, they
are still new in the business.
Location of the business. In Table 4, the nine locations of the businesses are
presented. Many of the businesses (35%) are located in Barangay Patay. Barangay Dagdag
and Barangay Demang have 15 (25%) and 8 (13.33%) respectively.
Table 3. Numbers of years of operation
NUMBER OF YEARS OF OPERATION
FREQUENCY
PERCENTAGE
Below 5 years
34
56.67
6yrs – 10yrs
11
18.33
11yrs – 15yrs
9
15.00
16yrs – 20yrs
2
3.33
21yrs – 25yrs
3
5.00
26yrs – 30yrs
1
1.67
TOTAL
60
100.00
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Table 4. Location of the businesses
BARANGAY
FREQUENCY
PERCENTAGE
Demang
8
13.33
Dagdag
15
25.00
Patay
21
35.00
Bangaan
2
3.33
Aguid
2
3.33
Ambasing
6
10.00
Tetep-an Norte
1
1.67
Tetep-an Sur
1
1.67
Balugan
4
6.67
TOTAL
60
100.00
Number of employees. Table 5 presents the number of employees in each of the businesses.
Majority (61.67%) of the businesses do not have any employees, implying that all business
transactions are being administered by the micro-entrepreneurs themselves. One (1.67%)
business has 6 employees, which is by far the highest number of employees in the study.
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Table 5. Number of employees
NUMBER OF EMPLOYEES
FREQUENCY
PERCENTAGE
Business owner operated
37
61.67
1
12
20.00
2
3
5.00
3
3
5.00
4
3
55.00
5
1
1.67
6
1
1.67
TOTAL
60
100.00
Credit Management Practices
The succeeding tables show the credit management practices of the micro-
entrepreneurs.
Main Source of Capitalization.
Table 6 shows the sources of capitalization for the businesses. Twenty-three (38.33%) of
the micro-entrepreneurs used their own savings to start their businesses, while 22 (36.67%)
loaned from banks or cooperatives. Seven (11.67%) borrowed from relatives/friends and
17 (28.33%) of the micro-entrepreneurs financed their businesses with the combination of
the above sources.
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Table 6. Main source of capitalization
SOURCES
FREQUENCY*
PERCENTAGE
Own Savings
23
38.33
Borrowed from relatives/relatives
7
11.67
Loan from banks, cooperatives
22
36.67
Combination of the above sources
17
28.33
*Multiple responses
Planning on When, Where, and How Much to Borrow
Table 7 presents whether the micro-entrepreneurs plan or not on when, where, and how
much to borrow. Forty-seven (78.33%) said that they are planning while thirteen (21.67)
do not. Some of the micro-entrepreneurs, who plan on where they borrow, weigh the
requirements of the different financial intermediaries and select the one with the
requirements which they can provide. This indicates that while most of the respondents
consider the importance of planning, there are some who cannot see the significance of
such.
Table 7. Responses as to whether micro-entrepreneurs do credit planning or not
RESPONSES
FREQUENCY
PERCENTAGE
Doing credit planning
47
78.33
Not
doing
credit
13
21.67
planning
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TOTAL
60
100.00
Table 8. Responses as to whether micro-entrepreneurs prepare budget or not
RESPONSES
FREQUENCY
PERCENTAGE
Preparing budget
56
93.33
Not preparing budget
4
6.67
TOTAL
60
100.00
Budget Preparation on Credit Utilization and Repayment
Table 8 presents whether they prepare a budget or not on the use and repayment of
their credit. There were 56 or 93.33% who prepare budget on the use and repayment of
their credit. Four (6.67%) revealed that they do not prepare a budget.
This finding concludes that some micro-entrepreneurs do not appreciate the value or
importance of budget thus, they do not give time to prepare it.
Specific Time in Availing Credit
Table 9 shows the responses of the micro-entrepreneurs if there is a specific time
when they usually avail credit or none. Of the 60 respondents, 60% of them revealed that
they are availing credit at a specific time. The other 40% said that they avail credit any
time. This further proves that most of the micro-entrepreneurs are planning when to borrow
which involves identifying the specific time of acquiring credit.
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BUMATANG, NEREEN D., APRIL 2013
Table 9. Responses as to whether the micro-entrepreneurs avail credit in a specific time
RESPONSES
FREQUENCY
PERCENTAGE
Availing credit at a specific time
36
60
Not availing credit at a specific time
24
40
TOTAL
60
100
Specific Time and Reasons
Table 10 shows the specific times (months and occasions) when they avail credit
and Table 11 presents their reasons on why they avail credit at this time. The micro-
entrepreneurs have various dates when they avail credit but of the 36 respondents who
answered yes, 21 (58.33%) of them said that during peak seasons, they avail credit. This
is so because tourists flock in during peak seasons, and that the micro-entrepreneurs avail
credit to prepare for the high demand of products as mentioned by 58.33%. Some also avail
credit during the month of December because their customers need to purchase the products
they need in order to prepare for the different kinds of occasions which fall on this month.
One of the respondents said that he avails credit on August because his business has no
income during this month thus there is no cash to be used in operation.
This implies that tourism in Sagada greatly affects the transactions of the
businesses; tourists play a big part being viable customers for the micro-entrepreneurs.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 10. Specific time of availing credit
MONTH
FREQUENCY*
PERCENTAGE
January
2
5.56
February
3
8.33
March
2
5.56
April
7
19.44
May
5
13.89
June
3
8.33
August
1
2.78
September
3
8.33
October
2
5.56
November
3
8.33
December
12
33.33
Special occasions
Municipal Celebrations
6
16.67
Peak Season
21
58.33
Holidays
8
22.22
School Opening
4
11.11
Summer Vacations
2
5.56
Wedding Celebrations
1
2.78
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 11. Reasons for the specific time of availing credit
REASONS
FREQUENCY PERCENTAGE
There are more visitors/tourists in the area
25
69.44
There is no income during this time
1
2.78
Prices of stocks are usually lower
1
2.78
For the preparations on different occasions
6
16.67
High demand for school supplies (enrollment)
5
13.89
*Multiple responses
Loan Processing/Availing
According to the respondents, 54 (90%) avail the loan themselves. Eight (13.33%)
micro-entrepreneurs let their family members process the papers or avail the loan, while
none among the sixty micro-entrepreneurs let their employees or friends do the loan
processing.
Table 12. Loan processing/availing
WHO AVAILS THE LOAN
FREQUENCY*
PERCENTAGE
Self
54
90.00
Family
8
13.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Credit Availing
Table 13 presents the types and amount of credit usually availed by the micro-
entrepreneurs, it also presents credit repayment and its terms. Closed-end credit, which
includes loans from banks or other financial intermediaries, is the type of credit which is
usually availed by a great majority (78.33%) of the micro-entrepreneurs. Nineteen
(31.61%) said that they avail from informal lenders. Surprisingly, one (1.67) of the
respondents uses credit cards which fall under open-end credit.
Amount. Twenty-five (41.67%) respondents avail credit that amounts to P20, 000
and below. Sixteen (26.67%) of them avail credit of more than P50, 000. This result shows
that for some reasons, micro-entrepreneurs avail a low amount of credit for their businesses
as compared to their business expenses.
Terms. Table 13 also shows the terms of credit repayment by the micro-
entrepreneurs, 25 (41.67%) pay their credit for yearly while 17 (28.33%) pay their credit
within less than 6 months, usually monthly. This result shows that the micro-entrepreneurs
have various terms on the repayment of their credit.
Credit repayment. Most of the micro-entrepreneurs (90%) said that they pay their
credit on time. Their reasons for paying on time are for good credit standing, so that their
creditors will provide them credit when they intend to avail again, and to avoid penalties.
Seven (11.67%) admitted that they pay their credit a month after the due date while two
(3.33%) pay 2 months after due date. One of the reasons why they had not paid on time is
that they had forgotten to pay for the credit.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 13. Types and amount of credit usually availed
PARTICULARS
FREQUENCY
PERCENTAGE
Type of credit*
Closed-end
47
78.33
Open-end
1
1.67
Informal
19
31.67
Amount of credit
P20, 000 & below
25
41.67
P20, 001 – P50, 000
19
31.67
Above P50, 000
16
26.67
TOTAL
60
100.00
Terms of credit repayment*
Less than 6 months
17
28.33
6 months
11
18.33
12 months
25
41.67
Over months
9
15.00
Credit repayment*
Pay on time
54
90.00
1 month after due date
7
11.67
2 months after due date
2
3.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Strategies Used to Ensure Repayment of Credit
Table 14 shows the different kinds of strategies used by the micro-entrepreneurs to
ensure that they can repay their credit. Ten (16.67%) respondents budget their resources so
that they will be able to pay their loans, 10 (16.67%) also said that saving is their way to
ensure that they can repay their loans. Proper allocation of the profit is said to be of help
as said by 7 (11.67%) of the micro-entrepreneurs. One (1.67%) respondent revealed that
she saves P100 a day from the profit and set it aside for the sole purpose of repaying her
loan. This result shows that even though the micro-entrepreneurs have different strategies,
they still use some strategies so that their credit is paid.
Table 14. Strategies used to ensure repayment of credit
STRATEGIES
FREQUENCY PERCENTAGE
Borrow money from other sources to be able to pay
2
3.33
Budgeting of resources
10
16.67
Collections are used for payment
5
8.33
Following the rules to avoid penalties
3
5.00
I ask my family for help if collection is not enough
1
1.67
I’ll pay the loan first before the needs
1
1.67
Not using the profit for personal use
1
1.67
Proper allocation of the profit
7
11.67
Save
10
16.67
Saving P100 daily to be used as payment for loan
1
1.67
Separate savings from profit every week
5
8.33
Setting aside an amount every day for loan
3
5.00
repayment
Setting aside an amount every month for payment
4
6.67
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Success in Loan Application Approval
Table 14 gives information on whether the loan applications of the micro-
entrepreneurs for credit are successful or not. It also shows the reasons why some of the
applications were not successful. Majority (68.33%) of the micro-entrepreneurs’ loan
applications were successful while none of their applications was rejected. Nineteen micro-
entrepreneurs’ applications were sometimes rejected of which 13 (68.42%) said that the
reason why their applications were rejected is that they do not have sufficient income or
assets to support their application.
Table 15. Success of application and reasons for not being successful
PARTICULAR
FREQUENCY PERCENTAGE
Rating on the success of application
Always successful
41
68.33
Sometimes successful
19
31.67
TOTAL
60
100.00
Reasons for not being successful*
Insufficient income/assets
13
68.42
Incurred previous loan (bad debt)
2
10.53
Had no collateral
3
15.79
Had difficulty in providing required documents
8
42.11
No co-makers
2
3.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 16. Responses as to whether the availed credit is sufficient or not
RESPONSES
FREQUENCY
PERCENTAGE
Credit is sufficient
42
70
Credit is not sufficient
18
30
TOTAL
60
100
Sufficiency of Availed Credit
Table 15 shows that 42 (70%) of the respondents said that the amount of credit they
received is sufficient while the other 18 (30%) were not satisfied with the amount.
Sources of Credit and Reasons for Taking from Sources
Table 16 gives information on where the micro-entrepreneurs usually avail credit
and their reasons why they avail credit on their sources.
Source. A great majority or 50 (83.33%) of the micro-entrepreneurs avail credit
from cooperatives. Twenty (33.33%) and 15 (25%) avail credit from relatives and friends
respectively. One (1.67%) respondent mentioned that she gets her credit from the supplier
of her stocks. This finding implies that the cooperatives have done a great job in providing
credit to their members.
Reasons. Table 16 also shows the given reasons by the micro-entrepreneurs on
why they avail credit on their sources. Forty-five (75%) said that they are already members
in the bank/cooperative that is why they avail their credit there. Twenty-one (35%)
mentioned that the less interest being charged is the reason why they avail credit
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
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Table 17. Sources of credit and reasons for taking from sources
PARTICULAR
FREQUENCY*
PERCENTAGE
Sources
Banks
5
8.33
Cooperatives
50
83.33
Friends
15
25.00
Relatives
20
33.33
Others
1
1.67
Reasons for taking from the source
Already a member
45
75.00
No interest
11
18.33
Less interest
21
35.00
No collateral
10
16.67
No many documents required
2
3.33
*Multiple responses
on their answers. This definitely shows that the micro-entrepreneurs consider many factors
before they avail credit.
Use of Collateral
Seventeen (28.33) micro-entrepreneurs do not use collateral when they avail
credit; but 32 (74.42) of the 48 who use collateral said that they use their share capital or
savings deposit as loan security. None of the micro-entrepreneurs uses salary deduction
and chattel mortgage as their collateral.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 18. Collaterals being used
COLLATERAL
FREQUENCY*
PERCENTAGE
Share Capital/Savings
32
74.42
Co-maker
21
48.84
Real estate Mortgage
4
9.30
Not Using Collateral
17
28.33
*Multiple responses
Usage of Credit
Table 15 shows where the loan fund is being used by the micro-entrepreneurs.
Thirty-two (53.33%) said that they use their loan fund in purchasing merchandise for their
businesses. Twenty-nine (48.33%) use it for business expansion while five (8.33%) use
their availed credit for their personal use.
The result shows that while most of them use their borrowed fund for business
purposes, some of them avail for other purposes.
Table 19. Usage of credit
USAGE
FREQUENCY*
PERCENTAGE
Building Construction
5
8.33
Business Expansion
29
48.33
Employees’ wages
1
1.67
Personal Use
5
8.33
Purchase of Merchandise
32
53.33
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 20. Sources of credit repayment
SOURCES
FREQUENCY*
PERCENTAGE
Personal Money
15
25.00
Business Money
58
96.67
Borrowed money from other sources
3
5.00
*Multiple responses
Sources of Credit Repayment
The above table shows the different sources of the micro-entrepreneurs’ sources
of funds in repaying their credit. Surprisingly, not all or fifty-eight (96.67%) of the micro-
entrepreneurs use money from their business operation to repay their credit. Fifteen (25%)
use their personal money as their payment. This implies that the respondents use different
strategies in repaying their credit and that not all of them use their business operation fund
to pay for their credit.
Problems Encountered in Repaying Credit
Table 17 presents the problems being faced by the respondents in the repayment
of their credit. Fourteen (23.33%) of them said that they did not face any problem in
repaying their credit. Forty-six answered that they have encountered problems, 34
(73.91%) of them stated that they do not have enough or even available money for
repayment. Six (13.04%) mentioned that the interests being charged are high.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 21. Problems encountered in repaying credit
PROBLEMS
FREQUENCY*
PERCENTAGE
No available money to pay
34
73.91
Difficult repaying schedule
2
4.35
High interest rates being charged
6
13.04
No problems encountered
14
23.33
*Multiple responses
Factors Affecting Access to Credit
Table 18 presents the different factors being considered by the micro-
entrepreneurs whenever they avail credit. Majority (55%) of the micro-entrepreneurs
mentioned that they always consider the allowable amount for credit that they can avail.
Twenty-one (35%) of them also said that they consider the credit with collateral
requirement since most of them do not have collaterals. Fourteen (23.33%) of the micro-
Table 22. Factors affecting access to credit
FACTORS
FREQUENCY* PERCENTAGE
Amount of allowable credit
33
55.00
Credit that requires collateral
21
35.00
Lengthy and complicated procedures
14
23.33
Insufficient documents to support loan application
6
10.00
No financial track record
3
5.00
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
entrepreneurs also commented on the length and complication of loaning procedures. This
finding implies that before the micro-entrepreneurs avail credit, they are making a thorough
consideration on the factors that will affect their credit approval.
Problems Encountered in the Management and Access to Credit
Table 19 shows the list of different kinds of problems faced by the micro-
entrepreneurs in the access and management of their credit.
Problems in accessing credit. Majority of the respondents stated that they did not
encounter problems in accessing credit. But of the 29 respondents who encountered
problems, 14 (48.28%) said that the allowable amount of credit is low or not enough. This
implies that many of the micro-entrepreneurs do not encounter problems and therefore are
satisfied with their credit sources and the amount acquired.
Problems in management. Twenty-one (35%) of the micro-entrepreneurs do not
have any problems in managing their credit which is a good sign for the business. Thirty-
nine (65%) micro-entrepreneurs mentioned that they have problems and that 26 (66.67%)
were not able to pay their loans and the required interests. This shows that most of the
micro-entrepreneurs have problems in managing their credit.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
Table 23. Problems encountered in the access and management of credit
PARTICULARS
FREQUENCY*
PERCENTAGE
Problems in accessing credit
Low amount of allowable credit
14
23.33
Credit that requires collateral
9
15.00
Lengthy and complicated procedures
7
11.67
Insufficient documents to support loan
8
13.33
application
No financial track record
4
6.67
No available co-maker
2
3.33
No problems encountered
31
51.67
Problems in managing credit
Inability to avail desired credit
11
18.33
Inability to pay the loan and the required
26
43.33
interests
Improper usage of credit
14
23.33
No problems encountered
21
35.00
*Multiple responses
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Summary
This research was conducted to determine the credit management practices of the
micro-entrepreneurs in Sagada, Mt. Province. It also found out the factors affecting their
access to credit and the problems they encounter in the access and management of their
credit.
The respondents were the micro-entrepreneurs from the different barangays. The
data were collected with the use of survey questionnaires and personal interviews. The data
were analyzed using descriptive statistical tools such as frequency and percentage.
This research found out that the Sari-sari stores are the largest in number when it
comes to micro-enterprises. Almost all of the micro-entrepreneurs prepare budget for the
use and repayment of their credit. Majority of them also mentioned that they avail or apply
for credit during some particular events and that the time when they avail credit is highly
influenced by the number of tourists/visitors in the area.
Most of the micro-entrepreneurs avail the loan themselves. On the types of credit,
78.33% avail closed-end credit while 31.67% avail of the informal credit. More micro-
entrepreneurs avail credit amounting to P20, 000 and below. A great majority of the micro-
entrepreneurs pay their credit on time. The micro-entrepreneurs use different styles and
strategies such as budgeting of resources, saving every day, every week or every month so
that they can pay their credit on time.
Majority of the loan applications of the micro-entrepreneurs were successfully
granted. Most of the micro-entrepreneurs avail their credit from cooperatives, while only
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
five of them avail credit from banks. Being a member in the cooperative or bank is the
reason of the micro-entrepreneurs for availing credit from the cooperatives or banks.
Seventeen (28.33%) do not use collateral and majority of those who use collateral
use their share capital or savings deposit as loan security. Majority of the micro-
entrepreneurs use their loan money in purchasing merchandise and business expansion.
Almost all of the micro-entrepreneurs use money from their business operations to
pay for their credit. Some of them had no problems in repaying their credit but to some, no
available money is their main problem in repaying credit.
Different factors are affecting the access of credit by the micro-entrepreneurs, some
of these factors include: the amount of allowable credit, collateral requirements and the
length/complicated loaning procedures
Majority of the micro-entrepreneurs revealed that they have not encountered any
problems when they access or avail credit. Twenty-one (35%) of them did not have
problems in the management of their credit while majority of the micro-entrepreneurs who
encountered problems said that they were not able to pay the loan and the required interests.
Conclusions
Based from the findings of the study, the following conclusions were made:
1. Micro-entrepreneurs are involved in variety of businesses in the municipality.
Business transactions and credit demand by the micro-entrepreneurs are influenced by the
tourism industry in the locality;
2. Most of the micro-entrepreneurs practice good credit management because
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
they plan on when, where, and how much to borrow and they practice some strategies to
ensure that they can repay their credit. Saving from their income, budgeting their resources
and borrowing money from other sources are some of the strategies that they use;
3. There are available sources of credit like private lenders, relatives, rural bank
and cooperatives, but there are limitations on the part of the micro-entrepreneurs such as:
collateral requirements, insufficient income/assets and document requirements;
4. Various problems are encountered by the micro-entrepreneurs in their credit
management of which include: failure to pay for the loan principal and interest and the
improper use of credit/inability to pay; and,
5. Some of the micro-entrepreneurs need skills and additional knowledge on the
proper usage of their credit.
Recommendations
From the different findings of this study, the following are recommended:
1. The micro-entrepreneurs should continue their good credit management
practices. They can also organize themselves to support the tourism program of the
municipality since their businesses largely depend on it;
2. The micro-entrepreneurs can use alternative collaterals like savings and share
ownership from cooperatives. They can also maximize their properties by legalizing them
to be used as leverage in availing credit to any formal organization;
3. To address the problem on the limited amount of allowable credit, the micro-
entrepreneurs should establish track record by good credit repayment;
4. The micro-entrepreneurs can organize into a group for consultation with
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
government and lending agencies to come up with solution on the complicated loaning
procedures; and,
5. The Government and other financial intermediaries should conduct seminars
and trainings regarding proper credit management and small business management.
Credit Management Practices of Micro-entrepreneurs in Sagada, Mountain Province |
BUMATANG, NEREEN D., APRIL 2013
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