BIBLIOGRAPHY TAAG, MARIE FE PACUYAN. APRIL...
BIBLIOGRAPHY
TAAG, MARIE FE PACUYAN. APRIL 2009. Effects of the Credit Policy of the
Universal Multipurpose Cooperative (UMPC) in the Granting and Collection of Loans.
Benguet State University, La Trinidad Benguet.
Adviser: Mr. Andrew K. Del-ong, BS
ABSTRACT
The study was conducted to find out the effects of credit policy of the Universal
Multipurpose Cooperative in the granting and collection of loans. The problems
encountered by the cooperative in implementing the credit policy in terms of collection
and reasons why some members unable to settle their obligation in the cooperative.
There were 55 member-borrower respondents and 7 management staff. The data
were gathered through survey questionnaire and informal interview. Finding revealed that
most of the respondents were farmers and vegetable traders and belonged to the age
bracket of 31-40 years old. The results also revealed that majority of the respondents are
men.
In granting, the cooperative consider character, capacity, collateral, condition and
capacity of the borrower before lending out money to avoid risk in the cooperative. In
collecting, they are very strict, they would send out reminder letter to the borrower to
remind them of their obligation in the cooperative. The cooperative foreclose the
collateral if the borrower failed to pay his/her debt.
Changing their old policy contributes a lot in their operation. Numbers of
borrowers were lessened; the collection of loan is very fast, the number of borrowers
increased and the capital of the cooperative is increasing.
The cooperative must implement fully and strictly their policy in granting and
collection of loan to avoid risk that the cooperative will encounter. The cooperative
should maintain the 5 C’s of credit to avoid delinquent payees and bankruptcy of the
cooperative.
ii
TABLE OF CONTENTS
Page
Bibliography…...…………………………………………………………………… i
Abstract ……………………………………………………………………………. i
Table of Contents ………………………………………………………………...... iii
INTRODUCTION …………………………………………………………………. 1
Rationale of the Study ………………………………………………………. 1
Historical Background ………………………………………………………. 2
Nature of the Study …………………………………………………………. 5
Statement of the Problem …………………………………………………… 6
Objectives of the Study ……………………………………………………... 7
Importance of the Study …………………………………………………….. 7
Scope and Limitation of the Study ………………………………………….. 8
REVIEW OF LITERATURE ……………………………………………………... 9
Cooperative Definition………………………………………………………. 9
Nature of Credit ……………………………………………………………... 9
Credit Policy………………………………………………………………… 10
Success of Credit Management ……………………………………………... 10
Lending Policies …………………………………………………………….. 11
Delinquent Borrowers………………………………………………………
11
Causes of Loan Delinquency ………………………………………………... 11
Practices to control loan Delinquency ………………………………………. 12
Problems of the Cooperative ………………………………………………... 13
iii
Factors Affecting Loan Repayment Delinquency…………………………… 14
Problems Encountered by members-borrowers
In relation to their Loan Repayment………………………………………… 14
Attitudes of Members toward Loan Repayment …………………………… 14
Collection of Loans …………………………………………………………
15
Problems Encountered in Collection of Loans……………………………..
15
Requirements Submitted by the Borrowers
when they Applied for Loan………………………………………………... 15
Loan Security………………………………………………………………. 16
Definition of Terms 17
METHODOLOGY ………………………………………………………………....
19
Locale and Time of the Study…………..…………………………………... 19
Respondents of the Study …………………………………………………… 19
Data Collection ……………………………………………………………… 19
Data Analysis ………………………………………………………….......... 19
RESULT AND DISSCUSSION …………………………………………………... 20
General Information about the Respondents…………………………………. 20
Information about the Changes of the Policy ……………………………….. 22
Qualification of the Borrowers ………………………………………………. 22
Requirements before Lending Out Loans…………………………………… 24
Types of Loan………………………………………………………………… 24
Policy in Loans the Terms and Condition…………………………………… 26
Policy of the Cooperative in Terms of Interest of Loan……………………
28
Interest on Rebates …………………………………………………………... 28
iv
Acceptable Collateral of Universal Multi-Purpose Cooperative ……………. 29
Old and New Policy in the Loan Approval Authority ………………………. 29
Policy on Co-maker Obligations ……………………………………………. 29
Credit Collection Technique……………………. ………………………
30
Credit Policy in Terms of Collection of Loans …………………………….
30
Actions Used by the Cooperative to Prevent Delinquent Account ………….. 32
P
roblems Encountered in Implementing this
Credit Policy in Collection of Loans ………………………………………… 33
Reasons in Delaying the Payment of Loan ………………………………….. 34
Reasons Why Length of Collection Affect in Paying Debt………………...... 35
Effects of Mode of Payments in Collecting Loans ………………………….. 36
Effect of Implementing Credit Policy in Terms of Collection ………………. 37
Effect of Implementing Credit Policy in
Terms of Granting of Loan………………………………...………………... 37
SUMMARY, CONCLUSION AND RECOMMENDATION…………………….. 39
Summary ……………………………………………………………………. 39
Conclusion ………………………………………………………………….. 40
Recommendation……………………………………………………………. 41
LITERATURE CITED…………………………………………………………….. 42
APPENDICES……………………………………………………………………... 44
A. Questionnaire for Officers……………………………………………..
44
B. Questionnaire for Members……………………….…………………….. 48
C. Letter to the Respondents………………………………………………... 50
D. Cooperative Vision, Mission …………………………………………… 51
v
1
INTRODUCTION
Rationale
A credit cooperative is an association, usually incorporated, with an economic
aims formed by persons of having common needs, having approximately equal voice in
the management, approximately equal contribution to the capital, and deriving
proportional services and benefits from it. Credit cooperatives engage in lending and
borrowing operations.
With the birth of credit economy, it is difficult to think of an economic society
that shuns the use of credit. No economic society can grow and achieve a considerable
degree of progress without the continued use of credit (Soriano and Nerth, 1985).
Business engaged in credit suffers many risks but most of them are dependent on
the attitude of the members of the cooperatives. Delinquent payee cannot be avoided but
it can be minimize through implementing the credit policy in strict ways but most of them
are their problems in the cooperatives.
On the other hand, due to credit, problems are encountered by cooperatives, most
often members of the said cooperatives are granted loans yet when it is time for them to
pay, and they refuse to pay or delay their payments. Cooperatives can never delete the so-
called “risks” but instead they can minimize it (Supanga 2002).
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
2
Historical Background
One of the unique features of our business system is that it has operated to a large
extent on the premise, called Credit. Business firms sell to consumers on credit and buy
from other business firms on credit.
The word credit came from the Latin word “Creditum” which means “Trust.” The
widespread use of credit is an evidence to support the belief that the people have trust in
one another.
The reason for the extension of credit is quite simple. People buy things that they
can not afford to pay at the moment, but probably can pay later.
In a cooperative, credit is always involved. Therefore, they have its own policies
especially in granting and collection of loans. They are fond of utilizing credit policies to
maximize their profit and sales. However, if these are possible, then no business firm
needs to suffer from bad debts, which are the common problems of the collection
departments of business firms. In addition, there would have been no many businesses or
industries that have stopped in operations because of this problem.
For the countless years to come, for most business firms, if not for all, the
formulation of a credit policy as well as the adaptation of an efficient method that will
ensure one hundred percent (100 %) collection of all existing indebtedness will remain an
elusive goal, if not an empty dreams, Miranda (1980).
The job of collection is to get the money due to the company. However, all
collection efforts should be made in line with the policy of the cooperatives. The
collection cost must be kept within reasonable limits, good will have most maintained
and collection and risks must be reduced to the minimum.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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Cooperatives begun as early as the period of human history when men had ceased
to be nomadic and had settled in communities or groups, for the cooperative spirits
among members of the community springs from the inherent gregariousness of men;
Thus, Webster’s International Dictionary, states that a cooperative is marked by working
together or by joining efforts toward a common end; it is not motivated by an individual’s
selfish ends.
The cooperatives movement of recent years was originated from ideas espoused
by men like Robert Owen, Saint-Simon, Louis Blanc, and Fourier. Robert Owen was and
is presently referred to as the” Father of Cooperatives.”
The cooperative system was formally introduced in the Philippines in 1909.
Through a bill on Rural Credit Cooperative, presented in the first Philippine Assembly.
However, this bill was not passed into a law. Seven years later, a similar bill was
presented and enacted into law on February 5, 1985 as Act No. 2508, otherwise known as
the Rural Credit Act. The first Rural Credit Cooperative Association was organized on
October 19, 1991 among farmers in Cabanatuan, Nueva Ecija.
As early as 1927, a need to help farmers in marketing their products was already
felt. The Cooperative Marketing Law (Act. No. 3425) was passed on December 9, 1927,
entrusting to the Bureau of Commerce and Industry the duty of organizing farmers into
cooperative associations; total number of members were approximately 5,000 farmers.
There was initial enthusiasm at organizing cooperatives but due to the inexperience of
both the farmers and the government, only 20% of these associations, which reported
their annual sale of agricultural products to the Bureau remained active.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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Simultaneous with Marketing Cooperative, Consumers Cooperatives were also
being gradually organized. On October 18, 1938, the Consumers Cooperative League of
the Philippines was formed. It was a private organization sponsored by the Bureau of
Commerce. Cooperatives gained real state in 1940 when the Cooperative Law was
enacted (Commonwealth Act. No.5651). It was largely due to the interest taken by
President Manuel L. Quezon in the promotion of cooperatives. A minimum requirement
of 15 persons, who are citizens of the Philippines of the United States was set. Incentives
in the form of tax exemptions in the first five years of operation were given. The National
Trading Corporation was designated to supervise and administer all cooperatives. Later
on, this was given to the National Cooperative Administration.
Immediately, after Liberation, cooperative associations whose existence was
disrupted during the war were again organized through the Economic Cooperative
Association, primarily for the distribution of the relief goods. Cooperative associations
were registered as fast as they came in the midst of this state of things that Act No. 713
on November 1, 1645 which revived the National Cooperative Administration (NCA)
was promulgated. On September 10, 1947, the NCA, was abolished. The National
Cooperative and Small Business Corporation (NCSBS) were created under Executive
Order no. 93 on October 4, 1987. After three years, Executive Order No. 34 abolished the
NCSBS and in its place the Cooperatives Administrative Office (CAO) was organized
and was placed under the Department of Commerce and Industry.
In 1952, there was a move to separate and distinguish Agricultural from Non-
agricultural Cooperatives. The Agricultural Credit and Cooperatives Financing
Administration were created pursuant to RA 821 to organize, supervise and finance
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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Agricultural Cooperatives. On the other hand, Non- Agricultural Cooperative Act (RA
2033) was also passed at the same time. This was a formal recognition of the different
function of Agricultural and Non-agricultural Cooperatives.
Thus, the Cooperative system was gradually introduced in the Philippines through
a series of Laws and Executive Orders. The first types of cooperatives organized were
simple and with limited functions. Rural Credit Union, were first organized; then,
Producers’ Cooperative, limited only to Marketing function; and lastly, Consumers’
Cooperative.
Nature of the Study
Year 1990 when the manager, Josefina Urian, from Cagayan and she was the
manager of Rural Bank, organized and established rapport as far as Credit is concerned
among farmers and vegetables traders at Trading Post, La Trinidad, Benguet. It is she
was able to know well the real attitudes of individuals who are borrowing and gained
some friends too. She also noted that they were able to form a group and established a
common bond of interest, which is lending. At first, they started to register this into an “
“Association” and that was Women’s Association. This association was organized on
September 07, 1994 and started operating on September 15, 1994. But upon knowing
that “cooperative” is more advantageous and has more benefits over an association they
change it into a cooperative and now, it is Universal Multi-purpose Cooperative. They
registered with the Cooperative Development Authority on June 02, 1995. They started
with an initial capital of Php 90,000 and it increased to Php 5,940,496.03 as of October
2008. Membership has increased from the original incorporators of 15 to 430 as of
September 2008. The area of operation were Benguet, Baguio and on a case-to-case
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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basis, to Mountain Province. The cooperative capitalization are from the members share
capital, income from the operation and borrowings from Land Bank with an existing
credit line of Ten Million (PhP10,000,000.00) to fund production loans since 1998 to
present. In 1998 the cooperative was already automated.
Aside from Land Bank, the Department of Trade and Industry (DTI) have also
extended their help through the Non-Government Organization (NGO) Micro Credit
Program in 1996 to 1999 and the Credit Program for the poorest of the poor in 2000-
2003.
In 1999, the Land Bank of the Philippines- La Trinidad, Branch (LBP-LT)
awarded the Universal Multi-Purpose Cooperative with a Plaque of Recognition as “Best
in Reciprocal Business”. This implies that the Management Staff and the Board of
Directors (BOD) are well equipped in running a Credit Cooperative.
In 2003, the LBP-LT Branch again awarded the cooperative with a Plaque of
Accreditation as “Key Cooperative” which shall serve as Land Bank’s Development
partner in fulfilling its quest for agricultural development by way of expanding its reach
to small farmers and other under served sectors in the countryside.
Statement of the Problem
Specifically, the study sought to answer the following:
1. What are the effects of credit policy of the UMPC in terms of granting of loans
and collection of loans?
2. What are the problems encountered by the Universal Multi-purpose
Cooperative in implementing this credit policy in terms of loan collection?
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
7
3. What are the reasons why some members unable to settle their obligation in the
cooperative?
Objectives of the Study
The following were the objectives of the study:
1. To know the effects of credit policy of Universal Multi-purpose Cooperative in
terms of granting and collection of loans.
2. To find out the problems encountered by the Universal Cooperative in
implementing this credit policy of loan collection.
3. To know the reasons why some members unable to settle their obligation in the
cooperatives.
Importance of the Study
Since Cooperatives are viewed as instruments and vehicles for the development of
the society, it is important that it should be successful. The difficulties and problems
being encountered by Universal Multi-purpose Cooperative mostly on Credit policy
should be known and analyzed for the knowledge and benefits of the different sectors of
our society like the Banking Industry, the Government, etc. The members of the
cooperative and concern researchers and their existing knowledge from insights on the
operation of the cooperative and some phenomenon are worth learning from.
The study would serve as a guiding tool for effective planning, organization,
management and decision making for a successful cooperative.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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For the members of the cooperative, knowledge on the problems of their
cooperative will help member to share ones work since the survival of a cooperative is
entirely dependent in the collection, loyalty and the unity of the members.
It will also serve as a reference to any person who will conduct similar researches
in the future. It will also provide information to the cooperative Development Authority
(CDA) to formulate development program for the improvement of the cooperative in our
country.
The identified good practices, policies will be maintained and adopted by other
cooperative for their own benefits.
Furthermore, the finding of the study can be used by cooperative officers as a
basic or guide in formulating their credit policies or to strengthening their current policies
on credit.
Scope and Limitation of the Study
This study was conducted at the Universal Multi-Purpose Cooperative (UMPC)
located at JC-177, Km. 5, Pico, La Trinidad, Benguet.
Data were gathered through interviews conducted by the researcher to staff,
officers and members of Universal Multi-purpose Cooperative. It also centered on the
operation and management of UMPC on their credit policies. The study was conducted
from December 2008 to January 2009.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
9
REVIEW OF LITERATURE
An organization that is operating without policies attached can never meet their
expected objectives. Policies are very important to one company for through these there
will be an improvement to the operation of the company. It will create a better
management and helps to assist an organization to achieve its purpose specially when the
organization is continuously growing and expanding.
Cooperative Definition
The Cooperative Code of the Philippines (RA 6938) defined cooperative as a duly
registered association of persons with a common bond of interest . who have voluntary
joined together to achieve a lawful common social or economic ends, making equitable
contribution to the required capital of accepting a fair share of the risk and benefits of the
undertaking in accordance with universal accepted principles.
Nolledo (1986), stated that the cooperative maybe said to be a group of persons
who pool their resources under the principle of equality and common understanding for
their mutual benefits. A cooperative is based on the saying well known in human circles
that “In Union, there is Strength.”
Nature of Credit
The word credit has been derived from the Latin word “creditum” which means
trust. If there is trust, there is credit. Trust can be exchanged with the money, goods or
services. Thus, credit refers to the ability of an individual or institution to acquire goods,
services, and money at the present time in return for a promise to pay at a definite future
time. However, in a modern market economy, most credit transactions involve money.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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The trust of the moneylender on the borrower depends on:
Character. This refers to the personal integrity of the borrower. Even if he has the
ability to pay if he does not like to pay, he is not a good debtor. Character includes
attitudes, values, habits, lifestyles, and vices.
Capacity. This is evaluated in terms of the ability of the borrower to use wisely
his loan. His capacity to pay depends on maturity, responsibility, and business
competence.
Capital-This pertains to the resources of the borrower, such as properties (land, building,
machinery, etc.).Whether or not he pledges his properties as collateral, the ability of the
borrower to obtain loan is greater (Abella, and Fajardo, 1999).
Credit Policy
Celoy (2000) mentioned that credit policy is one of the most important factors to
consider for a business to have a good operation.
Soriano and Nerth (1985) stated that there is a close relationship between the
firm’s organization and its operating policies. It is difficult to change one without
changing the other operating policies act as lubricant for effective, efficient and smooth
operation of the organization.
Success of Credit Management
Leuterio and Cerizal (1985) believe that the success of credit management does
not only depend upon the efficiency of estimating the credit risks but also on the
enforcement of collection, as they put in their own words.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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“A successful collection as one of the pillars of good credit management should
be able to carry out the two main objectives; to minimize bad debts and to maximize sales
or transactions.”
Lending Policies
According to Ganawed (1997) the Cooperative Bank of Benguet extends loans to
their borrowers on the basis of their actual needs for cash and the borrower’s capacity to
pay. In medium and long term loans, the bank required collateral as security for the loan.
The bank also required borrowers to submit tax declaration of property, certificate of land
title, income tax return and tax account no. Furthermore, it also required co-makers.
Bag-eo (1995) found out in his study that banks requires collateral before granting
loans since it serves as a security in case of non-payment of loans. He added that the
banks major requirement for loaning were credit and character information borrower’s
residence certificates, promissory notes and collaterals.
Delinquent Borrowers
Alzona (1980), state that the growing magnitude and difficulty of past due loans
have continuously posed a problem had a treat to the stability of the country’s banking
system in recent years.
Causes of Loan Delinquency
Supanga (2002) enumerated the common causes of loan delinquency as:
Irrelevance of loan policies, irresponsible processing system, and weak collection system,
lack of security of loans, poor example of officers, several loans and lack of cooperative
education.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
12
In addition, Diclas (2005) found out in her study that the course of loan
delinquency can be minimized right from the making of the loan policies and even after
the loan has granted. Giving credit counseling to members is one way of improving
lending operations. She recommended that the released loans should be periodically
followed up to assure a viable and healthy project that will guarantee full payment and
satisfaction to the cooperative and borrowers.
Practices to Control Loan Delinquency
Agustin (2000) found out in her study that trainings decreases delinquency rate.
Through trainings, members of the cooperative became aware of their duties and
responsibilities and benefits from the cooperative.
Furthermore, Foranda (1983) noted that in case of non-repayment of loans a grace
period is given to the borrowers to pay. The borrower will set the time he will pay the
loan if he has valid reason. The bank will issue a foreclosure of the property offered as
collateral when there is a failure to pay the loan. If the borrower does not repay, he will
be deprived of future loans from the cooperative.
Pozel (1981) stated that establishing a good relationship with the cooperative can
go a long way, He feels sure that many relationships have been unsuccessful as a result of
an incomplete understanding between a lender and the borrower. He also noted that
before the loan is made the lending institution determines the credit standing and the
character of the member, his job, the desirability of his property, the size of the capital,
and the amount of loan to ensure that loans be repaid.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
13
Problems of Cooperative
Saldo (2005) mentioned some of the attributable factors of cooperative failures as:
a). members become loan oriented for government financial assistance and perceived
dole- outs; b). lack of education and training information and practical knowledge
regarding cooperative management; c). non-internalization of cooperative principles and
practices of members; d). insufficient working capital; e). inadequate marketing facilities
and other support services; f). members disloyalty; g). political interference; h).
insufficient government agency supervision entrusted with the development; i). poor
management and leadership; and j). absence of audit and internal control.
Abasolo (1996) further stated that the major factors that contribute to the major
difficulties in the attempts to institutionalize cooperative are given as follows: lack of
education and training, lack of information on the technical know how, the principles, the
nature and operation of the cooperative organization which would lead to incompetent
management, absence of adequate safeguards against unscrupulous officers who took
advantage of their position to grant loans to themselves and their “kumpares” which
provide disastrous practices into the system; improper use of credits by borrowers who
utilized borrowed funds for non-prescribed purpose; defective securities, political
interference particularly on the collectible overdue accounts; inability of coop to secure
adequate capital and establish adequate marketing facilities. Effectiveness of the
government agencies entrusted with the development and promotion of cooperative
organizations and in adequate supervision.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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Factors Affecting Loan Repayment Delinquencies
Biase (1979), noted that the factors affecting loan repayment delinquency in
banks are farmers, and characteristics of borrowers which include the household size,
educational attainment and experiences of borrowers.
Taganas (1979), found out in her study that the failure of farmers to pay loan on
time of the maturity was caused by diversion of loan to non-farm activities. This was due
to late release of the loan that motivated them to divert it to purposes other than the
intended purpose. This condition created in them the attitude of spending the loaned
money from the bank elsewhere. As a result, nothing was used on the intended purpose.
This further resulted to the extent of selling their house, lands on lots, just to augment the
amount needed for the land preparation and other expenditures or cropping season.
Problems Encountered by Member-Borrower
in Relation to their Loan Repayment
Ganawed (1997), noted that the most of the agricultural and commercial
borrowers on the long duration of processing before loan is released, and the delayed
approval of loan application. Many requirements were accomplished before a loan was
granted, there was limitation of the funds available, distance from the cooperative bank
and unawareness of the procedure in borrowing.
Attitudes of Members towards Loan Repayment
According to Kiwa-en (2007) her finding shows that the respondents strongly
agreed to the attitude of paying all the obligations on time for them to be a member of
good standing and serve also as a model to their members. Prompt payments leads to a
good bonding of a member toward the cooperative, and for the cooperative to be able to
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
15
lend money to the rest of the members too. She said that majority of the members
believed that they must be reminded of their balances before the maturity date for them to
prepare and avoid delinquent payments.
Collection of Loans
Wadasen (2001), stated that repayment capacity of borrowers is the major basis in
the determination of the amount of loan granted. This represents the person’s ability to
use and manage credit wisely as measured by the stable and reasonable amount of profit.
It is a test of economic feasibility of the loan is repaid without difficulty , it is generally
attained if an instrument is profitable.
Problems Encountered in Collection of Loan
Cooperative are faced with problems of delinquent loans due to circumstances
which if not properly managed will result in the tremendous financial set-back and loss of
confidence of member borrowers in the cooperatives lending programs or services
(Macaranes, 1994).
Requirements Submitted by the Borrowers
When they Applied for Loan
The requirements submitted by the respondents when they applied for loan are:
real state mortgage and chattel mortgage. Other requirements to be submitted were
promissory note and fixed deposit certificate, and checking account. These were some
reasons why the borrowers will submit requirement. These will serve as security measure
for the cooperative and also it was the traditional practice of the cooperative (Togyog,
2006).
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
16
Loan Security
Many firms obtain credit on an unsecured basis either because they are new and
unproven or because bankers do not highly regard the firm’s ability to service debt. In
order to make loan. Lender requires security than will reduce their risk of loss . With
security lenders have two sources of loan repayment: the cash flow ability of the firm to
service the debt end, if that source fails for some reason, the collateral value of the
security will be used. Most lenders will not make a loan unless the firm has sufficient
expected cash flows to make proper servicing of debt probable. To reduce their risk
further, lenders require security. Secure lending arrangements are mostly costly to
administer than unsecured loans and that the incremental cost is passed on to the
borrowers in the form of fees and higher interest lost than would otherwise be the case.
Then, if unsecured credit is available somewhere at least total cost, one can be sure that a
borrower will go there to get it. Beyond a point in risk , however, all lenders in the
market will want some type of safeguards in addition to the general credit standing of the
company. This safeguard can come to the form of security or a set of protective
covenants that afford the lender to take corrective steps prior to maturity if the borrower’s
financial condition should deteriorate. A lender cannot demand security and expect to get
it unless the borrower has no other alternatives. The use of security is negotiated in
keeping with conditions in the overall market for loans (Van Horne, 1989).
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
17
Definition of Terms
Capacity. It is the ability of a person to pay his/her debt.
Capital. It consist of the amount and quality of goods and property, express in
terms of money which an individual or firm possess over and above financial obligation.
Character. The borrower willingness to discharge his obligation that is to pay the
loan as promised.
Collateral. Consist of variable things that represent as a security for loan acquired.
Condition. It as the awareness of the members to their obligation.
Cooperative. A non-profit organization composes of fifteen in above individuals
that act as incorporators with common interest to provide the need of its members
through lending.
Credit. To borrow money for consumption with the promise to pay for it on a
future definite time.
Credit cooperative. Organization that deal with loans.
Credit investigation. A task performed by an investor to verify the applicant’s
character, credit standing and integrity of paying loan.
Credit policies. It is a set of conditions or standards written or unwritten under
which loans are made.
C’s of credit. It is the basis of cooperative in granting of loans to the members and
this includes capacity, capital, character, collateral and condition.
Individuals. The people who are interested to become member of cooperative
Loans. It is the amount borrowed by the members of the cooperatives.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
18
Loan policies. It pertains to the entire contract between the cooperative and its
members as creditors to as when and how much it will pay. These are guiding rules in
granting and treatment of loans.
Policies. Set of rules being implemented in an organization.
Term of loan. It refers to the length of time when members will pay their
obligation.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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19
METHODOLOGY
Locale and Time of the Study
The study was conducted at the Universal Multi-purpose Cooperative (UMPC)
located at JC-177, Km. 5, Pico, La Trinidad, Benguet.
The study was conducted from December 2008 to January 2009.
Respondents of the Study
The respondents of the study were the borrowers and members including the
staffs and officers of Universal Multi-purpose Cooperative. Random sampling of
respondents was employed in the selection of respondents.
Data Collection
The method of gathering includes library research, survey questionnaire and
interviews. The survey questionnaires were given personally to guide the respondent in
answering the question. Follow-up interviews were also done to clarify at the same time
validate data. Secondary data such as their credit policies and financial report of the
cooperative were also gathered.
Data Analysis
The data collected were classified, tabulated, analyzed and interpreted according
to the objectives of the study.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
20
RESULTS AND DISCUSSION
General Information About the Respondents
For the ages of the respondents (47.27%) fall under the age bracket of 31-40 years
old, followed by 29.09% under the 41-50 years old. It can be noted that the younger age
bracket (21-30) accounted for 18.18 % while the oldest age bracket (51-60 years old)
accounted for 5.45%.
For the officer respondents, majority (57.14) falls under the age bracket of 31-40
years old. A significant 28.57 % belong to the young 21-30 years old. No one belong to
the oldest age bracket.
In terms of sex, male member-respondents slightly dominate the females. In terms
of their number (60%-40%), respectively. While on the officers and staff-respondents, it
is the female who is greater number (57.24% to 42.86%).
As to the occupations of members –respondents, more of them are farmers
(30.91%), followed by vegetable traders (25.45%0, business of non-agricultural
commodities (16.36%), 1 professionals (12.73%), and driver (3.64%). It can be noted that
the one is still student. Result show that the membership in the cooperative is diverse
which is good.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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21
Table 1. Personal information about the respondents
MEMBERS
OFFICERS
ITEMS
FREQUENCY PERCENTAGE FREQUENCY PERCENTAGE
Age
20-30
10
18.18
2
28.57
31-40
26
47.27
4
57.14
41-50
13
20.09
1
14.29
51-60
3
5.45
TOTAL
55
100
7
100
Gender
Male
33
60
3
42.86
Female
22
40
4
54.14
TOTAL
55
100
7
100
Civil Status
Single
6
10.91
1
14.29
Married
47
85.45
6
85.71
Widow
2
03.64
TOTAL
55
100
7
100
Occupation
Farmer
17
30.91
Vegetable
14
25.45
Dealer
Vendor
5
0.09
Businessman
9
16.36
(non
agricultural)
Driver
2
03.64
Professionals
7
12.73
7
100
Student
1
01.82
TOTAL
55
100
7
100
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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Information about the Changes of the Policy
The cooperative started operating on September 15, 1994. They started to change
or improve their policy in 2003 because they want to be more competitive. And
according to the officers it is for the benefit of the members and also for the cooperative.
Their objective is to have an easy access for the members-borrowers at affordable rate of
interest. The classification of borrowers are members in good standing and this include
members who have no delinquent loans and accounts in the cooperative ;second are the
delinquent members who have past due loans and accounts in the cooperative.
Qualification of Borrowers
This table shows the qualification of the borrowers in the old and new policy of
the Universal Multipurpose Cooperative. This is to know if the borrower is qualified to
borrow. In the old policy, the cooperative just consider the character and the capacity of
the borrower but the result is the member-borrower was not screened well. In the new
policy, they added collateral because it is important to secure the repayment of the loan.
As the respondent’s answers, in part of the borrower they are afraid in case there is
foreclosure of their collateral. They consider condition if the debtor is in good health, if
he/she is active and aggressive enough in taking their commitments of whatever
obligation they have. The cooperative also consider capital to know if he/she has the
resources to pay his/her lo0an whether or not he pledges his/her properties as collateral.
According to the management staff, the number of delinquent was lessened.
According to the cooperative, one causes of loan delinquency in their old policy is
that the husband and wife can avail loan at the same time. To avoid delinquency, they
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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23
state in their new policy that only one of the couple (either a husband or wife) can avail
of a loan. That if the husband has existing loan the wife cannot avail or apply for a loan.
In the old policy in term of residency, member-borrower can not wait for three
months residency before availing which causes the borrower to withdraw his/her
membership in tend to go to other cooperative to avail loan. To avoid that to happen, the
cooperative reduced it to one month residency and its effect is that the number of
borrower increases.
Table 2. Granting policy in terms of qualification of borrowers
OLD POLICY
NEW POLICY
1. Good character, capacity
1. Character, capacity, collateral, capital,
condition
2. Husband and wife can avail loan at the
2. Husband and wife are not allowed to
same time.
borrow at the same time until the others
settles ½ of his or her loan.
3. Associate members who have reached
3. Associate members who have reached
the age of 18 years old can borrow and
the age of 18 years old can borrow and
must undergo the process of regular
must undergo the process of regular
membership
membership.
4. Three month residency upon full
4.One month residency upon full payment
payment of minimum share capital of
of minimum share capital of P5, 000 before
P5,000 before availing.
availing loan
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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24
Requirements before Lending Out Loans
Table 3 shows the old and new policy in the requirements on loan before lending
out loans. These policies are implemented because it is very important policy in terms of
granting loan and the cooperative must check all the requirements. First, the member
must be a regular member and had undergone Pre-membership Education Seminar
(PMES) so that they will be aware of their responsibilities. The borrower must have a one
month residency after paying the minimum share capital of P5, 000. The borrower must
have two co-maker with good standing in the cooperative and he or she has no obligation
in the cooperative. The requirement of having two co-maker is for the security of the
loan.
Types of Loan
Table 4 shows the types of loan. There’s no change in the types of loan in the
cooperative. Productive loan intended for any legitimate income generating projects
which will give the member and or other individuals an additional source of income.
Most important on this loan is its nature self finances its obligation. Provident loans are
loans granted to members for emergency like sickness, hospitalization, and any
unforeseen event or death. This loan is also for school fees, land improvement
(residential), vehicle or engine repair, sickness and death for providing expenses in which
the member does not have adequate cash for medical expenses. Also included here are
other activities which have the nature of social obligation and expectation of making
profit.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
25
Table 3. The old and new credit policy in the requirements before lending out loans
OLD POLICY IN THE REQUIREMENT
CURRENT POLICY IN THE
OF LOAN
REQUIREMENT OF LOAN
1. He or she is a member from the
1. Must be a member and must undergo
cooperative of at least three months
Pre-membership Education Seminar
(PMES).
2. Have a minimum fixed deposit of P5, 2. Residency of one month after infusing
000.
the minimum share capital of P5, 000.
3. The purpose of the loan is for 3. Two co-maker with good credit standing
providential and productive.
and no obligation in the cooperative.
4. Two co-maker with good standing and 4. Farm plan is required on the productive
he or she has no obligation in the loans, whereas, in provident loan the
cooperative.
purpose be specified that the sources of
payment must be stated being pledge by the
borrower.
5. Farm plan is required on the productive 5. Collateral should be accompanied by
loans, whereas, in provident loan the mortgage contract to be notarized by notary
purpose be specified that the sources of public and be annotated as mortgage by the
payment must be stated being pledge by the registry of deeds and assessors office.
borrower.
6. collateral should be accompanied by the 6. cedilla
mortgage contract to be notarized by notary
public and be annotated as mortgage by
register of deeds and assessors office
7. cedilla
7. 2 x 2 ID
8. 2 x 2 ID
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
26
Table 4. Types of loan of the universal multi-purpose cooperative
OLD AND NEW POLICY IN THE TYPES OF LOANS
1. Productive Loan
a. Regular loan/clean loan
a.1. commercial loan
a.2. agricultural loan
b. Collateralized loan
b.1. commercial loan
b. 2 agricultural loan
2. Provident Loan
a. Emergency loan
b. Educational loan
Policy in the Loans Terms and Condition
Table 5 shows that the terms and conditions in the providential and productive
loan are the same in the old policy but in the new policy they separate the terms and
condition in providential and productive loan. Lowering the amount loanable in the new
policy will help the borrower not to be hard up in paying their debt. Decreasing the term
of loan affects the debtor in paying their debts because the term of loan is very short for
the borrower to pay hid/her debt. Term of loan in the productive loam is 2-3 months
because according to the cooperative, the interest and the capital that they borrowed is
payable in a shorter time and with a condition that their must be a two co-n\\maker for the
security of the loan. They cooperative also state that 6-10 months loan of payment is very
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
27
long for the debtor to pay their loan because the cropping here in Benguet is good for 3-4
months so before the due date they can pay their debt. And according to them there is a
big possibility that the borrower would divert the cash when the maturity has not been
reached and it will lead to delinquency.
Table 5. Terms and conditions on loans
OLD POLICY
NEW POLICY
A. Provident and Productive loan
A. Productive loan (without collateral)
· Loanable amount-three
· Loanable amount-two times of the
times of the share capital
share capital but not more than the
but not more than the loan
loan ceiling
ceiling
· Loan ceiling-150,000.00
· Loan ceiling- 150,000.00
· Term of loan-2-3 months
· Term of loan-6-10 months
· Mode of payments- daily, weekly,
· Mode of payment- daily,
semi-monthly, monthly and lump
weekly, semi-monthly,
sum.
monthly and lump sum
· With 2 co-maker
B. collateralized Loan
· Loanable amount-two times the
share capital
· Loan ceiling-300,000.00
1.Real State Mortgage
· Loan ceiling- 300,000.00
· Term of loan-3-5 months
· Mode of payment-daily, weekly,
semi-monthly, monthly, lump sum
· With 2 co-maker
2. Chattel Mortgage
· Loan ceiling- 150,000.00
· Term of loan-3 months
· Mode of payment- daily, weekly,
semi-monthly, monthly, lump sum
· With OR/CR and with franchise
and, the PUJ only with in La
Trinidad to Baguio.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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Policy of the Cooperative in Terms of Interest of Loan
Table 6 shows the old and new policy of interest of loan. In the old policy the
interest is slighter higher and according to the officers the effect is there is a lesser
borrower. They lessen the interest so that the borrower can easily afford. Because of
lesser interest, it attributed the increase in the number of the borrowers. Rate of
delinquency also decreased because of the lesser gross payable amount.
Interest on Rebates
The interest rebates to their old policy is that the cash is given to the borrower and
for the current policy, the rebates will be added to the share capital of the member to
increase the capital build-up.
Table 6. Interest in loan
ITEMS
OLD POLICY
NEW POOLICY
Productive Loan
2 % per month
2 % per month
Interest in loan
1.5% per month
.75% per month
Service fee
1.5% per month
.75 % per month
TOTAL
5% per month
3.5% per month
Collateralized Loan
Interest in loan
2 % per month
2 % per month
Service fee
.6 % per month
.4 % per month
Other income (filling
.6 % per month
.4% per month
fee)
TOTAL
3.2 % per month
2.8 % per month
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
29
Acceptable Collateral of Universal Multi-Purpose Cooperative
The cooperative accept real state mortgage and chattel mortgage as collaterals.
Before, the cooperative accept land title even the land is not productive. To its effect, if
the cooperative auction in the public there will be few interested buyer. In their current
policy, land will only be accepted as collateral if is productive and accessible. In the old
policy of the cooperative, they allow chattel mortgage like private cars and appliances. In
the new policy, chattel mortgages are only accepted on case to case basis but for vehicles,
only those with franchise operating within La Trinidad and Baguio. They only passenger
used vehicles (PUJs) within La Trinidad and Baguio for easy monitoring.
Old and New Policy in the Loan Approval Authority
Table 7 shows the loan approval authority of the cooperative. The manager has
the approving authority if the loan is equal to the share capital and the amount approved
by the manager has a lower risk and have a lesser accountability. When it comes to the
higher amount to be loaned, the credit committee and board of directors has are the
approving authorities. This is for further evaluation if the borrower can avail his or her
loan. This can minimize risk.
Policy on Co-maker Obligations
1. Co-maker should see to it that the loan she guaranteed should be used for its
purpose.
2. Act as secondary credit investigator and the obliged to inform the office on the
borrower’s project status.
3. Has the authority to run after the borrower because his or her credit standing will
be affected.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
30
4. Co- makers who guaranteed past due accounts cannot avail loan, unless he offer
collateral.
The cooperative policy in co-maker obligation is the same. The co-maker will act as a
secondary credit investigator and the co-maker must be a good credit standing in the
cooperative and he or she has no obligation in the cooperative.
Credit Collection Technique
Table 8 presents the collection technique used by the cooperative in collecting
loan. In the Universal Multipurpose Cooperative, the most effective collection technique
they used is through reminder letter which has answered by 41 respondents which implies
that in order that the borrower will pay their debt in the maturity. They will send out
reminder letter 15 days before the due date to avoid delinquent payments. The second
collection they used is by sending follow-up letter or past due letter with 36 number of
respondents. This means that if the cooperative can not collect within the due date they
will still send follow-up letter in order that the borrower will settle their obligation in the
cooperative. The third one is sending final demand letter which has answered by 33
respondents. The fourth one is through legal action. This is a letter coming from the
Attorney, this is to force to borrower to pay his/her debt in the cooperative.
The other collection technique is used but it is not so effective to the cooperative
and to the borrowers because of the lower answer by the member-borrower respondents
in which the cooperative used in a limited ways only.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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Table 7. Loan approval authority
OLD AND NEW POLICY
1. Emergency loans
- Approved by the manager but not exceed
of P 5, 000
2. Loans equal to share capital
- Approval of the manager
3. up to P 150, 000
- Approval of the credit committee
4. P 150, 000 to P 300, 000
- Approved by the board of directors and
the credit committee
5. Loan of application to credit committee
- Approval of the board of directors
Credit Policy in Terms of Collection of Loans
The collection technique used by the Universal Multipurpose Cooperative in
collecting loans is through reminder letter, past due letter, final demand letter, legal
demand letter; daily collection; and texting. In order that the borrower will pay their debt
on the maturity date the cooperative sent out reminder letters fifteen (15) days before the
maturity to avoid delinquency. Upon maturity the cooperative will sent out past due letter
in order that the borrower will settle their obligation. After 15 days, they will send final
demand letter. If the borrower still did not come to the cooperative to pay his/her loan the
borrower will accept a legal demand letter issued by the attorney for legal action.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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32
Table 8. Credit collection technique used by the cooperative
ITEMS
FREQUENCY
PERCENT (%)
Demand letter from the
33
60 %
committee ( final demand
letter)
Remind letter
41
74.55
Retention of collateral
2
03.64
pledge
Daily collection
21
38.18
Telephone
18
32.73
Sender follow-up letter
36
65.46
(past due letter)
Legal action
30
54.55
Texting ( sms)
23
41.82
Actions Used by the Cooperative to Prevent Delinquent Account
Table 9 shows the actions used by the cooperative to prevent delinquent account
are the same in their old policy. It is through legal action, sold the collateral and
foreclosure of the collateral. First, legal action this is giving reminder letter to avoid
delinquency. If the borrower did not yet pay his/her loan the cooperative will foreclose
the collateral so that the borrower will be force to pay his/her debt in the cooperative. The
cooperative will sell the collateral to increase the asset of the cooperative.
Giving action to the borrowers needs for better collection to the borrowers and
help to minimize the problems the problems encountered by the cooperative and most of
the borrowers will always make their payment in their due date.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
33
P
roblems Encountered in Implementing this
Credit Policy in Collection of Loans
Table 10 shows that lack of orientation on members and violation of credit policy
are the problems mostly encountered by the cooperative in implementing the credit policy
in the collection of loans.
Violation of members on the credit policies needs an improvement to that kind of
policy. Credit policy should always be popular to all the members and lack of orientation
on the credit policy intend to increase more problems to be encounter by the cooperative.
Credit policy must not be violated because it is the most factor s that should be
always be considered in granting and collection of loans to minimize the problems
encountered by the cooperative.
Table 9. Actions used by the cooperative to prevent delinquent account
ITEMS
FREQUENCY
PERCENT (%)
Legal action
6
85.71
Foreclosure
7
100
Accept payment in kind
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
34
Table 10. Problems encountered by the cooperative in this credit
policy in collection of loans
ITEMS
FREQUENCY
PERCENTAGE
Uncertainties about the
2
28.57
policy
Violation of credit policy
5
71.42
Lack of cash fund
2
28.57
The management
1
14.28
Lack of orientation of
6
85.71
members
Reasons in Delaying the Payment of Loan
Table 11 shows that the low prices of vegetables is the main reason in delayed
payments of loan of the member which was answered by 31 respondents, it’s because
most of the borrowers are farmers wherein they do not know when the prices of
vegetables increase or decrease. Second, is the loss of production with an answer of 26
because of the weather and calamities. Followed by the bankruptcy which answered by
24 respondents other reasons with rank of number 4, the no sufficient fund is answered
by 19 respondents.
The reasons are not always incurred by the cooperative but it seems it should have
an improvement and make policy regarding on this problem encountered by the
cooperative.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
35
Table 11. Reasons in delayed payment of loans
ITEMS
FREQUENCY
PERCENTAGE
Loss of production
26
47.27
Bankruptcy
24
43.63
Low prices of vegetables
31
56.36
High interest
1
01.81
No sufficient fund
19
34.54
Others
2
03.63
Reasons Why Length of Collection Affect in Paying Debt
Table 12 shows the reason that affects members in paying their debt. Short time
have low interest as number 1 with an answer of 34 because the shorter they will settle
their obligation the less interest they will pay and the longer time the more interest with
an answer of 15 and others with 06. This other is because of economic crisis.
The member would always base their loan on the interest so that their will be no
difficulty in paying their debt.
TABLE 12. Reasons why length of collection affect in paying debt
ITEMS
FREQUENCY
PERCENTAGE
Shorter time with low
34
61.81
interest
Longer time with high
15
27.27
interest
Others
6
10.29
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
36
Effects of Mode of Payments in Collecting Loans
Table 13 presents the effect of length of payment of the borrowers. According to
the policies of the cooperative, each member is given the option to choose from, if they
are paying their loan on a daily, weekly, semi-monthly, monthly and lump sum.
Although, the members are given the freedom in paying their debt they could not still pay
their loan on time. As to daily collection the borrowers are easily monitored. The
borrowers will not be hard up in paying their debt when it matures and the cooperative
can assess the capacity of the borrower.
Most of the farmers prefer to choose monthly mode of payment because it enables
them to pay smaller amount rather than paying higher amount in a long time because the
longer time the higher the interest they will be paying, do to avoid delinquent payment ,
its better to pay debt in a shorter time so that it will lessen their problem specially with
those who are receiving an income that is sufficient only to their basic needs.
Table 13. Effects of mode of collection in collecting loans
ITEMS
FREQUENCY
PERCENTAGE
Daily
10
18.18
Weekly
8
14.56
Semi-monthly
6
10.91
Monthly
18
32.73
Lump sum
13
24.64
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
37
Table 14. Effects of implementing credit policy in terms of collection of loan
CREDIT POLICY
EFFECT
Reminder letter
B
orrower will pay on time
Foreclosure of collateral
Minim ize risk that will be encountered
Effect of Implementing Credit Policy in Terms of Collection
Table 14 shows that the credit policy that is implemented has an effect in the
cooperative. The policy of sending reminder letter to the borrower will pay their loan on
time because they are being reminded about their accounts to be paid. Foreclosure of
collateral will minimize the risk that the cooperative will encounter and the borrowers
will be forced to pay their loan.
These policies are strictly implemented because it gives better income to the
cooperative, better collection of loan to the borrower and increase in the capital in which
members maybe benefited.
Effect of Implementing Credit Policy in
Terms of Granting of Loan
Table 15 shows that in every credit policy that is implemented in the cooperative
there is always an effect in the cooperative. The member should have fix deposit before
they will be granted a loan. To minimize delinquent borrowers there should be collateral
to every borrower in lieu of their loan so that incase the borrower cannot pay his/her debt,
the cooperative can easily foreclose the said collateral. The good credit standing will
contribute to one hundred percent collection of loan and it will affect the portfolio of the
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
38
cooperative incase their record will be having a deficit because of the inability of the
cooperative to collect on their borrowers.
Table 15. Effects of implementing credit policy in terms of granting of loan
CREDIT POLICY
EFFECT
Borrowers should have collateral
Few deli
nquent borrowers
Members should have a good credit
One hundred percent collection
standing
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
39
SUMMARY, CONCLUSION AND RECOMMENDATION
Summary
The study was conducted to determine the effect of credit policy in the granting of
collection of loan of Universal Multi-Purpose Cooperative (UMPC).
The respondents were the officers, staffs and selected borrowers of the
cooperative. The data were collected with the use of survey questionnaire but an
interview was also done to get additional information not included in the questionnaire.
With respect to the credit policy of the cooperative in terms of collection of loan
are charges on late payment, given reminder letter to the borrower. The use of legal
action, foreclose of collateral to minimize the problem encountered by the cooperative.
As to the effect of implementing the credit policy in terms of collection of loan
the charges of late payment lessen the past due loans. Reminder letter will remind the
borrower to pay their loan on time, the effect of foreclose of collateral is to minimize risk
that will be encountered.
To their credit policies in terms of granting loans, the members should have fix
deposit in which the coop use as basis if the applicant can pay their debt on time. Should
have collateral to minimize delinquent borrower and member should have a good credit
standing to have good loan portfolio.
Bankruptcy of members are the most common problem encountered because most
of the borrowers are farmers, violation of credit policy and lack of orientation on
members are the problems encountered by the coop in implementing the policy in terms
of collection of loan. Term of loan affects the members paying their debt.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
40
Credit policy should always be considered in granting of collecting of loans to
minimize the problem encountered by the cooperative and it is be strictly implemented.
Conclusions
Based on the finding of the study, the following conclusion was derived:
1.The cooperative included condition, collateral and capital to their policy in their
qualification of borrowers and from three months residency they decrease it to one
month.
2.The cooperative policy in terms and condition is that the loanable amount is
times three of their share capital but not more than the loan ceiling but in the new policy
the loanable amount is times two of the share capital and with co-maker.
3.In terms of the interest of loan, they decrease it. From the productive loan of 5
% interest they lowered it to 3.5 % and for the collateralized loan of 3.5% they lowered it
to 2.8%. it is Pre-deducted
4.The cooperative implement their credit policy in terms of collection of loans
that are reminder letter and foreclose of collateral and in terms of granting loan the
member should have fix deposit, collateral and good credit standing.
5.The credit collection that the cooperative usually used to encourage borrowers
to pay is the reminder latter, followed by sending a follow-up, final demand letter and
legal letter. To prevent delinquent accounts they used legal actions and foreclose of
collateral to minimize risk.
6.Violation of credit policies and lack of orientation on members are the problems
of the coop in implementing their credit policy in terms of collection of loan.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
41
7.Borrowers are delaying the payments of loan because of the low prices of
vegetables, followed by lose of production and bankruptcy.
8.The effect of credit policy in terms of collection of loan will lessen the past due loans,
borrower will pay the loan on time and minimize risk that will be encountered. In terms
of implementing credit policy in terms of granting of loan, members will screened well,
few delinquent borrowers and there will be a good loan portfolio.
Recommendations
The following recommendations were made on the basis of the finding:
1. The cooperative must strictly implement their credit policies regarding
collection of loan and also maintain their collection technique which is for effective.
2.Officers and staff of the cooperative should orient and explain well to the
members the existing credit policy and considering the kind of work or business of the
member. They must also see to it that they know all the policies of the cooperative.
3.Cooperative should conduct seminars for every amendments of their credit
policy. They must encourage the members to attend seminars or give incentives to the
members who attend the seminars. They must orient the members on the credit policy to
decrease the problems to be encountered by the cooperative.
4.The cooperative must extend their length of collection so that the members will
have enough time to prepare their payments.
5.The cooperative should maintain the 5 C’s of credit which is Character, Capital,
Capacity, Collateral and Condition especially in granting loans in order to avoid
delinquents’ payees and bankruptcy of the cooperative.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
42
LITERATURE CITED
ABASOLO, P.1996.Cooperative in the Philippines.History, Organization and
Management. Manila.GIC Enterprise and Co., Inc. Pp. 5-6, 8,13.
ABELLA, F. P. and FAJARDO, F. R. 1999. Fourth Edition. Cooperatives.Rex Bood
Store, Inc. Pp.122-123.
AGUSTIN,L.M. 2000. Perceived Effect of Training on tha Performance of Cooperative
in Kibungan, Benguet. BS Thesis. Benguet State University. La Trinidad,
Benguet. P. 40.
BIASE, L.A. 1979. Repayment of Delinquencies in Agricultural Loans in Buguias,
Benguet. BS Thesis. Benguet State University, La Trinidad Benguet. P. 24.
BAG-EO, R. G. 1995. Agricultural Lending Policies and Problems of Selected Rural
Banks in Benguet. BS Thesis. Benguet State University. La Trinidad, Benguet.
P.16.
CELOY, J. 2000. Availing Cooperative Benefits and Services as An Indicator of
Satisfaction. Published Undergraduate Thesis. Easter College, Inc. Baguio City.
P. 29.
DICLAS, J. A. 2005. Management Problems of Cooperatives in Baguio City. A Baby
Thesis. Easter College, Inc. Baguio City. Pp.1-10.
FORANDA, C. M. 1983. Cooperative Economic Analysis of Loan Granted By Three
Rural Banks in Ilocos Sur. BS Thesis. Benguet State University. La Trinidad,
Benguet. P 40.
GANAWED, D. R. 1997. Credit and Repayment Performance of Loan Borrowers of the
CVooperative Bank of Benguet. BS Thesis. Benguet State University. La
Trinidad, Benguet. Pp. 8-9, 37-39
KIWA-EN, D.G. 2007. Factors Affecting Loan Payment Delinquency of La Trinidad
Vegetable Trading Post Multipurpose Cooperative in La Trinidad, Benguet. BS
Thesis. Benguet State University, La Trinidad, Benguet. Pp. 5-8.
LEUTERIO, M. M. and CERIZAL, E. G. 1985. Fundamentals of Credit and Collections.
Manila, Alemar-Phoenix Publishing Hopuse, Inc. Pp. 54-55.
MACARANAS, M.J. 1994. Manual for Training Cooperative Management Staff.
International Labour Organization Cooperative Entrepreneurs for Rural
Development. Quezon City, Philippines. Pp. 1, 18-19.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
43
MIRANDA, G. 1980. Credit and Collection. Eight Edition. Manila: L and G Publishing.
P. 91.
NOLLEDO, N. 1986. Principles of Agrarian Reform, Cooperative and Taxation. 12th
Edition. P. 163.
POZEL, M. C. 1981. Farmers Cooperative. United State of America. Agriculture
Cooperative Service. USA. P. 5.
SALDO, A, C. 2005. Profile of Non- operating Cooperatives in Baguilin La Union. BS
Thesis. Benguet State University. La Trinidad Benguet. Pp. 6-7.
SORIANO, E. and NERTH L. 1985. Business Policy in an Asian Continent. Manila.
Sinag- Tale Pulishers, Inc. PP. 61-63.
SUPANGA, M. P. 2002. Implementation of Loan Policies of Philex Employees Credit
Cooperative in Philex, Pacdal, Tuba, Benguet.A Baby Thesis. Easter College, Inc.
Baguio City. P 11
TAGANAS, P. 1979. Payment Deficiencies of Agricultural Loans, in Bontoc, Mountain
Province. BS Thesis. Benguet State University, La Trinidad, Benguet. P. 43.
TOGYOG, K.G. 2006. Credit Operation of La Trinidad Vegetables Trading Post
Multipurpose Cooperative. Bs Thesis. Benguet State University, La Trinidad,
Benguet. Pp. 14-15.
VAN HORNE, J. 1989. Financial Management and Policy. 8th Edition. Prentice Hall,
Englewood Cliffs, New Jersy. Pp. 489-507.
WADASEN,R.P. 2001. Financial Management Practice at the St. Jude Community
Multipurpose Cooperative in Buguias , Benguet. An Assessment. MS Thesis,
Benguet State University, La Trinidad, Benguet. P. 29.
ARALAR, R.B.1986. Cooperative Code of the Philippines (RA 6938). Cooperative
Definition. 2nd Edition. Pp. 6-7.
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
44
APPENDIX A
Questionnaire (for officers)
Name: _________________ Age: ______________
Position: _________________ Sex: ______________
Instruction: please answer the question by checking on the space provided on the answer
of your choice.
1. Which of the following credit policies does the cooperative in granting loans to
implement to members?
______Members should have fix deposit
______Members should have collateral
______Members should have good standing
______Others, please specify _______________
2. What documentation requirements do you use?
______Credit and appraisal report
______Credit investigation background
______Co-maker
______Cedulla
______I.D
______Registration of collateral/mortgage
______ Others, please specify _______________
3. What is your basis in granting loans?
______Salaries
______Kind of business/location of business
______Capacity based/cash flow
______Character
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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______Condition
______Capital
______Others, please specify _______________
4. What is/ are the collection technique used by the cooperative in collecting loan?
______Reminder letter
______Sending follow-up letter/past due letter
______Legal action
______Follow-up by personal visit
______Final demand letter
______Others, please specify _______________
5. Do you grant discount rate on early payments?
______Yes
______No
6. What is the minimum amount discount rate that the member can avail on early
payment of loan?
______Minimum 5% ______Minimum 20%
______Minimum 10% ______Rebates
______Minimum 15% ______Others __________
7. What is the maximum amount discount rate that the member can avail in early
payment of loan?
______Maximum 10% ______Maximum 25%
______Maximum 15% ______Rebates
______Maximum 20% ______Others ___________
8. Do you charge penalty on late payments?
______Yes
______No
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
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46
9. Which of the following policies/policy are implemented by the cooperative
regarding in the collection of loan?
______Reminder letter
______Charges on late payment
______Retention of collateral pledges
______Others, please specify ______________
10. Is there an effect of theses credit policy?
______Yes
______No
11. In relation in number 10, what is/are the effects of these credit policies to your
cooperative?
______________________________________________________________
______________________________________________________________
______________________________________________________________
12. In the old policy, in regard to the capital of the cooperative, what is the effect of
these in imposing that kind of credit policy?
______Increase ______No change
______Decrease ______Others
13. In the old policy, what happened to the number of members in your cooperative
when the policies are implemented?
______Increase ______No change
______Decrease ______Others
14. In the new policy, with regard to the capital of the cooperative. What is the effect
of these in imposing that kind of credit policy?
______Increase ______No change
______Decrease ______Others _____________
15. In the new policy, what happened to the number of members in your cooperative
when the credit policies are implemented?
______Increase ______No change
______Decrease ______Others _____________
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
47
16. After imposing the new credit policy, what happened to the number of borrowers?
______Increase ______No change
______Decrease ______Others ____________
17. What are the actions used by the cooperative to prevent delinquent accounts?
______Legal action ______ Others
______Foreclosure of collateral
18. What are the problems encountered by the cooperative in collecting the loan?
______Missing of costumer ______Delinquency
______Character ______Others, please specify_______________
______Diversion of cash
19. What is/are the problems encountered by the cooperative in implementing these
credit policies in terms of collection?
______Uncertainties about the policy
______Violation of the credit policies
______Lack of cash fund
______The management
______Lack of orientation of members
______Others, please specify _______________
20. In the old policy, how often does the cooperative encounter delinquent payment?
______Never ______Always
______ Seldom ______Others
______Most often
21. How often does the cooperative encounter delinquent payment after imposing the
new credit policy?
______Never ______Always
______ Seldom ______Others _____________
______Most often
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
48
APPENDIX B
Questionnaire (for members)
Name: _____________ Age: _____________
Occupation: _____________ Sex: _____________
Instruction: Please answer the question by checking on the space provided on the answer
of your choice.
1. What are the collection techniques used by the cooperative in collecting loan?
______Demand letter from the committee/final demand letter
______Reminder letter
______Sending follow-up letter/past due letter
______Telephone
______Daily collection
______Texting (sms)
______Personal visit
2. In connection in your answer in number 1, are you forced to pay your loan on
time?
______Yes
______No
3. Which of the following affects u in paying your debt?
______Charges
______Term of loan
______Others, please specify ______________
4. Which mode of collection on loan affects you in paying your debts?
______Daily ______Monthly
______Weekly ______Lump sum
______ Semi-monthly
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
49
5. What is/ are the reasons why length of collection affects you in paying your
debts?
______Shorter time have low interest
______Longer time have high interest
______Others, please specify ______________
6. What is/ are your reasons in delaying your payments?
______Loss of production
______Bankruptcy
______Low prices of vegetables
______High interest
______No sufficient fund
______Others, please specify ______________
7. If there is collateral, are you encouraged paying your debt in the cooperative?
______Yes
______ No
8. How effective to you the old policy of the cooperative?
______Effective ______Ineffective
______Very effective ______Very ineffective
9. How effective to you the new policy that the cooperative implemented?
______Effective ______Ineffective
______Very effective ______Very ineffective
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
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APPENDIX C
College of Agriculture
DEPARTMENT OF AGRICULTURE ECONOMICS AND
AGRIBUSINESS MANAGEMENT
Benguet State University
La Trinidad, Benguet
January 2009
Sir/Madam
I am a fourth year student of Benguet State University taking up Bachelor of Science in
Agribusiness major in Cooperative Management. As part of the course requirement, I am
presently conducting a research study titled, “EFFECTS OF THE CREDIT POLICY OF
THE UNUVERSAL MULYI-PURPPOSE COOPERATIVE (UMPC) IN THE
GRANTING AND COLLECTION OF LOANS”
May I request a portion of your precious time for an interview and answering my
questionnaire. Rest assured that all information and data you provided will be treated
with utmost confidentially.
Thank you very much for your support. More power and
God Bless!!!!!
Respectfully yours,
Marie Fe P. Taag
Researcher
Noted by:
Andrew K. Del-ong
Adviser
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
51
APPENDIX D
Cooperative Vision, Mission
Cooperative Vision
“A financial intermediary that is sustainable in operation by providing quality
products and services in the form of loan, housing, operation of a gasoline station,
agricultural supplies, financing and necessary benefits like: mortuary, education,
hospitalization, scholarship and pensions, thus; improving the quality of lives of members
and an institution run and managed by honest, effective and dedicated leaders and
ultimately, providing employment to the community and the nation as whole.”
Cooperative Mission
“We intend to achieve quality services through the development and
comprehensive programs on lending, housing financing, financing, gasoline station and
selling agricultural farm inputs to increase surplus for better returns to members and
owners.
We plan to develop a good program on human resource so as to produce quality
and trustworthy leaders.”
Effects of the Credit Policy of the Universal Multipurpose Cooperative (UMPC) in
the Granting and Col ection of Loans / Marie Fee P. Taag. 2009
Document Outline
- Effects of the Credit Policy of theUniversal Multipurpose Cooperative (UMPC) in the Granting and Collection of Loans
- BIBLIOGRAPHY
- ABSTRACT
- TABLE OF CONTENTS
- INTRODUCTION
- REVIEW OF LITERATURE
- METHODOLOGY
- RESULTS AND DISCUSSION
- SUMMARY, CONCLUSION AND RECOMMENDATION
- LITERATURE CITED
- APPENDIX