MELJUN CORTES research dissertation_business_management_performance_of_selected_microfinancial_institutions

1. BUSINESS MANAGEMENT PERFORMANCE OF
SELECTED MICROFINANCIAL INSTITUTIONS
TOWARDS THE BUSINESS GROWTH AND
STABILITY OF SMALL AND MEDIUM
ENTERPRISES IN PAGADIAN CITY
MELJUN CORTES

2. This study then aims to provide
evidence on the performance of selected
micro financial institutions towards the
business growth and stability of SMEs.
Generally, with a solid economic
fundamentals and significant revenues in
place, the country can accelerate the reforms
needed in achieving more inclusive growth in
poverty reduction and boost shared economic
profitability.

3. This study will determine the business management
performance of selected micro financial institutions as
correlates to their business stability.
Specifically, this will seek to answer the following
questions:
Problem 1. What is the profile of Selected Micro
Financial Institutions (MFIS) and Small and Medium
Enterprise in terms of ;
1.1 Selected Micro Financial Institutions
1.1.1 type of business organization;
1.1.2 capitalization ;
1.1.3 years of operation ;
1.1.4 number of employees;
1.1.5 accreditation level ?

4. 1.2. Small and Medium Enterprises
1.2.1 type of business organization ;
1.2.2 capitalization;
1.2.3 type of industry ;
1.2.4 years of operation;
1.2.5 amount borrowed from MFIs?

5. Findings :
1.1 Selected MFIs respondents.
There are 2 or 40 percent MFIs who are
corporations and 2 or 40 percent of the NGOs are
cooperatives. ; and 1 or 20 percent of the MFI was in
single proprietorship. The total respondents were
composed of 3 MFIs and 2 NGOs .
Of the five respondents, 2 or 40 percent of the
respondents have the initial capital between Php 30.1
to 50 million; 2 or 40 percent have the initial capital
between Php 3.1 million to 15 million pesos. and 1 or
20 percent of the respondent has the initial capital of
Php 15.1 million to 30 million pesos .

6. MFIs with more than 20 years of operations are 3 or 60
percent. There are 1 or 20 percent who are operating for
11 to 15 years and 16 to 20 years respectively. There are
4 or 80 percent of the MFIs are employing 21 to 30
employees in their organization; while 1 or 20 percent
have 11 to 20 employees.
All the selected MFIs are accredited by the Banko Sentral
ng Pilipinas as rural financial institutions likewise, NGOs
are accredited in accordance with the Republic Act
106943 known as “ Microfinance NGO Act “ , which aims
to help in fostering local enterprise development and
social entrepreneurship including the provision of
microfinance services to microenterprises.

7. 1.2 SME Respondents.
There are 118 or 79% of the SMEs respondents are single
proprietorship while 32 or 215 are partnerships. In terms of
capitalization, 59 or 39% had the business capital of less than Php
20,000 ; 47 or 31% had the capital of Php 50,500 to 80,000 ; 22 or
15% are with the business capital of Php80,500 to 100,000 and 12 or
8% with the business capital of more than Php 100,00. The rest, 10
or 7% had the business capital of Php 20,000 to 50,000 .

8. With regard to the type of industry, 60 or 40% of the
SMEs are engaged in retail businesses; 32 or 21% are
accounted for restaurant businesses ; 30 or 20% of the
SMEs are in wholesale businesses; 18 or 12% accounted
for service delivery businesses; 7 or 5% are in transport
businesses and 3 or 2% are on education businesses.
There are 88 or 59% of the SMEs had been operating
their businesses for 7 to 9 years; 33 or 22% are operating
their business for 10 years and above ; 19 or 13% are
operating between 4 to 6 years and 10 or 7% had
operated businesses for less than 3 years.

9. In response to the preference of microfinance loans
by SMEs, 82 or 54% preferred microfinance loan of
less than Php 20,000 ; 37 or 25% have loan between
Php 20,500 to 50,000 ; 16 or 11% accounted for a
loan amount of Php 80,500 to 100,000. The rest, 10
or 7% had loans between Php 50,500 to 80,000 and 5
or 3% had loans of more than Php 100,000.

10. Conclusion :
1.1. Micro Financial Institutions.
The total respondents were composed of 3 MFIs and 2 NGOs ; of which
2 of the MFI respondents are cooperatives and 2 are corporations with
1 single proprietorship.
There are 2 MFIs have an initial capital of Php 30.1 to 50 million and Php
3.1 to 15 million. They had been in microfinance operating for more than
20 years and are employing 21 to 30 employees in their organization, All
the selected MFIs are accredited by the Banko Sentral ng Pilipinas as rural
financial institutions , likewise, NGOs are accredited in accordance with
the Republic Act 106943 known as “ Microfinance NGO Act “.

11. 1.2.Small and Medium Enterprises.
There are 118 or 79% of the SMEs respondents are single
proprietorship. In terms of capitalization, 59 or 39% had
the business capital of less than 20,000 pesos.
With regard to the type of industry, 60 or 40% of the
SMEs are engaged in retail businesses ; 88 or 59% of
SMEs had been operating their business for 7 to 9 years ;
and in terms of microfinance loans, 82 or 54% preferred
had loan of less than 20,000 pesos.

12. Recommendation :
1. Micro Finance Institutions need to review
targeting procedures to currently identify
intended beneficiaries and there is a need to
regularly assess the economic status of clients
to avoid the drifting way from focus on the
low income Small and Medium Enterprises.

13. Problem 2
How do the Small and Medium Enterprise
respondents assess the performance of the
selected Micro Financial institutions in terms
of;
2.1 operation assistance;
2.2 interest rate ;
2.3 accessibility ;
2.4 efficiency ;
2.5 terms of payment ?

14. Findings:
Survey revealed that the assessment of the SMEs
respondents on the business performance of
MFIs in terms of operation assistance is to a “
moderate extent” . This finding was supported by
the average weighted mean of 3.21.
Paralleling to the foregoing finding, the
respondents assessment on the business
performance of MFIs is to a “moderate extent”
Serving to confirm this finding was the
respondents’ overall weighted mean of 3.36.

15. On the same manner, respondents manifested
on accessibility to a “ moderate extent”. This
was substantiated by their overall composite
weighted mean of 3.38.
Data revealed that. respondents’ assessment
is to “ moderate extent” on the business
performance of selected MFIs in terms of
efficiency. Attesting to the result of the finding
was the overall weighted mean of 3.32.

16. Likewise, the respondents assessed to a “
moderate extent” on the business performance
of selected MFIs in terms of payment. . Attesting
to the result of the finding was the overall
weighted mean of 3.20.

17. Conclusion :
Overall, the SMEs respondents manifested to
a “moderate extent” on the business
performance of the selected MFIs as inferred
from the overall weighted mean score of 3.29.

18. Recommendation :
Training as one of the core services of MFIs
should be vigorously implemented so as to
improve the performance of the client
enterprises and should improve the systems and
procedures such as automating systems and
operating procedures, upgrading and
institutionalizing performance standards and give
flexible terms of repayment of loan to enable
SMEs raise the capital needed.

19. Problem 3.
How do the selected Micro Financial
Institution respondents assess the business
performance of the Small and Medium
Enterprise in terms of :
3.1 business operation ;
3.2 entrepreneurial skills ;
3.3 financial management ;
3.4 criteria for loan application ?

20. Findings :
Data shows that the assessment of the MFIs
respondents on the business performance of
SMEs towards growth and stability in terms of
business operation is to a “ moderate extent” .
This finding was supported by the average
weighted mean of 2.86.
In like manner, the SMEs are assessed to a
“moderate extent” in their entrepreneurial skills.
This finding is based on the respondents’
weighted mean of 2.77.

21. Running counter to the foregoing finding, the
SMEs are assessed to a “less extent” in their
financial management. Attesting to the veracity
of this finding is n the respondents’ average
weighted mean of 2.44
On the other hand, respondents rated the SMEs
to a “moderate extent” on the criteria for loan
application. This finding is corroborated by their
average weighted mean of 3.29.

22. Conclusion :
Overall , the SMEs performance towards
growth and stability in different areas are
assessed to a “moderate extent” as inferred
from the overall weighted mean of 2.87

23. Recommendation :
There is a need for SMEs to attend trainings
and seminars in financial operations, resource
mobilization, portfolio management and
strategic and business planning ; should keep
proper financial records and plans to enable
them measure the growth of their businesses

24. Problem 4.
Is there a significant relationship on the
assessment Small and Medium Enterprise on
the performance of the Micro Financial
Institutions and the assessment of Micro
Financial Institution to the business
operations of the Small and Medium
Enterprises ?

25. Findings :
4.1 Operation Assistance
A negligible degree of correlations were found
between the operation assistance of the selected
Micro financial Institutions towards growth and
stability of SMEs in relation to business operation
with computed r – value of 0.208. The
aforementioned degree of correlation however, has
no significant relationship as inferred from the
computed t – values of 0.368 , which is lower than
the tabular t value of 2.447 at 0.05 level of
significance.

26. On the same manner, a low correlations and
no significant relationship existed between the
Selected Micro financial Institutions on the business
performance in terms of operation assistance and
Small and Medium Enterprises in relations to
entrepreneurial skills and criteria for loan application
towards growth and stability . This findings were
indicated by the computed r - values of 0.42 and
0.314 respectively. The findings, however were not
statistically significant in as much as the computed t
– values of 1.134 and 0..573 are very much lower
than the tabular t value of 2.365 at 5% level of
significance.

27. On the contrary, a high degree correlation and
significant relationship was noted between the
Selected Micro Financial Institutions on the business
performance in terms of operation assistance and
the Small and Medium Enterprises on financial
management towards growth and stability.
This was inferred by the computed r – value of
0.897 , with the computed t – value of 3.518 which is
higher than the tabular t – value of 3.182 at 0.05
level of significance. Accordingly, the hypothesis of
no significant relationship was rejected.

28. 4.2 Interest Rate.
A negligible and no significant correlation
existed between the interest rate of the selected
Micro financial Institutions towards growth and
stability of SMEs in relation to criteria for loan
application with the computed r – value of 0.192
and computed t- value of 0.518 which is lower
than the tabular t – value of 2.365 at alpha of
0.05. Therefore, the hypothesis of no significant
relationship is accepted.

29. On the contrary, a high and significant
relationships were noted between the interest rate
of the selected Micro financial Institutions
towards growth and stability of SMEs in relation to
business operation and entrepreneurial skills.
Confirming this finding was the computed r –
values of 0.872 and 0.821. This was also confirmed
from the computed t – value of 3.083 and 3.804
which is much higher than the tabular t – value of
2.447 and 2.365 at 0.05 level of significance.

30. A very high degree of correlation was found
between the interest rate of the selected Micro
financial Institutions towards growth and
stability of SMEs in relation to financial
management with the computed r – value of
0.989. This direction of relationship , however,
was statistically significant in as much as the
computed t – value of 4.336 went higher than
the tabular t – value of 2.447 with alpha 0.05 as
the benchmark. The hypothesis of no significant
relationship was rejected.

31. 4.3 Accessibility
A closer look at the data displayed, revealed a high degree
of correlations between the accessibility of the selected
Micro financial Institutions towards growth and stability of
SMEs in relation to entrepreneurial skills, financial
management and criteria for loan application which was
supported by the with the computed r – value of 0.833; 0.873
; and 0.825 respectively. Findings also shows that there is no
significant relationship between the variables entrepreneurial
skills and criteria for loan application, and this were
substantiated by the computed t – values of 2.129 and 2.066.
which is lower than the tabular t – value of 4.303 and 2.365 at
0.05 level of significance. Hence, the hypothesis of no
significant difference was accepted.

32. Meanwhile, a significant relationship
existed between accessibility and financial
management . This was supported by the
computed t – value of 4.001, which is much
higher than the tabular t – value of 2.571 at 0.05
level of significance. The hypothesis of no
significant difference was rejected.

33. 4.4 Efficiency.
Closer look of tabular data shows a
moderate and insignificant correlation between
the efficiency of business performance of the
selected Micro financial Institutions towards
growth and stability of SMEs in relation to criteria
for loan application. with the computed r – value
of 0.562 ; and computed t – value of 0.961 which
is lower than the tabular t – value of 4.303 at
0.05 level of significance.

34. A low and no significant correlation was
found between the efficiency of business
performance of the selected Micro financial
Institutions towards growth and stability of SMEs
in relation to business operation and
entrepreneurial skills . Attesting to the
correctness of the finding were the obtained r –
values of 0.966 and 0.952 and computed t –
values of 0.966 and 0.952 which failed to reach
the tabular t – values of 2.365 and 4.303 at 0.05
level of significance.

35. On the other hand, there existed a very
high and significant correlation between the
efficiency of business performance of the
selected Micro financial Institutions towards
growth and stability of SMEs in relation financial
management which was supported by the
obtained r – value of 0.923 and computed t –
value of 5.365 which is much higher than the
tabular t – value of 2.571 at 0.05 level of
significance.

36. 4.5 Terms of Payments
A low degree of correlation was found
between the business performance of the
selected Micro financial Institutions in terms of
payments towards growth and stability of SMEs in
relation to business operation with computed r –
value of 0.435. The aforementioned degree of
correlation was not statistically significant in as
much as the recorded t – value of 1.278 was less
than the tabular t – value of 4.303 at 0.05 level of
significance.

37. It can be seen from the following data
that a high but no significant correlation was
noted between the business performance of the
selected Micro financial Institutions in terms of
payments towards growth and stability of SMEs
in relation to entrepreneurial skills. This finding
was inferred from the computed r – value of
0.726 and computed t – value of 1.493 which is
lower than the tabular t – value of 4.303 at 0.05
level of significance.

38. On the other hand, a very high degree of
correlation and significant difference existed
between the performance of the selected Micro
financial Institutions in terms of payments
towards growth and stability of SMEs in relation
to financial management. The finding was
supported by the computed r – value of 0.906 ;
together with the computed t – value of 4.788
which is higher than the tabular – t value of 2.571
at 0.05 level of significance.

39. In like manner, a very high degree and no
significant correlation was also noted between
the performance of the selected Micro financial
Institutions in terms of payments towards
growth and stability of SMEs in relation to criteria
for loan application. Supporting this finding was
the computed r – value of 1.008 and computed t
– value of 3.444 which is lower than the tabular t
– value of 4.303 at 0.05 level of significance.

40. Conclusion :
No significant relationship existed between
the business performance of the MFIs in terms of
operation assistance, accessibility, efficiency and
terms of payment and the SMEs performance in
business operation, entrepreneurial skills, and
criteria for loan application.
There is significant relationship between the
business performance of the MFIs in terms of
operation assistance, accessibility, efficiency and
terms of payment and the SMEs performance in
financial management towards growth and stability.

41. Recommendation :
There should be a continuous flow of
information between MFIs and SMEs to enrich
their business performance and effective
coordination mechanisms to ensure business
growth and stability; and establish
relationship of cooperation between MFIs and
SMEs.

42. Problem 5.
What challenges are encountered by the
selected MFIs respondents in the performance
of the business towards the growth and stability
of SMEs and how are these challenges
addressed?

43. Findings :
MFIs respondents indicated a “moderate extent”
average response on the five challenges indicators. Of
these challenges indicators item 2: “ multiple borrowing
of clients” got the highest weighted mean of 3.33 which
rank as the no.1 challenge ; followed by item 1: “
ineffective credit investigation/background with a
weighted mean of 3.11 as rank no.2 ; the third is item
12 ; “ defalcation/fraud committed by the employees of
MFIs had a mean of 3.02 rank no.3 ; next is item 10 “ lack
of understanding of the definition and concept of
microfinance by the clients” with the computed mean of
2.67 rank no.4 ; and lastly, item 11: “ unhealthy
competition among MFIs “ with mean of 2.51 rank no.5.

44. Five of the eight identified solutions to address
the challenges encountered by the subject MFIs elicited
more than 50 percent responses from the respondent
employees. The main solution was the no. 1 “ efficient
screening of borrowers” which recorded 18 or 90
percent responses. Next was “ provisions for delayed
payments due to calamities” with 16 or 80 percent
responses. Item no. 3 “ effective implementation of
lending policy had 14 or 70 percent responses. “Item no.
8 “ improve credit and collection system” followed 13 or
65 percent responses ; item no. 4 “ strong management
information system with 10 or 50 percent responses.

45. Conclusion :
The main challenge encountered by the selected MFIs in
their business is the “multiple borrowing of clients” which is
to a moderate extent. Other major challenges are ineffective
credit investigation/background ; defalcation/fraud
committed by the employees of MFIs ; lack of understanding
of the definition and concept of microfinance by the clients ;
and unhealthy competition among MFIs.
According to the respondent employees, the top three
solutions to address the challenges encountered by the
selected MFIs focused on the efficient screening of
borrowers; provisions for delayed payments due to calamity;
and effective implementation of lending policy.

46. Recommendation :
MFIs should be efficient in screening of
borrowers, establishment of a strong
management information systems and
improvement in credit and collection system.

47. Problem 6.
What challenges are encountered by the
SMEs respondents in the performance of their
business towards business growth and stability
and how are these challenges addressed?

48. Findings:
The six major challenges are rated as “ moderate
extent “ on the following items: “lack of access to credit
due to collateral requirements” is the main challenge
with the computed mean of 3.41 and rank no.1 ; “ low
productivity “ is the next with mean of 3.36 ; “ lack of
knowledge regarding marketing techniques” and lack of
proper documentation of business, registration and a
permanent address “ with mean of 3.28 respectively ; “
lack of transparency in the business accounts and related
business information” with mean of 3.15 ; and “
recession, barriers from global sourcing” with mean of
2.96.

49. Survey shows that of the 10 proposed solutions to address the
challenges encountered by SMEs employees. There are 6 major
proposed solutions : item no. 6 “ developed a broader and
deeper skills in the area of skills development, business training,
marketing and technological services” got the highest response of
183 or 92 percent responses ; followed by item no. 2. “ reduce
requirements in loan application in collateral - based lending for
SMEs” with 178 or 89 percent ; item no.9 “ provisions for
minimum loan requirements and easy repayment period and loan
restructuring” have 161 or 91 percent. Item no.7 “ effective and
efficient utilization of the money borrowed from financing
institutions “ recorded 155 or 78 percent ; followed by item no.8
“ government interventions on market strategies to increase
market access and expand domestic market for SMEs” with 143
or 72 percent; and item no. 1” operational assistance from MFIs
to help SMEs run their business” have 128 or 64 percent
responses.

50. Conclusion :
The main challenge encountered by the SMEs
in performing their business is “ lack of access to
credit due to collateral requirements” which is to a
moderate extent. Other challenges faced by the
SMEs are: lack of access to credit due to collateral
requirements ; low productivity ; lack of knowledge
regarding marketing techniques ; lack of proper
documentation of business, registration and a
permanent address ; lack of transparency in the
business accounts and related business information ;
recession barriers from global sourcing.

51. Of the 10 proposed solutions to address
the challenges encountered by SMEs in the
operation of their business towards growth and
stability, the three main solutions are : developed
a broader and deeper skills in the area of skills
development, business training, marketing and
technological services ; reduce requirements in
loan application in collateral - based lending for
SMEs and provisions for minimum loan
requirements and easy repayment period and
loan restructuring.

52. Recommendation:
SMEs may participate on credit information
sharing that will facilitate the development of
information capital that will help change the current
collateral requirements ; credit information sharing
that would enable borrowers build a track record
that can be used in accessing credit.
The management of the subject MFIs and
SMEs should consider and implement the proposed
solutions identified by the respondents to address
the major problems encountered by the subject MFI
and SME employees.

53. THANK YOU VERY MUCH