Sample proposal for credit and saving facilities for cooperative

1. 1
Project Proposal
Project Name: Financing of Micro-Enterprises (Credit) Project
Proponent: Cleopatra Savings and Credit Cooperative (CSCC)
Location: Barangay Salvacion, Puerto Princesa City, Palawan
Loan Amount: P500,000.00
Background
In recent years, there has been increased focus on lending to the poor. Many studies found that
the poor are good credit risks—given opportunity and motivation, they are fully bankable. The
credit needs of the poor can be met on a sound basis by adopting appropriate delivery systems,
using semi-formal institutions such as NGOs and POs, and self-help groups (SHGs) as financial
‘middlemen’.
Microfinance is one of several essential tools in combating poverty especially in rural
communities. While it is not a panacea, promoting access to sustainable financial services leads
to increased productivity, income and food security of the poor. On the whole, the poor need the
following:1
1. Microsavings deposit facilities for:
 the safekeeping of savings/accumulation of resources
 consumption-smoothing
 emergencies
 self-financing of investments
2. Microcredit, with access to loans of various sizes and maturities for:
 financing of investments, i.e., enterprises and livelihood projects
 consumption-smoothing
 emergencies
Among the universally accepted key concepts in the design of a rural microfinance are the
following:
 Outreach – directed to a specific and targeted sector, i.e., a distinct commitment to reach low-
income clients;
 Self-reliance – helping the clients help themselves, primarily by mobilizing their own
resources and setting up their own financial micro-institutions; and
 Viability and sustainability – covering the costs from the margin while preserving the value of
resources.
1
Microfinance also encompasses microinsurance, including specialized insurance services (life, health, accident or cattle insurance)
and nonspecialized services (providing social protection through access to one’s savings or to credit in cases of emergency) for: risk
management, social security, and loan protection, plus other financial services, for example microleasing, supplemented by
nonfinancial services.

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It can be said therefore that savings and credit are requisites to a microfinance program.
Programmatically, both can be viewed as components. However, one of the more crucial
questions is: which comes first, savings or credit? The essence of self-reliance of the poor and
their institutions is their financial resources - savings:
 Savings deposited and accumulated by the poor in local financial institutions are the basis of
self-financing and household risk management;
 Savings mobilized by local financial institutions are the main source of institutional fund
growth, and this bring independence from external subsidies and interference;
 Savings brings down the cost of operating a credit program as the pooled funds from savings
may be used for credit operations rather than interest-bearing outside funds.
The priority of one over the other – savings first or credit first – is a pragmatic issue. The crucial
criterion is the return or outcome: savings first is more appropriate in low-return activities (e.g.
subsistence agriculture, household upkeep, social protection); credit first is more appropriate in
high-return activities (e.g., enterprises, livelihood projects). Theoretically, savings-driven
investments in low-return activities, because of their potential outcome to the saver, may
generate the start-up capital for credit-financed activities with high returns. These, in turn, may
generate profits and savings to be plowed back into low-return activities.2
In Puerto Princesa City in the province of Palawan, the Fundación Santiago (FS) is promoting
savings mobilization through the formation of savings groups or savings cells (SGs). These SGs
will then be consolidated into formal organizations, e.g., cooperatives, to serve as financial
intermediaries in their respective areas that will provide both savings and credit services to its
members. As of end of August 2004, there are already 108 SGs formed in the 18 barangays
covered by the FS, with a total of 1,205 members.
One such cooperative to be formalized out of the SGs is the Cleopatra Savings and Credit
Cooperative (CSCC), which is composed of SGs from 11 barangays in the northern part of Puerto
Princesa City, namely: Langogan, Binduyan, Concepcion, Tanabag, San Rafael, Babuyan,
Maoyon, Lucbuan, Maruyogon, Manalo and Salvacion. Of the 108 SGs formed, there are 60 SGs
in these barangays. The main objective of the cooperative will be the provision of savings and
credit services to its members.
Project Description
The proposed project is essentially a start-up credit project, which will be a socialized credit
facility, where sub-loans will be made available to individual members of the cooperative. The
funds that will be made available for sub-loans will come from the combined funds of the
cooperative and the proceeds of the loan being proposed under this proposal. Below is a
discussion on the various development aspects and features of the proposed project.
Market Aspect
The cooperative is projecting that there will be an average of 12 borrowers per month (or 70
borrowers per cycle / 6 months operation), considering the availability and level of funds. The
funds for sub-loans will come from the combined share capital and savings of the members, and
loan in the amount of P500,000.00.
2
“Rural Finance for the Poor,” International Fund for Agricultural Development (IFAD).

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There are numerous microfinance providers in the area which the members can avail of, such as:
banks, Javlon/Palawan Community Business Development Center (CBDC) with microfinance
funds from the National Livelihood Support Fund (NLSF), Quedan Corporation (Quedancor),
Dunganon (an NGO), informal lenders (e.g., Indian and Vietnamese resident aliens), lending
investors/institutions, and other private businesses and investors. However, what sets the
cooperative apart from these microfinance providers is that any net surplus that will be generated
by the cooperative from operating the credit program will accrue to the borrowers themselves, as
they are also the members of the cooperative.
Technical Aspect/Features of the Sub-Loans to Borrowers
Below are the features of the loans that will be made available by the cooperative to the member-
borrowers:
 Loan Purpose/s. Sub-loans are to be extended may be used for both productive and
provident purposes. With specific reference to the productive loans, the loan proceeds will be
used to finance microenterprise projects of the member-borrowers. Examples include crop
production of rice, corn and vegetables; livestock and poultry raising; mariculture production;
and trading (buy-and-sell). On the other hand, examples of usage of loan proceeds for
provident purposes include those for emergency, hospitalization, education, or consumption.
 Eligible Borrowers. Borrowers must be members-in-good-standing of the cooperative and of
their respective SG, has paid the share capital of P1,000.00, and must have a good track
record of attendance in membership meetings.
 Loan Amount. The loan amounts will vary depending on the loan purpose. For instance, for
productive loans, the loan amount will depend on the needed capitalization of the
microenterprise project to be financed out of the proceeds, exclusive of labor-related
expenses, as this will have to be the counterpart of the borrower. In no case however will the
loan amount be more than P10,000.
 Interest Rate/Other Charges. The interest rate to be assessed is twenty four percent per
annum (24% p.a.), spread over its entire amount and duration. A pre-deducted service fee of
three percent (3%) of the loan amount will be charged.
 Mode of Payment/Duration. All loans will be paid in cash. Various modes of payment can be
considered:
1. For crops, balloon payment (principal plus interest), to coincide with the projected time of
marketing the produce, which is approximately within one (1) week of harvest
2. For other microenterprise projects, periodic amortization starting on and corresponding to
the period within which the project is expected to generate revenues. Payment may be
daily, weekly, semi-monthly, monthly, or semi-annually.
3. For other loan purposes, periodic amortization of say daily, weekly, semi-monthly or
monthly, depending on the borrower’s capacity to pay.
There will be no grace period.
 Requirements. The loan requirements and their brief descriptions are as follows:

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Requirement Description
1. Accomplished
loan application
form
The borrower must fully accomplish the loan application form. This
form is already available with the cooperative. The application will
have 2 variants: 1) loan application cum simplified business plan –
for microenterprise projects; and 2) loan application form – for loans
to be used for provident purposes.
2. Identified Co-
Makers
The borrower will identify two (2) loan co-makers, who will have to
fully accomplish the co-makers’ form. Like the borrower, the co-
makers should satisfy the borrower eligibility requirements.
3. Interview with
Credit Committee
(CreComm)
After completing the above forms, the borrower will undergo a formal
interview with the Credit Committee (CreComm). For this purpose,
the CreComm will use the Credit Analysis Chart, which is essentially
a tool that evaluates the borrower’s 4Cs of Character, Capacity,
Capital, and Condition.
4. Attendance in
enterprise
technology/skills
orientation
For microenterprise projects, the borrower will be required to attend
an orientation on the specific microenterprise project to be
implemented. Orientations are periodically conducted by the
cooperative with the assistance of FS and its partners that render
technical assistance.
5. Certifications The following certifications will be issued by the cooperative, to be
indicated in the loan application form:
1. Status of the borrower as a member-in-good standing, by the
Treasurer
2. Attendance in the appropriate technology/skills training, by the
Education Committee
 Loan Availment Procedure. The following loan application procedure will be observed, which
will be the responsibility of the cooperative Credit Committee:
1. The borrower shall accomplish a loan application form (Requirement No. 1).
2. The borrower shall also accomplish the co-makers’ form (Requirement No. 2), to be
signed by the co-makers.
3. Upon accomplishment and submission, the applicant will be asked to undergo a formal
interview with the Credit Committee (CreComm). Aside from the evaluation of the
application as to adequacy and correctness of the forms submitted and the borrower’s
ability to pay the loan based on the Credit Analysis Chart, the CreComm will also reorient
the borrower on the Credit Program of the cooperative (Requirement No. 3).
4. For loans for microenterprise projects, the applicant will also be asked to attend an
enterprise technology/skills orientation (Requirement No. 4).
5. The CreComm will then secure the following (Requirement No. 5):
 Certification by cooperative Treasurer Chairperson as to status as member-in-good
standing
 Certification by the Education and Training Committee re attendance in the
appropriate technology/skills training
6. Upon completion of requirements and favorable evaluation, the loan is considered
approved. The applicant is then informed of the approval. If the application is
disapproved, the borrower will likewise be informed of such, stating the reasons for
disapproval.

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7. The approved application will then be referred back to the Treasurer, who will certify as to
the availability of the funds, then to the Cashier, who will then prepare the cash or check,
as applicable.
8. The proceeds of the loan will then be released, using appropriate financial systems and
procedures. A recap on the features of the loan will likewise be undertaken by the
cooperative with the borrower, specifically highlighting the mode and frequency of
payment.
 Loan Renewal. The same borrower can avail of another loan only upon full payment of the
existing loan.
 Remedial Management. In the event a loan becomes past due, the following remedial
management policies will apply:
1. Loans are considered delinquent after the grace period, or fifteen (15) days after
amortization due date. The cooperative will send reminder letters to delinquent
borrowers.
2. Loans are considered past due after one (1) month of non-payment, during which the
cooperative will send a formal demand letters to the borrower.
3. Beyond one (1) month, continued non-payment will be construed as a violation of the loan
agreement. As such, the co-makers’ obligation will be called to settle the loan of the
defaulting borrower, inclusive of 2.5% per month penalty reckoned from the date of
delinquency. The cooperative will accept payment in any form or kind that will be offered
by the borrower and/or the co-makers, subject to valuation of the payment being offered.
 Other Policies
1. Members’ Share Capital – members non-withdrawable share capital will be set at
P1,000.00. This amount is also one of the bases for borrower eligibility.
2. Members’ Savings – members, whether borrowers or not, will be asked to save with the
cooperative an amount of at least P50.00 per month.
The other technical considerations are as follows:
 Financial Policies. The cooperative will develop, together with the FS, the appropriate
financial policies.
 Cash Handling. The cooperative will open an account with a reputable bank in PPC.
Transactions with the bank will be daily, for deposit of collections, replenishment of the loan
fund and petty cash fund.
 Cooperative Office. The project will be operated from the cooperative office to be located in
barangay Salvacion
Management Aspect
The Credit Committee and the COMAT, composed of the Manager, Cashier and Bookkeeper,
and a hired Loan Officer, will be directly involved in implementing the project. The details of their
tasks and responsibilities are as follows:

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Officer/Staff Tasks and Responsibilities
Credit Committee  Conduct the formal interview to evaluate the loan applications
 If approved, recap with the borrower the features of the loan,
specifically highlighting the mode and frequency of payment.
Manager  Manage the overall operations of the project
 Receive loan applications and forward these to the Credit
Committee for appropriate action
 Sign vouchers prepared by the Cashier
Cashier  Receive loan applications and forward these to the Credit
Committee for appropriate action
 Receive loan payments and issue the corresponding receipts
 Prepare the required documentation for approved loans, and
release the proceeds of the loan
 Periodically deposit collections with the bank, and prepare the
necessary bank deposit slips
 Prepare periodic collection summary and report this to the
Treasurer
Bookkeeper  Receive loan applications and forward these to the Credit
Committee for appropriate action
 Record transactions in the cash disbursement book or cash
receipts book, as appropriate
 Prepare the cooperative’s monthly statement of financial
condition, balance sheet, and other financial statements
Loan Officer  Collection of loan payment from members
 Overall assistance in all phases of the loan cycle.
Aside from their primary responsibility of overseeing the overall operations of the cooperative, the
Treasurer and Education Committee will also be involved in the project, specifically by issuing the
required certifications, namely:
1. Certification on the status of the borrower as a member-in-good standing, to be issued by the
Treasurer
2. Certification of attendance in the appropriate technology/skills training, to be issued by the
Education Committee
3. Certification as to availability of funds for release to borrowers with approved applications, to
be issued by the Treasurer.
Financial Aspect
To operate the credit project, the cooperative will purchase several fixed assets/equipment and
will incur the monthly recurring operating expenses, the details of which are as follows:
Fixed Assets/Equipment
Item Description Quantity Unit Price Amount
Calculator Financial 2 pcs. 1,000 2,000
Cash Box Steel, with security device 1 unit 2,000 2,000
Computer Desktop PC, with printer 1 unit 25,000 25,000
Office Table Fabricated 2 pcs. 3,000 6,000
Work Table Plastic Monobloc 2 pcs. 1,500 3,000

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Item Description Quantity Unit Price Amount
Chairs Plastic Monobloc 10 pcs. 150 1,500
Board White Board; 2’ x 4’ 1 pc. 2,500 2,500
Total 40,000
Operating Expenses, 1 month
Item Description Amount
Salary – Manager @P5,000 per month 5,000.00
Salary – Cashier @P4,000 per month 4,000.00
Salary – Bookkeeper @P4,000 per month 4,000.00
Salary – Loan Officer @P4,000 per month 4,000.00
Honoraria @P500 per month x 13 cooperative officers (3 members of
the credit committee, 3 members of the education
committee, 7 members of the BOD including Treasurer
and Secretary)
6,500.00
Physical space rental Cooperative office 1,000.00
Transportation For other coordinating tasks, primarily collection of
payments and daily bank transactions
3,000.00
Communication For coordinating tasks 1,000.00
Office Supplies Primarily for reproduction of forms and purchase of
accountable forms and books of accounts, @P5,000 per
month
2,000.00
Other MOOE Lump-sum amount of P2,000 2,000.00
Total 32,500
The pre-operating expenses are as follows:
Pre-Operating Expenses
Item Description Amount
Permits and Licenses DTI business name, LGU permit, BIR registration, etc. 5,000.00
Accountable forms BIR officials receipts and books of accounts 5,000.00
Total 10,000
The project will be funded by the existing and to be generated cooperative funds, supplemented
by a loan from external sources, and revenues from the interest on loans and service fees that
will revolved for the credit project.
Attached are the financial projections, which detail the financial performance of the project over a
three (3) year period. The following assumptions were used for the financial projections:
 At project start-up, the cooperative has at least P500,000 in share capital contributions and
savings deposits that can be used for the credit project (computed at P1,000 per member x
500 members). It is assumed that each member will put in another P50 per month, for a total
of P25,000 per month (computed at P50 per member x 500 members). Furthermore, there
will be 50 new members per year, from which share capital contributions and savings
deposits of the same amount, and membership fee payments of P50 per new member, will be
generated.
 The cooperative will take out a loan from the FS in the amount of P500,000. Per FS
Microfinance Facility policies, this loan will be assessed an interest of 12% per annum based

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on diminishing balance, and will be payable monthly for a period of 3 years inclusive of a 6-
month grace period.
 The breakdown of sub-loans will be as follows:
 Approximately 90% of loans for productive purposes. These loans will have a monthly
mode of payment, payable in 6 months. Each loan will have an average amount of
P10,000.
 Approximately 10% of loans for provident purposes. These loans will have a monthly
mode of payment, payable over a period of 3 months. Each loan will have an average
amount of P5,000.
 On a monthly basis, the number of borrowers will be determined by the available cash.
 A 2.5% allowance for bad debts was factored in.
 The fixed assets/equipment will be expensed over a period of 1 year.
 The operating expenses will increase by 10% every year.
The financial projections reveal the following salient information:
 Cumulative net income over 3 years is over P300 thousand. This is despite a 2.5% allocation
for bad debts.
 Over the 3-year period, the total amount of funds made available for sub-loans amount to
P13.9 million, which represents an almost 14x turn-over of the initial P1 million funds
allocated. This represents P4.6 million per year in funds made available for sub-loans.
 Other direct benefits of the project are as follows:
 At the onset of the project, about 100 loans for both productive and provident purposes
were extended.
 About 1,200 loans for productive purposes were extended over the 3-year period, or an
average of 400 loans per year.
 About 270 loans for provident purposes were extended over the 3-year period, or an
average of 90 loans per year.
 Seventeen (17) cooperative members earned monthly remuneration from the project
 Another benefit is the potential income the members gained from implementing the micro-
enterprises as a result of the loans they took out from the cooperative.
In summary, the cooperative is expected to recoup its investment from putting into the project its
own finances (equity), recover the expenses incurred in operating the project, fully pay its loan,
and realize a net income.