azeri star microfinance (asm)– azerbaijan philippines... · institutional presentation .....6...

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May 2009 ASKI– Philippines A- Comprehensive Social Rating Alalay sa kaunlaran, Inc. (ASKI), is a non- government organization specializing in the delivery of integrated services to its clients. It started its operation in 1987 initially serving Central Luzon but has expanded its operation to cove Ilocos Region and Cagayan Valley in 2003. The organization strives to serve the needy in these three regions in the Northern part of Luzon, reflecting an intermediate depth of geographical outreach. Majority of sector financed is trade, followe offerings and a wide range of integrated community r CONTACTS MicroFinanza Rating srl Corso Sempione, 65 20149 Milan – Italy Tel: +39-02-3656.5019 [email protected] www.microfinanzarating.com Nueva Ecija 3100 - Philippines Tel and fax: +63-44-4631246/35780 [email protected] Alalay Sa Kaunlaran, Inc,. ASKI #105 Maharlika Highway Cabanatuan City www.aski.com.ph d by service, agriculture, production and small percentage of housing. Alongside these credit products are life and health insurance development services geared towards the holistic development of its clients made possible through its specialized independent entities. ASKI’s services are currently being delivered through its network of 21 branches and 422 staff members. Legal Form Non-governmental organization Year of inception 1986 Area of intervention Urban, rural Credit methodology Individual, solidarity group Financial service Credit, insurance Non-financial service Training, social development Poverty 20% Extreme poverty 8% No previous formal credit 54% No savings account 64% Poverty and financial exclusion, survey on clients

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Page 1: Azeri Star Microfinance (ASM)– Azerbaijan Philippines... · Institutional presentation .....6 Institutional profile ..... 6 Financial performance ..... 6 ... For example, provincial

May 2009

ASKI– Philippines

A- Comprehensive Social Rating

Alalay sa kaunlaran, Inc. (ASKI), is a non-government organization specializing in thedelivery of integrated services to its clients. It started its operation in 1987 initially serving CentralLuzon but has expanded its operation to coveIlocos Region and Cagayan Valley in 2003. Theorganization strives to serve the needy in thesethree regions in the Northern part of Luzon, reflecting an intermediate depth of geographicaloutreach. Majority of sector financed is trade, followe

offerings and a wide range of integrated community

r

CONTACTS

MicroFinanza Rating srl Corso Sempione, 65 20149 Milan – Italy Tel: +39-02-3656.5019 [email protected] www.microfinanzarating.com

Nueva Ecija 3100 - Philippines Tel and fax: +63-44-4631246/35780

[email protected]

Alalay Sa Kaunlaran, Inc,. ASKI #105 Maharlika Highway

Cabanatuan City

www.aski.com.ph

d by service, agriculture, production andsmall percentage of housing. Alongside thesecredit products are life and health insurance

development services geared towards the holistic development of its clients made possible through its specialized independent entities. ASKI’s services are currently being delivered through its network of 21 branches and 422 staff members.

Legal Form Non-governmental organization Year of inception 1986 Area of intervention Urban, rural Credit methodology Individual, solidarity group Financial service Credit, insurance Non-financial service Training, social development

Poverty 20%

Extreme poverty

8%

No previous formal

credit 54%

No savings account

64%

Poverty and financial exclusion, survey on clients

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ASKI – Philippines- May 2009

MicroFinanza Rating 2

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ASKI – Philippines- May 2009

MicroFinanza Rating 3

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ASKI – Philippines- May 2009

Final opinion

The continuous commitment of the BoT and top management together with the uniform dissemination of the mission assure a good level of staff adhesion to ASKI’s social goals. The strategy includes the identification of objectives even if there is some room for improvement in translating them into measurable targets. The alignment of the product design to the mission is good, the two lending methodologies and the low minimum loan amount guarantee access to the two main target groups. The implementation of the new MIS and the rolling out of the PPI represent a high potential to monitor the progress in achieving the social goals. As for Human Resources policies, although the hiring and induction processes are properly designed to disseminate the institution’s mission, there is scope for improvement in the LO evaluation and incentive scheme which does not take into account social performance indicators to date. As far as the social responsibility toward staff is concerned, the good gender balance, the adequate level of remuneration and the training need assessment assure a good working environment, which is illustrated by the low staff turn-over. Although the cost of ASKI’s financial services is high, the clientele seems to be satisfied, valuing the provision of non-financial services. Despite the highly competitive environment, ASKI has no policies or procedures in place to mitigate the risk of over-indebtedness. Besides, no specific activity is carried out to actively increased financial knowledge of clients. ASKI’s is expressing its social responsibility towards the community and the environment thanks to the activities organized by the Community Development department and ASKI Foundation. ASKI’s breath of outreach is intermediate while the survey results on new clients show that depth of outreach could be improved given the intents of the mission. The overall quality of ASKI credit products is good and the conditions adequate especially because of the customer service and the appreciation of the insurance product.

MicroFinanza Rating 4

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ASKI – Philippines- May 2009

Table of contents 1. Institutional presentation .........................................................................................................6

Institutional profile ......................................................................................................................... 6 Financial performance .................................................................................................................. 6

2. Context ..........................................................................................................................................7 Socio-economic context ................................................................................................................ 7 Microfinance sector ....................................................................................................................... 8

3. Social performance management system .........................................................................10 Mission, social objectives and strategy....................................................................................... 10 Tracking and monitoring system ................................................................................................. 12 Alignment of the systems to the mission..................................................................................... 12

4. Social responsibility ................................................................................................................14 Social responsibility towards personnel ...................................................................................... 14 Social responsibility towards clients............................................................................................ 15 Social responsibility towards community and environment......................................................... 17

5. Outreach......................................................................................................................................18 Operational areas ....................................................................................................................... 18 Clients reached ........................................................................................................................... 18

6. Quality of the services ............................................................................................................22 Variety......................................................................................................................................... 22 Adequacy .................................................................................................................................... 23 Non-financial services................................................................................................................. 25

Annex 1 - Statistics.......................................................................................................................27 Poverty lines ............................................................................................................................... 27 Loan size..................................................................................................................................... 27 Survey on clients......................................................................................................................... 28

Annex 2 – Social indicators........................................................................................................29 Annex 3 – Definition of acronyms and indicators ................................................................30 Annex 4 – Social rating scale ....................................................................................................31

MicroFinanza Rating 5

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ASKI – Philippines- May 2009 Chapter 2

1. Institutional presentation Institutional profile ASKI was created in October 1986 and was registered with the Securities and Exchange Commission (SEC) in 1987 as a non-stock non-profit NGO. Its operation started to gain significance in 1991 when it managed to access funds from government agencies, notably National Livelihood Support Fund (NLSF) and Department of Trade and Industry, in order to support the victims of earthquake and volcanic eruption that had befallen on the region. From that time on, ASKI continuously expanded its operation which now covers three regions in the Northern part Philippines and serving over 50,000 members through its network of 21 branches. As of March 2009, it has a total outstanding portfolio of US$8.7 million growing at an average annual rate of over 40%. Its borrowers has been on consistently increasing trend although at a much slower pace in recent years due to increasing presence of other MFIs in the regions where it operates. Its product offerings include credits products delivered through group and individual methodologies and insurance through an attached independent entity (ASKI Mutual Benefit Association (MBA)) and partnership with SUNLife and PhilHealth. Its non-financial services are wide range and varied extended through another attached independent entity (ASKI Foundation) and its internal Community Development Department. In addition to ASKI MBA and Foundation, a Marketing Cooperative has also been created by ASKI. The future plan is for ASKI to be a shareholding company comprising of the existing three independent entities with the addition of a Socialized Housing Corporation and a Training Institute. In addition to its facilitation role in the creation of the above mentioned that will cater to the different needs of its clients, ASKI also takes an active role in the various network in the microfinance sector in the Philippines such as APPEND, MCPI and Risk Management Solutions, Inc. (RIMANSI) which help other MFIs in setting up their own mutual benefit associations. Financial performance ASKI’s financial and operational performance demonstrates an overall improvement during the periods of analysis - with both ROE and ROA registering positive results since 2007. Financial sustainability has been achieved passing from 98.6% in June 2008 to 105% in March 2009. An increasing level of efficiency have been also exhibited as evidenced by the decreasing operating expense ratio (although still high accounted for by expenses e.g. transportation, etc. entailing a predominantly rural operation) facilitated by the consolidation of operations and the gradual shift in the business model- from group to individual whilst maintaining an increasing LO productivity. PAR, while have improved compared to June 2007, remains high sue to a combination of factors and also triggered by the effect of the global crises, weakness in the assessment of repayment capacity and increasing credit pollution in the areas where ASKI operates.

MicroFinanza Rating 6

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ASKI – Philippines- May 2009 Chapter 2

2. Context Socio-economic context

economic meltdown, a 1.9% growth rate is projected for

Since its independence following WWII, the Philippines has experienced decades of volatile growth and leadership change. The Philippine national legislative and local elections held in May 2007 were peaceful; however, violence connected to communist and Moro insurgencies remains ongoing. The strong investment in the government infrastructure program, helped provide an economic stimulus that led the Philippines to a peak in economic growth in 2007 (7.1%1). However, due to the current global the year 2009 (after a respectable 4.6% in 2008).

The Philippines would still be far from a recession thanks to two mains central drivers: the service sector (60% of GDP), together with remittances received from abroad (a stable 10% of GDP) which not only boost private consumption but also lifts foreign exchange reserves, the current account, and deposits in the banking system. Besides, inflation continued its downward trend, standing at 3.3% in May 2009, in line with the Central Bank’s target rate of 3-5%.

Low income

Middle income

High income

East Asia and the Pacific

Philippines

0,570

0,776

0,936

0,762

0,745

Human Development Index, 2006

In spite of the recent steady growth, the ratio of the Philippine population living below the national poverty line increased between 2003 and 2006, which translated into nearly 4 million more Filipinos living in poverty. The most recent Human Development Report [2008] ranked the Philippines 102th among 179 countries, placing it in the upper half of countries with middle human development, though lower than the 90th ranking received in 2006. The country’s HDI has steadily increased in recent years, improving from 0.711 in 1995 to its current position of 0.745. The Philippines has a high education index, though life expectancy remains slightly lower than the peer group and the GDP per capita income is notably minor relative to other countries. In terms of gender-related development, the Philippines ranks 86th among the 179 countries on the GDI. The Philippines registers a 44.52 Gini coefficient, with poverty incidence and HDI levels varying considerably among the 80 provinces. For example, provincial disparities between life expectancy remain large, with Rizal registering 71 years as Antique stands 62.6 and the five provinces of the Autonomous Region in Muslim Mindanao (ARMM) bottoming out the list around 52 years. Similarly, education levels and standards of living differ considerably, with the provinces of Luzon (including Rizal, Laguna and Metro Manila) ranking towards the top of the lists, and all of the top 10 provinces in terms of HDI hailing from Luzon. In terms of the gender development index (GDI), Metro Manila, Rizal and Laguna all rank at the top of list while provinces of the ARMM again register the lowest development. Inequalities within the provinces are also notable and Antique ranks as the 4th most inequitable province (Gini ratio 49.4). Current estimates place rural poverty incidence 10% higher than urban incidence and nearly 15% of the total population remain below the extreme poverty threshold.

1 National Statistical Coordination Board. 2 Figure as of 2007.

MicroFinanza Rating 7

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ASKI – Philippines- May 2009 Chapter 2

The Medium-Term Philippine Development Plan (MTPDP) and monitoring integrate the country’s Millennium Development Goals (MDGs) into coordinated government strategies and policies towards attaining national and MDG targets. Efforts thus far have yielded important progress in the areas of reducing extreme poverty and child mortality alongside improvements in gender equality in education and access to safe drinking water. Nevertheless, large disparities across the provinces persist and challenges in relation to nutrition, maternal health and overall poverty incidence remain.

Microfinance sector Over 17 million people in the Philippines still do not have access to microfinance services, and in some regions (particularly ARMM) microfinance institutions (MFIs) have reached less than 15% of all households.3 By 2007, there were estimated to be over 3.5 million clients4 with a total amount of US$ 554 million loan disbursed. Half of such amount was loaned to support start up projects. Women represented 92% of the new borrowers for the same year. In terms of depth of outreach, microfinance NGOs present an average loan balance per borrower of 7,4% GNI per capita5. Although a continued unmet demand for microfinance services remains, various actors are working towards filling the gap in financial service access, including commercial banks, regulated financial institutions, rural and thrift banks, microfinance NGOs and cooperatives. The Philippine microfinance sector has come a long way since its origins in donor-funded and government initiated programs in the 1980s. In addition to creating an enabling policy environment6, the government provides wholesale funding and technical assistance to accredited MFIs through the People’s Credit and Finance Corporation (PCFC) which lends to over 160 MFIs working in all 80 provinces nationwide. Other industry-wide capacity building initiatives include programs from the Asian Development Bank (ADB) and the USAID funded Microenterprise Access to Banking Services (MABS) project which is working to expand mobile banking services nationwide. In addition, Philippine MFIs are networked together through various groups including the Microfinance Council of the Philippines (MCPI), APPEND, NATCCO, PHILNET and 3 Asian Development Bank “Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Republic of the Philippines for the Microfinance Development Program,” RRP: PHI 38579, October 2005. 4 Source: The People’s Credit and Finance Corporation (PCFC).5 MiX, ‘Philippine Benchmark 2007’. Peer group composed of 25 microfinance NGOs (ASKI presents a percentage of 11 as of March 2009). 6 In the 1990s the Central Bank (Bangko Sentral ng Pilipinas) relaxed the bank entry and branching requirements which led to the creation of numerous rural banks with operations focused at the provincial levels. In 1997 the government set forth an official Microfinance Policy while in 2002 a General Banking Law was established and various circulars since then have begun to set up the national framework for microfinance regulation and supervision. Other reforms in recent years include the adoption of international accounting and financial reporting standards and Basel II standards.

MicroFinanza Rating 8

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ASKI – Philippines- May 2009 Chapter 2

RBAP as well as regional networks such as the Mindanao Microfinance Council and Central Luzon Association of Microfinance Institution (CLAM). Competition within the sector is high, particularly among the largest MFIs (CARD, TSKI, NWTF, etc.) that have a combined outreach of over 600,000 clients and the top 10 MFIs that account for over 75% of total outstanding loan portfolio in the sector. Besides the top tier of MFIs, numerous 2nd tier institutions are working to expand their service offer and consolidate their performance in order to remain or gain relevance in the increasingly competitive market. Client over-indebtedness is growing in prevalence, particularly in areas with strong MFI competition and saturation. Although the Bankers Association of the Philippines has operated a private, nationwide credit bureau since 1990, there is no Credit Bureau connected specifically to microfinance clients. MCPI has worked to promote sector collaboration among its members through gathering a black list of the clients of regulated MFI; and formulating a Code of Conduct (2002) to define the expected institutional behavior of MFIs towards clients, other MFIs and staff. However, to date the utilization of this facility and the enforcement of such guidelines have been weak. The Central Bank defines microcredit as loans whose principal amount shall not exceed P150.000 (approximately US$ 3.200). Regulation and supervision within the sector depends largely on the legal form of the institution, as microfinance NGOs are not regulated by the Central Bank. At the moment, microfinance NGOs are not legally permitted to collect savings7; however in practice many NGO institutions collect both mandatory and voluntary savings from their members. In view of the regulatory gap, MCPI has taken steps towards submitting its NGO member institutions to voluntary self-regulation through a common draft “Memorandum of Agreement” which member MFIs agreed to in 2006. Notably, the Memorandum includes a “Compensating Balance Rule” that prohibits MFIs from collecting savings in excess of the total outstanding portfolio, and more generally from collecting savings from the public (non-clients). Nevertheless, the Memorandum has not been adopted by the Central Bank and therefore the collection of savings from microfinance NGOs in the Philippines is now carried out in the absence of a regulatory framework, with the Memorandum acting as a self-regulatory tool for the MCPI members.

7 The regulation permits only banks, formal financial institutions and cooperatives to collect savings.

MicroFinanza Rating 9

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ASKI – Philippines- May 2009 Intent and design / Internal systems Chapter 3

3. Social performance management system Mission, social objectives and strategy

MISSION STATEMENT: “To promote socio-economic and spiritual development through

customer focused, quality financial services by mobilising the resources of local, national, and global communities”

VISION STATEMENT: “A leading microfinance institution committed to the holistic

transformation of the needy.”

SOCIAL VALUES: Stewardship and

God-centeredness Teamwork Respect

Integrity and Transparency

Commitment to the needy

Excellence

Mission, ownership and governance The current mission and vision statement of ASKI group is the third update elaborated by the Board of Trustees (BoT) in 2007. The previous version of the mission (designed in 2004) was restricted to the province of Nueva Ecija only. It is worth mentioning that every entity of ASKI group has its own mission and vision which differ slightly according to their specialization8. Since April 2009, ASKI Microfinance has also developed its own mission and vision.

In the vision and mission statements, reference to the target clients is quite general. The mission statement does not clearly identify the intended target population as the use of the term “customer” does not enable to understand

who ASKI wants to reach. The vision statement refers broadly to “the needy”9 as intended target. In the view of the top management and the BoT, such term refers to the vulnerable microentrepreneurs who are unserved by the formal financial sector and who require technical assistance. The lack of formal segmentation does not enable the organization to have a precise view of the characteristics of the clients they are serving. Nevertheless, the management and the staff are mentioning two main segments within ASKI’s clients: the ultra poor that wants to start an activity and the micro entrepreneurial poor that posses certain skills and already have an existing business. On the other hand, social goals 2 and 3 are clearly expressed in the mission statement and all related key terms are backed up by a clear definition in ASKI’s Microfinance business plan. The institutional mission is uniformly disseminated throughout the organization and both the top management and the other staff are deeply committed to ASKI’s social values. The mission, vision and values are displayed in the offices. However, a formalization of a specific definition

8 ASKI group: mission “We endeavor to: enhance spiritual life of our stakeholders through daily devotions, retreats and Christian enrichment activities; ensure economic security of our clients by providing financial services and technical expertise; link with domestic and foreign partners to realize community development programs and projects; develop talents and skills of BOT’s, managers and employees; safeguard resources, well-being and prestige of ASKI”, vision: “A God–centered, model microfinance organization committed to serve the needy in Luzon through socio-economic development and holistic transformation.”. ASKI MBA: mission “To ensure security of its members by providing a comprehensive microinsurance program”, vision: “A highly competitive, reliable, sustainable mutual and benefit association.”, ASKI Foundation: mission “To uplift the quality of life of communities through spiritual transformation, education, health and environment services.”, vision: “A God-centered foundation devoted to serving the needy” , ASKI Marketing Cooperative: mission “To uplift the socio-economic well-being of micro-entrepreneurs by promoting their quality products in the global market.”, vision “A leader in marketing cooperative of micro-entrepreneurs which aims to improve the socio-economic status of the members.” 9 After the rating visit the term 'needy' has been defined in the updated Business Plass as follows: ‘un-banked who are in need to start or to expand their business. Needy could be poor (below the poverty line) or those who have increased their capacity but do not have access to financial services from institutions such as banks because of lack of possessions or collateral.

MicroFinanza Rating 10

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ASKI – Philippines- May 2009 Intent and design / Internal systems Chapter 3

of the key term to describe what is meant by ‘client’ and ‘needy’ would enable a better understanding from the field staff. As an NGO, ASKI does not have any shareholder and the Board of Trustees (BoT) is composed of 12 members (with an executive body whose members are elected every year) with diverse and varied backgrounds. The continuous commitment of the BoT members and their excellent attendance to the monthly meetings enable them to provide a good institutional memory and to ensure the continuity of ASKI’s vision & mission. However, there seems to be no balance between financial and social skills within the BoT. While the BoT members are more inclined towards the social concerns, they do not have a good financial background and lack the capacity to set clear strategic directions and to formalize specific objectives and targets to be able to assess the management on the basis of actual achievements. The content of the reports submitted to the BoT mostly include financial indicators. ASKI Microfinance is contemplating to turn into a bank in the long run in order to be able to collect savings thus, such transformation is not aggressively being pursued at the moment. Currently, ASKI’s priority is to facilitate the independence of the different units within ASKI Group for the different services it provides. ASKI Microfinance has set as a priority the creation of independent entities. The first unit to be independent is ASKI MBA (in 2006), followed by ASKI Foundation which was created as a separate unit in June 2008, and ASKI Marketing Cooperative in November 2008. The Training Institute and Housing Cooperative are still attached to ASKI Microfinance10. As an NGO, ASKI is not regulated by the Central Bank and not subject to taxation. However, to be ready to face any change in the law in the future, the organization is provisioning 2% of its income since 2008 and is legally separating its different entities in order for ASKI Microfinance to get tax credit by granting money to the other entities. Strategy During the recent strategic business planning exercise held in April 2009, the top management and two representatives from the BoT, with the support of MicroSave, have identified a set of social objectives11 including the following expected results:

1. Meet the full needs of the existing market through product modification (to reach the ultra poor) and new product development (like Agriculture loan);

2. Expand in new geographical areas with the existing products 3. Diversify product to serve the mature clients through individual product; 4. Expand in newer under-served areas (100 branches in 2014); 5. Develop new products in congruence to the need of the clients; 6. Provide a vast array of diversified financial and complementary services; 7. Create network and alliances with different external agencies for providing variety of complementary

services (linkage with two external agencies for Insurance services within a year, linkage with at least one external agencies for Savings services within an year);

8. Increase client retention (95%); and 9. Increase average loan amount12.

There is some room for improvement in the definition of specific objectives in terms of translating it into measurable targets particularly regarding the detailed target profile of clients (social goal 1), the impact and the outreach by product and lending methodology.

As far as the expansion strategy is concerned, the department of Credit Operation is the one in charge of recommending possible areas for expansion. The current expansion strategy is guided by the objective of serving areas that are not covered by financial service providers, while trying to keep the operational costs at a sustainable level through the adoption of an extension office model. The high level of competition together with the willingness to increase its outreach are the main driving force for ASKI’s plan to open a network of 50 branches and extension offices by 2014. The plan is to set up extension offices in region I and II and create new branches in region III.

10 These two entities will become independent from ASKI Microfinance by the end of 2009. 11 Additionally, the other entities from the ASKI Group rely on formalized social objectives. It is worth mentioning the five-year plans of ASKI Foundation regarding Education (100 scholars through ASKI’s local scholarship program, 100 scholars sponsored by partner agencies.), Health & Environment services (annual provision of P 40,000 grants (US$ 853) to 21 Day Care Centers, Children gaining an average of 2.5 kgs. in a span of 10 months; Serving at least 10% of 250,000 clients) and Spiritual Transformation Services (at least 60% of ASKI Staff active in service of the church or in ASKI activities). Moreover, ASKI Marketing Cooperative is planning to gather 3.050 client members by the end of 2009. 12 The projections present a sustained incremental growth of the average loan outstanding for the next five years starting from P 6.594 (US$141) in 2008-2009 until it reach up to P 12.012 in 2012-2013 (US$256).

MicroFinanza Rating 11

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ASKI – Philippines- May 2009 Intent and design / Internal systems Chapter 3

ASKI’s social commitment is reflected in the willingness of the funders to provide clients and communities with non-financial services through the Community Development department. The continuous delivery of the non-financial services forms part of the organization’s strategy to increase client loyalty. Tracking and monitoring system The current system in place is not fully adequate to track and monitor the progress in achieving the social goals but a new MIS is planned to be in place by December 2009 which will incorporate the PPI questions and results. Apart from this, ASKI is also taking part in the MIX pilot project for the measurement of the social performance by reporting data in a template gathering a set of indicators. A brief description of the tracking and monitoring systems of the three social goals is presented below: SG1 The MIS includes adequate/relevant information on the socio-economic profile of clients, such as:

age, civil status, gender, type of business, sector (Indigenous people, person with disability, displaced worker…), loan cycle, the type of client (new, renewal, returning or graduate client), and payment frequency. Nevertheless, a more precise definition of the categories used would increase the relevance and accuracy of the analysis (e.g. overlap between ‘type and business’ and ‘sector’ items) and the data could be inputted more methodically. The data analysis is not carried out systematically in order to support the decision making process. While, as part of the evaluation process of every loan, the Evaluation and Monitoring Report includes a means test, it is not rigorously being applied nor encoded into the MIS. However, after a pilot phase of the PPI13 between June and October 2008 on 5.200 clients, ASKI is considering using the tool for the segmentation of its clients and to integrate it into the new MIS. The new MIS contains more social data including, among others, rural/urban breakdown, livestock, and business asset.

SG2 The Research Department is in charge of conducting surveys to investigate on the products’ level of adequacy (through the evaluation of different credit products and client satisfaction surveys14). While the survey results are a basis to implement changes in ASKI’s services, such studies are not conducted on a systematic basis. While the reporting system provided by Opportunity International (OI) includes the monitoring of the retention rate15 on a quarterly basis, the effective monitoring of desertion reasons remains an area for further improvement.

SG3 In 2007, an impact study was conducted on ASKI’s community development project entitled Empowering Informal Workforce through Community Organizations (EICO)16 which was implemented from 2002 to 2007 in 12 villages across six municipalities. Furthermore, a three-month assessment of the impact of ASKI’s group loan scheme was done in March 2007 by a student from Netherlands but no formal impact study has been conducted yet for ASKI Microfinance’s overall program.

The current reporting system includes some social-related information17, although not the most relevant. While the monitoring system potential is quite high, the implementation of the new MIS should go hand-in-hand with systematic monitoring and use of the indicators on the socio-economic profile of clients for regular decision-making process.

Alignment of the systems to the mission - Product design

Overall, the two lending methodologies is deemed consistent with the mission enabling the access of the two different target groups even if standard definition of such target groups is lacking and the target population remains broad with blur limits. The group lending program (AKP) is specifically designed to the organization’s notion of “ultra poor”. The group guarantee enforced as social collateral, the payment frequency, the transactions taking place in clients’ communities together with the low minimum loan amount, equal to US$ 107 enable the organization to cater to the needs of the low-income target population group. On the other hand, the individual lending products (ILP, SEL, Housing, and Salary) are meant to serve the micro entrepreneurial poor with existing business). Meanwhile, the Agriculture loan product is offered under both methodologies.

13 The PPI questionnaire was applied to clients from 7 branches (the oldest ones) in regions I and III. One in every four clients (26%) of the clients is below the national poverty line whereas it was the case for 29% of entering clients. The results were presented to the operational team and the top management and plan to roll out the tool in all branches is already underway although there it was not decided yet whether to do it on a census or sampling basis. 14 The recent surveys carried out were: “Listening to our clients”, Client Development and Tracking Surveys by OP (October 2008); Customer Satisfaction survey on MBA program (March 2008); and Reasons for drop-out in rural areas (June 2008). 15 The retention rate is defined as the ending no. of clients/ (beginning + new clients) 16 EICO is a multi-year funded program between ASKI and TEAR FUND New Zealand 17 Monthly portfolio reports present by product the number of new customers, the average deposit balance, the average outstanding loan balance, the average disbursed loan size, the average first loan disbursed, the number of group and loan made to groups; quarterly reports include additional data on pricing and client retention.

MicroFinanza Rating 12

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ASKI – Philippines- May 2009 Intent and design / Internal systems Chapter 3

- Internal control

The Audit Department is contemplating to integrate the assessment of social performance into its policies after attending training on social audit given by MFC. The Code of Conduct and discipline of the personnel contains a reference to ASKI’s values that should be implemented within the organization as well as toward clients. However, as of now, the audit activities do not include the assessment of the compliance of the staff behavior to the Code of Conduct and the full set of consumer protection dimensions in the field (e.g. client knowledge of cost and conditions, policies against over-indebtedness, ethical behavior of loan officer).The internal audit department is still weak to be able to integrate checks on the reliability and completeness of future social performance data once the Social Performance Management (SPM) Committee (discussed in the ensuing section) becomes fully institutionalized. The current internal audit process includes client visits differentiated between 10 new and mature clients as well as loan folders and utilization checks during the branch visit (planned every six months which remains a target they cannot reach).

- Human resources

As mentioned in the foregoing section, ASKI is planning to create a Social Performance Management committee to be led by the Head of the Research and Development Department and composed of the Head of Credit Operations, Human Resources and Community Development whose responsibility is to set social indicators to be monitored starting July 2009. Overall, the Human Resources policies are adequate to properly disseminate the institution’s mission. Several channels such as daily gatherings, staff retreats enable to communicate and to reinforce staff buy-in of the organization’s mission. The process of new staff hiring is backed by an interview form and report that include an assessment of the applicant’s “basic values and goals” and social skills. Moreover, the staff induction program consists of a three-day training with a great part dedicated to sharing the vision, mission, and social goals with the new hires. As for the staff performance assessment, the self assessment tool contains a section on the measurement of the organization’s ‘culture enactment’, but staff is not evaluated on the basis of their behavior towards clients and there is some room for improvement in the LO evaluation and incentive scheme as it is mainly focused on financial aspects such as outreach, portfolio and PAR indicators and does not include social performance indicators.

LIMITED RISK OF VOLUNTARY MISSION DRIFT - Mission and strategy: the deep commitment of the BoT members provides a good

institutional memory to the management and new staff and helps to ensure the continuity of ASKI’s vision & mission

LIMITED RISK OF INVOLUNTARY MISSION DRIFT - Mission and strategy: shortcomings in the definition and segmentation of the

characteristics of the target clients. The strategy does not include a comprehensive set of formalized social objectives and targets to reflect ASKI’s commitment to reach the poor.

- Tracking and monitoring system: the current reporting system includes some social-related information, although not the most relevant. While the monitoring system potential is quite high, the implementation of the new MIS should be accompanied by a systematic monitoring and use of the indicators on the socio-economic profile of clients as input for regular decision-making process.

- Consistency of products and human resources: while operations manual allows funding of start-up activities in its group loan portfolio, these loans are not tracked separately and seems to be far from reaching the limit of group loan borrowers. The incentive scheme and staff performance assessment do not include social criteria

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4. Social responsibility ASKI strives to implement strategies that are deliberately adhering to the image of the organization as a socially responsible institution. The creation of separate independent units that takes care of the implementation of non-financial services (Community Development), housing needs (Socialized Housing Unit), insurance (Mutual Benefit Association), and a holistic transformation of clients (ASKI Foundation) for instance had been undertaken by ASKI. In essence, ASKI Foundation is envisioned serve as the corporate social responsibility arm of the whole organization. Currently, ASKI Microfinance allocates yearly 1% of its gross income (equivalent to roughly P0.8 million) to ASKI Foundation which covers approximately 60% of its budget. Moreover, for each loan disbursed, client pays P50 (US$ 1) to participate in the Foundation’s activities. In order to meet the P1.8 million budget (US$ 38.400) for 2009, the Foundation organized fundraising activities e.g. concerts. Social responsibility towards personnel As of March 2009, ASKI is composed of 421 staff, with a good gender balance as represented by 39% of female in the management and 58% in the Band administrative staff categories (21% and 28% growth respectively between March 2008 and 2009). Sufficient preparation is given to the staff prior to the assumption of their duties. A three-day orientation is devoted to explaining the organization’s vision, mission and goals and policies. This is followed by five days of in-depth training on specific jobs/responsibilities. Particularly for LOs, specific trainings are provided on process mapping, cash flow preparation/analysis and community development.

Staff turnover is at 2% in 2008 with most robationary pe

oT. The growth in staff members is largely coming from the LO’s

of the turn-over accounted for by departures during the riod. The turn-over is concentrated within the category of LO (3% in June 2008 and 1% as of

organization’s social oals among the staff which is facilitated through daily gatherings conducted at the head office and the

tion survey. The survey is carried out at a branch level every year. This is upplemented by a SWOT analysis which involves all the staff members by level. There is generally a high

while riding a company motorcycle during fieldwork. The plementation of the policy is ensured by the severity of the disciplinary action. Both the motorcycle and

pMarch 2009) who were dismissed for not having reached their target in the first months. The working environment is good and there is a high level of identification with the gbranches. Majority of the management have been with ASKI on average 8-10 yrs except for the Internal Audit, MIS and the Resource Mobilization department heads. This helps in ensuring stability of the organization and continuity of the program activities and particularly crucial in ensuring that the organization remains grounded on its mission. The workspace at the head office is conducive for promoting productivity although in certain branches the workspace is cramped. There are regular venues where staff could participate in decision-making through daily branch meetings and updating. Branch Managers have monthly meeting with the Area Supervisors while at the head office, management meets every Monday for feed backing and monitoring of concerns. A Personnel Manual is in place supplemented by a Code of Conduct which underscores self-discipline as part of ensuring that staff conduct are consistent with the values being promoted by the organization. ASKI carry out a staff satisfacslevel of Staff satisfaction with ASKI and harmonious working relationship all throughout the organization. Work overload is becoming a concern for LO’s due to the wide range of tasks required of them specifically processing of loan files aside from fieldwork activities (marketing, monitoring & collection) which oftentimes require them to spend extended hours at the office in order to finish the documentation requirements. Given the magnitude of workload expected of LOs, salary differentiation for LOs at the same level presents does not seem to keep up well with the spirit of fairness. As part of ensuring safety, staff must wear a helmet imthe employees are insured except the trainees and those under the probationary period who are not allowed to ride motorcycles. Notwithstanding this, some safety concerns are still evident related to cash handing of

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LOs during collection especially that there were recent cases of robbery in some of the covered areas of ASKI. One incident of robbery has been reported so far.

The level of remuneration is at par with the other MF- Is and Rural Banks although less than the Banks.

- aisal form

ocial responsibility towards clients

However, the package of additional benefits makes ASKI an attractive organization to work with. Apart from the minimum required by law (13th month pay, social security, and vacation leave), ASKI provide each staff member with a performance bonus, rice subsidy18, health care insurance, life insurance, retirement fund, funeral assistance, calamity benefit and access to housing loans19. In theory, the incentive could enable employees to receive a 14th month pay for their individual performance and a 15th month pay for the branch performance. Nevertheless, the incentive scheme20 for loan officers seems difficult to reach and last year only very few of them qualified for the 14th month. There is a scope to improve standardization of salaries of staff at the same level of position e.g. Project Officer II. Performance evaluation is conducted every six months facilitated through a performance apprand complemented by personal discussion between the staff concerned and the immediate supervisor. Determination of performance target is set by the organization with feedback from the staff. Staff development trainings are facilitated through the conduct of Training Needs Assessment (TNA) quarterly. Trainings delivered include micro-credit operations, loan appraisal/evaluation, writing/communication and delinquency management. ASKI has also partnered with the Department of Trade and Industry (DTI) through PinoyMI in offering ladderized training for microfinance employees. The first two years will cover the basic training and after that will be the supervisory training. Two universities in Nueva Ecija will offer the training program. On average, each Staff received 3-4 trainings per year. Internal staff members are also prioritized for positions that become vacant before external applicants are entertained. Careful consideration is also being taken to ensure that Branch Managers are ‘home-grown’. Substitution plan is in place in case of extended trips of the CEO, the Head of the Credit Operations is appointed as Officer-In-Charge. Opportunity for career growth and development is given on the basis of competence and is equally available to everyone.

S nts is not formalized in one single document, the organization strives to

es to the

for April 2008 to

Although ASKI’s SR towards the clieput in place certain measures and policies to promote social responsibility to clients. The personnel handbook specifies a list of values that employees should promote. Among others, it is worth mentioning courtesy, honesty, sincerity, helpfulness and respect. The Code of Conduct for Staff provides strong protection to clients penalizing LOs untoward behavior to the clients ranging from discourtesy, neglect to aggressive behaviors although not an integrated part of the appraisal system, only when complaints from clients aASKI deliberately offers value-added servic

re received.

clients aside from its credit products. For instance, the Foundation offers scholarship to poor and deserving students, organizes seminars to increase awareness of and empower women concerning violence committed against them and that of their children, facilitates integrated community development activities including training, BDSS, organizing people’s organization, marriage seminars and other counseling services. - ASKI’s real portfolio yield

March 2009 stands at 36%, with nominal portfolio yield equal to 52%, reflecting the high

18 All permanent employees are entitled to rice subsidy in the amount of P 500 monthly (US$ 11). 19 To qualify for the housing program, staff members should have at least 5 years experience at ASKI. Otherwise, they have to be supported by two co-makers who have been at least 5 years with ASKI. They can benefit from a one-year grace period on the principal. 20 Loan officers can qualify for an incentive provided they meet the following three objectives: 350 clients for group loan and 200 clients for individual loans, P 2 millions (USD 42.600) portfolio for both group and individual loans, and 100% repayment rate.

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cost of ASKI’s financial services - both in nominal and absolute terms. This level of portfolio yield is also much higher than MFIs within the peer group especially that of the Asia large MFIs with portfolio yield of only 18.5%. The high costs structure reflects the high operating cost in service delivery and various non-financial services coupled by the charging of service fee/commission equivalent to 2%. Furthermore, since its creation, ASKI has been charging the same interest rate to clients equivalent to 3% flat monthly with the exception of Housing loan where interest rate is computed on declining basis although for early repayments, the interest rate could be reduced to 2%. The interest rate has not been adjusted from the time ASKI started its operation although the capital build up (CBU) has been decreased from 15% to 10% and collection for the emergency fund equivalent to 10% has been stopped. While there is a high level of appreciation for additional services, the organization could consider adjustments of the interest rate especially in the light of increasing competition in the areas where ASKI operates or make the provision of non-financial services demand-based. Despite - the highly competitive environment, ASKI has no policies or procedures in place to mitigate the

- e denominated in local

- rency: The interest rate is calculated on a flat basis except for the housing

• ages to a contact

• pecific activity is carried out to actively promote increased financial knowledge of

risk of over-indebtedness. While the loan evaluation form captures client’s other debts however, there is no careful check done on the field about this. The organization estimates that 20-30% of its clients are also client of other MFIs. In fact, the dropout study conducted by the organization’s Research Department revealed that one of the reasons for dropout is due to delinquency brought about by multiple loans. The problem is further exacerbated by the absence of a Credit Bureau in the country which does not allow for the exchange of client database wherein to double-check indebtedness. In order to mitigate such risks, ASKI has a ceiling policy based on the cash flow analysis. The client should be able to keep a net income 35% of its budget. This calculation includes the loan installment as well as the repayment of other debts. However, the knowledge of such policy is not known systematically. Furthermore, while client assessment forms are comprehensive, there is no careful examination done about it based on a number of loan files that have been randomly checked during the branch visits. Because of the type of businesses ASKI is funding, all the lending operations arcurrency, which eliminates the foreign currency risk for clients. Consumer protection • Regarding transpa

loan which is seen as an incentive product for good clients and staff members. The group loan contract shows the amount, the term, the monthly flat interest rate, whereas in addition, the individual loan contract specify the monthly penalty rate. The absence of a copy of such a document for clients leaves room for improvement. Nevertheless, clients are provided with a detailed repayment schedule (showing the breakdown of installments by principal and interest) and with receipts to back each transaction. The verbal explanation of the complex additional cost structure (service charge, CBU, P50 (US$1)) contribution to ASKI Foundation, P50 contribution to Community Development Department) does not seem to be adequate because the financial awareness of clients turns out to be limited. ASKI might consider adapting the communicating mechanisms to the level of the clients through the use of visual aids/materials. Clients can voice their concerns and complaints by sending text mess(Komento mo, i-text mo) which is advertised on a poster in branch offices and center halls. The Executive Secretary is in charge of receiving text messages and forwarding it to the concerned Department Head. On average of three text messages weekly. Majority (approximately 80%) relate to misunderstanding of the loan charges (penalty) and 20% are complains about LO. A few letters have been sent to the Credit Operations Department (three since January this year and none in 2008). LO field visits and community meetings are an informal channel for feedback or complaints. The privacy of client files is safeguarded by an access limited to the LO in charge or the Superior. Currently, no sclients. Such programs is deemed necessary as client’s awareness on the interest amount, service charge, range of products, and interest paid on CBU are low particularly those belonging to the rural areas. .

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sparency.

ASKI policy requires each branch to be audited every six months but on average, audit visits have been conducted so far only in 4 out of 21 branches. The Department is currently clearly understaffed and in need of capacitating in order to fully and effectively performs its function according to the requirements of the institution. The comprehensive audit process involves client visits (which includes cross-checking of receipts, meeting with clients). The decision to submit itself to an external rating is also an important step to further increase tran

An informal impact study has been undertaken to gauge the impact of the organization’s AKP Program through partnership with a student from a University in Netherlands but no formal assessment has been conducted thus far.

Social responsibility towards community and environment - Community:

ASKI is organizing outreach programs under the responsibility of ASKI Foundation and the Community Development department in various fields such as education, sports, health, and the environment. The integrated community development takes effort to implement projects that not only benefits clients but the community as well e.g. bridge construction project in Pugad Lawin, a settlement area for ethnic/indigenous people’s group in the Philippines, and construction of community toilet units which benefitted a number of families including non-client households.

- ASKI’s concern on gender empowerment is demonstrated by the annual organization of a “Gender Forum” attended by clients.

- Environment: ASKI has just started to implement an environmental management system to be in line with the mission statement that refers to the safeguard of resources. The Foundation is in charge of managing the initiative but mainly focused on external activities through different programs such as organizing tree planting activities, mobilizing clean-up drive, and carrying out “gardening project.”21 It is worth mentioning that the organization has also adopted internal strategy along this lines which includes, among others, the promotion of 5S, encouraging a smoke-free working environment, implementation of electricity saving program and waste segregation activity.

21 Each branch selects two centers where the garden plot consisting of 3 to 5 varieties of vegetables on at least 200 square meters is cultivated.

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ASKI – Philippines- May 2009 Results Chapter 5

5. Outreach Operational areas ASKI is operating in the Northern island of Luzon which is the largest and one of the most economically and politically important island in the Philippines. Inside Luzon, the geographical coverage of Aintermediate with a presence in three regions (out of 8 in Luzon), 9 provinces, 14 cities, 163 municipalities and 2,698 barangays (villages) including Agrarian Reform Communities (ARCs).

verall, the depth of th

SKI is

e geographical outreach of ASKI is intermediate. Indeed, poverty incidence in the

each in rural areas with 85% of its outstanding portfolio

lients reached

Othree operational regions (32.7%, 25.5% and 20.7%, respectively) is lower considering that poverty incidence at a national level stands at 32.9%.

owever, it is worth considering ASKI’s outrHwhere the incidence of poverty is on average more than ten points higher. ASKI is using the national official definitions of urban, semi-urban and rural22.

23CWith 42.360 active clients and an outstanding portfolio worth US$ 8.716.689, the breadth of outreach of

y results show on average an

ASKI is medium-large for the number is higher than the national benchmark for Philippine MFIs as well as the Asia benchmark24. The steady growth rates registered during the last years reflect the willingness to expand as it is mentioned in the Strategic Business Plan with the ambitious goal of reaching 250.000 clients by the year 2014 with an outstanding portfolio of P 3 billion (US$ 64 million). Overall, the depth of the outreach of ASKI is intermediate as the surveaccess to basic services in line or above the national benchmark and a poverty incidence lower than the national poverty rates.

22 According to the National Statistical Coordination Board Resolution No.9 Series of 2003 on the “Adoption of the Operational Definition of Urban Areas in the Philippines,” (1) If a barangay has a population size of 5,000 or more, then a barangay is considered urban, or (2) If a barangay has at least one establishment with a minimum of 100 employees, a barangay is considered urban, or (3) If a barangay has 5 or more establishments with a minimum of 10 employees, and 5 or more facilities within the two-kilometer radius from the barangay hall, then a barangay is considered urban. It was further resolved that all barangays in the National Capital Region be automatically classified as urban. 23 The information is mainly based on a survey on recent clients integrating, when relevant, data from MIS. See annex 2 for more details. 24 Benchmark analysis based on the MIX Market/MCPI Benchmarking Philippine Microfinance Report 2007. Philippine MFIs average number of active borrowers is 15.095 and outstanding portfolio of US$ 4.1 million. The Asian benchmark registers a median number of borrowers equals to 18.117 (average 172.000) and an outstanding portfolio of US$ 3.6 million.

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ASKI – Philippines- May 2009 Results Chapter 5

Social vulnerability and household profile - The median age of ASKI’s client is 41years old: 90.3% of them are married and 6.6% are single, while

2.4% and 0.8% are widowed and separated, respectively25. - The MIS registers a percentage of Indigenous People26 (IPs) of 15.7% of total clients as of March 2009

who are mainly served by the branch of Baler the Province of Aurora in Region III. - The average number of household members is 4.91 while the number of members contributing with

income to the household (2.47 on average), compared to the number of dependents (2.75) shows a quite low dependency ratio27. Regarding the income source diversification, clients’ households count on average on 2.3 constant sources of income and have one family member working and living abroad.

- The share of women client has been steady over the years and as of March 2009 is equal to 77% which is quite high in absolute terms. However, it is worth considering that the microfinance sector average amounts to 95.5%28. 20% of female clients are head of household. All the women clients exert full or partial control over the loan use: 43% have full control and 57% a partial control (consultation with husband/relative). It was observed that the women from urban areas have less control on the loan investment (29% and 71% in rural areas).

Female clients 77%Female clients, portfolio 70%Female clients head of household 20%Female clients without control over the loan 0%Female clients without completed primary education 4%Dependency ratio, Female clients 1,3

GENDER OVERVIEW

- The education level attained by ASKI clients and their children is good and overall in line with the national average: 96% of the clients complete primary education whereas it is the case of 94% of Filipinos; 68% completed secondary education and 17% have a university degree. The share of household children in primary and secondary school age regularly attending school is respectively 95% and 83%. Even if it is not high in absolute terms, it is above the national benchmark (82.3% and 58.6%).

Business activities and employment support - ASKI’s operations manual allows financing of start-up activities in its group loan portfolio. However, the

loans are not tracked separately and it seems to be far from reaching the limit of 30% of disbursed loan under the group lending methodology. The majority of clients have been working in their business for more than three years (63%), 25% and 6% of the clients’ businesses have been in place for 1-3 years and 6-12 months, respectively, and only 5% of the clients have been running a business for less than 6 months.

- The majority of clients’ business activities are formal that is to say they have a permit to operate (56%) - ASKI loans are utilized to support a variety of

business activities as well as home improvement under the scheme of an incentive loan given to the clients and the staff (7% of active loans). Trade is currently the largest sector (63%) in which ASKI clients’ work, while loans for services and production account for much smaller shares of total active clients (16% and 5%). Agricultural activities represent 14% of current loans and clients.

- Due to the small dimension of the clients’ activities, the contribution to job creation is really limited: on average, 1.88 individuals work (including the client) in the activities financed, out of which 1.5 are family members and 0.38 are non-family members. In 89.3% of the cases, the recent clients are self-employed and exclusively dedicated to their activity. A small proportion of recent clients is combining another activity aside from running their own business (9%) whereas the rest is composed of employees (1.7%).

63%16%

14%

5%

1%Active clients by sector, Mar-09

Trade

Services

Agriculture

Production

Housing

25 Results based on data available for 67% of the loans active as of May 2009. 26 The indigenous communities served by ASKI are the Ifugao, Ibaloi, Kankana-ey and Igorots. 27 The dependency ratio reflects the average number of persons a family member who is contributing full time to the household income has to support. For our study, the dependency ratio is defined as the number of members who depend on the family income on the number of members who contribute to the income of the family. 28MIX Market/MCPI Benchmarking Philippine Microfinance Report 2007.

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ASKI – Philippines- May 2009 Results Chapter 5

Economic poverty - 19.7% of ASKI’ recent clients are estimated29 to be poor (national poverty line). The outreach to the

very poor is more marginal with 8.2% of recent clients below the national extreme poverty line. Looking at the internationally applied standards, 33.9% and 10.1% of the recent clients fall below the PPP$2/day and PPP$1/day lines. Besides, 7.7% of them have level of income lower than the median income of households below the national poverty line (USAID definition of extreme poverty).

- The analysis of the area breakdown reveals that rural clients are generally more than 3 points poorer than the urban ones. Overall, as far as the monetary poverty is concerned, ASKI’s outreach is intermediate with a poverty incidence on new clients lower than the national benchmark and slightly lower than the international one.

- Health and food security: In terms of vulnerability, it is worth mentioning that 24% of the recent clients

have experienced periods of shortage of income to cover household expenses in the last 12 months: 16% and 13% of the clients reported that income was not sufficient to cover medical and food expenses respectively. In the majority of cases, the measures taken to cope with such situations were to get help from relatives or friends living in the country or abroad (61% and 22% respectively).

Asset property - The bulk of client households (92%) own the house they are living in and half of them own some land

apart from their dwelling place which is 1.3 hectares on average. The share of ASKI’s recent clients having access to secure tenure is 95.5% higher than the 81.2%30 benchmark in the Philippines.

Access to basic services - The proportion of clients without access to basic services turns out to be below the national benchmark:

8% and 11% of the recent clients do not have improved water sources and improved sanitation, respectively, while 9% of the households do not have their own connection to the public electricity network. The main source of water among the 92% who have an improved access to water is water piped into their dwelling (59%) or taken from a protected well/piped into public yard (33%).

Access to financial services - ASKI’s outreach to the financially excluded is quite relevant: 54% of the recent clients have not had

access to formal credit before joining ASKI. A deeper analysis shows that 6% of recent clients resorted to moneylenders; 12% to providers, family and friends; 18.5% to NGOs, cooperatives; 10.7% to credit and saving associations, 17% to Banks and regulated financial institutions. The financial inclusion effect of ASKI appears more significant among the male clients (85% of them did not have previous access to formal credit). About two-thirds (64%) of the clients’ households do not have a saving account and nearly all the clients’ households (96%) do not have a credit or debit card. Besides, the great majority of recent clients affirm that they do not have additional sources of credit (69%) whereas 7% of them still borrow from moneylenders; 6% from suppliers, family, friends; 10% from NGOs, cooperatives; 2% from credit and saving associations and 7% from Banks and regulated financial institutions.

29 Using the PPI. 30 Secure tenure is defined as owning or renting a dwelling. Source: National Statistics Office, figure as of 2000.

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- Acce t have any insurance (Phil Health, ASKI MBA or SUN LIFE ).

Loa

ss to insurance services seems fair for only 13% of the clients’ households do no31

n size analysis

- The analysis of the loan size demonstrates a good depth of outreach. With an average loan disbursed 254 as of March 2009, and an average outstanding balance worth 15% of the national

- r parity to $PPP 274 and to 11% of the per

- $ 254 as of March 2009. Such a tendency is mainly due to the increase of the share of

equals to US$ GNI per capita, the loan size of ASKI is quite small. When it comes to the disbursed amount of all loans active as of March 2009, the median amount is even smaller at US$ 171, equivalent in purchasing powecapita GNI. Taking into account the average loan duration of 8 months, the loan size increases to a median value of $PPP 480 when annualized, worth 18% of the GNI per capita. It is worth noting that at the end of the last period, the average outstanding balance of women borrowers is worth 69% the one of male borrowers. In the period of analysis, the trend shows a steady increase, rising from a disbursed loan amount of US$ 143 in 2006 to USthe housing and agri loans products in the structure of portfolio, introduced during the period July 2006 - June 2007 and which account for 18% and 30% of the outstanding portfolio at the end of March 2009, respectively. The outstanding balance per borrower of both products is well above the average: US$ 3.613 and 436 respectively. The projections of ASKI contemplate an annual incremental growth in the average loan disbursed, from the current average loan size of US$ 141 up to US$ 256 in 2012-2013, with increases in the intervening years.

94 113145 167

186143 171 214 243 254

-50

100 150 200 250 300

Jun-06 Jun-07 Mar-08 Jun-08 Mar-09

Loan size trend, US$

Average loan balance Average disbursed amount

274

480

11% 18%

0%20%40%60%80%100%120%140%

0

100

200

300

400

500

600

Loan Annualized loan

Loan size, median

$PPP % of GNI per capita

31ASKI has a partnership with SUNLIFE (private company) and PhilHealth (government insurance provider). Mutual Benefit Association (MBA) is an independent identity established by ASKI in 2006 and licensed by the Insurance Commission of the Philippines.

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ASKI – Philippines- May 2009 Results Chapter 6

6. Quality of the services Variety - ASKI’s financial services are limited to credit and insurance as it is not authorized to mobilize deposits

from the general public. However, a mandatory savings in the form of capital build up (CBU) equivalent to 10% of the approved loan amount is imposed on all of the six loan products. In addition, a wide range of non-financial services is made accessible to its clients.

- The overall diversification of ASKI credit products is good, designed to cater to the production and consumer needs of the clients with four products such as AKP, Individual Lending Program (ILP), Salary and Agricultural Loan products serving as the base loan and additional loans could be taken in the form of Consumer or Small Enterprise Loan (SEL) and Housing Loan. Specifically, the Housing Loan serves as incentives for good-performing clients.

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ASKI – Philippines- May 2009 Results Chapter 6

As of April 2009, the Housing Loan Program is serving 4,250 clients, among which 160 are staff members, with a gross portfolio of P92 million (US$ 1.96 million).

• The AKP and Agricultural loan comprises ASKI’s main loan product that is meant to augment working capital with the AKP financing small non-agricultural business activities e.g. sari-sari store.

• In order to address specific risks associated with the provision of Agricultural Loan, ASKI is currently establishing partnership with the Philippine Crops Insurance Corporation (PCIC) to back every loan and implement a weather-based agriculture index through partnership with a local organization.

• ASKI employs both group (20.8% of total loans disbursed in March 2009) and individual lending methodologies in its service delivery to clients. The AKP is implemented solely through group methodology while the Agricultural Loan employs both methodologies.

• ASKI’s internal policy allow clients with start-up businesses to access credit through the AKP Group Loan product at a minimum first loan of US$ 107 provided that the number of clients with new enterprises should not exceed 30% of the total group members. Nevertheless, ASKI is not tracking the number of these clients and clients do not seem to be aware of such a possibility.

• In general, ASKI allows parallel loans especially for Agricultural clients whose spouse are involved in small businesses e.g. sari-sari store, handicraft, or vending aside from the family’s agricultural activities.

• ASKI has piloted a KASAPI Insurance Loan product which extends insurance coverage to tricycle owners and drivers through partnership with SUNLIFE and PhilHealth but takers for this product has been few (<100). Currently, the organization is in the process of strategizing how best to make it more attractive to this target group. Another product in the pipeline is the “Okay ka” Loan product which is meant to be a graduation program from group to individual loan. Pilot testing of this project has recently been undertaken in two branches (Cabanatuan and Talavera) and its evaluation and possibility for roll-out to other branches is also currently being evaluated.

- ASKI offers Life and Health insurance coverage to clients. The former is facilitated by the Mutual Benefit Association (MBA), an independent identity established by ASKI in 2006 and is licensed by the Insurance Commission of the Philippines. Currently, MBA only extends life insurance to clients but plans to offer other insurance services such as medical coverage, pension and loan redemption. Eligibility for MBA life insurance entails a one-time membership fee of P300 (US$ 6) and weekly contribution of P30 (US$ 0.6) or P1,040 yearly (US$ 22) and enrollment to the program is optional. As of the rating period, MBA is being implemented in nine branches covering about 20,000 clients while the remaining 12 branches are being served through partnership with SUNLife. Future expansion areas will be automatically covered by the MBA program. By virtue of its legal personality, ASKI is limited to collecting compulsory savings which is treated as CBU of members. Ten percent (10%) of the approved loan is deducted and set aside as CBU and earns an interest of 2% per annum. Withdrawals are allowed provided the remaining balance should not be less than P2.000 (US$ 43) although in certain instances clients are not aware of the possibility to withdraw from their CBU. The savings can only be fully withdrawn when the client no longer wants to be part of any of ASKI’s Programs. Other than the above-mentioned financial services, ASKI is also facilitating money transfer services through partnership with Western Union which is currently offered in some branches but will be made available in all the 21 branches by June 2009. Another service which is being finalized by ASKI is the E-money which is aimed at providing every client with an ATM card for loan withdrawal/disbursements. This also addresses concerns regarding staff safety during transactions entailing carrying of cash. This is being piloted at the head office and after which, it will be implemented in every branch. In the medium run, the card could be used to deposit money and to facilitate money transfers.

Adequacy The overall adequacy of ASKI product offering is generally sufficient considering the wide range of services being offered despite constraints pertaining to loan size and the overall cost of the credit. Loan conditions and terms are generally perceived to be adequate and attuned to the different needs and capacities of each target group further exemplified by giving room for flexibility for those capable of repaying ahead of maturity. - ASKI’s service delivery takes place at the centre halls in the villages where the clients are located

which considerably reduces transaction costs to clients considering the remoteness of the location of some of the areas covered. Clients are satisfied with the service delivery especially the group meetings which also serves as a venue for members to socialize and follow up each other’s business status/growth and anticipate possible problems in repayment. Ease of repayment is facilitated through the center chiefs although there is scope for improvement in rotation of leadership. While ASKI policy

MicroFinanza Rating 23

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ASKI – Philippines- May 2009 Results Chapter 6

requires group leaders to be changed every two years, this has not been enforced and followed-through in practice. In some instances, a center chief has been in the position for a very long time. A factor which others consider a deterrent in accepting the responsibility of being a center chief is the absence of an honorarium. While the center chiefs benefit from various leadership exposure activities e.g. training, others are of the view that a small monetary incentive would be a good encouragement and motivational factor for others to come forward and accept the responsibility. This is a delicate area which the organization might want to weigh along the lines of costs/efficiency considerations vis-à-vis dispersing empowering leadership opportunity.

- Loan disbursement is through encashment of checks at local banks where ASKI branch is located. Previously, this process entailed additional transaction cost of P150 (~US$ 3) for bank charges which have caused a certain level of client dissatisfaction but at the present, this have been waived already through negotiation with banks where ASKI has an account. Time to disburse a loan which takes, on average, five days for new clients and three to four days for renewal is well-appreciated by clients. Documentation requirements and process is deemed adequate and not burdensome for clients.

- In general, collateral (in the form of vehicle or land title) is required for loans above P 50.000 (US$1,065) although for housing loan, the requirement is more stringent including, among others, having been with ASKI for at least 2 years with good track record, with CBU of at least P5.000 (US$106), and have consistently showed commitment and participation during meetings. For loans over P150.000 (US$3.197), a mortgage is required. For Group loans, the joint liability is enforced which means either having to pay for a group member that defaults or having extended center meetings until all the payments have been paid in full.

- Repayment frequency is perceived to be adequate, entailing weekly repayments for group clients, every 15 days for salary loan clients (consistent with the schedule of salary releases in the Philippines) and bullet repayment for agricultural loan clients whilst giving flexibility to ILP, SEL and housing loan clients to choose from a weekly, bimonthly or monthly option according to their income stream and repayment capacity. Clients can prepay in which case, a discounted interest rate of 2% is applied instead of the standard 3% monthly interest. Based on feedback received during the focus group discussions, some Agricultural clients prefer the previous arrangement which allows them to give the lump sum payment after five months rather than the current four months.

- Some dissatisfaction concerning the loan size emerged during the focus group discussions with clients citing the small size as one reason that compels some members to borrow from other micro-lending institutions alongside their ASKI loan. The current loan size also does not meet the need of certain business activities which require higher capitalization requirement than others for instance, onion farming as compared to rice farming.

- The cost of credit is high in absolute terms, at 3% monthly plus 2% service charge or commission, but at par with the charges of other MFIs operating in the area. This cost reflects the operational constraints as represented by the remoteness of some of the areas served and wide range of non-financial services being extended to the clients in the form of training business development services, spiritual development activities. This cost is not perceived to be a burden by the clients but view this as rather low compared to other available options (notably individual moneylenders such as five-six) and is appreciative of the other value-added services.

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ASKI – Philippines- May 2009 Results Chapter 6

- There is a high level of satisfaction among clients of the customer service provided to them by the loan officers, with 80% of clients surveyed ranking it as very good. Furthermore, relationship with their LO ranked as the third primary concern for clients. It is important to note that clients surveyed showed strong level of satisfaction on the quality of services on the different aspects as can be gleaned from the graph above.

- The drop-out ratio at ASKI during the periods of analysis is high, at 73% as of March 2009, capturing even those that are ‘resting’ and those affected by seasonality of agricultural production. It is worth mentioning though that a dropout study has been conducted by the organization’s research department to ascertain reasons for client exit. Results of the study revealed that drop out usually occurs in the 3rd and 4th loan cycle and mainly caused by program-based factors (problems with weekly meetings, center policies and group liability) and more personal reasons accounted for by business bankruptcy, ‘resting’ and delinquency due to multiple loans. It should be noted that some of the dropouts are also ‘forced’ in the sense that these were kicked-out by the group members due to poor credit discipline, this number though is not being tracked. With the exception of the abovementioned dropout study, ASKI does not systematically track drop-out ratio but the retention rate and as of end December 2008, ASKI’s drop-out rate32 is 27%. There is a high level of appreciation among clients for ASKI’s insurance services particularly the MBA Program although clients are also hoping ASKI could help facilitate access to the Social Security System (SSS) to address their pension and other concerns especially when they reach the age over 60 which render them disqualified from life insurance. ASKI is currently in negotiation with a government agency concerning this SSS concern.

Non-financial services Clients greatly appreciate ASKI’s wide range of non-financial services being extended to them through the Community Development Department and ASKI Foundation. The former is in charge of providing training for communities as well as business development services33 for individual clients. For each loan disbursed, the client pays P50 to participate in the activities of the Department -30% goes into the administration expenses and 70% in operational expenses (of which 30% goes into the client training and 40% allocated to the outreach programs). The department currently supports 35 clients which are considered export-oriented entrepreneurs with products that have good potentials to be marketed outside the region and eventually abroad. The department also facilitates linkage of client’s products to the provincial and national trade fairs and promotes them locally through the Marketing Cooperative which showcases client’s products. These 35 clients employ about 5 to 35 workers thus, further helps in local job creation. The department is also involved in a number of activities such as organizing 20 People’s Organization - empowering them to lobby their cause to the concerned government body and to broaden their livelihood skills, implementing various community-initiated projects such as, to name a few, toilet construction, canal irrigation cleaning, bridge renovation, etc. The department takes no part in the microfinance operation but essentially takes the lead in the provision of non-financial services to clients and the communities where they are present which eventually helps in increasing client loyalty to ASKI Microfinance. The future plan is for the Community Development department to serve as the ‘resource agency’ for microfinance institution through income generation from training fees and other BDSS services and helping in organizing potential groups for microfinance operation. The ASKI Foundation benefits from the P50 (US$ 1) contribution of clients for each loan disbursed and from the income contribution from the microfinance operation (1% of annual net income) supplemented further through fund-raising activities and solicitations/donations from individuals. The bulk of the department’s budget (80%) is used for transformation and education activities and the remaining 20% for the environment activities. The Foundation’s non-financial services is revolves on three aspects such as the educational services, environmental management system (EMS), and transformation activities. Education services constitutes the provision of scholarship (currently supporting five university students) in partnership with other organizations like APPEND & TESDA, facilitating livelihood skills training, and supporting 10 day

32 ASKI uses the following formula to calculate the Retention Rate= Ending no of clients/ (Beginning + New). 33 Trainings provided include Entrepreneurship Training, Product Development, Financial Management and Marketing Assistance.

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ASKI – Philippines- May 2009 Results Chapter 6

care centers. Meanwhile, EMS activities constitute backyard gardening, toilet facility construction, tree planting, and clean-up drive. Transformation covers spiritual development counseling and seminars on marriage, discipleship, etc. The Foundation’s activities are normally captured in the Newsletter produced by the department which also includes client feedback and insights on their experiences. Interaction with clients and feedback gathered from focus group discussion is overall positive with most of them showing a high level of appreciation for ASKI’s non-financial services as this not only presents them an opportunity for personal development (through the fellowships and interaction) but also provides them a venue to collectively achieve something productive through the community-initiated activities.

MicroFinanza Rating 26

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ASKI – Philippines- May 2009 Annex 1

Annex 1 - Statistics Poverty lines The following table presents the value, in local currency, of the national and international poverty lines used to assess the profile of clients. The national extreme poverty line is defined as the cost of the food required to satisfy nutritional requirements for economically necessary and socially desirable physical activities. The nutritional requirements are determined by the Food and Nutrition Research Institute of the Department of Science and Technology of the Philippines. Currently, the requirements are based on 100% adequacy for the Recommended Dietary Allowances for protein and energy equivalent to an average of 2000 kilocalories per capita, and 80% adequacy for the other nutrients. Within the Philippine Poverty Statistics from the National Statistical Coordination Board (NSCB), the proportion of families (or population) that falls below this threshold is referred to as the subsistence incidence. The national poverty line is defined as the cost of the basic food and non-food requirements (valued in peso). The basic non-food requirements cover the non-food expenditure items of the Total Basic Expenditures34. In the Philippine official methodology, the poverty line may be viewed as the minimum income required to meet the food requirements and other non-food basic needs. Within the Philippine Poverty Statistics from the NSCB, the proportion of families (or population) that falls below this threshold is referred to as the poverty incidence. Loan size To increase the relevance of the most commonly used proxy of outreach depth, the loan size analysis includes the following adjustments: - Dividing the loan size by the GDP per capita - Expressing the loan size in $PPP - Normalizing the loan size to one year term - Considering not only the average loan size, but also the median and other moments of the distribution

(1st and 3rd quartile) The analysis is based on the complete list of loans active as of March 2009 (disbursed amount).

34 Total Basic Expenditures is an aggregate of expenditures on food; clothing and footwear; fuel; light and water; housing maintenance and other minor repairs; rental or occupied dwelling units; medical care; education; transportation and communications; non-durable furnishing; household operations and personal care and effects. It excludes alcoholic beverages, tobacco, recreation, durable furniture and equipment and miscellaneous expenditures. (1997 Philippine Poverty Statistics, NSCB).

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ASKI – Philippines- May 2009 Annex 1

Survey on clients In order to provide a complete description of the poverty outreach, a survey on recent clients has been realized. Recent clients are defined as those clients with an active status at the date of the evaluation, who took their fist loan with the MFI in the 12 months preceding the social rating (April 2008-March 2009).

The formula used to calculate the sample size, based on the binomial theorem, is the following: (z²) (r)(1-r) (f) / e² z: level of confidence r: estimate of the key parameter f: design effect e: margin of error

Sample characteristics: - Design: multiple steps cluster - Size: 179 clients - Branches included: San Jose, Talavera, Paniqui, Tayug, Solano, Santiago

Definitions applied: - Household: one person or a group of persons with or without a family relationship, who live in the

same housing unit, share meals and make joint provision of food and other essentials of living, for at least 6 months per year.

- Head of the household: person who mainly contributes to the income of the household and takes major decisions in the household.

- Close relatives: client’s parents, client’s son/daughter, client’s brother/sister, client’s husband/wife (not necessarily living with the client and not necessarily contributing to the client’s household expenses).

In addition to those include

d in the report, some other findings of the survey on clients are presented below.

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ASKI – Philippines- May 2009 Annex 2

Annex 2 – Social indicators

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ASKI – Philippines- May 2009 Annex 3

Annex 3 – Definition of acronyms and indicators Acronym / indicator Definition / formula

Operational self-sufficiency (OSS) (Financial revenue + Other operating revenue) / (Financial expenses + Loan loss provision expenses + Operating expenses).

Financial self-sufficiency (FSS) (Adjusted financial revenue + Other operating revenue) / (Adjusted financial expenses + Adjusted loan loss provision expenses + Adjusted operating expenses)

Return on equity (ROE) Net income before donations / Average equity

Return on assets (ROA) Net income before donations / Average assets

Portfolio at Risk (PAR30) Portfolio at Risk > 30/ Gross outstanding portfolio

Write-off ratio Write-off of loans / Average gross portfolio

Risk coverage ratio (>30 days) Accumulated reserve / Portfolio at risk >30 days

Loan loss reserve ratio Accumulated reserve / Gross portfolio

Funding expense ratio Interests and fee expenses on funding liability / Average gross portfolio

Operating expenses ratio Operating expenses / Average gross portfolio

Loan officer productivity – Borrowers Number of active borrowers / Number of loan officer

Staff productivity – Borrowers Number of active borrowers/ Number of staff

Financial Performance

Debt/Equity ratio Total liability / Equity

HDI Human Development Index

GDP Gross Domestic Product

GNI Gross National Income

GDI Gender-related Development Index

WB World Bank

FMI International Monetary Fund

UNDP United Nations Development Program

MDG Millennium Development Goals

Context

$PPP International dollar, based on Purchasing Power Parity

SG Social Goal. Social goal 1 = reaching target client; Social goal 2= meeting clients’ needs; Social goal 3 = creating change

Social Performance Management system SMART Specific, Measurable, Achievable, Realistic, Time-bound

Staff turn-over rate Staff who left during the period / Average staff at in the period

Portfolio yield Interest income from portfolio / Average net portfolio Social responsibility

Real portfolio yield (portfolio yield – inflation) / (1 + inflation)

Average outstanding loan Outstanding portfolio / number of active loans

Average disbursed loan Amount issued in the period / Number of loans issued

Average outstanding loan on per capita GNI (Outstanding portfolio / number of active loans) / GNI per capita

Median loan disbursed on GDP pc 50th percentile of loans issued in the period / GDP per capita

Annualized disbursed loan Amount disbursed * (12 / months of loan term)

Outreach

Disbursed loan, $PPP Amount disbursed in local currency * $PPP conversion factor

(number of active clients at the beginning of the period + number of Quality of the new (first time) clients entering during the period – clients written-off Client drop –out rate services during the period – number of active clients at the end of the

period) / (number of active clients at the beginning of the period)

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ASKI – Philippines- May 2009 Annex 3

Annex 4 – Social rating scale

MicroFinanza Rating 31