Chapter I

INTRODUCTION

Almost by definition, poor people have very little money. Circumstances often arise

where in there is a need for money or things that money could buy. Nowadays, when many

people feel powerless to change their lives, cooperative represents a strong, vibrant, and

viable economic alternative.

Generally, every cooperative’s primary purpose is to provide goods and services to

its members and enable them to attain increased income and savings, investment,

productivity, purchasing power and promote among them equitable distribution of net

surplus. These are based on the idea that together, a group of people can achieve goals that

none of them could achieve alone.

As cited in the research conducted by Jennifer Masicat (2014), with the

implementation of the Cooperative Code of the Philippines or R.A. 9520 formerly R.A.

6938, almost all cooperatives are now registered as multipurpose cooperatives in order to

simultaneously undertake four functions – credit, marketing, purchasing and joint

utilization of resources. Multipurpose cooperatives are presently utilized by the

government as the more effective tools for economic development and also has advantages

over other types of cooperatives.

In the effective management of cooperatives, good governance and transparency

are necessary. This leads to recruitment of more members thus, enhancing its financial
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viability. However, despite of the good aims, there are still problems encountered in its

management which is then a natural part of the management process. These encountered

problems must be addressed in order to help its members and for the cooperative to survive

and be in business. Thus, it is important for the management team to study these problems,

execute solutions and avoid similar occurrences in the future. If not properly addressed,

weak or poor management can lead to withdrawal of its members that of financial loss to

the cooperatives, management failure and even dissolution.

Background of the Study

Among the different types of cooperative, a credit cooperative is the one which

promotes and undertakes savings and lending services among its members. Basically, this

generates a common pool of funds in order to provide financial assistance and other related

financial services to its members for productive purposes. Loan portfolios are commonly

offered and this is mainly associated with risks. In order to avoid risks in this loan portfolio,

effective management is needed and it must be monitored for the effectiveness and quality

of the loan products and services offered.

The main purpose of this research is to help the cooperative under study – LEAF

MPC, to assess its loan portfolio management so as to determine how the different loans

contribute to the financial performance of the cooperative.

Lucban Environmentalist Agro-Forestry Multipurpose Cooperative is a seventeen

year-old multipurpose cooperative in Lucban, Quezon with 827 members as of 2018. It

started as a cooperative with environmental concerns such as tree planting and other
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programs that deal with the environment. And, as time goes by, the cooperative sees the

needs of its members and offered additional products and services.

The researchers’ interest in studying a certain financial institution which is

primarily concerned in lending money especially to the poor was considered in choosing

this topic. They chose LEAF MPC in Lucban, Quezon because they are acquainted to one

of its members. And also, due to the fact that LEAF MPC is in need of a tool that will help

them achieve its long term goals that will be not just in paper but can be used as a solid

basis for its future. The cooperative agreed to conduct the research and that they will give

the necessary documents needed. Thus, the researchers cannot only gain knowledge about

the operations of the cooperative but also, they can contribute to its improvement.

Objectives of the Study

The main objective of this study is to assess the loan portfolio management of

Lucban Environmentalist Agro-Forestry Multipurpose Cooperative in Lucban, Quezon.

Specifically, it aimed to accomplish the following:

1. To determine the profile of LEAF MPC in terms of:

1.1 Historical Background

1.2 Organizational Structure

1.3 Technical Structure

1.4 Financial Structure

2. To distinguish the different loan packages offered by the cooperative.

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3. To know LEAF MPC’s loan policies in terms of:

3.1 Loan documentation/ requirement

3.2 Loan evaluation/ processing

3.3 Loan approval

3.4 Loan limit

3.5 Loan collection

4. To find out how the loan packages offered by LEAF MPC contribute to the

financial performance of the cooperative.

5. To determine the problems encountered by the cooperative with regards to its

loans services.

Significance of the Study

The researchers conducted this study to assess the loan portfolio management of

Lucban Environmentalist Agro-Forestry Multipurpose Cooperative in Lucban, Quezon.

This study will benefit the following:

Respondent – The results of this study will help the cooperative under study – LEAF MPC

to identify how its loan packages contribute to their financial performance and to have a

sound plan of action for the development and effective execution to achieve the desired

result.

Community – Factual information of this study will make the community, particularly

prospective members, to become aware and familiar of the lending activities and loan
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portfolio management of LEAF MPC as well as its products, services offered and other

activities.

Other Cooperatives– Findings of this study can be considered by other cooperatives who

have difficulties in managing and assessing their loan portfolio.

Future Researchers – This research paper can help future researchers who want to engage

in the same study and can serve as a reference that can give them information about loan

portfolio management.

Researchers – This study will give the researchers knowledge about loan portfolio

management of a cooperative which can serve as a training ground with respect to their

chosen field.

Scope and Limitation

This study focused primarily on the loan portfolio management of LEAF MPC in

Lucban, Quezon for the years 2015 to 2017.

It gives emphasis on the different loans offered by the cooperative and its

contribution to the cooperative’s financial performance. All data and information were

gathered through personal interview guided by unstructured questionnaires with the

manager and/or staffs of LEAF MPC. The analysis, evaluation and interpretation of data

were based only upon the data that were made available to the researchers.
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Definition of Terms

This section provides the list of words that were used in this study and their

definition based on how they were used.

Cost per Peso Loan is the percentage of financing cost plus administrative cost less

member’s benefit expense over the average total loans outstanding.

Credit is the amount of money or a claim that the cooperative has from a borrower.

Creditor is an entity that extends credit by giving another entity permission to borrow

money intended to be repaid in future.

Credit Risk is the risk that a borrower may not repay a loan and that the cooperative may

lose the principal of the loan or the interest associated with it.

Debt is a duty or obligation to pay money, deliver goods, or render service under an express

or implied agreement.

Debtor is a party who owes money to the cooperative.

Financial Performance refers to the subjective measure of how well a firm can use assets

from its primary mode of business and generate revenues.

Loan is a type of debt that entails the redistribution of financial assets of LEAF MPC.

Loan Approval is the formal authorization of the cooperative to debtors to get a loan.

Loan Collection is the process of collecting loan receivables from borrowers.

Loan Documentation refers to the documents needed to legally enforce the loan

agreement and properly analyze the borrower’s financial capacity.

Loan Evaluation or Credit Evaluation is a process done by the cooperative to confirm

the loan repayment ability of the prospective borrowers and the chances of default.
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Loan Limit is the maximum amount of loan or total amount of loan authorized by the

cooperative by which a borrower can borrow.

Loan Policy is the guide of senior management and the board in cooperative lending

activities.

Loan Portfolio is the total of all loans held by the cooperative on any given day. Individual

loans of the cooperative form a loan portfolio.

Loan Portfolio Management (LPM) is the process by which loans and lending activities

are managed and controlled by the cooperative.

Loan Portfolio Profitability is the percentage of income from credit operations over the

average total loans outstanding.

Net Loans to Total Asset Ratio is the percentage of net loans over the total assets of the

cooperative.

Non-performing Loan Ratio is the percentage of non-performing loans over the total

loans released by the cooperative.

Percentage Change in Allowance for Bad Debts is the percentage change of the current

allowance for bad debts over the previous allowance that the cooperative provides.

Repayment Rate is the percentage of total loans collected over the total loans released.

Subscribed Share Capital is the amount of share subscribed by regular members, payable

over a certain period of time.