EVALUATION ON THE EFFECTIVENESS OF THE CREDIT AND COLLECTION POLICIES AND PRACTICES OF SELECTED MULTI-PURPOSE COOPERATIVES IN BOHOL, PHILIPPINES PDF

Preview

Summary

EVALUATION ON THE EFFECTIVENESS OF THE CREDIT AND COLLECTION POLICIES AND PRACTICES OF SELECTED MULTI-PURPOSE COOPERATIVES IN BOHOL An Undergraduate Thesis Presented to the Faculty Of the College of Business and Accountancy Holy Name University Tagbilaran City by Karen May V. Aradanas Maria Tiffany ...

Description

Accelerat ing t he world's research.

EVALUATION ON THE EFFECTIVENESS OF THE CREDIT AND COLLECTION POLICIES AND PRACTICES OF SELECTED MULTIPURPOSE CO... Angelica E. Suazo, Leomar Virador

Related papers

Download a PDF Pack of t he best relat ed papers 

DEBT S, DIFFERENT LY. Alt ernat ive Finance Organizat ions in It aly and France Arianna Lovera

A failed inst it ut ional t ransplant : Raiffeisen's credit cooperat ives in Ireland, 1894-1914 T imot hy Guinnane DATA ON UMWA SACCO elie Nsengiyumva

EVALUATION ON THE EFFECTIVENESS OF THE CREDIT AND COLLECTION POLICIES AND PRACTICES OF SELECTED MULTI-PURPOSE COOPERATIVES IN BOHOL

An Undergraduate Thesis Presented to the Faculty Of the College of Business and Accountancy Holy Name University Tagbilaran City

by

Karen May V. Aradanas Maria Tiffany L. Palacio Angelica E. Suazo

October 2018

ii APPROVAL SHEET

This thesis entitled, “EVALUATION ON THE EFFECTIVENESS OF THE CREDIT AND COLLECTION POLICIES AND PRACTICES OF SELECTED MULTI-PURPOSE COOPERATIVES IN BOHOL”, prepared and submitted by KAREN MAY V. ARADANAS, MARIA TIFFANY L. PALACIO AND ANGELICA E. SUAZO, in partial fulfilment of the requirements for the degree of Bachelor of Science in Business Administration Major in Management Accounting, has been examined and recommended for the acceptance and approval for oral examination.

Thesis Committee

MR. LEOMAR B. VIRADOR, CPA, CMITAP, MSA-MA Content/Technical Adviser Faculty, College of Business and Accountancy _______________________________________________________________

PANEL OF EXAMINERS

Approved by the Committee on Oral Examination with a grade of____________.

DR. JEMMA J. JAY, CPA Chairman Dean, College of Business and Accountancy

DR. ERNESTO O. GOLOSINO, CMITAP Member Chairman, Business Administration Department

MRS. LUTGARDA P. CAÑEDO, MBA Member Chairman, Tourism Hospitality Management Department

iii ACCEPTANCE SHEET Accepted and approved in partial fulfilment of the requirements for the degree of Bachelor of Science in Business Administration Major in Management Accounting.

MRS. FLORITA D. ACERO, CPA, MBA Chairman, Accountancy Department October 2018

DR. JEMMA J. JAY, CPA Dean, College of Business and Accountancy October 2018

iv ACKNOWLEDGEMENT

The researchers would like to express their sincerest appreciation and utmost gratitude to all the people behind the success of this research study. This research would not have been feasible without the several individuals who willingly and heartily provided their support and guidance. First and foremost the researchers would like to thank the Triune God for endowing the researchers the knowledge, patience, strength and the chance to undertake this research. To their technical adviser Mr. Leomar B. Virador, CPA, CMITAP, MSA-MA, for giving us his invaluable time and patience. The researchers would also like to express their utmost gratitude for the conducive advices and assistance that encouraged them to grow into a better researcher and individual. To their class adviser, Mrs. Emily Navales for the encouragement and her deepest understanding. To their research respondents, the managers, credit committee, and members of the five respective multi-purpose cooperatives who despite their busy schedules shared their time and expertise in order to make this research successful. To their families and friends who gave them their unending love and support. The Researchers

v DEDICATION

This is our magnum opus which would not have been complete without passion and dedication.

We, therefore, wholeheartedly dedicate this classic to the Almighty Father whose guidance and love are everlasting.

To our beloved parents whose support and care are unending.

And to the members of this research whose intellect and character were heightened to perfect the challenging.

vi Name:

Aradanas, Karen May V. Palacio, Maria Tiffany L. Suazo, Angelica E.

Research Title:

Evaluation on the Effectiveness of the Credit and Collection Policies and Practices of Selected Multi-Purpose Cooperatives in Bohol

Date Defended:

August 28, 2018

Adviser:

Mr. Leomar B. Virador, CPA, CMITAP, MSA-MA

ABSTRACT This study aims to evaluate the effectiveness of credit and collection policies and practices of the selected multi-purpose cooperatives in Bohol through specific evaluation tools. The research respondents are composed of the manager, credit committee, and 20 members of each of the five (5) multi-purpose cooperatives with the highest contribution capital. The results of the study illustrate that all of the multi-purpose cooperatives always practice specific credit policies under credit analysis, credit information and credit review. The data accumulated also implies that specific collection policies under borrower segmentation and collection process are always followed. Furthermore, it is also found out that all except one cooperative express effective credit and collection performances wherein two (2) cooperatives performed very satisfactorily, another two cooperatives performed satisfactorily, while one cooperative still needs improvement. Lastly, the results signify that there is a direct relationship between practices of the credit and collection policies and the credit and collection measures of majority of the cooperatives. Based on the results and conclusions, the researchers recommend the enhancement of the rate of expansion of cooperative A for the improvement on their loan portfolio, the consideration of past due accounts of the borrower of cooperative B for the determination of their credit risk, and the change or improvement of the credit and collection policies of cooperative C for the reduction of their losses due to non-payment.

vii TABLE OF CONTENTS

PAGE Title Page

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

i

Approval Sheet

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

ii

Acceptance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . .

iii

Acknowledgement . . . . . . . . . . . . . . . . . . . . . . . . . . . .

iv

Dedication

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

v

Thesis Abstract

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

vi

Table of Contents

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

vii

List of Tables

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

ix

CHAPTER I.

THE PROBLEM AND ITS SCOPE INTRODUCTION Rationale

. . . . . . . . . . . . .

1

Theoretical Background

. . . . . . . . . . . . .

3

Statement of the Problem

. . . . . . . . . . . . .

21

Significance of the Study

. . . . . . . . . . . . .

22

Scope and Limitations

. . . . . . . . . . . . .

23

THE PROBLEM

RESEARCH METHODOLOGY

viii Research Design

. . . . . . . . . . . . .

24

Research Environment

. . . . . . . . . . . . .

25

Research Participants

. . . . . . . . . . . . .

25

Research Instrument

. . . . . . . . . . . . .

26

Gathering of Data

. . . . . . . . . . . . .

27

Treatment of Data

. . . . . . . . . . . . .

27

Research Procedures

II. III.

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA . . . . . . . . . . . .

33

SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATION Summary

. . . . . . . . . . . . . . . .

66

Findings

. . . . . . . . . . . . . . . .

68

Conclusion

. . . . . . . . . . . . . . . .

69

Recommendation

. . . . . . . . . . . . . . . .

70

. . . . . . . . . . . . . . . . . . . . . . .

72

REFERENCE APPENDICES

Letter to the CDA Letter to the Respondents Survey Questionnaires Key Informant Interview Guide CURRICULUM VITAE

ix LIST OF TABLES TABLE 1

Credit Analysis Practices (Manager and Members) . . . . . . . . 33

2

Credit Analysis Practices (Credit Committee and Members) . . . . . . . . . . . . . . . . . 37

3

Credit Information Practices (Manager and Members) . . . . . . 41

4

Credit Information Practices (Credit Committee and Members) . . . . . . . . . . . . . . . . . 44

5

Credit Process Practices (Manager and Members) . . . . . . . . 45

6

Credit Review Practices (Manager and Members) . . . . . . . . 45

7

Credit Execution and Administration (Credit Committee and Members) . . . . . . . . . . . . . . . . . 46

8

Credit Approval and Implementation (Manager and Members) . . . . . . . . . . . . . . . . . . . . . 49

9

Credit Approval and Implementation (Credit Committee and Members) . . . . . . . . . . . . . . . . . 50

10

Borrower Segmentation (Manager and Members). . . . . . . . . 51

11

Borrower Segmentation (Credit Committee and Members) . . . . . . . . . . . . . . . . . 52

12

Collection Process Practices (Manager and Members) . . . . . . . . . . . . . . . . . . . . . 53

13

Collection Process Practices (Credit Committee and Members) . . . . . . . . . . . . . . . . 54

14

Debt Recovery Practices (Manager and Members) . . . . . . . 55

15

Debt Recovery Practices (Credit Committee and Members) . . . . . . . . . . . . . . . . 56

16

Collection Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 60

17

Collection Efficiency Index . . . . . . . . . . . . . . . . . . . . 61

x 18

Percentage of Past Due . . . . . . . . . . . . . . . . . . . . . . 62

19

Loan Loss Reservation Ratio . . . . . . . . . . . . . . . . . . . 63

20

Growth in Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . 64

21

Overall Adjectival Rating of Selected Evaluation Tools . . . . . . . . . . . . . . . . . . . . . . . . . .65

CHAPTER I

THE PROBLEM AND ITS SCOPE

INTRODUCTION

Rationale

There are numerous perceptions of individuals suggesting that matters regarding money are indeed confusing for one to understand fully and clearly. The environment that the people are living in is influenced by these different points of views. Now the life of economics has risen from these impulses of indefinite thought. The conditions of economics have paved a way to the development of the credit system as proof of an unavoidable change of time. Credit has become very significant to individuals and especially to businesses alike. The financial system became more organized as the inclination towards capitalism became stronger. When enterprise became more intense, so did the credit system and its development. Economics has been established by the cooperation of various entities taking into account the producers’ needs and the consumers’ wants. These entities will have to be responsible for the giving and taking of credit. These credit transactions have caused the evolution of banks and other financial institutions including multi-purpose cooperatives.

2 Multi-purpose cooperatives are vital to the social and economic structure of a nation. They apply local initiative and build economic strength as they build savings generation and finance. When they are able to establish their own operations, they can utilize the benefits of local activities with the regional and national interaction within their system. If this process goes well, these multipurpose cooperatives will surely lead to the strengthening of their owners and to the local economic structure in which they operate as well. In specific cases, these institutions improve mobilization of savings and provide credit to its members and other non-member customers. But of course, the credit system cannot be healthy if the said cooperatives do not feel their responsibility of all transactions involved brought about by their loan provision. A larger sense of responsibility is then very essential to the economic affairs and the business world. To achieve a successful national economy, one must ponder that not only should credit enhance the quintessence of business and enterprise but also to exercise the right methods and regulations to enable business to work in a socially relevant way. It is therefore important for multi-purpose cooperatives to effectively manage credit and collection systems through the use of strict and operative methods and policies. Written policies are very relevant in a way that they ensure consistent operations and decisions regarding the giving and taking of credit. These policies and regulations are the key document to every business transaction.

3 It is in this light that the researchers wish to conduct a study to evaluate the effectiveness of credit and collection policies of the selected multi-purpose cooperatives in Bohol through specific evaluation tools.

Theoretical Background

According to Nipun (2009), one of the types of business entities that is rapidly growing in our society today are cooperatives. Nowadays, economically handicapped people can collaborate in a cooperative society to improve their financial statuses. Thus, cooperation is seen as a major way of boosting the economic conditions of people. As defined by the Cooperative Development Authority in the Philippines (CDA) (2015), a cooperative is an autonomous and duly registered association with a bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services, and accepting a fair share of risk and benefits of the undertaking in accordance with the universally accepted cooperative principles. According

to

the

CDA (2015), cooperatives essentially focus on

the needy. Therefore, the objective of cooperatives is to improve the livelihood, well-being, economic, and social status of the underprivileged members of the community. Cooperatives are tasked to put the less fortunate in the socioeconomic mainstream so that they will become an active contributor in building the nation.

4 One type of cooperative is multi-purpose cooperative. According to the CDA (2015), a multi-purpose cooperative is an entity that consist of two or more business or economic enterprise. One of the services that multi-purpose cooperatives offers is credit. Generally, credit is described as the process of issuing a loan wherein one party transfers resources to another considering that the loan will be fully paid with interest (Matt McGew, 2017). Since one of the services offered by multi-purpose cooperatives to its members is credit, it necessitates the establishment of policies and procedures especially in the provision and collection of loans to their clients. These regulations are formed to influence and help in cautiously considering significant business decisions and economic activities and, therefore, making sure that all these transactions is performed within the boundaries imposed by the entity. Policies must then be devised strictly to ensure progress. In drafting a policy, external and internal business factors must be considered. However, these institutions must also take into account their compliance with the law. Policy statements of multi-purpose cooperatives must be composed of an underlying philosophy of the management and what the policy expects to obtain. This may include a delineation of the relationship of the institution’s policy to its mission, vision, goals and core values. Procedures, on the other hand, must consist of the required actions to be done that are in accordance with the association's mandated policy. They must be employed consistently and in line with the regulations. As stated by Todd Elliott (2011), multi-purpose cooperatives usually consider six basic frameworks in establishing their credit policies since these are important to the growth of the entity regardless of its size. An effective policy will

5 create a stronger relationship with its members and secure its investment in accounts receivable. The key elements that ensure the financial sustainability of most multi-purpose cooperatives are (1) credit analysis, (2) credit information, (3) credit process, (4) credit execution and administration, (5) credit review, and (6) credit approval and implementation. According to Mirach (2010), credit analysis is the predominant method in decreasing the credit risk in the request of debt. This encompasses determining the financial strength of the debtors, determining the probability of default and diminishing the risk of non-repayment to a tolerable level. In general, credit evaluations are derived from the credit officer’s subjective judgement. As reported by Wilkinson (2016), the 5 C’s are a common basis to the elements of a credit analysis. It is used by creditors to assess the creditworthiness of possible debtors. Moreover, Lawrence (1997) determines the five C’s of credit which includes: character, capacity, collateral, capital, and conditions. The debtor’s character shows the applicant’s records of meeting past obligations may it be financial, contractual and moral. Past payment history and any pending or resolved legal judgements against the application are also included in the evaluation of its character. As implemented by the CICSA Cooperative Credit Union (2013), these are the policies on the credit analysis to evaluate the debtor’s character: (1) the debtor should be a bona-fide regular or associate member of the multi-purpose cooperatives; (2) the minimum share capital and membership fee should have been already fully paid by the debtor; (3) the debtor should not be delinquent; (4) the borrower should have a good and solid history of past loan repayments and

6 record of savings; (5) the borrower should have good credit reports and statements of account from other financial service providers;(6) the borrower should have actively tendered to the share capital build-up of the multi-purpose cooperatives; and (7) the credit being requested must be for provident or productive purposes only. Provident means that the loan provides for the needs and benefits of the member and productive means that the loan enhances his earning capacity. Another key dimension used to analyze the credit worthiness of a debtor is their capacity. This indicates the applicant’s ability to repay the requested credit. Most creditors look into the financial statement analysis particularly in terms of its liquidity and debt ratios in order to assess the applicant’s capacity to repay the loan. Generally the amount of the credit applied by the borrower must be according to his earning capacity, fixed deposit, savings with the multi-purpose cooperatives, and the solvency of his guarantor or co-maker. No amount should be released that is ...