Issuu on Google+



2010 Annual Report

INSIDE 4 5-6 7-9 10 - 11 12 - 15 16 17 - 25 26 - 70 71 72 73 74 - 76 77 - 78

| | | | | | | | | | | | |

Corporate Ideals Messages Success Stories History Comparative Performance Analysis Year-End Highlights Year in Review Financial Statements Board of Trustees In Memoriam Directors Directory Partners and Affiliations



Core Values

KMBI is a Christ-centered development organization existing to help transform the lives of its clients by providing sustainable microfinance, training, and demanddriven non-financial services.

Respect Integrity Stewardship Commitment to the Poor Discipline Innovation Excellence


Goal 25.250

To see people in communities live in abundance with strengthened faith in God and in right relationship with their fellowmen and the rest of the creation.

Reaching out to 250,000 Filipino households on our 25th year.


2010 2010 Annual Annual Report Report

Message from the Chairman & President For 25 years, KMBI never lost its vision to alleviate the lives of our Filipino women through the provision of sustainable financial and non-financial products and services. It never grew tired of reaching out to more and more of these women notwithstanding the challenges and struggles that would come along the way. It did not step out of its dream to see more lives being transformed. We did not lose hope. We fought the battle. And we surpassed them all. Thus, we can say that we live the name we bear: “Kabalikat para sa Maunlad na Buhay.� The overpowering tales of triumphs and perseverance continually drives the men and women behind the organization to render endless support to its program members. All the things we just thought of and hoped for, favor upon favor, blessing upon blessing are remarkable truths that KMBI indeed have come this far. We look forward to seeing more people realize the endeavor this organization has and to take a step in enriching the lives of the people through holistic transformation. Mabuhay and to God be the glory!

DAMIANA D. EXIOMO Chairperson and President Message


Message from the Executive Director Holistic transformation - what can it bring to a striving and unyielding nation like the Philippines? For so many decades, our country has dealt with different administrations, pursued several reforms, faced enormous economic pitfalls and combated natural and manmade calamities. Our country never gave up even in the midst of mounting debts and poverty that has stricken almost every Filipino household today. KMBI has been helping the marginalized sector, especially Filipino women microentrepreneurs, improve their ways of living. As women are considered “light of their household,” so the organization gives ways to lit a spark of optimism in their hearts to flourish and to become effective members of the community. We engage them to different social activities where they can feel their worth and value and we provide them financial aid to sustain their enterprises. All of these would not have been made possible without the tireless efforts of our Operations and Support group. We are of different backgrounds, education, understanding, and status in life but we are all heading towards one direction, one goal, one vision – to see people live in an abundant life, anchored in Christ’s Lordship. Let’s continue walking this journey of transforming lives. Mabuhay po tayong lahat!

EDGARDO S. MERCEDES Executive Director 66

2010 Annual Report


Closing in on



nurse by Profession, LETECIA TABOTABO did not think twice when she set aside her personal dreams and decided to join her husband in setting-up a large scale manpower services 3 years ago. Armed with faith and trust, Tabotabo embraced her decision and went through the tides. It proved to be the perfect timing as her venture eventually became her platform in applying the business acumen she mustered from money lending, peddling meat, groceries, candles, and in creating uniforms and IDs for different companies. Her earnings from these small ventures eventually became her steady financial source to sustain her most ambitious project so far – the manpower services company. In 2009, she has pooled 30 workers and deployed 500 more in 2010. Her success according to Tabotabo, starts with the desire to be successful and not to be contented with a simple “desire”. She said, one has to muster expertise in identifying opportunities, managing resources, and resolving problems to reach their goals. From her humble beginnings, Tabotabo’s life proves that it is never too late to shift gears and to stay in the game. Success Stories



er ovAdversity


mother of eight children, LYDIA MALOT started her business in 1993 out of curiosity to try a nata de coco recipe she accidentally skimmed from a magazine. With limited tools on hand, she managed to produce her first ever nata de coco using a small pail and utensils found in her kitchen. The success of her first product try-out prompted Lydia to process nata de coco in the morning and juggle her full-time work as a teacher at Calinan High School. It was only when large orders came when she finally decided to concentrate on the business. She initially started with 300 produced trays until it has grown to 8 tons a week! But like other businesses, her lowest point came when her biggest client, Crown Fruits International stopped its operations. Her multi-cab business is not doing well either. By 2003, her own house and lot were foreclosed due to mounting debts. Despite the bad luck, Malot and her family remained positive with the promise of the nata de coco production boom. On that same year, DOLE engaged her as one major supplier with a regular target of 8 tons a week. To date, aside from DOLE, she is supplying big time markets in Davao and Cagayan de Oro. She juggles her time between her family, business, and her active participation in her Center as president.


2010 Annual Annual Report Report 2010


Pushing the RIGHT BUTTON


s a true entrepreneur, CINA ABARCA of Daet, Camarines Norte never refuses a challenge in life. Cina is the woman behind the success of Nata de Coco fruit juice drink, a hit ready-to-drink juice in their barangay. Her success was born out of the needs of their family. As a wife and mother, she realized she must do something to help her husband in augmenting the family income. When Cina started selling kakanin and fresh fruits, her husband was coincidentally laid-off from work as an operator in a local cinema. Abarca’s business started to peak up when she became a canteen concessionaire in an elementary school in Brgy. Pag-asa, Jose Panganiban. Every morning she sells kakanin inside the school, and when night falls, her husband and children produce vinegar and soy sauce for distribution in nearby sari-sari stores. The business has limited success though, so Cina was determined in discovering new products for her market. In 2007, she ventured in the production of fruit juices. It became an overnight success that her juice products became known as an innovative flavoured drink in the community. In 2009, her stability was put to another test when her husband passed away. According to Cina, despite the loss and grieving, she chose to stand firm to survive. To date, Cina manages the overall production of her business. According to her, she practices good sanitation and professes to uphold that good business value to keep her customers loyal. She consistently pushes the right buttons in order to achieve stability in her chosen business and in honor of her husband. She now supplies products in various schools and stores within the municipality and some areas outside Jose Panganiban. She plans for expansion of work area, increase in equipment and improvement of package and its labels while maintaining the good practices that she had established. Success Stories


KMBI through

10 10

2010 Annual Report

h the years...


2009 2011


11 11


12 12

2010 Annual Annual Report Report 2010




MBI’s dream of reaching 250,000 clients was finally realized before the Goal 25.250 ends. The opening of nine new branches in Angeles, Gapan, Guagua, Mabalacat, Ormoc, Roxas, Tacloban, Tagbilaran and Talavera as part of its expansion program contributed to the 27.12% increase from previous client outreach. To date, KMBi is now serving 70 branches in 17 areas of operation nationwide. This year, new and proactive approaches were introduced to meet increasing organizational needs and client demands. The ISO 9001:2008 certification KMBI received in October further increased client’s confidence on the quality of service the organization provides. The onset of Agricultural Microfinance program (now on its prototype stage in Koronadal, South Cotabato) increased KMBI’s opportunity to extend its support in the agricultural sector.

INDICATORS Client Outreach Loan Portfolio Total Amount Disbursed Average Loan Size PAR (%) CBU No. of Branches No. of Centers No. of PAs Total Number of Staff







Php642.27 M Php2.19 B Php5,723.62 10.65% Php386.41 M 70 8,054 857 1,286

Php523,70 M Php1.63 B Php5,668.54 7.90% Php293.74 M 61 6,317 715 1,087

Php118.57 M Php558.06 M 55 2.75% Php92.66 M 9 1,737 142 199

Comparative Performance Analysis



FINANCIAL PERFORMANCE KMBI excelled in 2010 in terms of sharp increase in its financial and operational performance. Among the major investments of KMBI were the Leadership Enhancement and Development Camp (LEaD Camp) held at the Waterfront Hotel, Lahug, Cebu city, attended by its employees nationwide and nine newly established branches; and the Microentrepreneurs’ Summit in Victorias City, Negros Occidental attended by more than 4,200 clients.

INDICATORS Operational Income Asset Liability Fund Balance

ASSET/LIABILITY RATIOS Current Ratio Debt to Equity Ratio CBU to Outstanding Loan Ratio LR to Total Assets Financial Self-Sufficiency Operational Sustainability

14 14

2010 Annual AnnualReport Report 2010




Php36.61 M

Php20.42 M

Php16.19 M

Php866.24 M Php472.43 M Php393.80 M

Php715.59 M Php358.39 M Php357.20 M

Php150.65 M Php114.04 M Php36.61 M

2010 1.89:1 1.20:1 60% 74% 106.09% 108.80%

2009 2.03:1 1.00:1 56% 73% 100.47% 105.94%

Comparative Performance Analysis

15 15


YEAR-END HIGHLIGHTS Driven by its vision to transform lives, KMBI reinforced itself and took steps to build greater impact.

CERTIFIED five branches and some head office departments with ISO 9001:2008 by TUV Rheinland Philippines.

25.250 ends. This reflects a steady and sustained increase brought by branch expansions in the past three years.

LAUNCHED Agricultural Microfinance Loan prototype testing in Mindanao area which now caters to the financial needs of farmers.

ESTABLISHED Php876.69 million in assets that helped the organization sustain its microfinance operation and develop more programs for its clients.

CREATED Keep it Green program that provided additional funds for qualified branch environmental activities. INCREASED 35% on salary structure to cater to the needs of its staff.

As it embark for a new year, KMBI is committed to continuously improve and spend the year building on stronger foundation to serve the poor.

REACHED 250,339 clients all over the Philippines a year before Goal


2010 Annual Report

B 2.1 9

B 1.63

B 1.31

B 1.19


Total Amount Disbursed







Total Capital-Build Up






Total No. of Program Members



he organization was guided with the theme “My God is a keeper…and so I must be,” from Deuteronomy 7:6-11. The theme reminds the organization how God keeps His covenant, thus, the entire year was focused on shaping leaders and aiming for excellence for God’s glory. Year in Review

17 17

ENHANCED MANAGEMENT SYSTEM AND OPERATIONS Amidst the challenging role of KMBI in helping poverty reduction, it bolsters its organizational relevance and performance through improvements in management systems and work process, and delivery of demand driven financial and non-financial services to its clients.

18 18 2010 2010Annual AnnualReport Report

Year in Review




As a validation of the quality of service KMBI provides, TUV Rheinland Philippines, an accredited auditing firm of the International Organization of Standardization, issued the ISO 9001:2008 Certificate to KMBI head office and five other branches in West Avenue, Daet, Metro Davao 2, Kidapawan, and Koronadal.

This year, at least 463 couples received the blessings of matrimony under KMBI’s mass wedding program. The program encourages program members, especially unwed couples who had been living together without the sanction of marriage, to legally seal their unions in church. A total of Php693,234 was invested to implement this program.

PROTECTED INNOVATIONS The Intellectual Property Office (IPO) Philippines approved the registration of KMBI Trademarks, such as official corporate logo, Piliin Produktong Pinoy, and ENTREP logos. The logos were registered under trademark class 36 pertaining to financial and insurance services. This registration recognizes the source of products and services for the effective prevention of unauthorized use of the said trademarks.

SERVED 250,339 CLIENTS KMBI expanded its microfinance operations to nine more branches. At least Php7.14 million was disbursed to 1,786 new clients in Angeles, Gapan, Guagua, Mabalacat, Ormoc, Roxas, Tacloban, Tagbilaran and Talavera. KMBI closed the year with 250,339 clients in 70 branches all over the Philippines. Among the major projects provided for clients were:

MICROENTREPRENEUR SUMMIT Running for four consecutive years, the 2010 Microentrepreneurs’ Summit “Sulong ENTREP: Lahing Kayumanggi” was held in Negros Occidental in October. A total of Php4.3M was invested to convene over 4000 program members from Silay, Bacolod, Kabankalan and Roxas as part of twodecade effort of KMBI in empowering women microentrepreneurs in the country. With the improved Tulong sa Negosyo (Business Assistance) raffle mechanics, 10 major prize winners received Php100,000 and 50 minor prize winners received Php10,000 cash prize.

RELIEF OPERATIONS The number of clients receiving emergency assistance from KMBI Hope Fund Program rose significantly since its launching in 2009. With a total investment of Php342,616, at least 1,642 disasterstricken families received relief supplies this year.

KEEP IT GREEN PROJECT On October, KMBI further reinforced its environmental awareness campaign by launching the Keep It Green Project under the ACE program of the Transformation department. It is conceptualized as monetary support to winning environmental initiatives of its program members.

SCHOLARSHIP PROGRAM Fulfilling the promise to be a conduit towards the realization of a tertiary education, KMBI was able to help one student to become a KILOS (Knowledge for Inspiring Leadership, Opportunities and Spirituality) scholar for the school year 2010 to 2011. This was made possible through the Gordon V. And Helen C. Smith Foundation and APPEND. It doubled its effort to help usher in four other students, also children of KMBI program members, to become recipients of the Adopt-a-family scholarship program, which also provide similar privileges. Since the scholarship program began in 2006, KMBI was able to help 17 students to get free access to education and one of them had completed college in 2010.

Year in Review

19 19

MICROENTREPRENUER OF THE YEAR KMBI paved the way for its program members to be recognized in the world of entrepreneurship. Letecia Tabotabo of Metro Davao 2, bagged the 2010 Citi Microentrepreneur of the year (MOTY) award in Mindanao-Maunlad category.

Annual Report 20 20 2010 2010 Annual Report

YEAR IN REVIEW NURTURED STAFF CAPABILITIES Driven by the organization’s 5th and 6th strategic direction (to train Board and staff on leadership and management towards technical expertise and social responsibility; and provide opportunities for personal development), KMBI optimized the capacity of its Board and staff by providing venues for career advancement: LOCAL AND INTERNATIONAL TRAININGS KMBI prioritized human resources development to ensure the proper facilitation of transformation programs. Over Php1.1M were invested in 32 local and international trainings of 185 board and staff. LEaD CAMP 1,200 people attended the LEaD (Leadership Enhancement and Development) Camp at Waterfront Hotel in Cebu, City. KMBI invested a total of Php14M to convene board, management, staff, and partner pastors to equip them on Christian leadership values and skills; and to effectively exercise leadership gifts in their own sphere of influence.

CAR PLAN To facilitate greater mobility during representations or official trips, KMBI board of trustees approved a Car Plan for department directors. A total of Php5.3M was invested to provide financial assistance to department directors to have their own transportation facilities.

ENHANCED INFORMATION TECHNOLOGY As KMBI continues to intensify its information technology system, Information Technology (IT) division is working on modernization of accounting system to sustain internal control over financial reporting. Furthermore, IT infrastructures like the installation of computer server and back-up internet solution, and upgrading of firewalls and antivirus were already established.

SALARY STRUCTURE The Board of Trustees approved a 35% increase in KMBI’s overall salary structure in 2010. Approved salary structure took effect on September 2010. OFFICE UNIFORM KMBI invested over Php4.2M for its first corporate uniform to enhance office decorum and to enable the staff to take pride in being part of the organization.

Year in Review

21 21

ESTABLISHED NEW PRODUCTS AND SERVICES KMBI continues to soar high as it introduces new products and services for its clients to reach the Goal 25.250.

2010 Annual Report Annual Report 22 22 2010

YEAR IN REVIEW EMPOWERED WOMEN MICROENTREPRENEURS The Entrepreneurship Development Division (EDD) facilitated basic entrepreneurship seminars and livelihood skills training to 2,866 clients and 592 branch staff. Landbank Countryside Development Foundation, Inc. (LCDFI) financed two clients’ training in Malolos and Baliuag, Bulacan. EDD intensified its goal to develop skills and established partnership with Department of Trade and Industry Bulacan, Dream, Inc, LCDFI, and Sta. Cruz Cooperative.


immediate financial assistance to the beneficiaries should there be cases of death of insured program member or its insured family members.

TRAINING CENTER LOT With the acquisition of a 3.5 hectare lot in Amadeo, Cavite, this paves the way for the construction of KMBIs own Training Center to further equip the capacity of its staff and clients It will also open doors to meeting more people and building relationships with potential partners. KMBI invested Php15.52M for the lot purchase.

KMBI’s effort towards financial inclusion for other marginalized sectors now includes farmers. The intention is to establish an intervention for the agricultural sector sensitive to the dynamics of farming/fishing communities in areas currently being served, thus the birth of KMBI’s Agricultural Microfinance Program. Rice is the first subsector identified for the package of financial and non-financial products/services that utilizes the concept of value chain development. A prototype test is currently being conducted in Koronadal, South Cotabato. An initial number of 17 farmer partners in Brgy. Carpenter Hill, Koronadal City received a total of P300,000 production loan. KMBI plans to expand to other agricultural barangays of the city to explore and establish other program components relevant for the rice subsector.

MICROINSURANCE IMMEDIATE ASSISTANCE In partnership with Cocolife and Country Bankers Life Insurance Corporation, KMBI enhanced their existing micro-insurance program by providing additional benefit for its client. The organization allotted funds for Year in Review

23 23

PARTNERSHIP Building stronger ties with groups of people and companies that share the same values as KMBI resulted to wider market access and program impact. 2010 Annual Report Annual Report 24 24 2010

YEAR IN REVIEW GLOBE TELECOMMUNICATIONS/BRIDGING COMMUNITY KMBI has partnered with Globe in its pursuit to recognize women microentrepreneurs who exemplify success in their businesses and become role models in their communities. Three program members were named KMBI-Globe Entrepreneurs of the Year. They were Cina Abarca from Daet branch, Lydia Malot from Metro Davao 1 and Letecia Tabotabo from Metro Davao 2. LIKE-MINDED MENTORS The organization believes that in order to change the community, it should start from one’s self. With the help of like-minded pastors in 70 different branches, transformation in the hearts of program members begins. These pastors helped the branches in their transformational activities.

Year in Review

25 25

Kabalikat Para Sa Maunlad na Buhay, Inc. (A Nonstock, Non-Profit Organization)

Financial Statements December 31, 2010 and 2009 and Independent Auditors’ Report

SyCip Gorres Velayo & Co.

Annual Report 2010 Annual Report 26 26 2010

INDEPENDENT AUDITORS’ REPORT The Board of Trustees Kabalikat Para sa Maunlad na Buhay, Inc. Report on the Financial Statements We have audited the accompanying financial statements of Kabalikat Para sa Maunlad na Buhay, Inc. (a nonstock, non-profit organization) (the Organization), which comprise the statements of assets, liabilities and fund balance as at December 31, 2010 and 2009, and the statements of comprehensive income, statements of changes in fund balance and the statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Organization’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Financial Statement

27 27

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Kabalikat Para sa Maunlad na Buhay, Inc. as at December 31, 2010 and 2009, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations 15-2010 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on taxes and licenses in Note 23 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Kabalikat para sa Maunlad na Buhay, Inc. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Francisco Roque A. Lumbres Partner CPA Certificate No. 65582 SEC Accreditation No. 0963-A Tax Identification No. 102-090-735 BIR Accreditation No. 08-001998-79-2009 September 30, 2009, Valid until September 29, 2012 PTR No. 2641537, January 3, 2011, Makati City April 12, 2011 A member firm of Ernst & Young Global Limited

Annual Report 2010 Annual Report 28 28 2010


The Board of Trustees Kabalikat Para sa Maunlad na Buhay, Inc. No. 12 San Franciso Street, Karuhatan Valenzuela City We have audited the financial statements of Kabalikat Para sa Maunlad na Buhay, Inc. (the Organization) for the year ended December 31, 2010, on which we have rendered the attached report dated April 12, 2011. In compliance with Revenue Regulations V-20, we are stating that no partner of our Firm is related by consanguinity or affinity to the president or manager of the Organization.


Francisco Roque A. Lumbres Partner CPA Certificate No. 65582 SEC Accreditation No. 0963-A Tax Identification No. 102-090-735 BIR Accreditation No. 08-001998-79-2009 September 30, 2009, Valid until September 29, 2012 PTR No. 2641537, January 3, 2011, Makati City April 12, 2011

Financial Statement

29 29


December 31 ASSETS Current Assets Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss (Note 7) Loans and receivables - net (Note 8) Prepaid expenses and other current assets (Note 9)

Noncurrent Assets Available-for-sale investment - net (Note 10) Property and equipment - net (Note 11) Other assets (Note 12) Total Assets

LIABILITIES AND FUND BALANCE Current Liabilities Accrued expenses and other payables (Note 13) Capital build-up (Note 14)

2010 Annual Report Annual Report 30 30 2010



Php 194,435,611

Php 143,120,763

926,284 616,572,609 10,560,335 822,494,839

385,155 514,405,194 8,975,678 666,886,790

2,268,229 31,555,757 9,922,763 43,746,749

7,638,405 35,575,491 5,489,392 48,703,288

Php 866,241,588

Php 715,590,078

Php 49,907,730

Php 34,839,067

386,401,846 436,309,576

293,744,643 328,583,710

Noncurrent Liability Pension liability (Note 15)

Fund Balance Total Liabilities and Fund Balance

36,124,731 472,434,307

29,809,231 358,392,941

393,807,281 Php866,241,588

357,197,137 Php 715,590,078

See accompanying Notes to Financial Statements.

Financial Statement

31 31



Years Ended December 31 2009

Php484,772,070 (822,770) – 4,627,422 488,576,722

Php350,815,381 (756,430) 2,215,847 6,897,360 359,172,158

331,050,189 120,916,389 451,966,578

250,562,648 88,190,795 338,753,443






Php 20,418,715

REVENUE Service income (Note 16) Foreign exchange losses Donations Others (Note 16)

EXPENSES Operating (Note 17) Administrative (Note 18)


See accompanying Notes to Financial Statements.

Annual Report Annual Report 32 32 20102010


Balance at January 1 Excess of revenue over expenses Balance at December 31

Years Ended December 31 2010 2009 Php357,197,137 Php336,778,422 36,610,144




See accompanying Notes to Financial Statements.

Financial Statement

33 33

KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A Nonstock, Non-Profit Organization) STATEMENTS OF CASH FLOWS Years Ended December 31 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES Excess of revenue over expenses Adjustments for: Interest income on loans, bank deposits and short term placements (Note 16) Provision for credit and impairment losses (Notes 8, 10, 18 and 19) Depreciation and amortization (Note 11) Financing cost (Note 17) Amortization of software cost (Note 12) Fair value gain (loss) on FVPL Changes in operating assets and liabilities: Decrease (increase) in amounts of: Receivables Prepaid expenses and other current assets Increase (decrease) in amounts of: Accrued expenses and other payables Pension liability Capital build-up Net cash used in operations Interest income received Financing cost paid Net cash provided (used in) by operating activities

Annual Report 2010 Annual Report 34 34 2010





19,458,927 9,167,125 8,990,307 705,899 (541,129)

17,794,521 9,046,789 6,462,569 283,378 (82,474)

(112,218,681) (1,584,657)

(144,894,768) (4,607,890)

15,068,663 6,315,500 92,657,203 (345,755,346) 416,347,161 (8,990,307) 61,601,508

19,337,561 (986,227) 65,370,832 (318,619,310) 304,859,158 (7,852,734) (21,612,886)


Acquisitions of property and equipment (Note 11) Increase in other assets Acquisitions of software cost (Note 12) Proceeds from sale of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITY Payments of current and long-term debt Net cash used in financing activity NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

(7,153,144) (1,384,119) (3,755,150) 2,005,753 (10,286,660)

(27,622,536) (1,397,448) – 29,515 (28,990,469)

– – 51,314,848

(10,000,000) (10,000,000) (60,603,355)





See accompanying Notes to Financial Statements.

Financial Statement

35 35



Organizational Information

Kabalikat Para sa Maunlad na Buhay, Inc. (the Organization) is a nonstock, non-profit, charitable, educational, cultural and civic services organization, which was organized on November 4, 1986 with the objective of assisting the low-income Filipinos in their pursuit for education, culture, civic, physical and economic advancement with the end view that they will become responsible members and assets of society. To attain these objectives, the Organization conducts microfinance operations pursuant to Republic Act 8425, provide nonfinancial services, seminars, lectures and trainings by inviting resource persons who have expertise and knowledge in fields of industry, farming, fishing and other agricultural activities and extends financial assistance at reasonable interest rates to economically active poor people. On November 28, 2007, the Organization was certified by Philippine Council for nongovernment organization (NGO) certification as a qualified donee institution in accordance with Revenue Regulations No. 13-98 for a period of five years. Being not organized for profit and since no part of its net income inures to the benefit of any private individual or member, the Organization falls under Section 30 (g) of the Tax Reform Act of 1997. Accordingly, income from activities in pursuit of the purpose for which the Organization was organized is exempt from income tax and the filing of income tax return covering such income. Such exemption, however, does not apply to income of whatever kind and character derived from the use of the Organization’s properties, real or personal, or from any of its activities conducted for profit regardless of the dispositions made of such income. The registered office of the Organization is located at No. 12 San Francisco Street, Karuhatan, Valenzuela City. The Organization has 70 branches and 61 branches in 2010 and 2009, respectively. 2.

Significant Accounting Policies

Basis of Preparation The accompanying financial statements have been prepared on a historical cost basis except for financial assets at fair value through profit or loss (FVPL) and available-for-sale (AFS) investments which are measured at fair value. The financial statements are presented in Philippine pesos, the Organization’s functional currency. Statement of Compliance and Disclosures The financial statements of the Organization have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). 2010 Annual Report Annual Report 36 36 2010

Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended PFRS and Philippine Interpretations which were adopted as of 1 January 2010. PFRS 2, Share-based Payment (Amendment) - Group Cash-settled Share-based Payment Transactions The amendment to PFRS 2 clarified the scope and the accounting for group cash-settled share-based payment transactions. The Company adopted this amendment as of 1 January 2010. It did not have an impact on the financial position or performance of the Company. PFRS 3 (Revised), Business Combinations, and PAS 27 (Amended), Consolidated and Separate Financial Statements PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010. The change in accounting policy was applied prospectively and had no material impact on earnings per share. PAS 39, Financial Instruments: Recognition and Measurement (Amendment) - Eligible Hedged Items The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Company has concluded that the amendment will have no impact on the financial position or performance of the Company, as the Company has not entered into any such hedges. Philippine Interpretation IFRIC–17, Distributions of Non-cash Assets to Owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation has no effect on either the financial position or performance of the Company. Improvements to PFRSs Improvements to PFRSs, an omnibus of amendments to standards, deal primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Company.   Financial Statement

37 37

Improvements to PFRSs 2008 • PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, clarifies that when a subsidiary is classified as held for sale, all its assets and liabilities are classified as held for sale, even when the entity remains a non-controlling interest after the sale transaction. The amendment is applied prospectively and has no impact on the financial position or the financial performance of the Company. Improvements to PFRSs 2009 • PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements of other PFRSs only apply if specifically required for such non-current assets or discontinued operations. •

PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker.

PAS 7, Statement of Cash Flows, states that only expenditure that results in recognizing an asset can be classified as a cash flow from investing activities. This amendment will impact, among others, the presentation in the statement of cash flows of the contingent consideration on the business combination completed in 2010 upon cash settlement.

PAS 36, Impairment of Assets, amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes. The amendment has no impact on the Company as the annual impairment test is performed before aggregation.

Other amendments resulting from the 2009 Improvements to PFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Company. • PFRS 2, Share-based Payment • PAS 1, Presentation of Financial Statements • PAS 17, Leases • PAS 38, Intangible Assets • PAS 39, Financial Instruments: Recognition and Measurement • Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives • Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation   Summary of Significant Accounting Policies Cash and Cash Equivalents For the purpose of the statement of cash flows, cash includes petty cash fund and cash in banks. Cash equivalents consist of time deposit 2010 Annual Report Annual Report 38 38 2010

placements with original maturities of three months or less from dates of placements and that are subject to an insignificant risk of changes in value. Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or market convention are recognized on settlement date - the date that an asset is delivered to or by the Organization.

Initial recognition of financial instruments All financial instruments are initially recognized at fair value. Except for financial assets at fair value through profit or loss (FVPL), the initial measurement of financial assets includes transaction costs. The Organization classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, AFS investments, and loans and receivables. The classification depends on the purpose for which the financial assets were acquired and whether they are quoted in an active market. Financial liabilities are classified into financial liabilities at FVPL and other financial liabilities at cost or amortized cost. Management determines the classification of its financial instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. As of December 31, 2010 and 2009, the Organization had no HTM investments and financial liabilities at FVPL.

Reclassification of financial assets A financial asset is reclassified out of the FVPL category when the following conditions are met: • the financial asset is no longer held for the purpose of selling or repurchasing it in the near term; and • there is a rare circumstances. A financial asset that is reclassified out of the FVPL category is reclassified at its fair value on the date of reclassification. Any gain or loss already recognized in the statement of comprehensive income is not reversed. The fair value of the financial asset on the date of reclassification becomes its new cost or amortized cost, as applicable.

Determination of fair value The fair value for financial instruments traded in active markets at the statement of assets, liabilities and fund balance date is based on their quoted market price or dealer price quotations, without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models.  Financial Statement

39 39

Financial assets or financial liabilities at FVPL This category consists of financial assets that are held for trading or designated by management as FVPL on recognition. Financial assets at FVPL are recorded in the statement of assets, liabilities and fund balance at fair value, with changes in the fair value recorded in the statement of comprehensive income included under ‘Other income’. Interest earned or incurred is recorded in “Other income” or ‘Interest expense’, respectively. Financial assets classified in this category are designated by management on initial recognition when any of the following criteria are met: • • •

he designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets T or liabilities or recognizing gains or losses on them on a different basis; or The assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

AFS investments AFS investments are those which are designated as such or do not qualify to be categorized as financial assets at FVPL, HTM investments or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. These include equity investments and other debt instruments. After initial measurement, AFS investments are subsequently measured at fair value. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of tax, from reported income and are reported as ‘Unrealized gain (loss) on AFS investments’ in the fund balance of statement of assets, liabilities and fund balance. Unquoted AFS investments are measured at cost less any allowance for impairment. When the security is disposed, the cumulative gain or loss previously recognized in the fund balance is recognized as ‘Other income’ in the statement of comprehensive income. Where the Organization holds more than one investment in the same security, these are deemed to be disposed based on weighted average. Dividends earned on holding AFS equity securities are recognized in the statement of comprehensive income as ‘Other income’ when the right to receive payment has been established. The losses arising from impairment of such investments are recognized as ‘Provision for credit and impairment losses’ in the statement of comprehensive income.

Loans and receivables Loans and receivables are nonderivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as other financial assets held for trading, designated as AFS investments or financial assets designated at FVPL.   Annual Report 2010 Annual Report 40 40 2010

After initial measurement, the loans and receivables are subsequently measured at amortized cost using the EIR method, less allowance for any credit and impairment losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are integral part of the EIR. The amortization is included in ‘Other income’ in the statement of comprehensive income. The losses arising from impairment of such loans and receivables are recognized in ‘Provision for credit and impairment losses’ in the statement of comprehensive income.

Interest-bearing loans and borrowings All loans and borrowings are initially recognized at the fair value less directly attributable transaction costs and have not been designated as financial liabilities at fair value through profit or loss. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the statement of comprehensive income when the liabilities are derecognized as well as through the amortization process. Derecognition of Financial Assets and Liabilities Financial asset A financial asset (or, where applicable a part of a financial asset or part of a group of financial assets) is derecognized where: • • • • •

the rights to receive cash flows from the asset have expired; or the Organization retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or the Organization has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has transferred the control of the asset.

Where the Organization has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Organization’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Organization could be required to repay.

Financial liabilities Financial liabilities are derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liabilities are replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of comprehensive income.   Financial Statement

41 41

Impairment of Financial Assets The Organization assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the customer or a group of customers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Loans and receivables For receivables carried at amortized cost, the Organization first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Organization determines that no objective evidence of impairment exists for individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The carrying amount of the asset is reduced through use of an allowance account and the amount of loss is charged against the statement of comprehensive income. Interest income continues to be recognized based on the original EIR of the asset. Loans, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to the ‘Allowance for credit and impairment losses’ account. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, collateral type, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with changes in related observable data from period to period (such changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their Annual Report Annual Report 42 42 20102010

magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Organization to reduce any differences between loss estimates and actual loss experience.  The Organization uses the allowance method in accounting for impairment of loans and receivables.

AFS investments For AFS investments, the Organization assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. In case of AFS equity investments this would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the statement of comprehensive income - is removed from the fund balance and recognized in the statement of comprehensive income. Impairment losses on AFS investments are not reversed through the statement of comprehensive income. Increases in fair value after impairment are recognized directly in the fund balance. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of assets, liabilities and fund balance if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Prepaid Expenses These are advance payments to various expenditures related to the business activities of the Organization. These are amortized during the period of utilization. Property and Equipment Land is stated at cost less any impairment loss and depreciable properties including buildings and improvements, leasehold improvements, furniture and equipment and transportation equipment are stated at cost less accumulated depreciation and amortization, and any impairment loss. Such cost includes the cost of replacing part of the property and equipment when that cost is incurred, if the recognition criteria are met but excludes repairs and maintenance costs. The initial cost of property and equipment comprises its purchase price, including taxes and directly attributable costs of bringing the assets to its working condition and location for its intended use. Expenditures incurred after the fixed asset have been put into operation, such as repairs and maintenance, are normally charged against current operations in the period in which costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional costs of property and equipment. Financial Statement

43 43

When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment loss are removed from the accounts, and any resulting gain or loss is credited or charged against current operations. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the property and equipment. Leasehold improvements, which consist of improvements on leased properties, are being amortized over the shorter of the estimated useful life of the asset or the period of lease agreement.   The estimated useful lives of depreciable assets in number of years are as follows: Building and improvements Furniture and equipment Transportation equipment Leasehold improvements

40 3 5 3

The useful life and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from property and equipment. The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amounts. Computer Software Costs Computer software costs are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. They are carried at acquisition cost less accumulated amortization and any impairment loss. These costs are amortized over 3 years on a straight line basis. Impairment of Nonfinancial Assets Property and equipment At each statement of reporting date, the Organization assesses whether there is any indication that its property and equipment may be impaired. When an indicator of impairment exists or when an annual impairment testing for an asset is required, the Organization makes a formal estimate of recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Annual Report 44 44 20102010 Annual Report

An impairment loss is charged to operations in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is charged to the revaluation increment of the said asset. Impairment assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of comprehensive unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining life.

Software costs Software costs are assessed for impairment whenever there is an indication that software costs may be impaired. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Organization and the revenue can be reliably measured. The following specific recognition criteria must also be met before the revenue is recognized:

Donations and contributions Donations and contributions received are recognized as income in the statement of comprehensive income upon receipt. Interest income For all financial asset measured at amortized cost, interest income is recorded at the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial asset, includes any fees (such as service fees) or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. The adjusted carrying amount is calculated based on the original EIR. The change in carrying amount is recorded as interest income. Once the recorded value of a financial asset or group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original EIR applied to the new carrying amount. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: Financial Statement

45 45

a. b. c. d.

there is a change in contractual terms, other than a renewal or extension of the arrangement; a renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the lease term; there is a change in the determination of whether fulfillment is dependent on a specified asset; or there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b).

Organization as Lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as ‘Operating expenses’ in the statement of comprehensive income on a straight-line basis over the lease term. Foreign Currency Transactions and Translations Foreign currency-denominated monetary assets and liabilities of the Organization are translated into Philippine peso based on the Philippine Dealing System (PDS) closing rate prevailing at end of the year and foreign currency-denominated income and expenses are translated based on the PDS weighted average rate (PDSWAR) for the year. Foreign exchange differences arising from revaluation of foreign currency-denominated assets and liabilities are credited to or charged against operations in the period in which the rates change. Nonmonetary items that are measured in terms of historical cost on a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Unearned Service Income Unearned service fee pertains to 1.00% of loan amount for clients above 63 years old collected from the borrower upon loan grant. Unearned service fee is earned as revenue (shown under ‘Service Income’ in the statement of comprehensive income) throughout the period of coverage and a liability is set up at the reporting date equivalent to the unearned service fee for the unexpired period. For purposes of complying with the provisions of PFRS 4, Insurance Contracts, the Organization classifies its life plans as insurance contracts. Insurance contracts are defined as those contracts under which the Organization (the insurer) accepts significant insurance risk from another party (the planholder) by agreeing to compensate the planholder if a specified uncertain future event (the insured event) adversely affects the planholder. As a general guideline, the Organization defines significant insurance risk by comparing benefits paid with benefits payable if the insured event did not occur. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. 2010 Annual Report Annual Report 46 46 2010

As provided under PFRS 4, this product classification exercise is solely for accounting purposes and does not make the Organization an insurance company for statutory or regulatory purposes. The Organization is under the regulation of the SEC. Claims are recognized as incurred after the beneficiary has fulfilled the necessary requirements set forth by the Organization. As of December 31, 2010, there were no unpaid claims by the Organization to the program members’ beneficiary. Retirement Cost The Organization has an unfunded noncontributory defined benefit retirement plan, administered by trustees, covering substantially all of its permanent employees. The retirement cost of the Organization is determined using the projected unit credit method. Under this method, the current service cost is the present value of retirement benefits payable in the future with respect to services rendered in the current year. The liability recognized in the statement of assets, liabilities and fund balance in respect of defined benefit pension plans (see Note 15) is the present value of the defined benefit obligation at the reporting date, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rate on government bonds that have terms to maturity approximating the terms of the related retirement liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are credited to or charged against income when the net cumulative unrecognized actuarial gains and losses at the end of the previous period exceeded 10.00% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. Past service costs, if any, are recognized immediately in statement of comprehensive income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period. The defined benefit asset or liability comprises the present value of the defined benefit obligation less past service costs not yet recognized and less the fair value of plan assets out of which the obligations are to be settled directly. The value of any asset is restricted to the sum of any past service cost not yet recognized and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Provisions Provisions are recognized when the Organization has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resource embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Financial Statement

47 47

Contingent Liabilities and Contingent Assets Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed in the financial statements when an inflow of economic benefits is probable. Events after the Reporting date Any post-year-end event that provides additional information about the Organization’s position at the reporting date (adjusting events) is reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes to the financial statements when material. Future Changes in Accounting Policies and Disclosures Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing is of standards and interpretations issued, which the Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they become effective.

New Standards and Interpretations PAS 24 (Amended), Related Party Disclosures The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The Company does not expect any impact on its financial position or performance. Early adoption is permitted for either the partial exemption for government-related entities or for the entire standard.   PAS 32 (Amendment), Financial Instruments: Presentation – Classification of Rights Issues The amendment to PAS 32 is effective for annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Company after initial application. PAS 12 (Amendment), Income Taxes – Deferred Tax: Recovery of Underlying Assets The amendment to PAS 12 is effective for annual periods beginning on or after 1 January 2012. It provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will normally be through sale. PFRS 7 (Amendments), Financial Instruments: Disclosures – Disclosures–Transfers of Financial Assets The amendments to PFRS 7 are effective for annual periods beginning on or after 1 July 2011. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require 2010 Annual Report Annual Report 48 48 2010

additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. PFRS 9, Financial Instruments: Classification and Measurement PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in PAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, hedge accounting and derecognition will be addressed. The completion of this project is expected in early 2011. Philippine Interpretation IFRIC 14 (Amendment), Prepayments of a Minimum Funding Requirement The amendment to Philippine Interpretation IFRIC 14 is effective for annual periods beginning on or after 1 January 2011, with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Company. Philippine Interpretation IFRIC–15, Agreement for Construction of Real Estate This Interpretation, effective for annual periods beginning on or after 1 January 2012, covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Interpretation requires that revenue on construction of real estate be recognized only upon completion, except when such contract qualifies as construction contract to be accounted for under PAS 11, Construction Contracts, or involves rendering of services in which case revenue is recognized based on stage of completion. Contracts involving provision of services with the construction materials and where the risks and reward of ownership are transferred to the buyer on a continuous basis will also be accounted for based on stage of completion.   Philippine Interpretation IFRIC-19, Extinguishing Financial Liabilities with Equity Instruments Philippine Interpretation IFRIC-19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Company. Improvements to PFRSs 2010 Improvements to IFRSs are an omnibus of amendments to PFRSs. The amendments have not been adopted as they become effective for annual periods on or after either 1 July 2010 or 1 January 2011. The amendments listed below, are considered to have a reasonable possible impact on the Company:

• • •

PFRS 3, Business Combinations PFRS 7, Financial Instruments: Disclosures PAS 1, Presentation of Financial Statements Financial Statement

49 49

• •

PAS 27, Consolidated and Separate Financial Statements Philippine Interpretation IFRIC–13, Customer Loyalty Programmes


Significant Accounting Judgments and Estimates

The preparation of the financial statements in accordance with PFRS requires the Organization to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosures of contingent assets and contingent liabilities. Future events may occur which will cause the assumptions used in arriving at the estimates to change. The effects of any change in estimates are reflected in the financial statements as they become reasonably determinable. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Judgments a. Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded in the statement of assets, liabilities and fund balance cannot be derived from active markets, these are determined using internal valuation techniques using generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are used in establishing fair values. These estimates may include considerations of liquidity, volatility and correlation. b.

Operating leases The Organization has entered into commercial property leases with outside parties wherein the latter retains all the significant risks and rewards of ownership of those properties leased out under operating leases. These operating leases are subject to two to three year terms and are renewable upon agreement of both parties. In determining whether or not there is indication of operating lease, the Organization considers retention of ownership title to the leased property, leases of executory costs, and among others.  


Financial assets not quoted in an active market The Organization classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on the whether the asset is quoted in an active market is the determination on whether the quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.

Estimates a. Allowance for credit losses on receivables The Organization maintains allowances for credit losses at a level considered adequate to provide for probable uncollectible loans Annual Report 50 50 2010 2010 Annual Report

and receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited, to the client’s payment behavior and known market factors. The Organization reviews the age and status of loans and receivables, and identifies accounts that are to be provided with allowances on a continuous basis. As of December 31, 2010 and 2009 loans and receivables have carrying value amounting to Php616.57 million and Php514.41 million, respectively, net of allowance for credit losses amounting to Php51.19 million and Php33.18 million, respectively (see Note 8). b.

Impairment of AFS equity investments The Organization determines that AFS equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. The Organization treats ‘significant’ generally as a decline of more than 20.00% from the original cost of investments and ‘prolonged’ as more than six (6) months. In making this judgment, the Organization evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. As of December 31, 2010 and 2009, AFS equity investments are carried Php2.99 million and Php7.64 million, net of allowance for impairment losses amounting to Php5.37 million andPhp20.96 million, respectively (see Note 10).


Present value of pension liability The cost of defined benefit pension plan and other post employment benefits is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. As of December 31, 2010 and 2009, the present value of the defined benefit obligation amounted to Php80.12 million and Php17.85 million, respectively (see Note 15).


Impairment of property and equipment The Organization assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Organization considers important which could trigger an impairment review include the following: • • •

significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for overall business; and significant negative industry or economic trends. Financial Statement

51 51

The Organization recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is computed using the value in use approach. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs. As of December 31, 2010 and 2009, the carrying value of the property and equipment amounted to Php31.56 million and Php35.58 million, respectively (see Note 11). 4.

Fair Value Measurement

The methods and assumptions used by the Organization in estimating the fair value of the financial instruments are: Assets and liabilities for which the fair value approximates carrying value - For financial assets and financial liabilities that are liquid or having short-term maturity, it is assumed that the carrying amounts approximate their fair values. These include cash and cash equivalents, and current liabilities. AFS investment - For equity investment that is not quoted, the investment is carried at cost less allowance for impairment losses due to the unpredictable nature of future cash flows and the lack of suitable methods of arriving at a reliable fair value. Loans and receivables - Fair values of loans and receivables are estimated using the discounted cash flow methodology, using the Organization’s current incremental lending rates for similar types of loans. Where the instrument reprices on a quarterly basis or has a relatively short maturity, the carrying amounts approximate fair values. Liabilities - Fair values are estimated using the discounted cash flow methodology using the Organization’s current incremental borrowing rates for similar borrowings with maturities consistent with those remaining for the liability being valued, if any.   Set out below is a comparison by category of carrying amounts and fair value of the Organization’s financial assets and liabilities.

Financial Assets Financial assets at FVPL: Quoted equity securities

Annual Report 2010 Annual Report 52 52 2010

Carrying Value

2010 Fair Value

2009 Carrying Value

Fair value





AFS investment: Unquoted equity security Loans and receivables: Cash and cash equivalents Loans receivables Interest receivable Other receivable





194,435,611 597,752,025 13,374,864 5,445,719

194,435,611 597,752,025 13,374,864 5,445,719

143,120,763 491,377,208 9,337,378 13,690,608

143,120,763 491,377,208 9,337,378 13,690,608

Financial Liabilities Accrued expenses and other payables Capital build-up

49,363,415 386,401,846

49,363,415 386,401,846

34,274,881 293,744,643

34,274,881 293,744,643

Fair Value Hierarchy The Organization uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: • • •

uoted prices in active markets for identical assets or liabilities (Level 1); Q Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

As of December 31, 2010 and 2009, only the financial assets at fair value through profit or loss are presented as under Level 1 of the fair value hierarchy amounted to Php926,284 and Php385,155, respectively. There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements during the years ended December 31, 2010 and 2009 5.

Financial Risk Management Objectives and Policies The Organization’s financial instruments consist of cash and cash equivalents, financial assets at FVPL, AFS investments, loans and receivable and bank loans, accrued expenses and other payables and capital build-up. The main risks arising from the use of these financial instruments are credit risk, liquidity risk and market risk. Risk Management Framework The Board of Trustees (BOT) has overall responsibility for the oversight of the Organization’s risk management process. The Financial Statement

53 53

board committee, which is responsible for developing, managing and monitoring risk management policies in their specified areas is the Executive Committee (EXCOM).   The BOT’s functions are supported by the EXCOM, which is the implementing arm of the Organization and shall make directional decisions on policies already laid down by the Board. It shall ensure that every detail of the rules, approved plans, operations and policies of the Organization shall be carried out faithfully. Credit Risk Credit risk is the risk of financial loss to the Organization if counterparty to a financial instrument fails to meet its contractual obligations. The Organization has established controls and procedures in its credit policy to determine and monitor credit worthiness of customers and counterparties. The Organization does not, in principal, use collateral to reduce its credit risks. However, after maturity of the loan, the Organization may offset the program member’s outstanding loan balance against his Capital build-up.

Maximum exposure to credit risk An analysis of the maximum exposure to credit risk relating to on-balance sheet assets without taking into account of any collateral held or other credit enhancements is shown below:

Cash and cash equivalents (Note 6) Financial assets at FVPL (Note 7) Loans and receivables (Note 8)

2010 Php194,220,611 926,284 616,572,609 Php811,719,504

2009 Php142,922,763 385,155 514,405,194 Php657,713,112

The Organization assessed that it has no significant credit risk exposures relating to off-balance sheet items. As of December 31, 2010 and 2009 neither past due nor impaired loans and receivable amounted to Php574.23 million and Php493.72 million, respectively, which were granted to women who are among the economically active poor in communities with high population densities and levels of microeconomic activity.

Annual Report 2010 Annual Report 54 54 2010

An aging analysis of past due receivables are shown below:

1-30 days 31-60 days 61-90 91-180 days Over 180 days

2010 Php20,392,204 10,347,239 7,780,761 9,110,924 20,407,355 Php68,038,483

2009 Php2,556,515 3,681,192 2,144,518 3,898,758 17,704,420 Php29,985,403

Concentration risk The Organization assessed that its exposure to concentration risk is minimal since it enforce a principle in the selection of program members which is in consonance with the Organization’s objective of targeting women who are among the economically active poor in communities with high population densities and levels of microeconomic activity.   Liquidity Risk The Organization manages liquidity risk by maintaining a balance between continuity of funding and flexibility. Treasury controls and procedures are in place to ensure that sufficient cash is maintained to cover daily operational and working capital requirements. Management closely monitors the Organization’s future and contingent obligations and sets up required cash services as necessary in accordance with internal policies. The table below shows the maturity profile of the financial instruments, based on contractual undiscounted cash flows. 2010 On demand

1 to 3 months

3 to 6 months

6 to 12 months

Beyond 1 year


Financial assets Cash and cash equivalents







Financial assets at fair value through profit or loss Loans and Receivables

926,284 571,009,589

– 44,242,525

– 9,110,924

– 21,287,956

– 4,827,944

926,284 650,478,938

Financial Statement

55 55

Financial Liabilities Accrued expenses and other payables Capital build-up

Php766,371,484 Php44,242,525


Php Php31,180,946


Php12,071,928 Php 5,815,143

– Php839,712

– Php12,071,928

386,401,846 Php386,401,846

– Php31,180,946


Php4,827,944 Php845,840,833

Php49,907,729 – 386,401,846 Php5,815,143 Php436,309,575

2009 On demand Financial assets Cash and cash equivalents Financial assets at fair value through profit or loss Loans and Receivables

Financial Liabilities Accrued expenses and other payables Capital build-up

Php143,212,942 385,155 3,852,000 Php147,450,097

1 to 3 months

3 to 6 Months Php

6 to 12 months Php

– – 7,313,682 598,990,029 Php7,313,682 Php 598,990,029

Beyond 1 year Php


Php Php 143,212,942

– – 385,155 133,682 4,252,190 614,541,583 Php133,682 Php 4,252,190 Php758,139,680

Php Php 25,793,357

Php 5,413,939

Php 838,443 Php2,793,328 Php 34,839,067

293,744,643 – Php 293,744,643 Php 25,793,357

– Php 5,413,939

– – 293,744,643 Php 838,443 Php 2,793,328 Php 328,583,710

Market Risk Market risk is the risk to earnings or capital arising from adverse movements in factors that affect the market value of financial instruments. The Organization focuses on the following market risk areas such as interest rate risk, equity price risk and foreign currency risk.

Annual Report 2010 Annual Report 56 56 2010

Interest Rate Risk The Organization’s exposure to the risk for changes in market rate relates primarily to its long-term debt obligations with variable interest rates. However, most of the Organization’s existing debt obligations are based on fixed interest rates with relatively small component of the debts that are subject to interest rate fluctuation. Equity price risk Equity price risk is the risk that the fair value of equity instruments decreases as the result of changes in the levels of equity indices and the value of individual stocks. The equity price risk exposure arises from the Organization’s investment portfolio.   The following table sets forth, for the period indicated, the impact of changes in PSE index (PSEi) on the Organization’s equity investments:

Changes in PSEi 2010 Change in fund balance

14.43% 63,618

2009 -14.43% (63,618)

19.97% Php51,706

-19.97% (Php51,706)

Foreign currency risk The Organization’s policy is to maintain foreign currency exposure within acceptable limits and within existing regulatory guidelines. As of December 31, 2010 and 2009, the carrying amounts of the Organization’s foreign currency denominated cash in banks and short term placements amounted to US$0.21 million with peso equivalent of Php9.09 million and US$0.31 million with peso equivalent of Php14.63 million, respectively. The following table demonstrates the sensitivity to a reasonably possible change in the Philippine peso-US dollar exchange rate, with all variables held constant, of the Organization’s profit after tax (due to changes in the fair value of monetary assets). There is no impact on the Organization’s fund balance other than those already affecting profit or loss. Changes in foreign exchange rate 2010 2009 Change in fund balance

+5% 454,288

+5% (454,288)

+5% Php718,362

-5% (Php718,362)

Financial Statement

57 57

Capital Management The primary objectives of the Organization’s capital management are to ensure that it maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize Organization’s value. The Organization manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. No changes were made in the objectives, policies and processes from the previous years. The Organization’s capital is composed of fund balance. 6.

Cash and Cash Equivalents

This account consists of: Cash in banks Petty cash fund Short-term investments

2010 Php89,718,345 225,000 104,492,266 Php194,435,611

2009 Php73,143,999 198,000 69,778,764 Php143,120,763

Short-term investments represent thirty-day cash placements which earn annual interest rates ranging from 1.50% to 4.19% and 1.88% to 4.00% in 2010 and 2009, respectively. Included in the short-term investments are US dollar currency-denominated short-term placements, which as of December 31, 2010 and 2009, amounts to US$0.21 million (with peso equivalent of Php9.09 million) and US$0.31 million (with peso equivalent of Php14.36 million) and earns interest at 0.63% to 2.50% and 0.75% to 1.88%, respectively. 7.

Financial Assets At Fair Value Through Profit or Loss

This account represents investment in shares of stock with market value of Php0.93 million and Php0.39 million as of December 31, 2010 and 2009, net of unrealized loss (gain) of (Php0.55 million) and Php0.08 million, respectively.

Annual Report 2010 Annual Report 58 58 2010


Loans and Receivables

This account consists of: Loans receivable Interest receivable Other receivable Less allowance for credit losses

2010 Php642,273,043 13,374,864 12,117,896 667,765,803 51,193,194 Php616,572,609

2009 Php523,703,750 9,337,378 14,546,664 547,587,792 33,182,598 Php514,405,194

Loans receivable consist of loans granted to women who are among the economically active poor in communities with high population densities and levels of microeconomic activities. Loans receivable earn an interest rate of 20.00% for one loan cycle or a period of six months. Loans receivable include past due receivables amounting to Php68.04 million and Php29.99 million as of December 31, 2010 and 2009, respectively. The movements in allowance for credit losses follow:

Balance at beginning of year Provisions during the year (Notes 17 and 18) Write-offs during the year Balance at end of year

2010 Php33,182,598

2009 Php15,729,139

19,904,871 (1,894,275) Php51,193,194

17,794,521 (341,062) Php33,182,598

As of December 31, 2010 and 2009, other receivables is presented net of allowance for impairment losses amounting to Php6.67 million and Php0.86 million, respectively. Provision for credit losses is recognized under ‘Operating expenses’ in the statement of comprehensive income amount to Php19.46 million and Php17.79 million, respectively (see Note 17).  

Financial Statement

59 59


Prepaid Expenses and Other Current Assets

This account consists of:

Unused office supplies Prepaid expenses

2010 Php5,894,372 4,665,963 Php10,560,335

2009 Php5,275,369 3,700,309 Php8,975,678

Prepaid expense pertains to payments made in advance for premium on insurance and rental related transactions. 10.

Available-for-Sale Investment

In 2000, the Organization, together with the other member-partners of the Alliance of Philippine Partners in Enterprise Development, Inc. (APPEND) established a micro-finance bank wherein the Organization fully participated as a lead partner with an initial cash investment of Php0.10 million. As of December 31, 2010 and 2009, the Organization has total investment of Php28.60 million or 286,000 shares of stocks representing 12.79% interest in Opportunity Microfinance Bank (OMB). As of December 31, 2010 and 2009, AFS investment has carrying value of Php2.99 million and Php7.64 million, net of allowance for impairment losses amounting to Php5.37 million and Php20.96 million, respectively. On July 21, 2008 OMB and Kauswagan Bank merged into a single banking corporation, with “Opportunity Kauswagan Bank, Inc. (A Microfinance Thrift Bank)” as its corporate name and operating under the business/style of “OK Bank (A Microfinance Thrift Bank).” As a result of the merger the adjusted percentage of ownership of KMBI over OK Bank (merged OMB and K Bank) is 2.68% equivalent to 69,208 shares at a par value of Php100 per share. The merger took effect on January 1, 2009.


Property and Equipment

The composition of and movements in this account follow:

Annual Report Annual Report 60 60 20102010

2010 Land Building and Furniture and Transportation Improvements Equipment Equipment Cost Balance at beginning of year Additions Disposals Balance at end of year Accumulated depreciation Balance at beginning of year Depreciation and amortization Disposals Balance at end of year Net book value

Php15,215,380 300,120

Php9,450,248 Php21,317,418 217,500 4,108,797

Leasehold Improvements


Php7,585,627 Php11,191,688 14,000 2,512,727

Php64,760,361 7,153,144





















– – Php15,515,500

– 6,772,874 Php2,894,874

579,218 17,682,414 Php6,913,376

918,487 3,037,482 Php1,821,770

– 9,361,520 Php4,327,737

1,497,705 36,854,290 Php31,555,757

Land Cost Balance at beginning of year Additions Disposals Balance at end of year Accumulated depreciation Balance at beginning of year

Php1,050,000 14,165,380 –

Building and Improvements

2009 Furniture and Transportation Equipment Equipment

Php9,123,820 Php15,794,022 326,428 6,098,392 – (574,996)

Leasehold Improvements


Php4,769,252 2,816,375 –

Php7,215,227 4,215,961 (239,500)

Php37,952,321 27,622,536 (814,496)












Financial Statement

61 61

Depreciation and amortization Disposals Balance at end of year Net book value

– – – Php15,215,380

2,061,522 – 5,990,049 Php3,460,199

3,782,232 (552,482) 14,010,181 Php7,307,237

1,237,315 – 2,628,189 Php4,957,438

1,965,720 (232,499) 6,556,451 Php4,635,237

9,046,789 (784,981) 29,184,870 Php35,575,491

  Depreciation is recognized in the statement of comprehensive income as follow:

Operating expense (Note 17) Administrative expense (Note 18)

2010 Php5,319,348 3,847,777 Php9,167,125

2009 Php3,648,828 5,397,961 Php9,046,789

2010 Php5,773,894 3,305,488 88,500 754,881 Php9,922,763

2009 Php4,316,342 256,237 88,500 828,313 Php5,489,392

12. Other Assets This account consists of:

Security Deposits Computer software costs Non Micro Enterprise Development (MED) assets Other Assets

Security deposits pertains to the amount paid by the Organization’s branches to the lessor before commencement of the lease used to recover the loss or damage of the property by tenants mishandling of property or failure to pay rent. The movements in computer software costs follow:

Beginning of the year Acquisitions during the year Amortization (Notes 17 and 18) Balance at end of year

2010 Annual Report Annual Report 62 62 2010

2010 Php256,237 3,755,150 (705,899) Php3,305,488

2009 Php539,615 – (283,378) Php256,237

Amortization is recognized in the statement of comprehensive income as follow:

Operating expense (Note 17) Administrative expense (Note 18)


2010 Php87,795 618,104 Php705,899

2009 Php125,487 157,891 Php283,378

2010 Php31,463,306 14,612,609 3,287,500

2009 Php15,168,817 15,752,576 3,353,488

517,315 27,000 Php49,907,730

564,186 – Php34,839,067

Accrued Expenses and Other Payables

This account consists of: Accounts payable Accrued expenses Micro insurance payable Unearned service income Unearned interest income

Microinsurance payable pertains to premium remittances to the Organization’s chosen insurance provider for its program members. Members aging up to 63 years old are required to be enrolled in the program. 14.

Capital Build-Up

This represents initial membership contribution of Php200 and mandatory weekly capital build-up (CBU) of Php40 per client that earn interest rate at the prevailing bank rate on savings deposits plus 1.00% per annum. Capital build-up will be returned to program members when they leave the program. Interest expense on capital build-up amounted to Php7.86 million and Php5.97 million (shown under ‘Financing Cost’ in the operating expenses) in 2010 and 2009, respectively (see Note 17). 15.

Retirement Benefits

The Organization has an unfunded noncontributory retirement plan covering all regular employees. Financial Statement

63 63

The principal actuarial assumptions used by the Organization’s retirement plan as of January 1, 2010 and January 1, 2009 are shown below:

Retirement age Average remaining working life Discount rate Future salary increases

2010 60 12 11.42% 15.00%

2009 60 19 30.17% 10.00%


2009 Php17,848,300 11,960,931 Php29,809,231

2010 Php11,960,931 (55,424,500) (535,600) Php(43,999,169)

2009 Php30,470,058 (17,338,427) (1,170,700) Php11,960,931

2010 Php29,809,231 6,315,500 Php36,124,731

2009 Php30,795,458 (986,227) Php29,809,231

The pension liability is as follows:

Present value of unfunded obligation Unrecognized actuarial (gains) losses Net pension liability

Php80,123,900 (43,999,169) Php36,124,731

The rollforward of the unrecognized actuarial (gains) losses follows:

At beginning of year Actuarial loss from pension obligation Amortization of actuarial gain At end of year The movements in the pension liability follow:

Balance at beginning of year Retirement expense (income) Balance at end of year

As of December 31, 2010 and 2009, the discount rate used in determining the retirement obligation is 9.52% and 11.42%, respectively. Annual Report 2010 Annual Report 64 64 2010

Changes in the present value of the defined benefit obligation are as follows:

Balance at beginning of year Current service cost Interest cost Actuarial loss Balance at end of year

2010 Php17,848,300 4,812,800 2,038,300 55,424,500 Php80,123,900

2009 Php325,400 86,300 98,173 17,338,427 Php17,848,300

Total retirement expense included in operating and administrative expenses in the statement of comprehensive income are as follows:

Current service cost Interest cost Net actuarial gain recognized during the year

2010 Php4,812,800 2,038,300 (535,600)

2009 Php86,300 98,173 (1,170,700)



Retirement expense recognized in the statement of comprehensive income follows:

Operating expense (Note 17) Administrative expense (Note 18)

2010 5,885,314 430,186 Php6,315,500

2009 – (986,227) (Php986,227)

2010 Php80,123,900

2009 Php17,848,300

Amounts for the current and previous year are as follows:

Present value of obligation

Financial Statement

65 65


Service and Other Income

Service income consists of: Interest on loans Membership processing fees Microinsurance fees Service fees

2010 Php417,964,404 32,858,820 32,827,230 1,121,616 Php484,772,070

2009 Php301,186,172 24,478,980 24,332,580 817,649 Php350,815,381





541,130 1,666,049 Php4,627,422

82,474 1,238,742 Php6,897,360

2010 Php150,443,949 58,112,326 21,697,646 18,683,018

2009 Php110,531,819 47,218,674 16,045,917 14,634,461





Other income consists of: Interest income on bank deposits and short-term placements Fair value gain (loss) on financial assets at FVPL Others

17. Operating Expenses This account consists of: Salaries and wages Employee benefits and allowances Rent (Note 20) Transportation and travel Provision for credit losses on receivables Social Security System (SSS), Medicare, ECC and Home Development Mutual Fund (HDMF) contribution Annual Report 2010 Annual Report 66 66 2010

Communication, light and water Financing cost Retirement (Note 15) Printing Depreciation and amortization (Note 11) Supplies Repairs and maintenance Fringe benefit tax Insurance Meetings, trainings and conferences Taxes and licenses Amortization of software costs (Note 12) Security services Donations and contributions Advertisement and promotion Miscellaneous

11,634,788 8,990,307 5,885,314 5,821,700

7,836,775 6,462,569 – 4,896,683

5,319,348 4,701,652 2,709,752 2,177,135 1,547,809 718,351 714,291

3,648,828 4,657,314 2,054,642 1,652,613 709,542 863,437 783,662

87,795 36,720 2,950 900 755,504 Php331,050,189

125,487 36,614 5,026 7,721 581,048 Php250,562,648

Rent expense includes Php0.27 million and Php0.19 million from escalation clauses in 2010 and 2009, respectively. 18.

Administrative Expenses

This account consists of: Salaries and wages Employee benefits and allowances Meetings, trainings and conferences Transportation and travel

2010 Php30,235,326 24,444,181 23,088,880 6,174,425

2009 Php23,292,228 20,921,732 19,047,203 5,395,048 Financial Statement

67 67

Provision for impairment losses on AFS investments Fringe benefit tax Non MED Depreciation and amortization (Note 11) Supplies Legal, audit and other professional fees Communication, light and water Provision for credit losses on receivables SSS, Medicare, ECC and HDMF contribution Advertisement and promotion Research and development Repairs and maintenance Amortization of software cost (Note 12) Donations and contributions Security services Retirement (Note 15) Membership dues Rent Gasoline and oil Insurance Printing Taxes and licenses Representation and entertainment Miscellaneous

Annual Report 2010 Annual Report 68 68 2010

5,370,176 4,240,468 3,909,315

– 1,169,134 2,497,250

3,847,777 3,802,297

5,397,961 1,270,245

2,791,212 2,789,145

1,531,117 2,127,550


1,437,437 1,178,056 1,001,166 697,219

1,274,072 1,225,291 – 373,681

618,104 462,416 430,823 430,186 302,190 259,927 271,874 239,897 156,262 94,135 – 341,579 Php120,916,389

157,891 254,159 404,681 (986,227) 371,382 36,000 212,459 415,843 962,512 95,189 10,037 734,357 Php88,190,795


Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the operating decisions. Parties are also considered to be related if they are subjected to common control or common significant influence. Related parties may be individual or corporate entities. Transactions between related parties are based on terms similar to those offered to non-related parties.   The compensation of key management personnel representing short-term benefits included under ‘Salaries and wages’ and ‘Employee benefits and allowances’ in the Operating expenses and Administrative expense of the statement of comprehensive income in 2010 and 2009 amounted to Php6.11 million and Php5.15 million and Php12.32 million and Php9.16 million, respectively. 20.

Lease Commitments

The Organization leases office spaces for its 70 branches and 61 branches in 2010 and 2009, respectively, in Luzon, Visayas, and Mindanao for a period of two to three years, with options to renew the lease. The lease contains provisions including, but not limited to, an escalation rate each year ranging from 5% to 10%. Rent expense amounting to Php21.96 million and Php16.05 million in 2010 and 2009, respectively, were included in operating expenses. Future minimum lease payments on the operating lease follow: Less than one year Between one and five years


2010 Php4,971,711 10,446,374 Php15,418,085

2009 Php14,923,928 16,828,082 Php31,752,010

Commitments and Contingent Liabilities

In the normal course of the Organization’s operations, there are various outstanding commitments and contingent liabilities which are not reflected in the accompanying financial statements. No material losses are anticipated as a result of these transactions 22.

Approval of the Release of the Financial Statements

The Organization’s financial statements were approved and authorized for issue by the Organization’s BOT on April 12, 2011.

Financial Statement

69 69


Supplementary Information Under Revenue Regulations No. 15-2010

On November 25, 2010, the BIR issued RR No. 15-2010 for the amendments in certain provisions of RR No. 21-2002, as Amended, Implementing Section 6(H) of the Tax Code of 1997, Authorizing the Commissioner of Internal Revenue to Prescribe Additional Procedural and/or Documentary Requirements in Connection with the Preparation and Submission of Financial Statements Accompanying the Tax Returns. In compliance with the above RR, the following presents information on taxes, duties and license fees paid or accrued during the taxable years.   The details of taxes and licenses account follow: Fringe benefit tax Real property tax Community tax Documentary stamp tax Other property taxes

Php6,417,602 62,471 26,952 19,118 699,885 Php7,226,028

The Organization incurred withholding taxes as follows: Tax on compensation and benefits Creditable withholding taxes Final withholding taxes

Php15,033,709 2,498,929 102,792 Php17,635,430

Outstanding amount of withholding taxes are included in “Accounts payable and accrued expenses” account in the statement of assets, liabilities and fund balance. The Organization has no value-added-tax and excise tax transaction and importation made in 2010. The Organization has received a Preliminary assessment notice for LOA 2005 & 2006 and final assessment notice for LOA 2007 from the Regional Revenue Office. LOA 2005 amounting to Php52.78 million and interest & surcharges amounting to Php24.07 million; LOA 2006 amounting to Php48.51 million and interest & surcharges of Php42.76 million while LOA 2007 amounting to Php32.40 and interest & surcharges of Php32.90. All LOA’s had been protested. LOA 2006 & 2007 was returned to Revenue District Office in Valenzuela for reinvestigation. The deficiencies are on value added tax, income tax, documentary stamp tax, expanded withholding tax and fringe benefit tax. KMBI has no tax cases under preliminary investigation, litigation and/or prosecution in courts or bodies outside the BIR. Annual Statement Report Financial 70 70 2010

Board of Trustees

71 71

The year might not have been always fruitful to KMBI as one of its dearest members of the Board of Trustees, Mr. Aurelio Llenado, Jr., passed away at the age of 76. Jun, as fondly called by his colleagues, was one of the founding members of KMBI’s Board of Trustees and was Corporate Treasurer at the time of his passing. He was known to many by his strong leadership and guidance. His character and strategic vision paved to KMBI’s position as one of the leading microfinance institutions in the Philippines. Jun was also a driving force in shaping KMBI’s values as reflected in his more than two decades of unwavering commitment to the organization. Jun will be sorely missed and will be fondly remembered by everyone – as mentor, friend, colleague, and founder of KMBI. His memory will live on for the glory of God!

72 72

2010 Annual Annual Report Report 2010


73 73

BRANCH DIRECTORY LAOAG G/F Hernandez Building, Barangay 5, J.P. Rizal Street corner CA Samonte Street, Laoag City (077) 771-4729

MABALACAT 2/F Explorer Bookstore Building, #11227 Mac Arthur Hi-Way Dau, Mabalacat Pampanga (045) 892-1296


OLONGAPO 2/F Gonzales Law Office Building, 1015 Rizal Avenue W.T., Olongapo City (047) 611-0477

TARLAC Block 7, Que Building, San Nicolos, Tarlac City (045) 491-4842 CAPAS 2/F 573 Lanzangan Building, Sto. Domingo II, Capas Tarlac (045) 491-3607 NORTH LUZON WEST SAN CARLOS 2/F Rosario Building (SYM Motors) Rizal Street, San Carlos City (075) 532-6137 URDANETA New Urduja Hotel Alexander Street, Urdaneta City (075) 568-5858 DAGUPAN 2/F Del pilar Building, MH Del Pilar Street, Barangay Herrera Perez, Dagupan City (075) 515-8551 SAN FERNANDO, LU G/F Kenny Plaza Building, Quezon Avenue, San Fernando City


2010 Annual Report

La Union (072) 607-1250 NORTH LUZON EAST TUGUEGARAO 3/F Adrian Lao To Building, 145 Bonifacio Street, Barangay Centro 1, Tuguegarao City (078) 304-0494 SANTIAGO 3/F 17 City Road, Calao East Santiago City, Isabela (078) 305-1072 CAUAYAN 3/F Room 303, CLU Building, National Highway Cauyan City, Isabela (078) 652-3910

GAPAN Ground floor, KL Building Tenio Street, San Vicente Gapan, Nueva Ecija (044) 486-7809

BULACAN MEYCAUAYAN 3/F Mancon Building, Mc Arthur HiWay Meycauyan, Bulacan (044) 815-3960 BALIUAG 3/F Writ Bldg., 1733 Ano Street, corner Roberto Chico Street, Baliuag (044) 761-1958

TALAVERA, NE 2/F, Pecache Building, Marcos District, Talavera, Nueva Ecija (044) 411-0848

MALOLOS Ground floor, Paseo Del Congreso, Liyang, Malolos, Bulacan (044) 796-0390



ANGELES 2/F Plaza De Amor Building, 508 Flora Ave., Sto. Rosario, Angeles City (045) 888-1396

VALENZUELA 3/F JEM Building, Maysan Road, corner P. Gomez Street, Maysan Road Valenzuela City (02) 442-4940

GUAGUA 3/F One Crowne Plaza, Plaza Burgos, Guagua Pampanga (045) 901-1205

NOVALICHES 3/F Room 306-309, Our Lady of Mercy Building, #970 Quirino Hi-Way corner Ramirez Street,

Novaliches (02) 355-7244 SAN JOSE DEL MONTE 2/F Umerez Building, Tungko San Jose Del Monte City, Bulacan (044) 815-0076 TANDANG SORA Ground floor, DND Royal Midway Plaza 419 Tandang Zora Avenue, Culiat Quezon City (02) 952-4210 NCR NORTH METRO MANILA SOUTH 1 3/F Trim Building, # 2755 Taft Avenue Pasay City (02) 846-1304 METRO MANILA SOUTH 2 2/F Unit E & F, Permarc Building, 8124 Drive, A. Santos Avenue, Sucat, Paranaque (02) 846-6885 PASIG 3/F RN Building, No. 17 Shaw Boulevard, Pasig City (02) 477-7598 WEST AVENUE 3/F Unit F Carbal Building, No. 68 West Avenue, Quezon City (02) 441-2363

RIZAL MARIKINA 3/F DUM Ruque Building, Barangay Tañong Marikina City (02) 584-6870

CENTRAL CAVITE 3/F Lolo Berong Building, Nueno Avenue, Imus, Cavite (046) 472-2251

LIPA 2/F Big Ben Complex, J.P. Laurel Hi-way, Mataas na Lupa, Lipa City (043) 455-3168


BALAYAN 2/F Matheus Fraternidad Street, Balayan Batangas (043) 211-6648

ANTIPOLO 2/F E&F Bldg. M.L. Quezon Street, Antipolo City (02) 584-7179

SAN PABLO Burgos corner Flores Street, San Pablo City (049) 562-1308

BINANGONAN 2/F LA Plaza Building, Rizal Street corner P. Gomez Street, Poblacion, Binangonan, Rizal (02) 369-0259

STA. CRUZ 2/F ASL Building, P. Guevarra Street, Poblacion III, Sta. Cruz, Laguna (049) 501-6674

NAGA 2/F Thomas Enrile Building, Penefrancia Avenue, Naga City, Camarines Sur (054) 473-1926

ANGONO 3/F Aurora Building, Quezon Avenue, Brgy. San Isidro, Angono, Rizal (02) 295-2802

GUMACA 2/F AQC Building, Barangay Penefrancia Gumaca, Quezon (042) 317-7465

DAET 2/F Manlapaz Building, Governor Panoles Avenue, Daet, Camarines Norte (054) 440-7788

CALABARZON 1 BIÑAN 178 Bonifacio Street, Canlalay, Biñan, Laguna (049) 411-5958 LOWER CAVITE G/F Huat Building, General Trias Drive, Rosario, Cavite (046) 438-5662 UPPER CAVITE 3/F Reclain Bldg, 012 Aguinaldo Highway, Sampaloc I, Zone II, Dasmarinas, Cavite (046) 416-2041

LUCENA 3/F HR Building, Quezon Avenue, corner Gomez Street, Lucena City (042) 710-8775 CALABARZON 3 CALAMBA 3/F Sajitec Building, Crossing Calamba, Laguna (049) 502-7274 BATANGAS 2/F 153 Ferrel II Building, Dy Silang Street, Batangas City (043) 723-5325


LEGAZPI 2/F Rosario Salavador Building, Rizal Street, Legaspi City, Albay (052) 481-3441 IRIGA 2/F Tans Building, San Roque Iriga City, Camarines Sur (054) 456-6012 CEBU CEBU SOUTH 2/F Rufina Arcade, South Expressway, Barangay Mambaling, Cebu City (032) 266-1688 Branch Directory

75 75

BRANCH DIRECTORY MANDAUE 2/F S.A. Building, Plaridel Street, Barangay Alang Alang, Mandaue City, Cebu (032) 238-4604 LAPU-LAPU 2/F J.Y. Building, Patalinhug, Basak Lapu Lapu City, Cebu (032) 505-4290 CEBU NORTH 4/F Martinez Building, Osmena Boulevard Street, Cebu City (032) 238-5537 TACLOBAN 4/F Dynasty Square, Zamora Street, Barangay 17,Tacloban City (053) 321-4679 ORMOC A Mall Building, Rizal Street, Ormoc City, Leyte (053) 255-7705 TAGBILARAN 2/F RCBC Building, CPG Avenue, Tagbilaran City, Bohol (038) 412-0628 NEGROS BACOLOD 3/F VSB Bldg. 3/F 6th and 7th Street, Lacson Avenue, Bacolod City Negros Occidental (034) 434-2577 SILAY 3/F Pollantes Building, Rizal Street,


2010 Annual Report

Barangay IV, Silay City (034) 495-3660 KABANKALAN Ground floor POS Marketing Building, corner Guanzon & Lirazan Streets, Kabankalan City, Negros Occidental (034) 471-3313 ROXAS 2/F Hernandez Building, Roxas Avenue, Roxas City, Capiz (036) 621-7424 NORSOCO GENERAL SANTOS 1 Door 1 & 2 Aquino Building, J. Catolico Avenue, General Santos City, South Cotabato (083) 552-0686 GENERAL SANTOS 2 2/F RD Realty Development Corporation Building, Lukban Street corner Pendaton Street, General Santos City, South Cotabato (083) 552-0687 TACURONG 2/F Bernardo, General Ramon Magsaysay Avenue, Tacurong City, Province of Sultan Kudarat (064) 477-0169 KORONADAL 2/F Del Rosario Building, General Santos Drive, corner Aquino Street, Koronadal, South Cotabato (083) 520-0280



METRO DAVAO 1 2/F VAB Building, Mac Arthur Hiway Ulas, Davao City (082) 297-4518

BUTUAN 2/F Rudy Tiu Building, 3 Montilla Street, Butuan City (085) 342-1816

METRO DAVAO 2 Door 31 & 32 Carlos Villa Abrelle Building, JP Laurel Street, Quirino, Davao (082) 222-4781

SURIGAO 2/F Elipe Building, corner Narciso & Kaimo Streets, Surigao City, Surigao del Norte (086) 826-2442

DIGOS 2/F JMC Building 2, Rizal Avenue Digos, Davao del Sur (082) 272-0973

TAGUM 2/F ERGB Building, Dalisay Gante Road, Tagum City, Davao del Norte (084) 216-3292

KIDAPAWAN 2/F Prudenciado Building, Jose Abad Santos Street, Kidapawan, North Cotabato (064) 521-0171

SAN FRANCISCO 2/F Gift Gallery Barangay, I Bravo Compound, San Francisco, Aguasan Del Sur (085) 343-8681

PARTNERS & AFFILIATIONS Alalay sa Kaunlaran, Inc. Alliance of Philippine Partners in Enterprise Development Asia Pacific Rural and Agricultural Credit Association Asia United Bank APRACA Center for Training & Research for Agricultural Association Banco de Oro Bank of Commerce Bank of the Philippine Islands Banking with the Poor Bicol Microfinance Council, Inc. Center for Small Entrepreneurs Central Luzon Association of Microfinance Central Luzon Mincrofinance Council China Banking Corporation Cocolife Country Bankers Life Insurance Corporation Daan sa Pag-unlad, Inc. Department of Social Welfare and Development Department of Trade and Industry Development Bank of the Philippines Developing Resources for Entrepreneurial Advancement and Mobilization, Inc. Globe Telecommunication Hagdan sa Pag-uswag Foundation, Inc. Haribon Foundation Katuwang Resources Center, Inc. Land Bank of the Philippines Landbank Countryside Development Foundation Local Government Units Maybank Partners & Affiliations

77 77

PARTNERS & AFFILIATIONS Micah Challenge Microfinance Council of the Philippines, Inc. Microfinance Council for Region 1 and CAR Microfinance Management Institute Mindanao Microfinance Council Opportunity Kauswagan Bank Opportunity International Network Opportunity International - Deutchsland People’s Alternative Livelihood Foundation of Sorsogon, Inc. People-based Alternative Development Initiatives, Inc. People’s Credit and Finance Corporation Philippine Christian University Philippine Council for NGO Certification


2010 Annual Report

PinoyME Planters Development Bank Punla Foundation, Inc. Rangtay sa Pagrang-ay, Inc. Rizal Commercial Banking Corporation Talete King Panyulong Kapampangan, Inc. Taytay sa Kauswagan, Inc. Technical Education and Skills Development Authority The Microcredit Summit Campaign TSPI Development Corporation United Coconut Planters Bank Visayas Association of Microfinance Institution Wholistic Transformation Resource Center


KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. 12 San Francisco Street, Karuhatan, Valenzuela City 1441 Philippines Tel. No. (63.2) 291.1484 to 86 • Fax No. (63.2) 292.2441


2010 Annual Report

KMBI 2010 Annual Report