Annual Report 2008

AUDITED FINANCIAL STATEMENTS

Annual Report 2008

1

AUDITED FINANCIAL STATEMENTS

Anacorita Necosia of Butuan City crea vely turned coconut shells, which is usually considered waste, into beau ful hand-made bags. Currently, these bags are exported to other countries.

Table of Contents

Vision

2 3 4 6

Mission

Corporate Ideals History Messages Compara ve Opera onal Performance

7

Compara ve Financial Performance

8 9 11 13 14 17 18 51 52 53

Graphs

22

To see people in communi es live in abundance with strengthened faith in God and in right rela onship with their fellowmen and the rest of crea on.

Milestones Highlights

KMBI is a Christ-centered development organiza on exis ng to help transform the lives of its clients and develop its human resources who will provide sustainable microfinance, training, and demand-driven non-financial services.

Affilia ons & Partners Poverty & Microfinance Piliin Produktong Pinoy Audited Financial Statements

Core Values Respect, Integrity, Stewardship, Commitment to the Poor, Discipline, Innova on, and Excellence

The Board of Trustees The Management Team

Goal 25.250

Directory

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

KMBI KMBI

How we started KMBI’s history began in a small church choir room in 1985 as a church-based credit program with only one worker and a six squaremeter work area.

From an informal set-up, KMBI was formally launched on the 27th of November 1986 as a non-stock, non-government development organiza on. It started with a capitaliza on of PhP132,000.00.

During its ini al opera on, it assisted 37 microentrepreneurs with loans totaling to PhP145,000.00. KMBI also provided cash management training to 20 microentrepreneurs.

KMBI started expanding its opera ons in Southern Mindanao in 1999 and established its first branch in General Santos City, standardized its structure and system of opera ons in 2002, and further expanded its Mindanao and Luzon opera ons in 2003. From seven branches in 2003, KMBI closed 2004 with 24 branches, 17 of which were established within the year. In 2005, it launched its micro-insurance product through the Kabalikat sa Buhay program.

Currently, the organiza on provides financial and non-financial services through the implementa on of the Entrepreneurial Nurturing through Transforma on, Re-forma on and Empowerment Program or ENTREP. This includes a wide array of services such as, but not limited to microfinancing, entrepreneurial/livelihood skills development, community development and values forma on.

KMBI is facing the bigger challenge of expanding to 250,000 Filipino households by 2011.

Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

Message from the CHAIR & PRESIDENT

C

hallenges are not new to KMBI and I would presume to any other ins tu on that seeks for development and growth of our na on slumped in economic, social, environmental and spiritual poverty. It is through these challenges that the mission is shaped, strengthened and courageously pushed un l ideals, bounded

by God’s providence, become reali es.

In 2008, alongside the exhorta on to be strong and courageous (Joshua 1:6,7), we redefined our program through the conceptualiza on of ENTREP (Entrepreneurial Nurturing through Transforma on, Reforma on and Empowerment Program) to make firm our focus to the main and only agenda of KMBI’s existence.

Despite these challenges, we con nue to help as much as we could to reach the marginalized people so they will experience that life is not a series of depriva on but is intended to be characterized by abundance achieved through partnership – first with God, then with others – and by a clear and defined sense of self and purpose. I call this strengthening the founda on of our existence and purpose.

I am a witness to the selfless dedica on of our staff in pu ng our mission into ac on. This year we crossed borders and made our way to the provinces of Cebu and Pangasinan and established three branches in each province. Through our integrated program, we tried our best to facilitate the inclusion of more than 134,000 entrepreneurial poor into the KMBI financial system so that from there they can gain access to many opportuni es and have significance in life. We also capacitated them to improve their enterprises, create jobs and contribute in building a strong economy. And lastly, we engaged them in values forma on so they can make be er decisions, actualize good governance, exercise social responsibility, prac ce good stewardship of their God-given resources as well as our environment, and most especially, develop a meaningful and in mate rela onship with God. I call this “courage in ac on.”

We have gone a long way, nonetheless our purpose has not yet been fully served and thus the need to con nue to move forward.

Indeed, we have a tall order from our God though inspired with the promise that He will never leave us the same way He never le Moses.

Ours is to be strong and courageous not only in exer ng effort but in contribu ng to the fulfillment of the holy ambi on God has placed in our hearts to help facilitate transforma on in the lives of the people and the na on.

It is my pleasure to present to you KMBI’s journey in 2008 through this publica on. Likewise, I enjoin you to con nue to journey with us through 2009, our third year in achieving in five years the Goal 25.250!

God bless us all!

DR. AMELIA L. GONZALES 44

KMBI KMBI

Message from the EXECUTIVE DIRECTOR

AUDITED AUDIT TED FINANCIAL FINANC CIAL STATEMENTS CI ST TEM STA T ENT EN S

T

ough me, meltdown, crisis, downturn, slowdown, crunch, liquidity squeeze were some of the words used in describing the year 2008, basically because of the synchronized global recession…And the predicament did not spare the Philippine economy.

Many say that a great deal of uncertainty remains over the depth and dura on of the current global economic downturn. Likewise, with the on-going trend, many forecast a bearish financial market and are pessimis c about the future outlook of our country’s economy.

As I reflect both on what had happened and what is happening around the globe and in the country, I couldn’t stop myself from being amazed on how God has con nuously sustained KMBI since it started to exist 22 years ago. Much to my amazement, in 2008 God gave us the direc ve to be “strong and courageous,” the same words He gave to Joshua upon taking the leadership baton from Moses (cf. Joshua 1:6,7). We interpreted the Master’s words both as an encouragement and a cau on in His an cipa on of what was to come. As if He was saying to us, “Regardless of what is in store in the future and how difficult it may be for you, I am commi ed to fulfil my promise and plan for the Filipino people…And therefore you need to be strong and courageous because I will use you.” The good thing is, reading the context of these words, He did not only intend to use us but He also promised to be with us.

If growth will be based solely on sta s cs, the year 2008 may not be as impressive as the year 2007. However, if we will include the milestones created and the opera onal highlights, I can say that we s ll fared well and out-performed ourselves compared to the previous year. All by the grace of God! All these milestones, not men oning the highlights, are evidences of what the Lord can do to us and through us given a complete reliance on Him. The future may be bleak to others but not to an individual and ins tu on, like KMBI, whose trust and confidence is not in shares and stocks but in God. Others may be losing hope and see the future nega vely because of the decelera on characteris c of almost every economy today. However, it has been proven me and me again that with God everything is bullish and outlook is op mis c regardless of financial liquidity status and risks. The global economic downturn may persist but God’s economy knows no downturn and therefore we can always be confident that our desire to facilitate transforma on in this na on will be realized by God’s con nued faithfulness and unwavering grace…just be strong and courageous.

EDGARDO S. MERCEDES Annual AnnualReport Report2008 2008

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AUDITED FINANCIAL STATEMENTS COMPARATIVE PERFORMANCE ANALYSIS

Operational Performance Despite the financial crisis, KMBI managed to expand from nine to 11 areas of opera ons, crossing over borders to Cebu and Pangasinan provinces. By year end, 42 branches were opera onal na onwide serving a client base of more than 134,000 women microentrepreneurs from 271 local government units na onwide. The expansion catered to addi onal 31 ci es and municipali es.

In terms of capital build-up, a seven percent growth was achieved while total amount disbursed for loans was ten percent amplified. These numbers, including outreach, are expected to step up further by 2009 since branches were established only in September.

During the year, KMBI had a total workforce of 793, of which 92 percent was assigned in the Opera ons department. The number of staff increased by 12 percent from the recent year.

INDICATORS

2008

2007

INCREASE (DECREASE)

134,697

126,282

8,415

P386.39 M

P375.98 M

P10.41 M

P1.31 B

P1.19 B

P0.12 B

P2,868.00

P2,977.00

(P109.00)

Por olio-at-Risk

3.14%

2.78%

0.36%

Capital Build-up

P228 M

P213 M

P15 M

42

37*

6

4,386

4,017

369

Number of Program Assistants

531

473

58

Total Number of Staff

793

710

83

Client Outreach Loan Por olio Total Amount Disbursed Average Loan Size

Number of Branches Number of Centers

• KMBI’s Compostela Valley branch in February 2008 due to peace and order situa on in the area. Number of branches presented in 2008 (above) excludes the aforemen oned branch.

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KMBI

AUDITED FINANCIAL STATEMENTS COMPARATIVE PERFORMANCE ANALYSIS

Financial Performance KMBI’s “investments” on major projects during the year, which amounted to PhP20.733 million, were concentrated on four components: expansion, capacity building, affilia on and networking, and non-financial services to clients. Visibly, the ins tu on seized the year in strengthening its workforce and developing core leaders, as well as improving its interven ons to clients. Thus, much of the aforesaid investments were put in capacity building, 57 percent, and non-financial services, 20 percent.

The year’s opera ng and administra ve expenditures are bigger by 30 and 89 percent, respec vely, compared to 2007. Salaries and wages contributed significantly to the increase in expenditures which was brought by bigger opera ons, increase in manpower and implementa on of revised salary structure. On the other hand, the sudden escala on of administra ve expenses was brought by the expense on the provision of impairment losses on AFS investment.

INDICATORS

2008

INCREASE (DECREASE)

Opera onal Income

P23.86 M*

P57.52 M

(P33.66 M)

Asset

P622.83 M

P620.97 M

P1.86 M

Liability

P286.06 M

P310.89 M

(P24.83 M)

Fund Balance

P336.78 M

P310.08 M

P26.69 M

P2.83 M

P9.70 M

(P6.87 M)

Grants *

2007

See audited financial statement for notes and explana on.

Asset/ Liability Ra os

2008

2007

Current Ra o

2.33 : 1

2.01 : 1

Debt to Equity Ra o

0.85 : 1

1:1

CBU to Outstanding Loan Ra o

59%

56%

LR to Total Assets

62%

61%

Financial Self-Sufficiency

103.30%

128.99%

Opera onal Sustainability

109.58%

130.75%

Annual Report 2008 Annual Report 2008

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AUDITED FINANCIAL STATEMENTS FINANCIAL PERFORMANCE

Graphs 2008 Investments 17% Expansion

6% Partnership & Networking

57%

20%

Capacity Building

Non-Financial Services

Opera ng Expenses

(In Millions, Php)

250

2008 2007

200

150

100

50

Opera ng Expense

Salaries & Wages

Employees Benefits & Allowance

Administra ve Expenses

(In Millions, Php)

90 80

2008 2007

70 60 50 40 30 20 10

Administra ve Expenses

88

KMBI KMBI

Salaries & Wages

Employee Benefits & Allowances

AUDITED FINANCIAL STATEMENTS

Milestones Leadership Enhancement and Development (LEaD) Program Believing that the development of its human capital is vital to organiza onal growth, KMBI launched a new program called the Leadership Enhancement and Development (LEaD) that will focus on harnessing the so and hard skills of its staff. Part of this endeavor was the hos ng of the first LEaD Camp in Cebu City on April 21 to 24, 2008, with the theme, “Be strong and courageous, LEAD!” It was a ended by some 649 staff from both Luzon and Mindanao opera ons. It was the first event in KMBI’s history wherein all staff were gathered in a development interven on.

“Tulong sa Negosyo ” packages were given to three program members to further improve their socioeconomic situa on by providing opportuni es to strengthen and expand their enterprise. Moreover, KMBI’s Micro Entrepreneur of the Year awardees were recognized during the event.

Increase in budget alloca on for Transforma on and Entrepreneur/Enterprise Development ini a ves The Board of Trustees approved the implementa on of alloca ng 10% each for Transforma on and Entrepreneur/Enterprise Development from the organiza on’s gross income.

Development of FULCRUM Book 1 The Fulcrum Book 1, en tled “Ang Layon ng Buhay” is a values forma on tool that unifies the concepts of the social, economic, environmental and spiritual (SEES) aspects of life anchored on biblical truths.

Fulcrum Book 1 is being used in the Head Office’s accountability group ac vi es for pilot tes ng.

It shall be rolled out to the branches on the first quarter of 2009.

Launching of ENTREP and its publica ons ENTREP (Entrepreneurial Nurturing through Transforma on, Re-forma on and Empowerment Program) is the umbrella program for the clients embodying the integrated interven ons of microfinance, entrepreneur-enterprise development and values forma on toward the realiza on of the Goal 25.250. This integrated interven on is also known as the three pronged “building” approach: capital, capacity and character.

Microentrepreneurs’ Summit in Mindanao The second microentrepreneur summit was successfully held in South Cotabato Gymnasium and Cultural Center in Koronadal City on October 25 with some 4,700 program member par cipants from 11 branches of Mindanao opera ons. Circling on the theme “Bago 2: Babae, Negosyo, at Pagunlad,” plenary talks highlighted the importance of enterprising women in the na on building, embracing bigger business ventures for business growth and diversifica on, and imbibing the right values anchored on the Word of God towards sustained business success. Resource speakers were Rev. Dr. Jonathan Exiomo, Dr. Gloria Picar-Jimenez, Harold Dick Ledda, and Ray-An Fuentes.

ENTREP gives the center (trustbank) its proper and unique iden ty, that is as venue where holis c transforma on is facilitated; and ins lls in the minds of the staff and clients that transforma on, reforma on, and empowerment are the heart of the organiza on’s programs.

Part of ENTREP’s add-on service are the publica ons which are given to the clients. The publica ons, namely ENTREP Magazine and ENTREP Life Stories, are developed to inform and educate, to manifest quality, and to create connec on with readers through value crea on.

Annual Report 2008

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ENTREP program and publica ons were launched during the Microentrepreneurs’ Summit in Mindanao on October 25.

Se ng foot in Northern Luzon and Visayas The organiza on treaded new grounds to fullfill its Goal 25.250 with the opening of six branches in Pangasinan and Cebu provinces in September and October. These were established in the ci es of Urdaneta, San Carlos, Dagupan, Cebu, Lapu-lapu and Mandaue. Investment for this expansion totalled to P3.5M. Cebu South and Pangasinan branches are eyed to be transformed into megabranches.

Launching of the Adopt a Branch program The Adopt a Branch program was started during the fourth quarter of 2008 as a step towards open communica ons and unity of opera ons between the head office and branch staff. The program is also a form of affec ng and influencing people, which is the KMBI’s approach in facilita ng holis c transforma on. By sending the representa ves to the branches and allowing them to act as mentor or coach, the organiza on fulfills the mandate of

Carmen Puerto operates a small variety store in the local market of South Cotabato to raise her children. With her perseverance, she opened more stalls and has helped her children establish their own.

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KMBI

the Great Commission. By affec ng and influencing the branch officers the way the organiza on wants it to happen, the program assistants will see how it is done, experience the process of change, and be more confident in discipling the center leaders, who in turn will disciple other program members.

Implementa on of Informa on System Produc vity)

EISTOP (Enhanced towards Op mum

Project prepara on of the web-based automated informa on and monitoring system or the EISTOP began in the later part of 2008. EISTOP is the ins tu on’s a empt in bringing about a more relevant informa on system that will enable the ins tu on to administer effec vely and efficiently daily transac ons at the head office and in the branch level. KMBI sees a web-based, automated informa on system that will converge all offices in real- me situa on, hasten repor ng and recording, harness informa on dissemina on, create a credit bureau, augment control system and enable online monitoring. Budget allocated for the project is Php12.08 million.

AUDITED FINANCIAL STATEMENTS

Highlights Educa onal Scholarship • •

•

Program: Knowledge for Inspiring Leadership Opportuni es and Spirituality (KILOS) Beneficiary: Three children of program members were sent to college with full tui on fee assistance, living and book allowances.

Partner: Gordon V. and Helen C. Smith Founda on

• •

Course: Master in Business Administra on Partner: Philippine Chris an University

•

Par cipants: Board of trustees, management commi ee, and staff Number of Training: 6 interna onal, 22 local and 10 in-house Interna onal Training a ended: Training on Business Planning and Financial Projec ons with Microfin, and Asia Pacific Regional Microcredit Summit, Bali, Indonesia Opportunity Interna onal Network Leadership Conference, Vancouver, Canada 2nd Global HR Conference, Illinois, USA Managing Risks and Rewards for Ins tu onal Investments on Microfinance: Ensuring Financial Reten on while Mee ng Social Objec ves, London, United Kingdom 55th APRACA Execu ve Commi ee Mee ng, Moscow and St. Petersburg, Russia

• •

Mass Wedding • •

Beneficiary: 195 program members Partner: Local churches and pastors

Microinsurance • • •

Total Claims : Php21.7 million Add-on Service: Financial assistance for funerals Partners: Cocolife Insurance and Country Bankers Life Insurance Corpora on

Staff Benefit • •

Benefit: Revised salary structure Output: Increased compensa on program assistants to management

from

New Partner and Network Staff Development Interven ons •

Graduates: Seven staff from Mindanao opera ons

•

Ac on: Joined the Asia Pacific Rural and Agricultural Credit Associa on (APRACA) in prepara on for the offering of agricultural microfinance, and partnered with Country Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

Bankers Life Insurance Corpora on for its microinsurance program

both local and interna onal, and a good linkage with banks. It also has a good reputa on in the microfinance industry.

Microfinance Opera ons • •

Ac on: Reshuffled branch managers and accountants in all areas of opera ons Objec ve: To maximize poten als and enhance control of opera ons

Resource Mobiliza on • •

Performance Review •

•

Ac on: Microfinanza Ra ng and Opportunity Interna onal Network reviewed KMBI’s performance General Comments: The organiza on has a good outreach and por olio and has an impressive number of clients. It has a good geographical network with its presence in all major islands in the Philippines.

This indicates a good network of partners

•

Ac on: Acquired P225 million credit line with banks Objec ve: For capital requirement of expansions, and loan fund for exis ng branches Partners: Bank of the Philippine Islands Development Bank of the Philippines Landbank of the Philippines Planters Development Bank United Coconut Planters Bank

Program members of West Avenue branch conceptualized and ini ated a feeding ac vity cum values educa on drive that benefited children and parents in their community.

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KMBI KMBI

AUDITED FINANCIAL STATEMENTS

Affiliations & Partners

INTERNATIONAL • Asia Pacific Rural and Agricultural Credit Associa on • Banking with the Poor (BWTP) • Micah Challenge • Opportunity Interna onal Network (OI) • W.P. Schmitz S ung

LOCAL • Academe Philippine Chris an University • Banks Banco de Oro Bank of the Philippine Islands CARD Bank China Banking Corpora on Development Bank of the Philippines Land Bank of the Philippines Planters Development Bank United Coconut Planters Bank OK Bank • Government Department of Social Welfare and Development Department of Trade and Industry Local Government Units Landbank Countryside Development Founda on People’s Credit and Finance Corpora on

Technical Educa on and Skills Development Authority • Microfinance Ins tu on/Organiza ons Alalay sa Kaunlaran, Inc. Alliance for Philippine Partners for Enterprise Development, Inc (APPEND) Bicol Microfinance Council, Inc. CARD-NGO Daan sa Pag-unlad, Inc. Hagdan sa Pag-uswag Founda on, Inc. Microfinance Council of the Philippines Mindanao Microfinance Council People’s Alterna ve Livelihood Founda on of Sorsogon, Inc. People Based Alterna ve Development Ini a ves, Inc. PinoyME Rangtay sa Pagrang-ay, Inc. Talete King Panyulung Kapampangan, Inc. Taytay sa Kauswagan, Inc. TSPI Development Corpora on • Other Agencies/Corpora ons Center for Small Entrepreneurs COCOLIFE (United Coconut Planters Life Assurance Corpora on) Country Bankers Life Insurance Corpora on Punla Founda on, Inc. Philippine Council for NGO Cer fica on

Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

Poverty & Microfinance

Residing in the country’s tuna capital, Marina Plasabas of General Santos City makes most of this fish’s abundance by mixing her own recipe of cured tuna products which she and her children sell by packs in the local market.

Who are the Poor?

The poor refers to individuals and families whose income fall below the poverty threshold as defined by the government and/or those that cannot afford in a sustained manner to provide their basic needs of food, health, educa on, housing and other ameni es of life (based on Republic Act 8425 or the Philippine Social Reform and Poverty Allevia on Act).

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KMBI

Na onal Scale • Out of 100 Filipinos, 33 were poor in 2006, compared to 30 in 2003. Poverty incidence increased to 26.9% for families in 2006 compared to 24.4% in 2003. Total poverty threshold amounts to 6,273.99 pesos a month.

• Based on the United Na ons Development Programme’s Human Poverty Index for developing countries, the Philippines ranks 54th among 135 developing countries.

AUDITED FINANCIAL STATEMENTS

• Recent studies conducted by the Microfinance Council of the Philippines and Bangko Sentral ng Pilipinas es mate that microfinance loans totals 9.7 billion pesos - this is equivalent to the average net income of rural banks or the annual yield of pineapple in the Philippines.

Microfinance is the only answer for some 1.78 million entrepreneurial poor in the Philippines.

Overview of the informal economy More and more Filipinos are entering the informal economy because of the effects of globaliza on and the Asian economic crisis. In fact, the Philippines has the second largest informal sector in the Asian region, contribu ng to roughly about 44% of GDP. This sector plays a significant role in crea ng employment, producing goods and services and augmen ng income in the Philippines. This comprises the majority of the country’s workforce and poverty abounds here. There are es mated 19 million people in the informal sector, represen ng 70% of the total employment popula on. The microentrepreneurial ac vi es of our program members belong to this sector.

Es mated number of microenterprises in the informal sectors As of 2006 count, there are 783,065 business enterprises opera ng in the Philippines. Of these, 99.7% (780,469) are micro, small and medium enterprises (MSMEs) and the remaining 0.3% (2,596) are large enterprises. Of the total number of MSMEs, 92% (720,191) are microenterprises.

MSMEs generated a total of 3,327,855 jobs in 2006 versus 1,657,028 for the large enterprises.

This indicates that MSMEs contributed almost 70% of the total jobs generated by all types of business establishments that year. Of these, 33.5% or 1,667,824 jobs were generated by microenterprises.

Microfinance The Bangko Sentral ng Pilipinas defines microfinance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households and their microenterprises.

Microfinance is not subsidized credit, not a dole-

out, not salary or consump on loans, and a cureall for poverty. If provided on a sustainable basis, microfinance can help increase income, build viable businesses, reduce vulnerability to external shocks, empower the client, and improve the quality of their lives.

Microfinance Providers in the Country Approximately 500 NGOs provide microfinance services, while 4,579 savings and credit coopera ves and 195 banks are engaged in microfinance. Four of these banks are microfinance-oriented thri banks and another four are microfinance-oriented rural banks.

Why the thrust on WOMEN? KMBI focuses on the enterprising women who are strangled by the belt of poverty, primarily because it strongly believes that women play a crucial role in the society – wife, mother, friend, and a significant cons tuent in the community. This does not mean, though, that it does not recognize the role of men.

It is only that it, all the more, sees the need to empower and equip women such that they may be er support their husbands, take care of their children, the household, and their micro-businesses to augment family earnings.

These reasons can be summarized in three factors: women’s human rights, poverty reduc on, and financial and program sustainability; or in KMBI’s context – outreach, sustainability and transforma on. UNCDP said that the microfinance sector’s support to women’s economic par cipa on helps to empower women and promotes genderequity and improvement of household well-being.

Studies confirm that raising the income and educa on of women is linked to an improvement of their status and influence in the community, as well as secondary posi ve effects such as improved childhood health and family stability. Moreover, poverty reduc on programs which target women are likely to be more effec ve not only because of the increasing evidence of women being the most impoverished members of developing socie es, but are also more likely than men to spend their incomes on the welfare of children and dependents.

Women are also proven to be good payers and very responsible in running their own enterprises. There AnnualReport Report2008 2008 Annual

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AUDITED FINANCIAL STATEMENTS

is increasing evidence in microfinance of much higher repayment and savings discipline among women than men. Women also tend to mutually reinforce and encourage each other within the group.

References: 1. Na onal Sta s cal Coordina on Board, “FAQs on the Official Poverty Sta s cs of the Philippines,” June 5, 2007, h p:// www.nscb.gov.ph/poverty/FAQs/default.asp.

2. Na onal Sta s cal Coordina on Board, “Seven of the country’s poorest in 2000 out of the poorest list in 2003,” June 6, 2006, h p://www.nscb.gov.ph/ pressreleases/2006/06Jun06_PR-200606-SS1-04_poverty. asp.

3. United Na ons Development Programme, 2008 Sta s cal Update, “Human poverty in Philippines: focusing on the most deprived in mul ple dimensions of poverty,” h p:// hdrstats.undp.org/2008/countries/country_fact_sheets/ cty_fs_PHL.html 4. The Australian Agency for Interna onal Development (AusAID) through the Philippines-Australia Community Assistance Program (AusAID-PACAP), “Microfinance amidst the global financial crisis,” January 21, 2009, h p://www. pacap.org.ph/?p=23 5. United Na ons Advisors Group on Inclusive Financial Sectors, Private Sector Working Group, “Philippines: Financial Sector Assessment,” March 2008, h p://www.uncdf.org/ english/microfinance/advisors_group/docs/1809B-UNCDF_ phillipines-low.pdf.

6. Department of Trade and Industry, Philippines, “Micro, Small And Medium Enterprises (MSME) Sta s cs,” h p:// www.d .gov.ph/d /index.php?p=321 7. Bangko Sentral ng Pilipinas, “Understanding Microfinance,” http://www.bsp.gov.ph/about/advocacies_micro_facts. asp#1.

8. Linda Mayoux, “Microfinance for Empowerment,” h p:// www.genfinance.info/.

9. “Towards “woman-centric” poverty allevia on,” January 16, 2006, h p://www.nextbillion.net/blog/2006/01/16/ towards-woman-centric-poverty-allevia on.

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KMBI

“

Poverty reduc on programs which target women are likely to be more effec ve not only because of the increasing evidence of women being the most impoverished members of developing socie es, but are also more likely than men to spend their incomes on the welfare of children and dependents.

”

”

AUDITED FINANCIAL STATEMENTS

‘Pag Produktong Pinoy, De Kalidad!

KMBI celebrates the ingenuity and innova veness of the Filipino entrepreneur. Pinoy brands spell high quality and global compe veness, placing the true mark of a Filipino race made strong and resilient through a rich historical background, varied ethnicity and culture, and abundant natural resources.

KMBI supports Filipino ingenuity – Piliin Produktong Pinoy, de kalidad!

Annual Report 2008

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SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

AUDITED FINANCIAL STATEMENTS

Phone: (632) 891-0307 Fax: (632) 819-0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-1

INDEPENDENT AUDITOR’S REPORT The Board of Trustees Kabalikat Para sa Maunlad na Buhay, Inc. We have audited the accompanying financial statements of Kabalikat Para sa Maunlad na Buhay, Inc. (a nonstock, notfor-profit organiza on) (the Organiza on), which comprise the statements of assets, liabili es and fund balance as at December 31, 2008 and 2007, and the statements of revenue and expenses, statements of changes in fund balance and the statements of cash flows for the year then ended, and a summary of significant accoun ng policies and other explanatory notes.

Management’s Responsibility for the Financial Statements Management is responsible for the prepara on and fair presenta on of these financial statements in accordance with Philippine Financial Repor ng Standards. This responsibility includes: designing, implemen ng and maintaining internal control relevant to the prepara on and fair presenta on of financial statements that are free from material misstatement, whether due to fraud or error; selec ng and applying appropriate accoun ng policies; and making accoun ng es mates that are reasonable in the circumstances.

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 Audi ng. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance 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 Organiza on’s prepara on and fair presenta on 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 effec veness of the Organiza on’s internal control. An audit also includes evalua ng the appropriateness of accoun ng policies used and the reasonableness of accoun ng es mates made by management, as well as evalua ng the overall presenta on 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.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial posi on of Kabalikat Para sa Maunlad na Buhay, Inc. as of December 31, 2008 and 2007, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Repor ng Standards.

SYCIP GORRES VELAYO & CO.

Marilou C. Bartolome Partner April 14, 2009

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CPA Cer ficate No. 91634 SEC Accredita on No. 0659-A Tax Iden fica on No. 177-087-426 PTR No. 1566408, January 5, 2009, Maka City

AUDITED FINANCIAL STATEMENTS

KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A Nonstock, Not-for-Profit Organiza on)

STATEMENTS OF ASSETS, LIABILITIES AND FUND BALANCE DECEMBER 31, 2008 (With Compara ve Figures for 2007) December 31 2008

2007

P203,724,118

P187,313,484

302,679 385,401,789

317,920 380,491,434

4,367,788

3,733,948

593,796,374

571,856,786

ASSETS Current Assets Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss (Note 7) Loans and receivables (Note 8) Prepaid expenses and other current assets (Note 9) Total Current Assets Noncurrent Assets Available-for-sale investment (Note 10) Property and equipment (Note 11) Other assets (Note 12) Total Noncurrent Assets

7,638,405

28,600,000

17,029,259 4,375,322 29,042,986

16,450,212 4,068,641 49,118,853

P622,839,360

P620,975,639

P16,891,669

P22,259,047

10,000,000

320,733

228,373,811 255,265,480

212,142,772 50,000,000 284,722,552

30,795,458 -

16,169,690 10,000,000

30,795,458

26,169,690

286,060,938

310,892,242

336,778,422

310,083,397

P622,839,360

P620,975,639

LIABILITIES AND FUND BALANCE Current Liabili es Accrued expenses and other payables (Note 13) Current por on of long-term debt (Note 15) Capital build-up (Note 14) Notes payable (Note 15) Total Current Liabili es Noncurrent Liabili es Pension liability (Note 16) Noncurrent por on of long-term debt (Note 15) Total Noncurrent Liabili es Fund Balance

See accompanying Notes to Financial Statements.

Annual Report 2008

19

AUDITED FINANCIAL STATEMENTS

STATEMENTS OF REVENUE AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2008 (With Compara ve Figures for 2007)

Years Ended December 31 2007 2008 REVENUE Service income (Note 17) Dona ons and contribu ons Foreign exchange gain (loss) Others (Note 17)

P300,202,768 2,830,784 2,665,249

P256,073,377 9,699,494 (2,678,881)

7,047,377 312,746,178

4,201,878 267,295,868

203,403,190 82,647,963

156,414,273 43,658,145

286,051,153

200,072,418

P26,695,025

P67,223,450

EXPENSES Opera ng expenses (Note 18) Administra ve expenses (Note 19) EXCESS OF REVENUE OVER EXPENSES See accompanying Notes to Financial Statements.

STATEMENTS OF CHANGES IN FUND BALANCE FOR THE YEAR ENDED DECEMBER 31, 2008 (With Compara ve Figures for 2007)

Years Ended December 31

Balance at January 1 Excess of revenue over expenses Balance at December 31 See accompanying Notes to Financial Statements.

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2008

2007

310,083,397

P242,859,947

26,695,025

67,223,450

P336,778,422

P310,083,397

AUDITED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2008 (With Compara ve Figures for 2007) Years Ended December 31 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Excess of revenue over expenses Adjustments for: Interest income on loans, bank deposits and short term placements (Note 17) Financing Cost (Note 18) Provision for credit losses and impairment losses (Notes 8,10, 18 and 19) Deprecia on and amor za on (Notes 11, 18 and 19) Amor za on of so ware cost (Note 12, 18 and 19) Unrealized loss Changes in opera ng assets and liabili es: 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 opera ons Interest income received Financing cost paid Net cash provided by opera ng ac vi es CASH FLOWS FROM INVESTING ACTIVITIES Acquisi ons of property and equipment (Note 11) Increase in other assets Acquisi ons of so ware cost (Note 12) Proceeds from sale of property and equipment Net cash used in inves ng ac vi es CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (payment of) notes payable (Note 15) Payments of current and long-term debt Net cash provided by (used in) ďŹ nancing ac vi es NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNINING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

P26,695,025

(267,220,682) 7,707,611 30,904,204 6,382,967 260,978 15,241

P67,223,450

(217,519,222) 7,051,076 4,992,011 5,227,382 54,959 -

(12,944,104) (633,840)

(101,202,100) 333,917

(5,714,726) 14,625,768 16,231,039 (183,690,519) 265,311,822 (7,360,263) 74,261,040

4,779,316 7,888,541 50,215,267 (170,955,403) 215,269,310 (6,008,263) 38,305,644

(7,134,263) (371,607) (196,052) 172,249 (7,529,673)

(11,419,999) (913,106) (659,500) 20,263 (12,972,342)

(50,000,000) (320,733) (50,320,733) 16,410,634 187,313,484

50,000,000 (12,259,234) 37,740,766 63,074,068 124,239,416

P203,724,118

P187,313,484

See accompanying Notes to Financial Statements.

Annual Report 2008

21

AUDITED FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (With Compara ve Figures for 2007)

1.

Organiza onal Informa on Kabalikat Para sa Maunlad na Buhay, Inc. (the Organiza on) is a nonstock, not-for-profit, charitable, educa onal, cultural and civic services organiza on, which was organized on November 4, 1986 with the objec ve of assis ng the low-income Filipinos in their pursuit for educa on, culture, civic, physical and economic advancement with the end view that they will become responsible members and assets of society. To a ain these objec ves, the Organiza on conducts microfinance opera ons pursuant to Republic Act 8425, provide nonfinancial services, seminars, lectures and trainings by invi ng resource persons who have exper se and knowledge in fields of industry, farming, fishing and other agricultural ac vi es and extends financial assistance at reasonable interest rates to economically ac ve poor people.

On November 26, 2007, the Organiza on was cer fied by Philippine Council for nongovernment organiza on (NGO) cer fica on as a qualified donee ins tu on in accordance with Revenue Regula ons 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 Organiza on falls under Sec on 30 (g) of the Tax Reform Act of 1997. Accordingly, income from ac vi es in pursuit of the purpose for which the Organiza on was organized is exempt from income tax and the filing of income tax return covering such income. Such exemp on, however, does not apply to income of whatever kind and character derived from the use of the Organiza on’s proper es, real or personal, or from any of its ac vi es conducted for profit regardless of the disposi ons made of such income.

The registered office of the Organiza on is located at No. 12 San Francisco Street, Karuhatan, Valenzuela City.

2.

Summary of Significant Accoun ng Policies Basis of Prepara on 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 Organiza on’s func onal currency.

Statement of Compliance The financial statements of the Organiza on have been prepared in compliance with Philippine Financial Repor ng Standards (PFRS).

Changes in Accoun ng Policies The accoun ng policies adopted are consistent with those of the previous financial year except as follows: Amendments to PAS 39, Financial Instruments: Recogni on and Measurement and PFRS 7, Financial Instruments: Disclosures The Organiza on adopted the amendments to PAS 39 and PFRS 7, which allow reclassifica ons of certain financial instruments held for trading to either held-to-maturity (HTM) investments, loans

22

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AUDITED FINANCIAL STATEMENTS

and receivables or AFS investments categories, as well as certain instruments from AFS investments to loans and receivables. The effec ve date of the amendments is July 1, 2008. The adop on of the amendments to PAS 39 and PFRS 7 did not have any effect on the Organiza on’s financial statements.

Philippine Interpreta on of Interna onal Financial Repor ng Interpreta ons Commi ee (IFRIC) 14, PAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interac on This Interpreta on tends to limit the measurement of a defined benefit asset to the present value of economic benefits available in the form of refunds from the plan or reduc ons in future contribu ons to the plan plus unrecognized gains and losses. Minimum funding requirements to some extent improve the security of the post-employment benefit made to employee members of benefit plan. The adop on of this Interpreta on had no impact on the financial statements of the Organiza on.

There are other Philippine Interpreta ons which became effec ve in 2008 but are not applicable to the Organiza on.

Significant Accoun ng Policies Cash and Cash Equivalents For the purpose of the statement of cash flows, cash includes pe y cash fund and cash in banks.

Cash equivalents consist of me deposit placements with original maturi es of three months or less from dates of placements and that are subject to an insignificant risk of changes in value.

Financial Instruments - Ini al Recogni on and Subsequent Measurement Date of recogni on Purchases or sales of financial assets that require delivery of assets within the me frame established by regula on or market conven on are recognized on se lement date - the date that an asset is delivered to or by the Organiza on.

Ini al recogni on of financial instruments All financial instruments are ini ally recognized at fair value. Except for financial assets at fair value through profit or loss (FVPL), the ini al measurement of financial assets includes transac on costs. The Organiza on classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, AFS investments, and loans and receivables. The classifica on depends on the purpose for which the financial assets were acquired and whether they are quoted in an ac ve market. Financial liabili es are classified into financial liabili es at FVPL and other financial liabili es at cost or amor zed cost. Management determines the classifica on of its financial instruments at ini al recogni on and, where allowed and appropriate, re-evaluates such designa on at every repor ng date.

As of December 31, 2008 and 2007, the Organiza on had no HTM investments and financial liabili es at FVPL. Reclassifica on of financial assets A financial asset is reclassified out of the FVPL category when the following condi ons are met: • the financial asset is no longer held for the purpose of selling or repurchasing it in the near term; and Annual Report 2008

23

AUDITED FINANCIAL STATEMENTS

• 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 reclassifica on. Any gain or loss already recognized in the statement of income is not reversed.

The fair value of the financial asset on the date of reclassifica on becomes its new cost or amor zed cost, as applicable.

Determina on of fair value The fair value for financial instruments traded in ac ve markets at the statement of assets, liabili es and fund balance date is based on their quoted market price or dealer price quota ons, without any deduc on for transac on costs. When current bid and asking prices are not available, the price of the most recent transac on provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the me of the transac on.

For all other financial instruments not listed in an ac ve market, the fair value is determined by using appropriate valua on techniques. Valua on techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, op on pricing models, and other relevant valua on models.

Financial assets or financial liabili es at FVPL This category consists of financial assets and financial liabili es that are held for trading or designated by management as FVPL on recogni on.

Financial assets and financial liabili es at FVPL are recorded in the statement of assets, liabili es and fund balance at fair value, with changes in the fair value recorded in the statement of revenue and expenses included under ‘Other income’. Interest earned or incurred is recorded in “Other income” or ‘Interest expense’, respec vely.

Financial assets or financial liabili es classified in this category are designated by management on ini al recogni on when any of the following criteria are met: • The designa on eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabili es or recognizing gains or losses on them on a different basis; or • The assets and liabili es are part of a group of financial assets, financial liabili es or both 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 deriva ve, unless the embedded deriva ve does not significantly modify the cash flows or it is clear, with li le 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 condi ons.

They include equity investments and other debt instruments.

A er ini al measurement, AFS investments are subsequently measured at fair value. The effec ve yield component of AFS debt securi es, as well as the impact of the restatement of foreign currency24

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AUDITED FINANCIAL STATEMENTS

denominated AFS debt securi es, is reported in the statement of income. The unrealized gains and losses arising from the fair valua on of AFS investments are excluded, net of tax, from reported earnings and are reported as ‘Unrealized gain (loss) on AFS investments’ in the fund balance of statement of assets, liabili es and fund balance.

When the security is disposed, the cumula ve gain or loss previously recognized in the fund balance is recognized as ‘Other income’ in the statement revenue and expenses. Where the Organiza on holds more than one investment in the same security, these are deemed to be disposed based on weighted average. Interest earned on holding AFS debt securi es are reported as ‘Other income’ using the effec ve interest rate (EIR). Dividends earned on holding AFS equity securi es are recognized in the statement of revenue and expenses 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 revenue and expenses.

Loans and receivables Loans and receivables are nonderiva ve financial assets with fixed or determinable payments and fixed maturi es that are not quoted in an ac ve market. They are not entered into with the inten on 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. A er ini al measurement, the loans and receivables are subsequently measured at amor zed cost using the EIR method, less allowance for credit and impairment losses. Amor zed cost is calculated by taking into account any discount or premium on acquisi on and fees that are integral part of the EIR. The amor za on is included in ‘Other income’ in the statement of revenue and expenses. The losses arising from impairment of such loans and receivables are recognized in ‘Provision for credit and impairment losses’ in the statement of revenue and expenses.

Interest-bearing loans and borrowings All loans and borrowings are ini ally recognized at the fair value less directly a ributable transac on costs and have not been designated as financial liabili es at fair value through profit or loss. A er ini al recogni on, interest-bearing loans and borrowings are subsequently measured at amor zed cost using the effec ve interest method.

Gains and losses are recognized in the statement of revenue and expenses when the liabili es are derecognized as well as through the amor za on process.

Derecogni on of Financial Assets and Liabili es 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 Organiza on retains the right to receive cash flows from the asset, but has assumed an obliga on to pay them in full without material delay to a third party under a “pass-through” arrangement; or • the Organiza on has transferred its rights to receive cash flows from the asset and either (a) has transferred substan ally 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.

Annual Report 2008

25

AUDITED FINANCIAL STATEMENTS

Where the Organiza on 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 substan ally all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Organiza on’s con nuing involvement in the asset. Con nuing 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 considera on that the Organiza on could be required to repay.

Financial liabili es Financial liabili es are derecognized when the obliga on under the liability is discharged or cancelled or has expired. Where an exis ng financial liabili es are replaced by another from the same lender on substan ally different terms, or the terms of an exis ng liability are substan ally modified, such an exchange or modifica on is treated as a derecogni on of the original liability and the recogni on of a new liability, and the difference in the respec ve carrying amounts is recognized in the statement of revenue and expenses.

Offse ng Financial Instruments Financial assets and financial liabili es are offset and the net amount reported in the statement of assets, liabili es and fund balance if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an inten on to se le on a net basis, or to realize the asset and se le the liability simultaneously.

Impairment of Financial Assets The Organiza on assesses at each statement of assets, liabili es and fund balance date whether there is objec ve 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 objec ve evidence of impairment as a result of one or more events that has occurred a er the ini al recogni on of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the es mated future cash flows of the financial asset or the group of financial assets that can be reliably es mated.

Evidence of impairment may include indica ons 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 reorganiza on and where observable data indicate that there is measurable decrease in the es mated future cash flows, such as changes in arrears or economic condi ons that correlate with defaults.

Loans and receivables For receivables carried at amor zed cost, the Organiza on first assesses whether objec ve evidence of impairment exists individually for financial assets that are individually significant, or collec vely for financial assets that are not individually significant. If the Organiza on determines that no objec ve 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 characteris cs and collec vely assesses for impairment. Those characteris cs are relevant to the es ma on of future cash flows for groups of such assets by being indica ve 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 con nues to be recognized are not included in a collec ve assessment of impairment.

If there is objec ve 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 es mated future cash flows (excluding future credit losses that have not been incurred). The carrying 26

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AUDITED FINANCIAL STATEMENTS

amount of the asset is reduced through use of an allowance account and the amount of loss is charged against the statement of revenue and expenses. Interest income con nues to be recognized based on the original EIR of the asset. Loans, together with the associated allowance accounts, are wri en off when there is no realis c prospect of future recovery and all collateral has been realized.

If, in a subsequent year, the amount of the es mated impairment loss decreases because of an event occurring a er the impairment was recognized, the previously recognized impairment loss is reduced by adjus ng 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 collec ve evalua on of impairment, financial assets are grouped on the basis of such credit risk characteris cs as industry, collateral type, past-due status and term.

Future cash flows in a group of financial assets that are collec vely evaluated for impairment are es mated on the basis of historical loss experience for assets with credit risk characteris cs similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current condi ons that did not affect the period on which the historical loss experience is based and to remove the effects of condi ons in the historical period that do not exist currently. Es mates of changes in future cash flows reflect, and are direc onally 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 indica ve of incurred losses in the group and their magnitude). The methodology and assump ons used for es ma ng future cash flows are reviewed regularly by the Organiza on to reduce any differences between loss es mates and actual loss experience.

The Organiza on uses the allowance method in accoun ng for impairment of loans and receivables.

AFS investments For AFS investments, the Organiza on assesses at each statement of assets, liabili es and fund balance date whether there is objec ve 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 cumula ve loss - measured as the difference between the acquisi on cost and the current fair value, less any impairment loss on that financial asset previously recognized in the statement of revenue and expenses - is removed from the fund balance and recognized in the statement of revenue and expenses. Impairment losses on AFS investments are not reversed through the statement of revenue and expenses. Increases in fair value a er impairment are recognized directly in the fund balance.

Prepaid Expenses These are advance payments to various expenditures related to the business ac vi es of the Organiza on. These are amor zed during the period of u liza on.

Property and Equipment Land is stated at cost less any impairment and depreciable proper es including buildings, leasehold improvements, furniture and equipment and transporta on equipment are stated at cost less accumulated deprecia on and amor za on, and any impairment loss. Such cost includes the cost of replacing part of the property and equipment when that cost is incurred, if the recogni on criteria are met but excludes repairs and maintenance costs.

Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

The ini al cost of property and equipment comprises its purchase price, including taxes and directly a ributable costs of bringing the assets to its working condi on and loca on for its intended use. Expenditures incurred a er the fixed asset have been put into opera on, such as repairs and maintenance, are normally charged against current opera ons in the period in which costs are incurred. In situa ons 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 addi onal costs of property and equipment.

When assets are re red or otherwise disposed of, the cost and the related accumulated deprecia on and amor za on and any impairment are removed from the accounts, and any resul ng gain or loss is credited or charged against current opera ons.

Deprecia on of property and equipment is computed using the straight-line method over the es mated useful life of the property and equipment. Leasehold improvements, which consist of improvements on leased proper es, are being amor zed over the shorter of the es mated useful life of the asset or the period of lease agreement.

The es mated useful lives of depreciable assets in number of years are as follows:

Building and improvements Leasehold improvements Furniture and equipment Transporta on equipment

No. of years 40 3 3 5

The useful life and deprecia on and amor za on method are reviewed periodically to ensure that the period and method of deprecia on and amor za on are consistent with the expected pa ern 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 indica on exists and where the carrying values exceed the es mated recoverable amounts, the assets are wri en down to their recoverable amounts.

Computer So ware Costs Computer so ware costs are capitalized on the basis of the costs incurred to acquire and bring to use the specific so ware. They are carried at acquisi on cost less accumulated amor za on and any impairment loss. These costs are amor zed over 3 years on a straight line basis.

Impairment of Nonfinancial Assets Property and equipment At each statement of assets, liabili es and fund balance date, the Organiza on assesses whether there is any indica on that its property and equipment may be impaired. When an indicator of impairment exists or when an annual impairment tes ng for an asset is required, the Organiza on makes a formal es mate 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 genera ng unit to 28

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AUDITED FINANCIAL STATEMENTS

which it belongs. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is wri en down to its recoverable amount. In assessing value in use, the es mated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the me value of money and the risks specific to the asset.

An impairment loss is charged to opera ons 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 revalua on increment of the said asset.

Impairment assessment is made at each repor ng date as to whether there is any indica on that previously recognized impairment losses may no longer exist or may have decreased. If such indica on exists, the recoverable amount is es mated. A previously recognized impairment loss is reversed only if there has been a change in the es mates 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 deprecia on, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of revenue and expenses unless the asset is carried at a revalued amount, in which case the reversal is treated as a revalua on increase. A er such a reversal, the deprecia on expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systema c basis over its remaining life.

Revenue Recogni on Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Organiza on and the revenue can be reliably measured. The following specific recogni on criteria must also be met before the revenue is recognized: Dona ons and contribu ons Dona ons and contribu ons received are recognized as income in the statement of revenue and expenses upon receipt.

Interest income For all financial asset measured at amor zed cost, interest income is recorded at the EIR, which is the rate that exactly discounts es mated 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 calcula on takes into account all contractual terms of the financial asset, includes any fees (such as service fees) or incremental costs that are directly a ributable 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 con nues to be recognized using the original EIR applied to the new carrying amount.

Leases The determina on 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 a er incep on of the lease only if one of the following applies: Annual Report 2008

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AUDITED FINANCIAL STATEMENTS REPORT

(a) there is a change in contractual terms, other than a renewal or extension of the arrangement; (b) a renewal op on is exercised or extension granted, unless that term of the renewal or extension was ini ally included in the lease term; (c) there is a change in the determina on of whether fulfillment is dependent on a specified asset;or (d) there is a substan al change to the asset.

Where a reassessment is made, lease accoun ng 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).

Organiza on as Lessee Leases where the lessor retains substan ally all the risks and benefits of ownership of the asset are classified as opera ng leases. Opera ng lease payments are recognized as ‘Opera ng expenses’ in the statement of revenue and expenses on a straight-line basis over the lease term.

Foreign Currency Transac ons and Transla ons Foreign currency-denominated monetary assets and liabili es of the Organiza on 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 revalua on of foreign currency-denominated assets and liabili es are credited to or charged against opera ons 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 ini al transac ons. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Unearned Service Income Unearned service fee pertains to 1.00% of loan amount for clients above 64 years old collected from the borrower upon loan grant. Unearned service fee is earned as revenue (shown under ‘Service Income’ in the statement of revenue and expenses) throughout the period of coverage and a liability is set up at the statement of assets, liabili es and fund balance date equivalent to the unearned service fee for the unexpired period.

Re rement Cost The Organiza on has an unfunded noncontributory defined benefit re rement plan, administered by trustees, covering substan ally all of its permanent employees.

The re rement cost of the Organiza on is determined using the projected unit credit method. Under this method, the current service cost is the present value of re rement benefits payable in the future with respect to services rendered in the current year.

The liability recognized in the statement of assets, liabili es and fund balance in respect of defined benefit pension plans (see Note 16) is the present value of the defined benefit obliga on at the statement date of assets, liabili es, and fund balance less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obliga on is calculated annually by an independent actuary using the projected unit credit method.

The present value of the defined benefit obliga on is determined by discoun ng the es mated future 30

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AUDITED FINANCIAL STATEMENTS

cash ou lows using interest rate on government bonds that have terms to maturity approxima ng the terms of the related re rement liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assump ons are credited to or charged against income when the net cumula ve unrecognized actuarial gains and losses at the end of the previous period exceeded 10.00% of the higher of the defined benefit obliga on 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 par cipa ng in the plan.

Past service costs, if any, are recognized immediately in statement of revenue and expenses, unless the changes to the pension plan are condi onal on the employees remaining in service for a specified period of me (the ves ng period). In this case, the past service costs are amor zed on a straight-line basis over the ves ng period.

The defined benefit asset or liability comprises the present value of the defined benefit obliga on less past service costs not yet recognized and less the fair value of plan assets out of which the obliga ons are to be se led 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 reduc ons in the future contribu ons to the plan.

Provisions Provisions are recognized when the Organiza on has a present obliga on (legal or construc ve) as a result of a past event and it is probable that an ou low of resource embodying economic benefits will be required to se le the obliga on and a reliable es mate can be made of the amount of the obliga on.

Con ngent Liabili es and Con ngent Assets Con ngent liabili es are not recognized in the financial statements but are disclosed unless the possibility of an ou low of resources embodying economic benefits is remote. Con ngent assets are not recognized in the financial statements but are disclosed in the financial statements when an inflow of economic benefits is probable.

Subsequent Events Any post-year-end event that provides addi onal informa on about the Organiza on’s posi on at the statement of assets, liabili es and fund balance date (adjus ng events) is reflected in the financial statements. Post-year-end events that are not adjus ng events are disclosed in the notes to the financial statements when material.

Future Changes in Accoun ng Policies The Organiza on will adopt the Standards and Interpreta ons enumerated below when these become effec ve as applicable. Except as otherwise indicated, the Organiza on does not expect the adop on of these new and amended PFRSs and Philippine Interpreta ons to have significant impact on its financial statements.

Effec ve in 2009 Amendment to PAS 1, Amendment on Statement of Comprehensive Income This amendment introduces a new statement of comprehensive income that combines all items of income and expenses recognized in the profit or loss together with ‘other comprehensive income’ (OCI). En es may choose to present all items in one statement, or to present two linked statements, a separate statement of income and a statement of comprehensive income. This amendment also Annual Report 2008

31

AUDITED FINANCIAL STATEMENTS

requires addi onal requirements in the presenta on of the balance sheet and owner’s equity as well as addi onal disclosures to be included in the financial statements. The Organiza on will assess and evaluate the op ons available under the amendment to PAS 1, and will comply with such changes once effec ve.

PAS 23, Borrowing Costs This Standard has been revised to require capitaliza on of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substan al period of me to get ready for its intended use or sale. In accordance with the transi onal requirements in the Standard, this change in accoun ng for borrowing costs shall be accounted for prospec vely. Accordingly, borrowing costs will be capitalized on qualifying asset with a commencement date a er January 1, 2009. No changes will be made for borrowing costs incurred to this date that have been expensed.

PAS 32, Financial Instruments: Presenta on and PAS 1, Presenta on of Financial Statements -Pu able Financial Instruments and Obliga ons Arising on Liquida on These amendments specify, among others, that pu able financial instruments will be classified as equity if they have all of the following specified features: (a) The instrument en tles the holder to require the en ty to repurchase or redeem the instrument (either on an ongoing basis or on liquida on) for a pro rata share of the en ty’s net assets, (b) The instrument is in the most subordinate class of instruments, with no priority over other claims to the assets of the en ty on liquida on, (c) All instruments in the subordinate class have iden cal features (d) The instrument does not include any contractual obliga on to pay cash or financial assets other than the holder’s right to a pro rata share of the en ty’s net assets, and (e) The total expected cash flows a ributable to the instrument over its life are based substan ally on the profit or loss, a change in recognized net assets, or a change in the fair value of the recognized and unrecognized net assets of the en ty over the life of the instrument.

PFRS 1, First- me Adop on of PFRS - Cost of an Investment in a Subsidiary, Jointly Controlled En ty or Associate The amended PFRS 1 allows an en ty, in its separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled en es or associates (in its opening PFRS financial statements) as one of the following amounts: a) cost determined in accordance with PAS 27; b) at the fair value of the investment at the date of transi on to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as determined under generally accepted accoun ng principles) of the investment at the date of transi on to PFRS. PFRS 2, Share-based Payment - Ves ng Condi on and Cancella ons This Standard has been revised to clarify the defini on of a ves ng condi on and prescribes the treatment for an award that is effec vely cancelled. It defines a ves ng condi on as a condi on that includes an explicit or implicit requirement to provide services. It further requires non-ves ng condi ons to be treated in a similar fashion to market condi ons. Failure to sa sfy a non-ves ng condi on that is within the control of either the en ty or the counterparty is accounted for as cancella on. However, failure to sa sfy a non-ves ng condi on that is beyond the control of either party does not give rise to a cancella on.

PFRS 8, Opera ng Segments This PFRS adopts a management approach to repor ng segment informa on. The informa on reported would be that which management uses internally for evalua ng the performance of opera ng segments and alloca ng resources to those segments. Such informa on may be different 32

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AUDITED FINANCIAL STATEMENTS

from that reported in the financial statements and companies will need to provide explana ons and reconcilia ons of the differences. PFRS 8, will replace PAS 14, Segment Repor ng, and is required to be adopted only by en es whose debt or equity instruments are publicly traded or are in the process of filing with the Securi es and Exchange Commission (SEC) for purposes of issuing any class of instruments in a public market. The Organiza on is not required to adopt PFRS 8.

Philippine Interpreta on IFRIC 13, Customer Loyalty Programmes This Interpreta on addresses the accoun ng by an en ty that grants award credits to its customers.

Philippine Interpreta on IFRIC 16, Hedges of a Net Investment in a Foreign Opera on This Interpreta on provides guidance on iden fying foreign currency risks that qualify for hedge accoun ng in the hedge of net investment; where within the group the hedging instrument can be held in the hedge of a net investment; and how an en ty should determine the amount of foreign currency gains or losses, rela ng to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. Currently, the Organiza on has no hedges of a net investment in a foreign opera on.

Improvements to PFRSs In May 2008, the Interna onal Accoun ng Standards Board issued its first omnibus of amendments to certain standards, primarily with a view to removing inconsistencies and clarifying wording. The following are the separate transi onal provisions for each standard: PFRS 5, Non-current Assets Held for Sale and Discon nued Opera ons When a subsidiary is held for sale, all of its assets and liabili es will be classified as held for sale under PFRS 5, even when the en ty retains a non-controlling interest in the subsidiary a er the sale.

PAS 1, Presenta on of Financial Statements Assets and liabili es classified as held for trading are not automa cally classified as current in the balance sheet.

PAS 16, Property, Plant and Equipment The amendment replaces the term ‘net selling price’ with ‘fair value less costs to sell’, to be consistent with PFRS 5, and PAS 36, Impairment of Assets.

Items of property, plant and equipment held for rental that are rou nely sold in the ordinary course of business a er rental, are transferred to inventory when rental ceases and they are held for sale.

Proceeds of such sales are subsequently shown as revenue. Cash payments on ini al recogni on of such items, the cash receipts from rents and subsequent sales are all shown as cash flows from opera ng ac vi es.

PAS 19, Employee Benefits The defini on of ‘past service costs’ is revised to include reduc ons in benefits related to past services (‘nega ve past service costs’) and to exclude reduc ons in benefits related to future services that arise from plan amendments. Amendments to plans that result in a reduc on in benefits related to future services are accounted for as a curtailment.

The defini on of ‘return on plan assets’ is revised to exclude plan administra on costs if they have already been included in the actuarial assump ons used to measure the defined benefit obliga on.

Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

The defini on of ‘short-term’ and ‘other long-term’ employee benefits is revised to focus on the point in me at which the liability is due to be se led.

The reference to the recogni on of con ngent liabili es is deleted to ensure consistency with PAS 37, Provisions, Con ngent Liabili es and Con ngent Assets.

PAS 20, Accoun ng for Government Grants and Disclosures of Government Assistance Loans granted with no or low interest rates will not be exempt from the requirement to impute interest. The difference between the amount received and the discounted amount is accounted for as a government grant.

PAS 23, Borrowing Costs The defini on of borrowing costs is revised to consolidate the types of items that are considered components of ‘borrowing costs’, i.e., components of the interest expense calculated using the EIR method.

PAS 28, Investment in Associates If an associate is accounted for at fair value in accordance with PAS 39, only the requirement of PAS 28 to disclose the nature and extent of any significant restric ons on the ability of the associate to transfer funds to the en ty in the form of cash or repayment of loans applies.

An investment in an associate is a single asset for the purpose of conduc ng the impairment test.

Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.

PAS 31, Interest in Joint ventures If a joint venture is accounted for at fair value, in accordance with PAS 39, only the requirements of PAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial informa on about the assets, liabili es, income and expense will apply.

PAS 36, Impairment of Assets When discounted cash flows are used to es mate ‘fair value less cost to sell’ addi onal disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to es mate ‘value in use’.

PAS 38, Intangible Assets Expenditure on adver sing and promo onal ac vi es is recognized as an expense when the Organiza on either has the right to access the goods or has received the services. Adver sing and promo onal ac vi es now specifically include mail order catalogues.

References to there being rarely is deleted, if ever, persuasive evidence to support an amor za on method for finite life intangible assets that results in a lower amount of accumulated amor za on than under the straight-line method, thereby effec vely allowing the use of the unit of produc on method.

PAS 39, Financial Instruments: Recogni on and Measurement Changes in circumstances rela ng to deriva ves - specifically deriva ves designated or de-designated as hedging instruments a er ini al recogni on - are not reclassifica ons.

34

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AUDITED FINANCIAL STATEMENTS

When financial assets are reclassified as a result of an insurance company changing its accoun ng policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a change in circumstance, not a reclassifica on.

The reference to a ‘segment’ is removed when determining whether an instrument qualifies as a hedge.

Use of the revised effec ve interest rate (rather than the original effec ve interest rate) is required when re-measuring a debt instrument on the cessa on of fair value hedge accoun ng.

PAS 40, Investment Proper es The scope (and the scope of PAS 16, Property, Plant and Equipment) is revised to include property that is being constructed or developed for future use as an investment property. Where an en ty is unable to determine the fair value of an investment property under construc on, but expects to be able to determine its fair value on comple on, the investment under construc on will be measured at cost un l such me as fair value can be determined or construc on is complete.

Effec ve in 2010 Revised PFRS 3, Business Combina ons and PAS 27, Consolidated and Separate Financial Statements The revised PFRS 3 introduces a number of changes in the accoun ng for business combina ons that will impact the amount of goodwill recognized, the reported results in the period that an acquisi on occurs, and future reported results. The revised PAS 27 requires, among others, that (a) change in ownership interests of a subsidiary (that do not result in loss of control) will be accounted for as an equity transac on and will have no impact on goodwill nor will it give rise to a gain or loss; (b) losses incurred by the subsidiary will be allocated between the controlling and non-controlling interests (previously referred to as ‘minority interests’); even if the losses exceed the non-controlling equity investment in the subsidiary; and (c) on loss of control of a subsidiary, any retained interest will be remeasured to fair value and this will impact the gain or loss recognized on disposal. The changes introduced by the revised PFRS 3 must be applied prospec vely, while changes introduced by the revised PAS 27 must be applied retrospec vely with a few excep ons. The changes will affect future acquisi ons and transac ons with non-controlling interests.

Amendment to PAS 39, Financial Instruments: Recogni on and Measurement - Eligible Hedged Items Amendment to PAS 39 will be effec ve on July 1, 2009, which addresses only the designa on of a onesided risk in a hedged item, and the designa on of infla on as a hedged risk or por on in par cular situa ons. The amendment clarifies that an en ty is permi ed to designate a por on of the fair value changes or cash flow variability of a financial instrument as a hedged item.

Philippine Interpreta on IFRIC 17, Distribu on of Non-cash Assets to Owners This Interpreta on covers accoun ng for two types of non-reciprocal distribu ons of assets by an en ty to its owners ac ng in their capacity as owners. The two types of distribu on are: a. distribu ons of non-cash assets (eg items of property, plant and equipment, businesses as defined in IFRS 3, ownership interests in another en ty or disposal groups as defined in IFRS 5); and b. distribu ons that give owners a choice of receiving either non-cash assets or a cash alterna ve.

This Interpreta on addresses only the accoun ng by an en ty that makes a non-cash asset distribu on. It does not address the accoun ng by shareholders who receive such a distribu on Philippine Interpreta on IFRIC 18, Transfers of Assets from Customers Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

This Interpreta on covers accoun ng for transfers of items of property, plant and equipment by en es that receive such transfers from their customers. Agreements within the scope of this Interpreta on are agreements in which an en ty receives from a customer an item of property, plant and equipment that the en ty must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both. This Interpreta on also applies to agreements in which an en ty receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the en ty must then use the item of property, plant and equipment either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both.

Effec ve in 2012 Philippine Interpreta on IFRIC 15, Agreement for Construc on of Real Estate This Interpreta on covers accoun ng for revenue and associated expenses by en es that undertake the construc on of real estate directly or through subcontractors. This Interpreta on requires that revenue on construc on of real estate be recognized only upon comple on, except when such contract qualifies as construc on contract to be accounted for under PAS 11, Construc on Contracts, or involves rendering of services in which case revenue is recognized based on stage of comple on.

Contracts involving provision of services with the construc on materials and where the risks and reward of ownership are transferred to the buyer on a con nuous basis will also be accounted for based on stage of comple on.

3.

Significant Accoun ng Judgments and Es mates The prepara on of the financial statements in accordance with PFRS requires the Organiza on to make es mates and assump ons that affect the reported amounts of assets, liabili es, revenue and expenses and the disclosures of con ngent assets and con ngent liabili es. Future events may occur which will cause the assump ons used in arriving at the es mates to change. The effects of any change in es mates are reflected in the financial statements as they become reasonably determinable.

Judgments and es mates are con nually evaluated and are based on historical experience and other factors, including expecta ons 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 liabili es recorded in the statement of assets, liabili es and fund balance cannot be derived from ac ve markets, these are determined using internal valua on techniques using generally accepted market valua on models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, es mates are used in establishing fair values. These es mates may include considera ons of liquidity, vola lity and correla on. b) Opera ng leases The Organiza on has entered into commercial property leases with outside par es wherein the la er retains all the significant risks and rewards of ownership of those proper es leased out under opera ng leases. These opera ng leases are subject to two to three year terms and are renewable upon agreement of both par es.

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AUDITED FINANCIAL STATEMENTS

In determining whether or not there is indica on of opera ng lease, the Organiza on considers reten on of ownership tle to the leased property, leases of executory costs, and among others. c)

Financial assets not quoted in an ac ve market The Organiza on classifies financial assets by evalua ng, among others, whether the asset is quoted or not in an ac ve market. Included in the evalua on on the whether the asset is quoted in an ac ve market is the determina on on whether the quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transac ons on an arm’s length basis.

Es mates a) Allowance for credit losses on receivables The Organiza on maintains allowances for credit losses at a level considered adequate to provide for probable uncollec ble loans and receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collec bility of the accounts. These factors include, but are not limited, to the client’s payment behavior and known market factors. The Organiza on reviews the age and status of loans and receivables, and iden fies accounts that are to be provided with allowances on a con nuous basis.

As of December 31, 2008 and 2007 loans and receivables have carrying value amoun ng to P385.40 million and P380.48 million, respec vely, net of allowance for credit losses amoun ng to P15.73 million and P9.64 million, respec vely (see Note 8). b) Impairment of AFS equity investments The Organiza on determines that AFS equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determina on of what is significant or prolonged requires judgment. The Organiza on 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 Organiza on evaluates among other factors, the normal vola lity in share price.

In addi on, impairment may be appropriate when there is evidence of deteriora on in the financial health of the investee, industry and sector performance, changes in technology, and opera onal and financing cash flows.

As of December 31, 2008 and 2007, AFS equity investments are carried at P7.64 million and P28.60 million, respec vely, net of allowance for impairment losses amoun ng to P20.96 million and nil, respec vely (see Note 10). c)

Present value of pension liability The cost of defined benefit pension plan and other post employment benefits is determined using actuarial valua ons. The actuarial valua on involves making assump ons 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 es mates are subject to significant uncertainty.

As of December 31, 2008 and 2007, the present value of the defined benefit obliga on amounted to P0.33 million and P29.32 million, respec vely (see Note 16).

Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

d) Impairment of property and equipment The Organiza on 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 Organiza on considers important which could trigger an impairment review include the following: • significant underperformance rela ve to expected historical or projected future opera ng results; • significant changes in the manner of use of the acquired assets or the strategy for overall business; and • significant nega ve industry or economic trends.

The Organiza on 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 es mated for individual assets or, if it is not possible, for the cash-genera ng unit to which the asset belongs.

As of December 31, 2008 and 2007, the carrying value of the property and equipment amounted to P17.03 million and P16.45 million, respec vely (see Note 11).

4.

Fair Value Measurement The methods and assump ons used by the Organiza on in es ma ng the fair value of the financial instruments are: Assets for which the fair value approximates carrying value - For financial assets and financial liabili es 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 liabili es.

AFS investments - Fair values are based on quoted market prices. For equity investments that are not quoted, fair values are es mated using either values obtained from independent par es offering pricing services on adjusted quoted market prices of comparable investments or using the discounted cash flow methodology.

Loans and receivables - Fair values of loans and receivables are es mated using the discounted cash flow methodology, using the Organiza on’s current incremental lending rates for similar types of loans. Where the instrument reprices on a quarterly basis or has a rela vely short maturity, the carrying amounts approximate fair values.

Liabili es - Fair values are es mated using the discounted cash flow methodology using the Organiza on’s current incremental borrowing rates for similar borrowings with maturi es 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 Organiza on’s financial assets and liabili es.

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AUDITED FINANCIAL STATEMENTS

2008 Financial Assets Financial assets at FVPL Quoted equity securi es AFS investments Unquoted equity security Loans and receivables Cash and cash equivalents Loans receivables Interest receivable Accounts receivable Financial Liabili es Accrued expenses and other payables Notes payable Current por on of long-term debt Capital build-up Noncurrent por on of long-term debt

5.

2007

Carrying Value

Fair Value

Carrying Value

Fair value

P302,679

P302,679

P317,920

P317,920

7,638,405

7,638,405

28,600,000

28,600,000

203,724,118 371,522,896 7,434,220 6,444,673

203,724,118 371,522,896 7,434,220 6,444,673

187,313,484 367,197,207 5,525,360 7,768,866

187,313,484 367,197,207 5,525,360 7,768,866

16,500,099 10,000,000 228,373,811 -

16,500,099 10,000,000 228,373,811 -

22,097,017 50,000,000 320,733 212,142,772 10,000,000

22,097,017 50,000,000 320,733 212,142,772 10,000,000

Financial Risk Management Objec ves and Policies The Organiza on’s financial instruments consist of cash and cash equivalents, financial assets at FVPL, AFS investments, loans 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 Company’s risk management process. The board commi ee, which is responsible for developing, managing and monitoring risk management policies in their specified areas is the Execu ve Commi ee (EXCOM).

The BOT’s func ons are supported by the EXCOM, which is the implemen ng arm of the organiza on and shall make direc onal decisions on policies already laid down by the Board. It shall ensure that every detail of the rules, approved plans, opera ons and policies of the Organiza on shall be carried out faithfully.

Credit Risk Credit risk is the risk of financial loss to the Organiza on if a counterparty to a financial instrument fails to meet its contractual obliga ons. The Organiza on has established controls and procedures in its credit policy to determine and monitor credit worthiness of customers and counterpar es.

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

Annual Report 2008

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AUDITED FINANCIAL STATEMENTS

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

2008

2007

P203,580,118 302,679 385,401,789 P589,284,586

P187,187,484 317,920 380,491,434 P567,996,838

The Organiza on assessed that it has no significant credit risk exposures rela ng to off-balance sheet items.

As of December 31, 2008 and 2007 neither past due nor impaired loans amounted to P371.43 million and P365.50 million which were granted to women who are among the economically ac ve poor in communi es with high popula on densi es and levels of microeconomic ac vity.

Liquidity Risk The Organiza on manages liquidity risk by maintaining a balance between con nuity of funding and flexibility. Treasury controls and procedures are in place to ensure that sufficient cash is maintained to cover daily opera onal and working capital requirements. Management closely monitors the Organiza on’s future and con ngent obliga ons and sets up required cash services as necessary in accordance with internal policies.

The table below shows the maturity profile of the financial liabili es based on contractual undiscounted cash flows for the year ended December 31 2008 and 2007: 2008

Accrued expenses and other payables Current por on of long-term debt Capital build-up

On demand

1 to 3 months

3 to 6 months

6 to 12 months

Beyond 1 year

Total

P– – 228,373,811 P228,373,811

P5,427,786 – P5,427,786

P1,762,273 10,400,000 – P12,162,273

P6,442,994 – – P6,442,994

P2,867,046 – – P2,867,046

P16,500,099 10,400,000 228,373,811 255,273,910

2007

Accrued expenses and other payables Current por on of long-term debt Notes payable Capital build-up Noncurrent por on of long-term debt

On demand

1 to 3 months

3 to 6 months

6 to 12 months

Beyond 1 year

Total

P– – – 212,142,772 – P212,142,772

P22,097,017 321,910 42,631,517 – 300,000 P65,350,444

P– – 8,674,892 – 300,000 P8,974,892

P– – – – 600,000 P600,000

P– – – – 10,400,000 P10,400,000

P22,097,017 321,910 51,306,409 212,142,772 11,600,000 P297,468,108

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 Organiza on focuses on two (2) market risk areas such as interest rate risk and foreign currency risk.

Interest Rate Risk The Organiza on’s exposure to the risk for changes in market rate relates primarily to its long-term debt obliga ons with variable interest rates. However, most of the Organiza on’s exis ng debt obliga ons are based on fixed interest rates with rela vely small component of the debts that are subject to interest rate fluctua on.

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AUDITED FINANCIAL STATEMENTS

Foreign currency risk The Organiza on’s policy is to maintain foreign currency exposure within acceptable limits and within exis ng regulatory guidelines.

As of December 31, 2008 and 2007, the carrying amounts of the Organiza on’s foreign currency denominated cash in banks and short term placements amounted to US$413,615 with peso equivalent of P19.65 million and US$450,193 with peso equivalent of P18.58 million, respec vely.

The following table demonstrates the sensi vity to a reasonably possible change in the Philippine peso-US dollar exchange rate, with all variables held constant, of the Organiza on’s profit a er tax (due to changes in the fair value of monetary assets). There is no impact on the Organiza on’s fund balance other than those already affec ng profit or loss.

Change in fund balance

Changes in foreign exchange rate 2008 2007 +5% -5% +5% -5% P982,749 (P982,749) P929,198 (P929,198)

Capital Management The primary objec ves of the Organiza on’s capital management are to ensure that it maintains strong credit ra ngs and healthy capital ra os in order to support its business and to maximize Organiza on’s value.

The Organiza on manages its capital structure and makes adjustments to it in the light of changes in economic condi ons and the risk characteris cs of its ac vi es. No changes were made in the objec ves, policies and processes from the previous years.

The Organiza on’s capital is composed of fund balance and unrealized gains or losses on AFS investments.

6.

Cash and Cash Equivalents This account consists of: Cash in banks Pe y cash fund Short-term investments (Note 20)

2008

2007

P46,170,123 144,000 157,409,995 P203,724,118

P40,718,732 126,000 146,468,752 P187,313,484

As of December 31, 2008 and 2007 cash in banks include deposits in Peso-denominated demand and savings accounts and US dollar currency-denominated savings account amoun ng to US$413,615 (with peso equivalent of P19.65 million), which earn annual interest rate of 0.50% per annum.

Short-term investments represent thirty-day cash placements which earn annual interest rates ranging from 2.90% to 7.00% in 2008 and 2007.

Annual Report 2008

41

AUDITED FINANCIAL STATEMENTS

7.

Financial Assets At Fair Value Through Profit or Loss This account represents investment in shares of stock with market value of P0.30 million and P0.32 million as of December 31, 2008 and 2007, net of unrealized loss of P0.01 million and nil, respec vely.

8.

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

2008 P386,395,980 7,434,220 7,300,728 401,130,928 15,729,139 P385,401,789

2007 P375,976,760 8,624,922 5,525,360 390,127,042 9,635,608 P380,491,434

Loans receivable consist of loans granted to women who are among the economically ac ve poor in communi es with high popula on densi es and levels of microeconomic ac vi es. 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 amoun ng to P14.97 million and P10.50 million as of December 31, 2008 and 2007, respec vely.

The movements in allowance for credit losses follow:

Balance at beginning of year Provisions during the year (Notes 18 & 19) Write-offs during the year Balance at end of year

2008 P9,635,608 9,942,609 (3,849,078) P15,729,139

2007 P7,784,165 4,992,011 (3,140,568) P9,635,608

Provision for credit losses is recognized in the statement of revenues and expenses as follow:

Opera ng expense (Note 18) Administra ve expense (Note 19)

2008 P9,942,609 P9,942,609

2007 P4,135,954 856,067 P4,992,021

In 2008, the Organiza on had wri en off 2,967 accounts (loans receivable) which have been outstanding for 181 days and over in accordance with the Organiza on’s Opera on Policy, Sec on 1-C sta ng that ‘past due accounts for 181 days and over from the last date of payment should be wri en off accordingly at the end of the month a er thorough confirma on is made by the Supervisor and Branch Manager that such account exist.’

42

KMBI

AUDITED FINANCIAL STATEMENTS

9.

Prepaid Expenses and Other Current Assets This account consists of: 2008 P2,822,244 1,545,544 P4,367,788

Unused office supplies Prepaid expenses

2007 P2,600,494 1,133,454 P3,733,948

Prepaid expense pertains to payments made in advance like premium on insurance and rental and related transac ons.

10. Available-for-Sale Investments In 2000, the Organiza on, together with the other member-partners of the Alliance of Philippine Partners in Enterprise Development, Inc. (APPEND) established a micro-finance bank wherein the Organiza on fully par cipated as a lead partner with an ini al cash investment of P0.10 million.

As of December 31, 2008 and 2007, the Organiza on has a total investment of P28.60 million or 286,000 shares of stocks represen ng 12.79% interest in Opportunity Microfinance Bank (OMB).

As of December 31, 2008 ad 2007 AFS investment has carrying value of P7.64 million and P28.60 million, respec vely, net of allowance for impairment losses amoun ng to P20.96 million and nil, respec vely.

On July 21, 2008 OMB and Kauswagan Bank merged into a single banking corpora on, with “Opportunity Kauswagan Bank, Inc. (A Microfinance Thri Bank)” as its corporate name and opera ng under the business/style of “OK Bank (A Microfinance Thri Bank).” As a result of the merger the adjusted percentage of ownership of KMBI over OK Bank (merged OMB and K Bank) is 8.16% equivalent to 261,947 shares at a par value of P100 per share. The merger took effect on January 1, 2009.

11. Property and Equipment The composi on of and movements in this account follow:

Cost Balance at beginning of year Addi ons Disposals Balance at end of year Accumulated deprecia on Balance at beginning of year Deprecia on and amor za on Disposals Balance at end of year Net book value

2008 Furniture and Transporta on Equipment Equipment

Land

Building and Improvements

P1,050,000 – – 1,050,000

P9,250,648 22,250 (149,078) 9,123,820

P14,217,144 2,945,542 (1,368,664) 15,794,022

– – – – P1,050,000

2,363,651 1,713,954 (149,078) 3,928,527 P5,195,293

9,161,996 2,814,850 (1,196,415) 10,780,431 P5,013,591

Leasehold Improvement

Total

P2,006,852 2,762,400 4,769,252

P6,105,636 1,404,071 (294,480) 7,215,227

P32,630,280 7,134,263 (1,812,222) 37,952,321

711,439 679,435 1,390,874 P3,378,378

3,942,982 1,174,728 (294,480) 4,823,230 P2,391,997

16,180,068 6,382,967 (1,639,973) 20,923,062 P17,029,259

Annual Report 2008

43

AUDITED FINANCIAL STATEMENTS

Building and Land Improvements Cost Balance at beginning of year Addi ons Disposals Balance at end of year Accumulated deprecia on

2007 Leasehold Furniture and Transporta on Equipment Equipment Improvement

Total

P1,050,000 – – 1,050,000

P5,553,366 4,820,782 (1,123,500) 9,250,648

P9,643,972 4,733,709 (160,537) 14,217,144

P2,008,352 – (1,500) 2,006,852

P4,720,663 1,865,508 (480,535) 6,105,636

P22,976,353 11,419,999 (1,766,072) 32,630,280

Balance at beginning of year – Deprecia on and amor za on – Disposals – Balance at end of year – P1,050,000 Net book value

2,069,745 1,417,406 (1,123,500) 2,363,651 P6,886,997

6,829,123 2,448,738 (115,865) 9,161,996 P5,055,148

310,688 402,251 (1,500) 711,439 P1,295,413

3,488,940 958,987 (504,945) 3,942,982 P2,162,654

12,698,496 5,227,382 (1,745,810) 16,180,068 P16,450,212

Deprecia on is recognized in the statement of revenue and expenses as follow: Opera ng expense (Note 18) Administra ve expense (Note 19)

2008 P2,206,162 4,176,805 P6,382,967

2007 P1,970,208 3,257,174 P5,227,382

12. Other Assets This account consists of: Security deposits Computer so ware cost Non Micro Enterprise Development (MED) assets Miscellaneous

2008 P2,363,624 539,615 88,500 1,383,583 P4,375,322

2007 P1,952,448 604,541 61,000 1,450,652 P4,068,641

Security deposits pertains to the amount paid by the Organiza on’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 so ware costs follow:

Beginning of year Acquisi ons during the year Amor za on (Notes 18 and 19) Balance at end of year

2008

2007

P604,541 196,052 (260,978) P539,615

P659,500 (54,959) P604,541

Amor za on is recognized in the statement of revenues and expenses as follow:

Opera ng expense (Note 18) Administra ve expense (Note 19) Balance at end of year

44

KMBI

2008 P125,035 135,943

2007 P54,959

P260,978

P54,959

AUDITED FINANCIAL STATEMENTS

13. Accrued Expenses and Other Payables This account consists of: Accrued expenses Accounts payable Micro insurance payable Unearned service income

2008

2007

P8,996,942 5,202,139 2,301,018 391,570 P16,891,669

P5,827,699 12,817,389 3,451,929 162,030 P22,259,047

Microinsurance payable pertains to premium remi ances to the Organiza on’s chosen insurance provider for its program members. Members aging up to 64 years old are required to be enrolled in the program.

14. Capital Build-Up This represents ini al membership contribu on of P200 and mandatory weekly capital build-up (CBU) of P40 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 clients when they leave the program. Interest expense on capital build-up amounted to P5.43 million and P4.91 million (shown under ‘Financing Cost’ in the opera ng expenses) in 2008 and 2007, respec vely (see Note 18).

15. Notes Payable and Long-Term Debt a) Notes payable Loans from Land Bank of the Philippines (LBP) As of December 31, 2007, notes payable represents short term loans from Land Bank of the Philippines amoun ng to P20.00 million and P30.00 million payable on January 30 and April 30, 2008, respec vely, with 9.50% annual interest rate.

The Organiza on incurred total interest expense from note payable (shown under ‘Financing cost’ included in the opera ng expenses) amoun ng to P0.58 million and P0.50 million in 2008 and 2007, respec vely (see Note 18). b) Long-term debt Details of the outstanding debt follow:

Taytay sa Kauswagan, Inc. (TSKI) People’s Credit and Finance Corpora on (PCFC) Less current por on of long-term debt

2008 P10,000,000 10,000,000 10,000,000 P-

2007 P10,000,000 320,733 10,320,733 320,733 P10,000,000

Annual Report 2008

45

AUDITED FINANCIAL STATEMENTS

Loan from TSKI On May 1, 2004, the Organiza on obtained a loan facility from TSKI amoun ng to P11.00 million of which P10.00 million was already received as of December 31, 2004. The loan is payable at annual interest rate of 10.00% for the first two (2) years, 11.00% for the third year and 12.00% for the fourth and fi h years. The agreement requires the Organiza on to open a microfinance branch in Parañaque in behalf of TSKI, named Kabalikat sa Kaunlaran Project.

Loan from PCFC In February 2006, the Organiza on obtained an ins tu onal loan from PCFC amoun ng to P2.50 million which bear annual interest rate of 3.00% and is payable quarterly un l February 14, 2008. Proceeds from the loan shall be used for gran ng of sub-loans to microfinance-enterprise or livelihood projects of qualified sub-borrowers. The loan is secured by post-dated checks issued by the Organiza on in behalf of PCFC. The Organiza on incurred interest expense on long-term (shown under ‘Financing cost’ included in the Opera ng expense’) amoun ng to P1.60 million and P1.70 million in 2008 and 2007, respec vely.

16. Re rement Benefits The Organiza on has an unfunded noncontributory re rement plan covering all regular employees.

The principal actuarial assump ons used in determining pension liability for the Organiza on’s re rement plan in 2008 and 2007 are shown below:

Re rement age Average remaining working life Discount rate Future salary increases

2008 60 26 30.17% 10.00%

2007 60 32 8.29% 10.00%

The pension liability is as follows:

Present value of unfunded obliga on Fair value of plan assets Deficit Unrecognized actuarial (gains) losses Net pension liability

2008 P325,400 325,400 30,470,058 P30,795,458

2007 P29,322,485 29,322,485 (13,152,795) P16,169,690

The movements in the pension liability follow:

Balance at beginning of year Re rement expense

46

KMBI

2008 P16,169,690 14,625,768 P30,795,458

2007 P8,281,149 7,888,541 P16,169,690

AUDITED FINANCIAL STATEMENTS

Changes in the present value of the deďŹ ned beneďŹ t obliga on are as follows:

Balance at beginning of year Current service cost Interest cost Actuarial gains

2008 P29,322,485 11,875,540 2,430,834 (43,303,459) P325,400

Balance at end of year

2007 P21,787,944 5,728,320 1,806,221 P29,322,485

Total re rement expense included in opera ng and administra ve expenses in the statement of revenue and expenses are as follows:

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

2008 P11,875,540 2,430,834 319,394 P14,625,768

2007 P5,728,320 1,806,221 354,000 P7,888,541

Re rement expense recognized in the statement of revenues and expenses follow:

Opera ng expense (Note 18) Administra ve expense (Note 19)

2008 P13,445,378 1,180,390 P14,625,768

2007 P7,244,125 644,416 P7,888,541

2008 P325,400

2007 P29,322,485

Amounts for the current and previous years are as follows:

Present value of obliga on

17. Service and Other Income Service income consists of:

Interest on loans Membership processing fees Microinsurance fees Service fees

2008 P261,193,993 19,693,545 18,831,150 484,080 P300,202,768

2007 P220,343,347 17,866,195 17,634,420 229,415 P256,073,377

2008

2007

P6,026,689 1,020,688 P7,047,377

P2,969,078 1,232,800 P4,201,878

Other income consists of: Interest income on bank deposits and short-term placements (Note 20) Others

Annual Report 2008

47

AUDITED FINANCIAL STATEMENTS

18. Opera ng Expenses This account consists of: 2008

2007

P83,937,056 37,429,298

P66,394,892 30,848,201

Re rement (Note 16)

13,445,378

7,244,125

Rent (Note 21)

12,395,533

Transporta on and travel Provision for credit losses on receivables

10,617,786 9,942,609

9,859,734 8,467,862 4,135,954

Financing cost Social Security System (SSS), Medicare, ECC and Home Development Mutual Fund (HDMF) contribu on Communica on, light and water

7,707,611

7,051,076

7,501,300 5,700,157

6,001,484 4,749,630

Prin ng

3,215,371

2,927,410

Supplies

3,187,948

2,827,510

Deprecia on and amor za on (Note 11)

2,206,162

1,970,208

Fringe benefit tax

1,656,596

-

Repairs and maintenance Mee ngs, trainings and conferences

1,564,805

1,217,214

885,230

965,701

Taxes and licenses Insurance

683,222 540,108

507,565 668,848

Amor za on of so ware costs (Note 12)

125,035

-

Security services

44,041

45,240

Dona ons and contribu ons

18,583

30,918

Salaries and wages Employee benefits and allowances

Adver sement and promo on Miscellaneous

1,320

8,395

589,041

492,306

P203,403,190

P156,414,273

Rent expense includes P0.30 million and nil from escala on clauses in 2008 and 2007, respec vely.

19. Administra ve Expenses This account consists of: Provision of impairment losses on AFS investments (Note 10) Salaries and wages Mee ngs, trainings and conferences Employee benefits and allowances Transporta on and travel Deprecia on and amor za on (Note 11) Non MED Communica on, light and water 48

KMBI

2008

2007

P20,961,595 15,480,599 14,377,640 7,135,323 5,182,542 4,176,805 3,754,354 2,046,173

P10,099,278 10,518,745 4,116,040 2,427,681 3,257,174 3,403,809 1,809,430

AUDITED FINANCIAL STATEMENTS

Legal, audit and other professional fees Re rement (Note 16) Membership dues SSS, Medicare, ECC and HDMF contribu on Supplies Fringe benefit tax Dona ons and contribu ons Adver sement and promo on Security services Repairs and maintenance Taxes and licenses Gasoline and oil Amor za on of so ware cost (Note 12) Insurance Prin ng Representa on and entertainment Provision for credit losses on receivables Miscellaneous

1,437,776 1,180,390 1,014,180 919,198 869,109 820,722 489,933 471,885 358,741 251,841 217,546 204,932 135,943 103,882 28,943 22,241 -

824,439 644,416 65,799 643,809 1,032,692 142,317 479,147 311,750 165,182 196,089 166,926 54,959 89,534 665,883 609,778 856,057

1,005,670 P82,647,963

1,077,211 P43,658,145

20. Related Party Transac ons As of December 31, 2008 and 2007, significant transac ons with OMB, an investee company, represent short-term investments amoun ng to P4.86 million and P4.64 million, respec vely, and interest income amoun ng to P0.14 million and P0.23 million in 2008 and 2007, respec vely.

The other significant transac ons with OMB follow: a. The key management personnel compensa ons represen ng short-term employee benefits amounted to P3.87 million and P5.40 million in 2008 and in 2007, respec vely. b. Total remunera on of key management personnel included in ‘Salaries and Wages’ amounted to P11.64 million and P15.60 million in 2008 and in 2007, respec vely.

21. Lease Commitments The Organiza on leases office spaces for its 42 branches and 37 branches in 2008 and 2007, respec vely, in Luzon, Visayas, and Mindanao for a period of two to three years, with op ons to renew the lease. Rent expense amoun ng to P12.40 million and P=9.85 million in 2008 and 2007, respec vely, were included in opera ng expenses.

Future minimum lease payments on the opera ng lease follow: Less than one year Between one and five years

2008 P3,024,385 13,363,340 P16,387,725

2007 P1,398,848 13,081,544 P14,480,392

Annual Report 2008

49

AUDITED FINANCIAL STATEMENTS

22. Commitments and Con ngent Liabili es In the normal course of the Organiza on’s opera ons, there are various outstanding commitments and con ngent liabili es which are not reflected in the accompanying financial statements. No material losses are an cipated as a result of these transac ons.

23. Approval of the Release of the Financial Statements The accompanying financial statements were approved and authorized for issue by the Organiza on’s Board of Trustees on April 14, 2009.

50

KMBI

AUDITED FINANCIAL STATEMENTS

The Board of Trustees

DR. AMELIA L. GONZALES Chair and President

EMMANUEL M. DE GUZMAN

DAMIANA D. EXIOMO

Vice Chairman and Vice President

Corporate Secretary

AURELIO C. LLENADO, JR.

ATTY. SERVILLANO C. MENDOZA

Corporate Treasurer

Member

(Picture order from le to right) Annual Report 2008

51

AUDITED FINANCIAL STATEMENTS

The Management Team

EDGARDO S. MERCEDES Execu ve Director

LIZA D. ECO Deputy Director - Support Services Group

ANNALIE D. CONCEPCION

RIZALDY R. DUQUE

Administra on Manager

Resource Mobiliza on & Com. Manager

SANCHO A. MONTAOS II

CARMELA N. PORRAS

Finance & Accoun ng Manager

Opera ons Manager - MicroямБnance

VENCENT A. ABRAHAM

MADELYN P. FRIJILLANO

Opera ons Manager - Bank

Audit Manager

MICHELLE A. ORODIO

SHARON O. DIONCO

Training Unit Head

OIC, Human Resource Department

CHARIS KEN C. LAYAWAN Transforma on Coordinator 52

KMBI

AUDITED FINANCIAL STATEMENTS

Directory PANGASINAN DAGUPAN 2/F Del pilar Bldg., M.H.Del Pilar St. Brgy. Herrera Perez, Dagupan City (075) 515.8551 SAN CARLOS 2/F SYM Motors, Rizal St. San Carlos City (075) 532.6137 URDANETA New Urduja Hotel, Alexander St. Urdaneta City (075) 568.5858 BULACAN MEYCAUAYAN 3 /F Mancon Bldg., Mc Arthur Hi - way Meycauayan, Bulacan (044) 815.3960 SAN JOSE DEL MONTE 2/F Umerez Bldg. Tungko, San Jose Del Monte City (044) 815.0076 VALENZUELA 3/F JEM Bldg, Corner P. Gomez St. Maysan Road, Valenzuela City (02) 294.9048 NATIONAL CAPITAL REGION CAMARIN 3/F Reyes Bldg., Sampaguita St., Zapote Road Camarin, Caloocan City (02) 467.0424 PASIG 3/F RN Bldg., No 17, Shaw Blvd.

Pasig City (02) 636.3174 MARIKINA 3/F DUM Ruque Bldg., Brgy. Tanong Marikina City (02) 997.5874

TANDANG SORA DND Royal Midway Plaza 419, Tandang Sora Culiat, Quezon City (02) 932.8214 WEST AVENUE Unit F 3/F Carbal Bldg., No. 68 West Ave., Quezon City (02) 376.6346 CALABARZON 1 CENTRAL CAVITE 3/F Lolo Berong Bldg., Nueno Ave. Imus, Cavite (046) 472.0423 LOWER CAVITE 3/F Orchids Bldg., Daang Amaya 1 Tanza, Cavite (046) 885.2378 METRO MANILA SOUTH - 1 3/F Trim Bldg. # 2755, Ta Avenue, Pasay City (02) 552.7002 METRO MANILA SOUTH - 2 2/F Unit E&F Termarc Bdg., Dr, A. Santos Ave. San Isidro, Paranaque City (02) 820.0855 UPPER CAVITE 12 Aguinaldo Hi - way Sampaloc 1 Dasmariñas, Cavite (046) 416.2041 CALABARZON 2 BIÑAN 178 Bonifacio St., Canlalay Biñan, Laguna (049) 411.5958 CALAMBA 3/F Sajitec Bldg., Crossing Calamba, Laguna (049) 545.5875 SAN PABLO Burgos Corner Flores St., San Pablo City (049) 562.1308

AnnualReport Report2008 2008 Annual

53 53

AUDITED FINANCIAL STATEMENTS

STA. CRUZ Jogshaw Bldg., Mabini St. Sta Cruz, Laguna (049) 808.6674 CALABARZON 3 BATANGAS 2/F 153 Ferrel II Bldg., Dy Silang St., Batangas City (043) 722.2443 GUMACA 2/F AQC Bldg Brgy. Penafrancia Gumaca, Quezon (042) 317.7465 LIPA 2/F Ornasco Trading, Bo. Maraouy, Lipa City (043) 756.5104 LUCENA 3/F HR Bldg., Quezon Ave. corner Gomez St., Lucena City (042) 710.8775 BICOL DAET 3/F Manlapaz Bldg., Gov. Panoles Ave. Daet, Camarines Norte (054) 440.7788 NAGA 2/F Thomas Enrile Bldg.

Peñafrancia Ave., Naga City (054) 473.1926

CARAGA BUTUAN 2/F Rudy Tiu Bldg. 3, Mon lla St. Butuan City (085) 342.1816 SAN FRANCISCO 2/F Gi Gallery, Brgy. I, Bravo Comp.

San Francisco, Agusan Del Sur (085) 839.3348 SURIGAO 2/F Elipe Bldg. Cor. Narciso & Kaimo St. Surigao City (086) 826.2442 DAVAO DIGOS 2/F Delsar Trading, Rizal Ave. Digos City (082) 553.9084 METRO DAVAO 1 2/F VAB Bldg. Mac Arthur Hi - way Ulas, Davao City (082) 297.4113 METRO DAVAO 2 Door 31 & 32 Carlos Villa, Abrelle Bldg.

JP Laurel St. Quirino, Davao City (082) 224.6514 TAGUM 2/F ERGB Bldg. Dalisay Gante Road Tagum City (084) 218.5644

IRIGA 2/F Tans Bldg., San Roque, Iriga City (054) 456.6012

NORSOCO

LEGAZPI 2/F Rosario Salavador Bldg., Rizal St., Legazpi City (052) 481.3441

GENERAL SANTOS Door 1 & 2 Aquino Bldg.

J. Catolico Ave., General Santos City (083) 554.5908

CEBU CEBU SOUTH 2/F Rufina Arcade , South Expressway Brgy. Mambaling, Cebu City (032) 262.0558 MANDAUE S.A. Bldg. Plaridel St. Brgy. Alang Alang, Mandaue City (032) 345.5234 LAPU-LAPU 2/F J.Y. Building Patalinhug, Basak, Lapu Lapu City (032) 340.1275 54

KMBI

KIDAPAWAN 2/F Prudenciado Bldg., Jose Abad Santos St., Kidapawan City (064) 278.3129 KORONADAL 2/F Del Rosario Bldg.

Zulueta St., Koronadal City (083) 228.6298 TACURONG 2/F Bernardo, Gen. Ramon Magsaysay Ave. Tacurong City (064) 477.0169

AUDITED FINANCIAL STATEMENTS

2008 Annual Report (CD Pocket)

Annual Report 2008

55

AUDITED FINANCIAL STATEMENTS

“Be strong and be courageous, for you will lead my people to possess the land I swore to give their ancestors.

Be strong and be very courageous.

Obey all the laws Moses gave you.

Do not turn away from them, and you will be successful in everything you do.”

-Joshua 1:6-7

For His glory!

12 San Francisco St., Karuhatan, Valenzuela City, 1441 Philippines Tel. No.: (632) 291.1484 to 86 Fax No.: (632) 292.2441 URL: www.kmbi.org.ph

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KMBI