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Annual Report 2008



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

Table of Contents


2 3 4 6


Corporate Ideals History Messages Comparave Operaonal Performance


Comparave Financial Performance

8 9 11 13 14 17 18 51 52 53



To see people in communies live in abundance with strengthened faith in God and in right relaonship with their fellowmen and the rest of creaon.

Milestones Highlights

KMBI is a Christ-centered development organizaon exisng 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.

Affiliaons & Partners Poverty & Microfinance Piliin Produktong Pinoy Audited Financial Statements

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

The Board of Trustees The Management Team

Goal 25.250


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


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 organizaon. It started with a capitalizaon of PhP132,000.00. During its inial operaon, it assisted 37 microentrepreneurs with loans totaling to PhP145,000.00. KMBI also provided cash management training to 20 microentrepreneurs. KMBI started expanding its operaons in Southern Mindanao in 1999 and established its first branch in General Santos City, standardized its structure and system of operaons in 2002, and further expanded its Mindanao and Luzon operaons 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 organizaon provides financial and non-financial services through the implementaon of the Entrepreneurial Nurturing through Transformaon, Re-formaon 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 formaon. KMBI is facing the bigger challenge of expanding to 250,000 Filipino households by 2011.

Annual Report 2008



Message from the CHAIR & PRESIDENT


hallenges are not new to KMBI and I would presume to any other instuon that seeks for development and growth of our naon slumped in economic, social, environmental and spiritual poverty. It is through these challenges that the mission is shaped, strengthened and courageously pushed unl ideals, bounded by God’s providence, become realies. In 2008, alongside the exhortaon to be strong and courageous (Joshua 1:6,7), we redefined our program through the conceptualizaon of ENTREP (Entrepreneurial Nurturing through Transformaon, Reformaon and Empowerment Program) to make firm our focus to the main and only agenda of KMBI’s existence. Despite these challenges, we connue to help as much as we could to reach the marginalized people so they will experience that life is not a series of deprivaon 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 foundaon of our existence and purpose. I am a witness to the selfless dedicaon of our staff in pung our mission into acon. 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 opportunies 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 formaon so they can make beer decisions, actualize good governance, exercise social responsibility, pracce good stewardship of their God-given resources as well as our environment, and most especially, develop a meaningful and inmate relaonship with God. I call this “courage in acon.” We have gone a long way, nonetheless our purpose has not yet been fully served and thus the need to connue 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 exerng effort but in contribung to the fulfillment of the holy ambion God has placed in our hearts to help facilitate transformaon in the lives of the people and the naon. It is my pleasure to present to you KMBI’s journey in 2008 through this publicaon. Likewise, I enjoin you to connue to journey with us through 2009, our third year in achieving in five years the Goal 25.250! God bless us all!






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 duraon of the current global economic downturn. Likewise, with the on-going trend, many forecast a bearish financial market and are pessimisc 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 connuously sustained KMBI since it started to exist 22 years ago. Much to my amazement, in 2008 God gave us the direcve 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 cauon in His ancipaon 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 commied 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 stascs, the year 2008 may not be as impressive as the year 2007. However, if we will include the milestones created and the operaonal highlights, I can say that we sll fared well and out-performed ourselves compared to the previous year. All by the grace of God! All these milestones, not menoning 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 instuon, like KMBI, whose trust and confidence is not in shares and stocks but in God. Others may be losing hope and see the future negavely because of the deceleraon characterisc of almost every economy today. However, it has been proven me and me again that with God everything is bullish and outlook is opmisc 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 transformaon in this naon will be realized by God’s connued faithfulness and unwavering grace…just be strong and courageous.

EDGARDO S. MERCEDES Annual AnnualReport Report2008 2008



Operational Performance Despite the financial crisis, KMBI managed to expand from nine to 11 areas of operaons, crossing over borders to Cebu and Pangasinan provinces. By year end, 42 branches were operaonal naonwide serving a client base of more than 134,000 women microentrepreneurs from 271 local government units naonwide. The expansion catered to addional 31 cies and municipalies. 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 Operaons department. The number of staff increased by 12 percent from the recent year.








P386.39 M

P375.98 M

P10.41 M

P1.31 B

P1.19 B

P0.12 B








Capital Build-up

P228 M

P213 M

P15 M







Number of Program Assistants




Total Number of Staff




Client Outreach Loan Porolio 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 situaon in the area. Number of branches presented in 2008 (above) excludes the aforemenoned branch.




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, affiliaon and networking, and non-financial services to clients. Visibly, the instuon seized the year in strengthening its workforce and developing core leaders, as well as improving its intervenons to clients. Thus, much of the aforesaid investments were put in capacity building, 57 percent, and non-financial services, 20 percent. The year’s operang and administrave expenditures are bigger by 30 and 89 percent, respecvely, compared to 2007. Salaries and wages contributed significantly to the increase in expenditures which was brought by bigger operaons, increase in manpower and implementaon of revised salary structure. On the other hand, the sudden escalaon of administrave expenses was brought by the expense on the provision of impairment losses on AFS investment. INDICATORS



Operaonal Income

P23.86 M*

P57.52 M

(P33.66 M)


P622.83 M

P620.97 M

P1.86 M


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 *


See audited financial statement for notes and explanaon.

Asset/ Liability Raos



Current Rao

2.33 : 1

2.01 : 1

Debt to Equity Rao

0.85 : 1


CBU to Outstanding Loan Rao



LR to Total Assets



Financial Self-Sufficiency



Operaonal Sustainability



Annual Report 2008 Annual Report 2008



Graphs 2008 Investments 17% Expansion

6% Partnership & Networking



Capacity Building

Non-Financial Services

Operang Expenses

(In Millions, Php)


2008 2007





Operang Expense

Salaries & Wages

Employees Benefits & Allowance

Administrave Expenses

(In Millions, Php)

90 80

2008 2007

70 60 50 40 30 20 10

Administrave Expenses



Salaries & Wages

Employee Benefits & Allowances


Milestones Leadership Enhancement and Development (LEaD) Program Believing that the development of its human capital is vital to organizaonal 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 hosng of the first LEaD Camp in Cebu City on April 21 to 24, 2008, with the theme, “Be strong and courageous, LEAD!” It was aended by some 649 staff from both Luzon and Mindanao operaons. It was the first event in KMBI’s history wherein all staff were gathered in a development intervenon.

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

Increase in budget allocaon for Transformaon and Entrepreneur/Enterprise Development iniaves The Board of Trustees approved the implementaon of allocang 10% each for Transformaon and Entrepreneur/Enterprise Development from the organizaon’s gross income.

Development of FULCRUM Book 1 The Fulcrum Book 1, entled “Ang Layon ng Buhay” is a values formaon 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 acvies for pilot tesng. It shall be rolled out to the branches on the first quarter of 2009.

Launching of ENTREP and its publicaons ENTREP (Entrepreneurial Nurturing through Transformaon, Re-formaon and Empowerment Program) is the umbrella program for the clients embodying the integrated intervenons of microfinance, entrepreneur-enterprise development and values formaon toward the realizaon of the Goal 25.250. This integrated intervenon 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 parcipants from 11 branches of Mindanao operaons. Circling on the theme “Bago 2: Babae, Negosyo, at Pagunlad,” plenary talks highlighted the importance of enterprising women in the naon building, embracing bigger business ventures for business growth and diversificaon, 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 identy, that is as venue where holisc transformaon is facilitated; and inslls in the minds of the staff and clients that transformaon, reformaon, and empowerment are the heart of the organizaon’s programs. Part of ENTREP’s add-on service are the publicaons which are given to the clients. The publicaons, namely ENTREP Magazine and ENTREP Life Stories, are developed to inform and educate, to manifest quality, and to create connecon with readers through value creaon. Annual Report 2008


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

Seng foot in Northern Luzon and Visayas The organizaon 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 cies 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 communicaons and unity of operaons between the head office and branch staff. The program is also a form of affecng and influencing people, which is the KMBI’s approach in facilitang holisc transformaon. By sending the representaves to the branches and allowing them to act as mentor or coach, the organizaon 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. 10


the Great Commission. By affecng and influencing the branch officers the way the organizaon 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.

Implementaon of Informaon System Producvity)

EISTOP (Enhanced towards Opmum

Project preparaon of the web-based automated informaon and monitoring system or the EISTOP began in the later part of 2008. EISTOP is the instuon’s aempt in bringing about a more relevant informaon system that will enable the instuon to administer effecvely and efficiently daily transacons at the head office and in the branch level. KMBI sees a web-based, automated informaon system that will converge all offices in real-me situaon, hasten reporng and recording, harness informaon disseminaon, create a credit bureau, augment control system and enable online monitoring. Budget allocated for the project is Php12.08 million.


Highlights Educaonal Scholarship • •

Program: Knowledge for Inspiring Leadership Opportunies and Spirituality (KILOS) Beneficiary: Three children of program members were sent to college with full tuion fee assistance, living and book allowances. Partner: Gordon V. and Helen C. Smith Foundaon

• •

Course: Master in Business Administraon Partner: Philippine Chrisan University

Parcipants: Board of trustees, management commiee, and staff Number of Training: 6 internaonal, 22 local and 10 in-house Internaonal Training aended:  Training on Business Planning and Financial Projecons with Microfin, and Asia Pacific Regional Microcredit Summit, Bali, Indonesia  Opportunity Internaonal Network Leadership Conference, Vancouver, Canada  2nd Global HR Conference, Illinois, USA  Managing Risks and Rewards for Instuonal Investments on Microfinance: Ensuring Financial Retenon while Meeng Social Objecves, London, United Kingdom  55th APRACA Execuve Commiee Meeng, 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 Corporaon

Staff Benefit • •

Benefit: Revised salary structure Output: Increased compensaon program assistants to management


New Partner and Network Staff Development Intervenons •

Graduates: Seven staff from Mindanao operaons

Acon: Joined the Asia Pacific Rural and Agricultural Credit Associaon (APRACA) in preparaon for the offering of agricultural microfinance, and partnered with Country Annual Report 2008



Bankers Life Insurance Corporaon for its microinsurance program

both local and internaonal, and a good linkage with banks. It also has a good reputaon in the microfinance industry.

Microfinance Operaons • •

Acon: Reshuffled branch managers and accountants in all areas of operaons Objecve: To maximize potenals and enhance control of operaons

Resource Mobilizaon • •

Performance Review •

Acon: Microfinanza Rang and Opportunity Internaonal Network reviewed KMBI’s performance General Comments: The organizaon has a good outreach and porolio 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

Acon: Acquired P225 million credit line with banks Objecve: For capital requirement of expansions, and loan fund for exisng 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 iniated a feeding acvity cum values educaon drive that benefited children and parents in their community. 12 12



Affiliations & Partners

INTERNATIONAL • Asia Pacific Rural and Agricultural Credit Associaon • Banking with the Poor (BWTP) • Micah Challenge • Opportunity Internaonal Network (OI) • W.P. Schmitz Sung

LOCAL • Academe Philippine Chrisan University • Banks Banco de Oro Bank of the Philippine Islands CARD Bank China Banking Corporaon 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 Foundaon People’s Credit and Finance Corporaon

Technical Educaon and Skills Development Authority • Microfinance Instuon/Organizaons 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 Foundaon, Inc. Microfinance Council of the Philippines Mindanao Microfinance Council People’s Alternave Livelihood Foundaon of Sorsogon, Inc. People Based Alternave Development Iniaves, Inc. PinoyME Rangtay sa Pagrang-ay, Inc. Talete King Panyulung Kapampangan, Inc. Taytay sa Kauswagan, Inc. TSPI Development Corporaon • Other Agencies/Corporaons Center for Small Entrepreneurs COCOLIFE (United Coconut Planters Life Assurance Corporaon) Country Bankers Life Insurance Corporaon Punla Foundaon, Inc. Philippine Council for NGO Cerficaon

Annual Report 2008



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, educaon, housing and other amenies of life (based on Republic Act 8425 or the Philippine Social Reform and Poverty Alleviaon Act).



Naonal 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 Naons Development Programme’s Human Poverty Index for developing countries, the Philippines ranks 54th among 135 developing countries.


• Recent studies conducted by the Microfinance Council of the Philippines and Bangko Sentral ng Pilipinas esmate 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 globalizaon and the Asian economic crisis. In fact, the Philippines has the second largest informal sector in the Asian region, contribung to roughly about 44% of GDP. This sector plays a significant role in creang employment, producing goods and services and augmenng income in the Philippines. This comprises the majority of the country’s workforce and poverty abounds here. There are esmated 19 million people in the informal sector, represenng 70% of the total employment populaon. The microentrepreneurial acvies of our program members belong to this sector. Esmated number of microenterprises in the informal sectors As of 2006 count, there are 783,065 business enterprises operang 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 consumpon 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 cooperaves 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 constuent 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 beer 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 reducon, and financial and program sustainability; or in KMBI’s context – outreach, sustainability and transformaon. UNCDP said that the microfinance sector’s support to women’s economic parcipaon helps to empower women and promotes genderequity and improvement of household well-being. Studies confirm that raising the income and educaon of women is linked to an improvement of their status and influence in the community, as well as secondary posive effects such as improved childhood health and family stability. Moreover, poverty reducon programs which target women are likely to be more effecve not only because of the increasing evidence of women being the most impoverished members of developing sociees, 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

15 15


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. Naonal Stascal Coordinaon Board, “FAQs on the Official Poverty Stascs of the Philippines,” June 5, 2007, hp:// 2. Naonal Stascal Coordinaon Board, “Seven of the country’s poorest in 2000 out of the poorest list in 2003,” June 6, 2006, hp:// pressreleases/2006/06Jun06_PR-200606-SS1-04_poverty. asp. 3. United Naons Development Programme, 2008 Stascal Update, “Human poverty in Philippines: focusing on the most deprived in mulple dimensions of poverty,” hp:// cty_fs_PHL.html 4. The Australian Agency for Internaonal Development (AusAID) through the Philippines-Australia Community Assistance Program (AusAID-PACAP), “Microfinance amidst the global financial crisis,” January 21, 2009, hp://www. 5. United Naons Advisors Group on Inclusive Financial Sectors, Private Sector Working Group, “Philippines: Financial Sector Assessment,” March 2008, hp:// english/microfinance/advisors_group/docs/1809B-UNCDF_ phillipines-low.pdf. 6. Department of Trade and Industry, Philippines, “Micro, Small And Medium Enterprises (MSME) Stascs,” hp:// 7. Bangko Sentral ng Pilipinas, “Understanding Microfinance,” asp#1. 8. Linda Mayoux, “Microfinance for Empowerment,” hp:// 9. “Towards “woman-centric” poverty alleviaon,” January 16, 2006, hp:// towards-woman-centric-poverty-alleviaon.



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


‘Pag Produktong Pinoy, De Kalidad! KMBI celebrates the ingenuity and innovaveness of the Filipino entrepreneur. Pinoy brands spell high quality and global compeveness, 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


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


Phone: (632) 891-0307 Fax: (632) 819-0872 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 organizaon) (the Organizaon), which comprise the statements of assets, liabilies 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 accounng policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparaon and fair presentaon of these financial statements in accordance with Philippine Financial Reporng Standards. This responsibility includes: designing, implemenng and maintaining internal control relevant to the preparaon and fair presentaon of financial statements that are free from material misstatement, whether due to fraud or error; selecng and applying appropriate accounng policies; and making accounng esmates 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 Auding. 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 Organizaon’s preparaon and fair presentaon 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 effecveness of the Organizaon’s internal control. An audit also includes evaluang the appropriateness of accounng policies used and the reasonableness of accounng esmates made by management, as well as evaluang the overall presentaon 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 posion 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 Reporng Standards. SYCIP GORRES VELAYO & CO.

Marilou C. Bartolome Partner April 14, 2009



CPA Cerficate No. 91634 SEC Accreditaon No. 0659-A Tax Idenficaon No. 177-087-426 PTR No. 1566408, January 5, 2009, Maka City


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

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




302,679 385,401,789

317,920 380,491,434





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



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

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







228,373,811 255,265,480

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

30,795,458 -

16,169,690 10,000,000









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

See accompanying Notes to Financial Statements. Annual Report 2008




Years Ended December 31 2007 2008 REVENUE Service income (Note 17) Donaons and contribuons 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





EXPENSES Operang expenses (Note 18) Administrave expenses (Note 19) EXCESS OF REVENUE OVER EXPENSES See accompanying Notes to Financial Statements.


Years Ended December 31

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












STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2008 (With Comparave 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) Depreciaon and amorzaon (Notes 11, 18 and 19) Amorzaon of soware cost (Note 12, 18 and 19) Unrealized loss Changes in operang assets and liabilies: 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 operaons Interest income received Financing cost paid Net cash provided by operang acvies CASH FLOWS FROM INVESTING ACTIVITIES Acquisions of property and equipment (Note 11) Increase in other assets Acquisions of soware cost (Note 12) Proceeds from sale of property and equipment Net cash used in invesng acvies 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 acvies NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNINING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR


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


(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



See accompanying Notes to Financial Statements. Annual Report 2008



NOTES TO FINANCIAL STATEMENTS (With Comparave Figures for 2007)


Organizaonal Informaon Kabalikat Para sa Maunlad na Buhay, Inc. (the Organizaon) is a nonstock, not-for-profit, charitable, educaonal, cultural and civic services organizaon, which was organized on November 4, 1986 with the objecve of assisng the low-income Filipinos in their pursuit for educaon, culture, civic, physical and economic advancement with the end view that they will become responsible members and assets of society. To aain these objecves, the Organizaon conducts microfinance operaons pursuant to Republic Act 8425, provide nonfinancial services, seminars, lectures and trainings by inving resource persons who have experse and knowledge in fields of industry, farming, fishing and other agricultural acvies and extends financial assistance at reasonable interest rates to economically acve poor people. On November 26, 2007, the Organizaon was cerfied by Philippine Council for nongovernment organizaon (NGO) cerficaon as a qualified donee instuon in accordance with Revenue Regulaons 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 Organizaon falls under Secon 30 (g) of the Tax Reform Act of 1997. Accordingly, income from acvies in pursuit of the purpose for which the Organizaon was organized is exempt from income tax and the filing of income tax return covering such income. Such exempon, however, does not apply to income of whatever kind and character derived from the use of the Organizaon’s properes, real or personal, or from any of its acvies conducted for profit regardless of the disposions made of such income. The registered office of the Organizaon is located at No. 12 San Francisco Street, Karuhatan, Valenzuela City.


Summary of Significant Accounng Policies Basis of Preparaon 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 Organizaon’s funconal currency. Statement of Compliance The financial statements of the Organizaon have been prepared in compliance with Philippine Financial Reporng Standards (PFRS). Changes in Accounng Policies The accounng policies adopted are consistent with those of the previous financial year except as follows: Amendments to PAS 39, Financial Instruments: Recognion and Measurement and PFRS 7, Financial Instruments: Disclosures The Organizaon adopted the amendments to PAS 39 and PFRS 7, which allow reclassificaons of certain financial instruments held for trading to either held-to-maturity (HTM) investments, loans




and receivables or AFS investments categories, as well as certain instruments from AFS investments to loans and receivables. The effecve date of the amendments is July 1, 2008. The adopon of the amendments to PAS 39 and PFRS 7 did not have any effect on the Organizaon’s financial statements. Philippine Interpretaon of Internaonal Financial Reporng Interpretaons Commiee (IFRIC) 14, PAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interacon This Interpretaon 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 reducons in future contribuons 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 adopon of this Interpretaon had no impact on the financial statements of the Organizaon. There are other Philippine Interpretaons which became effecve in 2008 but are not applicable to the Organizaon. Significant Accounng Policies Cash and Cash Equivalents For the purpose of the statement of cash flows, cash includes pey cash fund and cash in banks. Cash equivalents consist of me deposit placements with original maturies of three months or less from dates of placements and that are subject to an insignificant risk of changes in value. Financial Instruments - Inial Recognion and Subsequent Measurement Date of recognion Purchases or sales of financial assets that require delivery of assets within the me frame established by regulaon or market convenon are recognized on selement date - the date that an asset is delivered to or by the Organizaon. Inial recognion of financial instruments All financial instruments are inially recognized at fair value. Except for financial assets at fair value through profit or loss (FVPL), the inial measurement of financial assets includes transacon costs. The Organizaon classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, AFS investments, and loans and receivables. The classificaon depends on the purpose for which the financial assets were acquired and whether they are quoted in an acve market. Financial liabilies are classified into financial liabilies at FVPL and other financial liabilies at cost or amorzed cost. Management determines the classificaon of its financial instruments at inial recognion and, where allowed and appropriate, re-evaluates such designaon at every reporng date. As of December 31, 2008 and 2007, the Organizaon had no HTM investments and financial liabilies at FVPL. Reclassificaon of financial assets A financial asset is reclassified out of the FVPL category when the following condions 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



• 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 reclassificaon. 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 reclassificaon becomes its new cost or amorzed cost, as applicable. Determinaon of fair value The fair value for financial instruments traded in acve markets at the statement of assets, liabilies and fund balance date is based on their quoted market price or dealer price quotaons, without any deducon for transacon costs. When current bid and asking prices are not available, the price of the most recent transacon 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 transacon. For all other financial instruments not listed in an acve market, the fair value is determined by using appropriate valuaon techniques. Valuaon techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, opon pricing models, and other relevant valuaon models. Financial assets or financial liabilies at FVPL This category consists of financial assets and financial liabilies that are held for trading or designated by management as FVPL on recognion. Financial assets and financial liabilies at FVPL are recorded in the statement of assets, liabilies 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’, respecvely. Financial assets or financial liabilies classified in this category are designated by management on inial recognion when any of the following criteria are met: • The designaon eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilies or recognizing gains or losses on them on a different basis; or • The assets and liabilies are part of a group of financial assets, financial liabilies 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 derivave, unless the embedded derivave does not significantly modify the cash flows or it is clear, with lile 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 condions. They include equity investments and other debt instruments. Aer inial measurement, AFS investments are subsequently measured at fair value. The effecve yield component of AFS debt securies, as well as the impact of the restatement of foreign currency24



denominated AFS debt securies, is reported in the statement of income. The unrealized gains and losses arising from the fair valuaon 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, liabilies and fund balance. When the security is disposed, the cumulave gain or loss previously recognized in the fund balance is recognized as ‘Other income’ in the statement revenue and expenses. Where the Organizaon 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 securies are reported as ‘Other income’ using the effecve interest rate (EIR). Dividends earned on holding AFS equity securies 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 nonderivave financial assets with fixed or determinable payments and fixed maturies that are not quoted in an acve market. They are not entered into with the intenon 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. Aer inial measurement, the loans and receivables are subsequently measured at amorzed cost using the EIR method, less allowance for credit and impairment losses. Amorzed cost is calculated by taking into account any discount or premium on acquision and fees that are integral part of the EIR. The amorzaon 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 inially recognized at the fair value less directly aributable transacon costs and have not been designated as financial liabilies at fair value through profit or loss. Aer inial recognion, interest-bearing loans and borrowings are subsequently measured at amorzed cost using the effecve interest method. Gains and losses are recognized in the statement of revenue and expenses when the liabilies are derecognized as well as through the amorzaon process. Derecognion of Financial Assets and Liabilies 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 Organizaon retains the right to receive cash flows from the asset, but has assumed an obligaon to pay them in full without material delay to a third party under a “pass-through” arrangement; or • the Organizaon has transferred its rights to receive cash flows from the asset and either (a) has transferred substanally 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



Where the Organizaon 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 substanally all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Organizaon’s connuing involvement in the asset. Connuing 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 consideraon that the Organizaon could be required to repay. Financial liabilies Financial liabilies are derecognized when the obligaon under the liability is discharged or cancelled or has expired. Where an exisng financial liabilies are replaced by another from the same lender on substanally different terms, or the terms of an exisng liability are substanally modified, such an exchange or modificaon is treated as a derecognion of the original liability and the recognion of a new liability, and the difference in the respecve carrying amounts is recognized in the statement of revenue and expenses. Offseng Financial Instruments Financial assets and financial liabilies are offset and the net amount reported in the statement of assets, liabilies and fund balance if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intenon to sele on a net basis, or to realize the asset and sele the liability simultaneously. Impairment of Financial Assets The Organizaon assesses at each statement of assets, liabilies and fund balance date whether there is objecve 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 objecve evidence of impairment as a result of one or more events that has occurred aer the inial recognion of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the esmated future cash flows of the financial asset or the group of financial assets that can be reliably esmated. Evidence of impairment may include indicaons 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 reorganizaon and where observable data indicate that there is measurable decrease in the esmated future cash flows, such as changes in arrears or economic condions that correlate with defaults. Loans and receivables For receivables carried at amorzed cost, the Organizaon first assesses whether objecve evidence of impairment exists individually for financial assets that are individually significant, or collecvely for financial assets that are not individually significant. If the Organizaon determines that no objecve 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 characteriscs and collecvely assesses for impairment. Those characteriscs are relevant to the esmaon of future cash flows for groups of such assets by being indicave 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 connues to be recognized are not included in a collecve assessment of impairment. If there is objecve 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 esmated future cash flows (excluding future credit losses that have not been incurred). The carrying 26



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 connues to be recognized based on the original EIR of the asset. Loans, together with the associated allowance accounts, are wrien off when there is no realisc prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the esmated impairment loss decreases because of an event occurring aer the impairment was recognized, the previously recognized impairment loss is reduced by adjusng 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 collecve evaluaon of impairment, financial assets are grouped on the basis of such credit risk characteriscs as industry, collateral type, past-due status and term. Future cash flows in a group of financial assets that are collecvely evaluated for impairment are esmated on the basis of historical loss experience for assets with credit risk characteriscs similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current condions that did not affect the period on which the historical loss experience is based and to remove the effects of condions in the historical period that do not exist currently. Esmates of changes in future cash flows reflect, and are direconally 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 indicave of incurred losses in the group and their magnitude). The methodology and assumpons used for esmang future cash flows are reviewed regularly by the Organizaon to reduce any differences between loss esmates and actual loss experience. The Organizaon uses the allowance method in accounng for impairment of loans and receivables. AFS investments For AFS investments, the Organizaon assesses at each statement of assets, liabilies and fund balance date whether there is objecve 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 cumulave loss - measured as the difference between the acquision 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 aer impairment are recognized directly in the fund balance. Prepaid Expenses These are advance payments to various expenditures related to the business acvies of the Organizaon. These are amorzed during the period of ulizaon. Property and Equipment Land is stated at cost less any impairment and depreciable properes including buildings, leasehold improvements, furniture and equipment and transportaon equipment are stated at cost less accumulated depreciaon and amorzaon, and any impairment loss. Such cost includes the cost of replacing part of the property and equipment when that cost is incurred, if the recognion criteria are met but excludes repairs and maintenance costs. Annual Report 2008



The inial cost of property and equipment comprises its purchase price, including taxes and directly aributable costs of bringing the assets to its working condion and locaon for its intended use. Expenditures incurred aer the fixed asset have been put into operaon, such as repairs and maintenance, are normally charged against current operaons in the period in which costs are incurred. In situaons 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 addional costs of property and equipment. When assets are rered or otherwise disposed of, the cost and the related accumulated depreciaon and amorzaon and any impairment are removed from the accounts, and any resulng gain or loss is credited or charged against current operaons. Depreciaon of property and equipment is computed using the straight-line method over the esmated useful life of the property and equipment. Leasehold improvements, which consist of improvements on leased properes, are being amorzed over the shorter of the esmated useful life of the asset or the period of lease agreement. The esmated useful lives of depreciable assets in number of years are as follows:

Building and improvements Leasehold improvements Furniture and equipment Transportaon equipment

No. of years 40 3 3 5

The useful life and depreciaon and amorzaon method are reviewed periodically to ensure that the period and method of depreciaon and amorzaon are consistent with the expected paern 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 indicaon exists and where the carrying values exceed the esmated recoverable amounts, the assets are wrien down to their recoverable amounts. Computer Soware Costs Computer soware costs are capitalized on the basis of the costs incurred to acquire and bring to use the specific soware. They are carried at acquision cost less accumulated amorzaon and any impairment loss. These costs are amorzed over 3 years on a straight line basis. Impairment of Nonfinancial Assets Property and equipment At each statement of assets, liabilies and fund balance date, the Organizaon assesses whether there is any indicaon that its property and equipment may be impaired. When an indicator of impairment exists or when an annual impairment tesng for an asset is required, the Organizaon makes a formal esmate 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 generang unit to 28



which it belongs. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is wrien down to its recoverable amount. In assessing value in use, the esmated 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 operaons 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 revaluaon increment of the said asset. Impairment assessment is made at each reporng date as to whether there is any indicaon that previously recognized impairment losses may no longer exist or may have decreased. If such indicaon exists, the recoverable amount is esmated. A previously recognized impairment loss is reversed only if there has been a change in the esmates 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 depreciaon, 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 revaluaon increase. Aer such a reversal, the depreciaon expense is adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systemac basis over its remaining life. Revenue Recognion Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Organizaon and the revenue can be reliably measured. The following specific recognion criteria must also be met before the revenue is recognized: Donaons and contribuons Donaons and contribuons received are recognized as income in the statement of revenue and expenses upon receipt. Interest income For all financial asset measured at amorzed cost, interest income is recorded at the EIR, which is the rate that exactly discounts esmated 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 calculaon takes into account all contractual terms of the financial asset, includes any fees (such as service fees) or incremental costs that are directly aributable 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 connues to be recognized using the original EIR applied to the new carrying amount. Leases The determinaon 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 aer incepon of the lease only if one of the following applies: Annual Report 2008



(a) there is a change in contractual terms, other than a renewal or extension of the arrangement; (b) a renewal opon is exercised or extension granted, unless that term of the renewal or extension was inially included in the lease term; (c) there is a change in the determinaon of whether fulfillment is dependent on a specified asset;or (d) there is a substanal change to the asset. Where a reassessment is made, lease accounng 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). Organizaon as Lessee Leases where the lessor retains substanally all the risks and benefits of ownership of the asset are classified as operang leases. Operang lease payments are recognized as ‘Operang expenses’ in the statement of revenue and expenses on a straight-line basis over the lease term. Foreign Currency Transacons and Translaons Foreign currency-denominated monetary assets and liabilies of the Organizaon 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 revaluaon of foreign currency-denominated assets and liabilies are credited to or charged against operaons 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 inial transacons. 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, liabilies and fund balance date equivalent to the unearned service fee for the unexpired period. Rerement Cost The Organizaon has an unfunded noncontributory defined benefit rerement plan, administered by trustees, covering substanally all of its permanent employees. The rerement cost of the Organizaon is determined using the projected unit credit method. Under this method, the current service cost is the present value of rerement benefits payable in the future with respect to services rendered in the current year. The liability recognized in the statement of assets, liabilies and fund balance in respect of defined benefit pension plans (see Note 16) is the present value of the defined benefit obligaon at the statement date of assets, liabilies, 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 obligaon is calculated annually by an independent actuary using the projected unit credit method. The present value of the defined benefit obligaon is determined by discounng the esmated future 30



cash oulows using interest rate on government bonds that have terms to maturity approximang the terms of the related rerement liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumpons are credited to or charged against income when the net cumulave unrecognized actuarial gains and losses at the end of the previous period exceeded 10.00% of the higher of the defined benefit obligaon 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 parcipang 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 condional on the employees remaining in service for a specified period of me (the vesng period). In this case, the past service costs are amorzed on a straight-line basis over the vesng period. The defined benefit asset or liability comprises the present value of the defined benefit obligaon less past service costs not yet recognized and less the fair value of plan assets out of which the obligaons are to be seled 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 reducons in the future contribuons to the plan. Provisions Provisions are recognized when the Organizaon has a present obligaon (legal or construcve) as a result of a past event and it is probable that an oulow of resource embodying economic benefits will be required to sele the obligaon and a reliable esmate can be made of the amount of the obligaon. Conngent Liabilies and Conngent Assets Conngent liabilies are not recognized in the financial statements but are disclosed unless the possibility of an oulow of resources embodying economic benefits is remote. Conngent 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 addional informaon about the Organizaon’s posion at the statement of assets, liabilies and fund balance date (adjusng events) is reflected in the financial statements. Post-year-end events that are not adjusng events are disclosed in the notes to the financial statements when material. Future Changes in Accounng Policies The Organizaon will adopt the Standards and Interpretaons enumerated below when these become effecve as applicable. Except as otherwise indicated, the Organizaon does not expect the adopon of these new and amended PFRSs and Philippine Interpretaons to have significant impact on its financial statements. Effecve 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). Enes 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



requires addional requirements in the presentaon of the balance sheet and owner’s equity as well as addional disclosures to be included in the financial statements. The Organizaon will assess and evaluate the opons available under the amendment to PAS 1, and will comply with such changes once effecve. PAS 23, Borrowing Costs This Standard has been revised to require capitalizaon of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substanal period of me to get ready for its intended use or sale. In accordance with the transional requirements in the Standard, this change in accounng for borrowing costs shall be accounted for prospecvely. Accordingly, borrowing costs will be capitalized on qualifying asset with a commencement date aer January 1, 2009. No changes will be made for borrowing costs incurred to this date that have been expensed. PAS 32, Financial Instruments: Presentaon and PAS 1, Presentaon of Financial Statements -Puable Financial Instruments and Obligaons Arising on Liquidaon These amendments specify, among others, that puable financial instruments will be classified as equity if they have all of the following specified features: (a) The instrument entles the holder to require the enty to repurchase or redeem the instrument (either on an ongoing basis or on liquidaon) for a pro rata share of the enty’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 enty on liquidaon, (c) All instruments in the subordinate class have idencal features (d) The instrument does not include any contractual obligaon to pay cash or financial assets other than the holder’s right to a pro rata share of the enty’s net assets, and (e) The total expected cash flows aributable to the instrument over its life are based substanally 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 enty over the life of the instrument. PFRS 1, First-me Adopon of PFRS - Cost of an Investment in a Subsidiary, Jointly Controlled Enty or Associate The amended PFRS 1 allows an enty, in its separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled enes 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 transion to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as determined under generally accepted accounng principles) of the investment at the date of transion to PFRS. PFRS 2, Share-based Payment - Vesng Condion and Cancellaons This Standard has been revised to clarify the definion of a vesng condion and prescribes the treatment for an award that is effecvely cancelled. It defines a vesng condion as a condion that includes an explicit or implicit requirement to provide services. It further requires non-vesng condions to be treated in a similar fashion to market condions. Failure to sasfy a non-vesng condion that is within the control of either the enty or the counterparty is accounted for as cancellaon. However, failure to sasfy a non-vesng condion that is beyond the control of either party does not give rise to a cancellaon. PFRS 8, Operang Segments This PFRS adopts a management approach to reporng segment informaon. The informaon reported would be that which management uses internally for evaluang the performance of operang segments and allocang resources to those segments. Such informaon may be different 32



from that reported in the financial statements and companies will need to provide explanaons and reconciliaons of the differences. PFRS 8, will replace PAS 14, Segment Reporng, and is required to be adopted only by enes whose debt or equity instruments are publicly traded or are in the process of filing with the Securies and Exchange Commission (SEC) for purposes of issuing any class of instruments in a public market. The Organizaon is not required to adopt PFRS 8. Philippine Interpretaon IFRIC 13, Customer Loyalty Programmes This Interpretaon addresses the accounng by an enty that grants award credits to its customers. Philippine Interpretaon IFRIC 16, Hedges of a Net Investment in a Foreign Operaon This Interpretaon provides guidance on idenfying foreign currency risks that qualify for hedge accounng 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 enty should determine the amount of foreign currency gains or losses, relang to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. Currently, the Organizaon has no hedges of a net investment in a foreign operaon. Improvements to PFRSs In May 2008, the Internaonal Accounng 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 transional provisions for each standard: PFRS 5, Non-current Assets Held for Sale and Disconnued Operaons When a subsidiary is held for sale, all of its assets and liabilies will be classified as held for sale under PFRS 5, even when the enty retains a non-controlling interest in the subsidiary aer the sale. PAS 1, Presentaon of Financial Statements Assets and liabilies classified as held for trading are not automacally 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 rounely sold in the ordinary course of business aer 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 inial recognion of such items, the cash receipts from rents and subsequent sales are all shown as cash flows from operang acvies. PAS 19, Employee Benefits The definion of ‘past service costs’ is revised to include reducons in benefits related to past services (‘negave past service costs’) and to exclude reducons in benefits related to future services that arise from plan amendments. Amendments to plans that result in a reducon in benefits related to future services are accounted for as a curtailment. The definion of ‘return on plan assets’ is revised to exclude plan administraon costs if they have already been included in the actuarial assumpons used to measure the defined benefit obligaon.

Annual Report 2008



The definion 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 seled. The reference to the recognion of conngent liabilies is deleted to ensure consistency with PAS 37, Provisions, Conngent Liabilies and Conngent Assets. PAS 20, Accounng 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 definion 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 restricons on the ability of the associate to transfer funds to the enty in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducng 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 informaon about the assets, liabilies, income and expense will apply. PAS 36, Impairment of Assets When discounted cash flows are used to esmate ‘fair value less cost to sell’ addional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to esmate ‘value in use’. PAS 38, Intangible Assets Expenditure on adversing and promoonal acvies is recognized as an expense when the Organizaon either has the right to access the goods or has received the services. Adversing and promoonal acvies now specifically include mail order catalogues. References to there being rarely is deleted, if ever, persuasive evidence to support an amorzaon method for finite life intangible assets that results in a lower amount of accumulated amorzaon than under the straight-line method, thereby effecvely allowing the use of the unit of producon method. PAS 39, Financial Instruments: Recognion and Measurement Changes in circumstances relang to derivaves - specifically derivaves designated or de-designated as hedging instruments aer inial recognion - are not reclassificaons.




When financial assets are reclassified as a result of an insurance company changing its accounng policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a change in circumstance, not a reclassificaon. The reference to a ‘segment’ is removed when determining whether an instrument qualifies as a hedge. Use of the revised effecve interest rate (rather than the original effecve interest rate) is required when re-measuring a debt instrument on the cessaon of fair value hedge accounng. PAS 40, Investment Properes 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 enty is unable to determine the fair value of an investment property under construcon, but expects to be able to determine its fair value on compleon, the investment under construcon will be measured at cost unl such me as fair value can be determined or construcon is complete. Effecve in 2010 Revised PFRS 3, Business Combinaons and PAS 27, Consolidated and Separate Financial Statements The revised PFRS 3 introduces a number of changes in the accounng for business combinaons that will impact the amount of goodwill recognized, the reported results in the period that an acquision 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 transacon 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 prospecvely, while changes introduced by the revised PAS 27 must be applied retrospecvely with a few excepons. The changes will affect future acquisions and transacons with non-controlling interests. Amendment to PAS 39, Financial Instruments: Recognion and Measurement - Eligible Hedged Items Amendment to PAS 39 will be effecve on July 1, 2009, which addresses only the designaon of a onesided risk in a hedged item, and the designaon of inflaon as a hedged risk or poron in parcular situaons. The amendment clarifies that an enty is permied to designate a poron of the fair value changes or cash flow variability of a financial instrument as a hedged item. Philippine Interpretaon IFRIC 17, Distribuon of Non-cash Assets to Owners This Interpretaon covers accounng for two types of non-reciprocal distribuons of assets by an enty to its owners acng in their capacity as owners. The two types of distribuon are: a. distribuons of non-cash assets (eg items of property, plant and equipment, businesses as defined in IFRS 3, ownership interests in another enty or disposal groups as defined in IFRS 5); and b. distribuons that give owners a choice of receiving either non-cash assets or a cash alternave. This Interpretaon addresses only the accounng by an enty that makes a non-cash asset distribuon. It does not address the accounng by shareholders who receive such a distribuon Philippine Interpretaon IFRIC 18, Transfers of Assets from Customers Annual Report 2008



This Interpretaon covers accounng for transfers of items of property, plant and equipment by enes that receive such transfers from their customers. Agreements within the scope of this Interpretaon are agreements in which an enty receives from a customer an item of property, plant and equipment that the enty 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 Interpretaon also applies to agreements in which an enty 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 enty 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. Effecve in 2012 Philippine Interpretaon IFRIC 15, Agreement for Construcon of Real Estate This Interpretaon covers accounng for revenue and associated expenses by enes that undertake the construcon of real estate directly or through subcontractors. This Interpretaon requires that revenue on construcon of real estate be recognized only upon compleon, except when such contract qualifies as construcon contract to be accounted for under PAS 11, Construcon Contracts, or involves rendering of services in which case revenue is recognized based on stage of compleon. Contracts involving provision of services with the construcon materials and where the risks and reward of ownership are transferred to the buyer on a connuous basis will also be accounted for based on stage of compleon. 3.

Significant Accounng Judgments and Esmates The preparaon of the financial statements in accordance with PFRS requires the Organizaon to make esmates and assumpons that affect the reported amounts of assets, liabilies, revenue and expenses and the disclosures of conngent assets and conngent liabilies. Future events may occur which will cause the assumpons used in arriving at the esmates to change. The effects of any change in esmates are reflected in the financial statements as they become reasonably determinable. Judgments and esmates are connually evaluated and are based on historical experience and other factors, including expectaons 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 liabilies recorded in the statement of assets, liabilies and fund balance cannot be derived from acve markets, these are determined using internal valuaon techniques using generally accepted market valuaon models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, esmates are used in establishing fair values. These esmates may include consideraons of liquidity, volality and correlaon. b) Operang leases The Organizaon has entered into commercial property leases with outside pares wherein the laer retains all the significant risks and rewards of ownership of those properes leased out under operang leases. These operang leases are subject to two to three year terms and are renewable upon agreement of both pares.




In determining whether or not there is indicaon of operang lease, the Organizaon considers retenon of ownership tle to the leased property, leases of executory costs, and among others. c)

Financial assets not quoted in an acve market The Organizaon classifies financial assets by evaluang, among others, whether the asset is quoted or not in an acve market. Included in the evaluaon on the whether the asset is quoted in an acve market is the determinaon on whether the quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transacons on an arm’s length basis.

Esmates a) Allowance for credit losses on receivables The Organizaon maintains allowances for credit losses at a level considered adequate to provide for probable uncollecble loans and receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collecbility of the accounts. These factors include, but are not limited, to the client’s payment behavior and known market factors. The Organizaon reviews the age and status of loans and receivables, and idenfies accounts that are to be provided with allowances on a connuous basis. As of December 31, 2008 and 2007 loans and receivables have carrying value amounng to P385.40 million and P380.48 million, respecvely, net of allowance for credit losses amounng to P15.73 million and P9.64 million, respecvely (see Note 8). b) Impairment of AFS equity investments The Organizaon determines that AFS equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determinaon of what is significant or prolonged requires judgment. The Organizaon 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 Organizaon evaluates among other factors, the normal volality in share price. In addion, impairment may be appropriate when there is evidence of deterioraon in the financial health of the investee, industry and sector performance, changes in technology, and operaonal and financing cash flows. As of December 31, 2008 and 2007, AFS equity investments are carried at P7.64 million and P28.60 million, respecvely, net of allowance for impairment losses amounng to P20.96 million and nil, respecvely (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 valuaons. The actuarial valuaon involves making assumpons 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 esmates are subject to significant uncertainty. As of December 31, 2008 and 2007, the present value of the defined benefit obligaon amounted to P0.33 million and P29.32 million, respecvely (see Note 16).

Annual Report 2008



d) Impairment of property and equipment The Organizaon 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 Organizaon considers important which could trigger an impairment review include the following: • significant underperformance relave to expected historical or projected future operang results; • significant changes in the manner of use of the acquired assets or the strategy for overall business; and • significant negave industry or economic trends. The Organizaon 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 esmated for individual assets or, if it is not possible, for the cash-generang 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, respecvely (see Note 11).


Fair Value Measurement The methods and assumpons used by the Organizaon in esmang the fair value of the financial instruments are: Assets for which the fair value approximates carrying value - For financial assets and financial liabilies 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 liabilies. AFS investments - Fair values are based on quoted market prices. For equity investments that are not quoted, fair values are esmated using either values obtained from independent pares 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 esmated using the discounted cash flow methodology, using the Organizaon’s current incremental lending rates for similar types of loans. Where the instrument reprices on a quarterly basis or has a relavely short maturity, the carrying amounts approximate fair values. Liabilies - Fair values are esmated using the discounted cash flow methodology using the Organizaon’s current incremental borrowing rates for similar borrowings with maturies 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 Organizaon’s financial assets and liabilies.




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



Carrying Value

Fair Value

Carrying Value

Fair value









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 Objecves and Policies The Organizaon’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 commiee, which is responsible for developing, managing and monitoring risk management policies in their specified areas is the Execuve Commiee (EXCOM). The BOT’s funcons are supported by the EXCOM, which is the implemenng arm of the organizaon and shall make direconal decisions on policies already laid down by the Board. It shall ensure that every detail of the rules, approved plans, operaons and policies of the Organizaon shall be carried out faithfully. Credit Risk Credit risk is the risk of financial loss to the Organizaon if a counterparty to a financial instrument fails to meet its contractual obligaons. The Organizaon has established controls and procedures in its credit policy to determine and monitor credit worthiness of customers and counterpares. Maximum exposure to credit risk before collateral held or other credit enhancements An analysis of the maximum exposure to credit risk relang to on-balance sheet assets without taking into account of any collateral held or other credit enhancements is shown below:

Annual Report 2008



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



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

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

The Organizaon assessed that it has no significant credit risk exposures relang 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 acve poor in communies with high populaon densies and levels of microeconomic acvity. Liquidity Risk The Organizaon manages liquidity risk by maintaining a balance between connuity of funding and flexibility. Treasury controls and procedures are in place to ensure that sufficient cash is maintained to cover daily operaonal and working capital requirements. Management closely monitors the Organizaon’s future and conngent obligaons and sets up required cash services as necessary in accordance with internal policies. The table below shows the maturity profile of the financial liabilies based on contractual undiscounted cash flows for the year ended December 31 2008 and 2007: 2008

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

On demand

1 to 3 months

3 to 6 months

6 to 12 months

Beyond 1 year


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


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

On demand

1 to 3 months

3 to 6 months

6 to 12 months

Beyond 1 year


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 Organizaon focuses on two (2) market risk areas such as interest rate risk and foreign currency risk. Interest Rate Risk The Organizaon’s exposure to the risk for changes in market rate relates primarily to its long-term debt obligaons with variable interest rates. However, most of the Organizaon’s exisng debt obligaons are based on fixed interest rates with relavely small component of the debts that are subject to interest rate fluctuaon. 40



Foreign currency risk The Organizaon’s policy is to maintain foreign currency exposure within acceptable limits and within exisng regulatory guidelines. As of December 31, 2008 and 2007, the carrying amounts of the Organizaon’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, respecvely. The following table demonstrates the sensivity to a reasonably possible change in the Philippine peso-US dollar exchange rate, with all variables held constant, of the Organizaon’s profit aer tax (due to changes in the fair value of monetary assets). There is no impact on the Organizaon’s fund balance other than those already affecng 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 objecves of the Organizaon’s capital management are to ensure that it maintains strong credit rangs and healthy capital raos in order to support its business and to maximize Organizaon’s value. The Organizaon manages its capital structure and makes adjustments to it in the light of changes in economic condions and the risk characteriscs of its acvies. No changes were made in the objecves, policies and processes from the previous years. The Organizaon’s capital is composed of fund balance and unrealized gains or losses on AFS investments.


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



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 amounng 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




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, respecvely.


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 acve poor in communies with high populaon densies and levels of microeconomic acvies. 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 amounng to P14.97 million and P10.50 million as of December 31, 2008 and 2007, respecvely. 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:

Operang expense (Note 18) Administrave expense (Note 19)

2008 P9,942,609 P9,942,609

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

In 2008, the Organizaon had wrien off 2,967 accounts (loans receivable) which have been outstanding for 181 days and over in accordance with the Organizaon’s Operaon Policy, Secon 1-C stang that ‘past due accounts for 181 days and over from the last date of payment should be wrien off accordingly at the end of the month aer thorough confirmaon is made by the Supervisor and Branch Manager that such account exist.’





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 transacons.

10. Available-for-Sale Investments In 2000, the Organizaon, together with the other member-partners of the Alliance of Philippine Partners in Enterprise Development, Inc. (APPEND) established a micro-finance bank wherein the Organizaon fully parcipated as a lead partner with an inial cash investment of P0.10 million. As of December 31, 2008 and 2007, the Organizaon has a total investment of P28.60 million or 286,000 shares of stocks represenng 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, respecvely, net of allowance for impairment losses amounng to P20.96 million and nil, respecvely. On July 21, 2008 OMB and Kauswagan Bank merged into a single banking corporaon, with “Opportunity Kauswagan Bank, Inc. (A Microfinance Thri Bank)” as its corporate name and operang 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 composion of and movements in this account follow:

Cost Balance at beginning of year Addions Disposals Balance at end of year Accumulated depreciaon Balance at beginning of year Depreciaon and amorzaon Disposals Balance at end of year Net book value

2008 Furniture and Transportaon Equipment Equipment


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


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



Building and Land Improvements Cost Balance at beginning of year Addions Disposals Balance at end of year Accumulated depreciaon

2007 Leasehold Furniture and Transportaon Equipment Equipment Improvement


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 – Depreciaon and amorzaon – 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

Depreciaon is recognized in the statement of revenue and expenses as follow: Operang expense (Note 18) Administrave 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 soware 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 Organizaon’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 soware costs follow:

Beginning of year Acquisions during the year Amorzaon (Notes 18 and 19) Balance at end of year



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

P659,500 (54,959) P604,541

Amorzaon is recognized in the statement of revenues and expenses as follow:

Operang expense (Note 18) Administrave expense (Note 19) Balance at end of year



2008 P125,035 135,943

2007 P54,959




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



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 remiances to the Organizaon’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 inial membership contribuon 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 operang expenses) in 2008 and 2007, respecvely (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 amounng to P20.00 million and P30.00 million payable on January 30 and April 30, 2008, respecvely, with 9.50% annual interest rate. The Organizaon incurred total interest expense from note payable (shown under ‘Financing cost’ included in the operang expenses) amounng to P0.58 million and P0.50 million in 2008 and 2007, respecvely (see Note 18). b) Long-term debt Details of the outstanding debt follow:

Taytay sa Kauswagan, Inc. (TSKI) People’s Credit and Finance Corporaon (PCFC) Less current poron 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



Loan from TSKI On May 1, 2004, the Organizaon obtained a loan facility from TSKI amounng 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 fih years. The agreement requires the Organizaon to open a microfinance branch in Parañaque in behalf of TSKI, named Kabalikat sa Kaunlaran Project. Loan from PCFC In February 2006, the Organizaon obtained an instuonal loan from PCFC amounng to P2.50 million which bear annual interest rate of 3.00% and is payable quarterly unl February 14, 2008. Proceeds from the loan shall be used for granng of sub-loans to microfinance-enterprise or livelihood projects of qualified sub-borrowers. The loan is secured by post-dated checks issued by the Organizaon in behalf of PCFC. The Organizaon incurred interest expense on long-term (shown under ‘Financing cost’ included in the Operang expense’) amounng to P1.60 million and P1.70 million in 2008 and 2007, respecvely.

16. Rerement Benefits The Organizaon has an unfunded noncontributory rerement plan covering all regular employees. The principal actuarial assumpons used in determining pension liability for the Organizaon’s rerement plan in 2008 and 2007 are shown below:

Rerement 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 obligaon 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 Rerement expense



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

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


Changes in the present value of the deďŹ ned beneďŹ t obligaon 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 rerement expense included in operang and administrave 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

Rerement expense recognized in the statement of revenues and expenses follow:

Operang expense (Note 18) Administrave 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 obligaon

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



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



18. Operang Expenses This account consists of: 2008


P83,937,056 37,429,298

P66,394,892 30,848,201

Rerement (Note 16)



Rent (Note 21)


Transportaon 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) contribuon Communicaon, light and water



7,501,300 5,700,157

6,001,484 4,749,630







Depreciaon and amorzaon (Note 11)



Fringe benefit tax



Repairs and maintenance Meengs, trainings and conferences





Taxes and licenses Insurance

683,222 540,108

507,565 668,848

Amorzaon of soware costs (Note 12)



Security services



Donaons and contribuons



Salaries and wages Employee benefits and allowances

Adversement and promoon Miscellaneous







Rent expense includes P0.30 million and nil from escalaon clauses in 2008 and 2007, respecvely.

19. Administrave Expenses This account consists of: Provision of impairment losses on AFS investments (Note 10) Salaries and wages Meengs, trainings and conferences Employee benefits and allowances Transportaon and travel Depreciaon and amorzaon (Note 11) Non MED Communicaon, light and water 48




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


Legal, audit and other professional fees Rerement (Note 16) Membership dues SSS, Medicare, ECC and HDMF contribuon Supplies Fringe benefit tax Donaons and contribuons Adversement and promoon Security services Repairs and maintenance Taxes and licenses Gasoline and oil Amorzaon of soware cost (Note 12) Insurance Prinng Representaon 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 Transacons As of December 31, 2008 and 2007, significant transacons with OMB, an investee company, represent short-term investments amounng to P4.86 million and P4.64 million, respecvely, and interest income amounng to P0.14 million and P0.23 million in 2008 and 2007, respecvely. The other significant transacons with OMB follow: a. The key management personnel compensaons represenng short-term employee benefits amounted to P3.87 million and P5.40 million in 2008 and in 2007, respecvely. b. Total remuneraon of key management personnel included in ‘Salaries and Wages’ amounted to P11.64 million and P15.60 million in 2008 and in 2007, respecvely.

21. Lease Commitments The Organizaon leases office spaces for its 42 branches and 37 branches in 2008 and 2007, respecvely, in Luzon, Visayas, and Mindanao for a period of two to three years, with opons to renew the lease. Rent expense amounng to P12.40 million and P=9.85 million in 2008 and 2007, respecvely, were included in operang expenses. Future minimum lease payments on the operang 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



22. Commitments and Conngent Liabilies In the normal course of the Organizaon’s operaons, there are various outstanding commitments and conngent liabilies which are not reflected in the accompanying financial statements. No material losses are ancipated as a result of these transacons.

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




The Board of Trustees

DR. AMELIA L. GONZALES Chair and President



Vice Chairman and Vice President

Corporate Secretary



Corporate Treasurer


(Picture order from le to right) Annual Report 2008



The Management Team

EDGARDO S. MERCEDES Execuve Director

LIZA D. ECO Deputy Director - Support Services Group



Administraon Manager

Resource Mobilizaon & Com. Manager



Finance & Accounng Manager

Operaons Manager - MicroямБnance



Operaons Manager - Bank

Audit Manager



Training Unit Head

OIC, Human Resource Department

CHARIS KEN C. LAYAWAN Transformaon Coordinator 52



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


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, Monlla 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


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


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


2008 Annual Report (CD Pocket)

Annual Report 2008



“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:



Annual Report 2008  

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