Effect of Microfinance to Sari-Sari Store Owners’ Borrower Business Personal and

Financial Status in Poblacion, San Miguel, Catanduanes

A Research Paper
Presented to the Faculty of the
SENIOR HIGH SCHOOL
San Miguel Rural Development High School
San Miguel, Catanduanes

In Partial Fulfillment
Of the Requirements in the Subject
Inquiries, Investigation and Immersion

Submitted by:
Micaella Manibale
Lucille Tapel
Irish Mae Teope
November 2024
 Chapter I

THE PROBLEM AND ITS SETTING

Background of the study

Microcredit/ microfinance is a widely-used tool that has been proposed as a way to help

fight poverty and promote economic growth (Karlan, Osman & Zinman, 2015). It is also the

common form of microfinance that involves an extremely small loan given to an individual to

help them become self-employed or grow a small business. These borrowers tend to be low-

income individuals, especially from less developed countries (LCD’s).

It is also discussed in the study of Hassan & Ibrahim (2015) that given its significant

contribution to job creation and tax revenue for governments, microcredit has been

acknowledged by the United Nation as one of the most effective strategies for reducing poverty.

Both the richest and poorest nations in the world can benefit from micro crediting programs that

improved people lives and renew local economies. Nevertheless in order to do so entrepreneur

require capital and funding, and microcredit is one way to stimulate the entrepreneurship

development.

As stated by Boamah & Alam (2016), the modern economy is changing due to the

emergence of new social institutions. Social entrepreneurs establish creative, self-sustaining

solutions to aid neglected populations. These cutting-edge methods can be found in organizations

that provide access to financial services to the underprivileged, who are typically shut out of the

traditional banking system. The development of microcredit and its potential to end poverty

through distinct lending strategies have attracted the interest of both the banking industry and

academia (Alam, Moir, & Boamah).

 However, the most often used methods of easing these restrictions are largely ineffective

in promoting business expansion. The majority of individuals in developing nations work for

micro- and small businesses. Experts therefore believe that it makes sensible to support small

business by giving them access to cash and fundamental managerial skills via microcredit and

business training programs. Recent empirical findings, however, clearly demonstrate that these

programs are not a cure-all for insufficient enterprise development and growth. Many businesses

have limited access to finance and many owners lack the fundamental managerial skills. These

shortfalls have typically been thought to constitute significant roadblocks to business expansion

in underdeveloped nations. The most popular methods for fostering enterprise development are

microcredit and business-training programs (Prediger & Gundula, 2014).

Also, Bourles & Cozarenco (2014) demonstrated how the loan guarantee may have a

negative impact due to fewer entrepreneurs availing benefit from these services.

The “5’6” or Bombay is the most typical informal money-lending practice in Puerto

Princesa. The phrase “5’6” refers to its repayments structures, in which the borrowers borrows 5

and normally pays back in 6 weeks. The lender will frequently demand daily payments. (Rich,

2018)

Microfinance has a key role in reducing poverty and poor health. Its health initiatives

have been proven to increase healthcare system. The broad use of microfinance in the

Philippines is thought to be crucial to attaining the goals of healthy Philippines 2020, notably in

lowering poverty-related healthcare costs (Arkansas et al, 2020)

According to Agbola et al., microfinance clients’ households have better earnings and

savings than non-clients households, suggesting that microfinance has had a somewhat favorable
effect on reducing poverty. It has the potential to alleviate poverty and promote the well-being of

the poor and marginalized in the Philippines. It is crucial that policy makers of these techniques

into practice.

Overtime, the idea of offering small loans has expanded to include a wide range of

financial and non-financial services to the poor. Currently, policy circles continue to view

microfinance as one of the instruments for reducing the poverty that an increasing portion of the

global population faces. Microfinance institution (MFis) offer tiny sums of money in variety of

financial instruments to people who are typically not suitable for conventional loans.

ARDCI Microfinance, Incorporated began as the Catanduanes Agricultural support

program (CatAg), a govern-funded initiative. It starts as a five year development program run by

the Department of Agriculture with the funding shared by the national government and the

European Union to ease the burden of poverty in rural Catanduanes communities. The idea

behind this concept was to create a confederated savings loan systems (SLS), financially stable

and independent rural institution rum by a small group of farmers and small business owners

(ARDCI Microfinance, Inc., 2015).

22 rural bank employee founded PLDC, a cooperative involved in microfinance, abaca

processing and business, they shared a vision of enhancing the standard living in their

community. In addition to processing and marketing abaca, PLDC continued to provide financial

services to its members, funding including family-run micro business (Landbank, 2020).

Objectives

The aim of this study is to determine whether microfinance is a truly useful instrument

for reducing poverty, the researcher examines it from a from a macro perspective. The paper also
identifies the areas in which microfinance has had positive as well as negative effects on the lives

of poor SME’s.

Statement of the Problem

This study aims to analyze the effect of microfinance on the SME’s in Poblacion, San

Miguel, Catanduanes. Specifically, this ought to answer the following questions;

1. What is the demographic profile of the sari-sari store owners;

 Age

 Gender

 Educational Attainment

 Years of Business Running

 Weekly or monthly business income

2. How may the borrowers’ level of satisfaction to the loan services of microfinance be

described in terms of;

2.1 loan application;

2.2 loan feature;

2.3 non-financial service; and

2.4 customer service

3. How may the microfinance impacts its borrowers in terms of;

3.1 business status; and

3.2 personal and financial status

4. What recommendations can be made to improve the services of microfinance

institutions to its borrower?

Hypothesis

1. Is the profile of the microfinance borrowers significantly related with the impacts of

microfinance institution?

Scope and Delimitation

This study focuses on the impact of microfinance in sari-sari store owners that is involve

in lending companies and their coping mechanisms. Sari-sari store owners in Poblacion San

Miguel, Catanduanes were the respondents of this study.

Significance of the Study

This study will be an important tool in defining the impacts of microfinance in sari-sari

store owners in Poblacion San Miguel, Catanduanes;

The result of the study is important on the following;

Sari-sari store owners. The result of the study will help an sari-sari owners to know what

strategies they would use in difficulties during financial problems.

Future sari-sari store owners. The result of the study will help an future sari-sari store owners to

know what useful tool they can use in starting up their businesses.

Future researchers. This study will serve as a tool and basis on future studies relevant to effects

of microfinance in sari-sari store owners.

Definition of Terms

Microfinance-also called microcredit, is a type of banking service provided to low income

individuals or groups who otherwise wouldn’t have access to financial services.

Small-Medium Enterprise (SME)-business that have revenues, assets or a number of employees

below a certain threshold.

 Chapter II

REVIEW OF THE RELATED LITERATURES AND STUDIES

This chapter present the related literature and studies relevant to this research undertaking

which provided direction in determining its framework. This also presents the synthesis of the art

gaps, bridged by the study and the theoretical framework.

Related Literature

Microfinance has contributed a significant role in micro-enterprise growth and expansion as

the volume of sales, range of profit, and the value of assets increased after the intervention on

microfinance services. The government and supporting institutions need to focus on the

expansion and growth of micro-enterprise to increase employment opportunity, reduce cultural

and caste disparities, and thereby improving the economic and social status of people.

(Chapagain & Dhungana, 2020).

Although microfinance programs empower clients, the results of the investment, savings,

micro-enterprises creation, capital and consumption expenditure, and income generation of

clients are not convincing. The regulatory authority should identify the problems of multiple

borrowing whether the financing from microfinance institutions is just for their profit of for

productive application of loan. The socio-economic performance of clients relates to the

effective monitoring of clients made by microfinance institutions whether the loan has been

properly utilized or not. (Dhungana & Chapagain, 2019)

Dhungana and Kumar (2015), states that financial inclusion led by banks and financial

institutions in for western and mid-western development region has poor penetration of formal

financial services as compared to other development region. The microfinance industry is

necessary to develop as a tool of inclusive financial market through the wider expansion of its

services in remote rural and hilly areas of Nepal.

Fiala (2018), conducted an experimental tests of microfinance programmes and found a

little or no impacts on business and household income outcomes. Microenterprise owners were

randomly offered either capital with repayment (discounted loans) or without (grants) and were

randomly chosen to receive business skills training in conjunction with the capital. The study

finds no short run effects for female owned enterprises from either form of capital or training.

However, the study finds large effects on profits and sales for male owned enterprises that were

offered loans.

Mohamed, M. A. (2016), explored that financial sustainability, financial literacy and risk

diversification have a moderate positive relationship with the financial performance of

microfinance institutions in Mogadishu. Microfinance has transformed the economic status of the

people through the productive application of microcredit. Microfinance institutions should

encourage the productive application of microcredit towards microbusiness or enterprises

creation that ultimately helps to transform the economic status of the people.

Dhungana (2015), finds that the microbusiness or enterprises creation, employment

generation, occupational status, and income level of the people have been significantly improved

after involvement in the microfinance programme in Nepal. Microfinance has facilitated to

generate the self-employment and employment opportunities through microcredit services

however, there is lacking enough orientation regarding the productive application of loans.

Kapoor and Dhaka (2017), showed a positive relationship between MFIs credit and the

sales revenue, physical assets, and capital structure of micro small medium enterprises (MSMEs)
whereas for profitability, there exists an insignificant relationship between the profitability and

the MFI credit. Hence, it can be conducted that MFI credit has a positive impact on the

development and growth of MSMEs.

Veswanath (2017), examines the role of market structure in mediating the impact of

micro-lending to such survival enterprises. While there have been many evaluation of

microfinance institutions (MFIs), there have been very few that look at market conditions as an

input into the success of micro-lending. The theoretical analysis suggests that when introducing

an extensive program of microcredit in undeveloped and relatively isolated rural areas, it is

important to look at how the market structure mediates the impact of the provision of loans on

the demand and supply for the end product or service.

Dhungana (2016), examine the loan size and its productive application after involvement

in the microfinance programme in the western development region of Nepal. The study shows

that there is a positive association between size of savings and loans, size savings and loan

application, current loan size and ethnicity, loan size and duration of membership, and finally

loan size and its application. It has been found that client=s who have been taken the small size

of loans have mostly spent their loans on domestic purposes and found the poor application of

loans in microbusiness whereas big loan size clients have the greater application of loans in

productive sectors.

Related Studies

Numerous studies were reviewed to give direction to the problems posed in this research.

And to provide baseline information for the conceptualization of this study.

 Microcredits have become a popular way to include poor people in the financial market.

Former research on the impact on business performance has provided divergent findings and its

impact on the Salvadorian market is not yet investigated. This study takes on this problem by

analysing and evaluating how the microenterprises in Usuluton, El Salvador are affected by the

participation in a microcredit program. By using a quantitative method the business performance

of a treatment group is compared to that of a control group. The results show that participation in

a microcredit program enlarged the enterprise size in terms of sales, total assets and equity, but

did not have any significant impact on the business profit, marginal return to capital or fixed

assets. (Johansson & Petterson, 2014).

Microfinance (MF) is the provision of financial services to poor and low-income

households. It is a way to enhance financial services to unbankable people who are financially,

geographically, and socially vulnerable. The study conducted in Nepal, where both descriptive

and inferential statistics have been used to analyse the data from 225 entrepreneurs involve in

microfinance institutions for the last 5 or more years above. The study find out that Microfinance

has contributed a significance role in microenterprise growth and expansion as the volume of

sales, range of profit, and the value of assets increased after the intervention of microfinance

services. (Chapagain & Dhungana, 2020).

Small and Medium Enterprises (SMEs) play a major role in the Nigerian economy,

especially in terms of employment, growth, productivity, and poverty alleviation. Several study

was conducted to determine the effect of microfinance to a business. And one of those is

conducted in Lagos Metropolis to examine the impact of Microfinance Banks (MFB) on the

growth of SMEs. The data was collected via questionnaire given to the owners of SMEs that had

accounts with MFB in Lagos Metropolis. 209 questionnaire distributed and analysed using SPSS
package. The outcome revealed that savings among SMEs are encouraging because of higher

interest rates compared to deposit banks, faster loan disbursement, failure of MFBs to conduct

training for SMEs, while the majority of SMEs experienced financial growth using MFB

products. (Olufemi, 2019).

Small and Medium Enterprises (SMEs) have contributed greatly in shaping the

economies of both developing and developed countries. The SMEs have particularly participated

in creation of wealth and employment. To investigate the effect of microfinance services on

financial performance of SMEs the study is conducted in Kenya, where the researcher used a

descriptive survey. The primary data was obtained through self- administered questionnaire with

the close and prose questions. SPSS was used to perform the analysis as it aided in organizing

and summarizing the data. As the result the four microfinance services; microcredit (loans),

savings, training and insurance have significant effect on the financial performance of SMEs.

(Matiangi, 2016).

The backbone of the economy of a developing country like the Philippines is its small and

medium enterprises relying on soft loans provided by microfinance institutions. To assess the

level of satisfaction of microfinance borrowers on the services of microfinance institution and

their services as well as its impact to the business, personal and financial status are necessary for

the continued operation of this industry. The study used a mixed of qualitative and quantitative

research methods to gather data and analyse them. The study found that the microfinance

institutions is giving its borrowers quality services as manifested by a very satisfied rating to the

four services provided. It was also described that the institution is positively bringing impact on

its borrowers business, personal and financial status as manifested by a high and very high

impact on the two variables. (Gabriel et al., 2021).

Synthesis of the Related Literature and Studies

Chapagain & Dhungana (2020), Mohammed (2016), Dhungana (2015), Kapoor & Dhaka

(2017), Dhungana (2016), Olufemi (2019), Matiangi (2016), Johansson & Petterson (2014), and

Gabriel et al., (2021), states that microfinance services has a significant effect in business

performance as it enlarged the business size in terms of sales, total assets and equity. While

Chapagain & Dhungana (2019), Dhungana & Kumar (2015), Fiala (2018), Veswanath (2017),

states that there is no certain positive effect of microfinance services to a business performance

as it does not have any significant effect on business profit, marginal return to capital or fixed

assets. The similarities to this study both are focuses on the effect of microfinance to a business

performance. But to be more specific this study is focuses only on the effect of microfinance

services to borrowers business, personal and financial status.

Gaps to the Bridged to the Present Study

Based from the synthesis of the study, it showed that many studies already conducted

about the effect of microfinance services particularly to a business performance around the

world. But in Publacion, San Miguel, Catanduanes it seems that there are none studies

conducted. Therefore this is the gap of the current study that is differ on the discussed researches.

Conceptual Framework

The researches adopted the theory of changed in studying the effect of microfinance

services to a sari-sari store owner’s borrower business, personal and financial status in
Publacion, San Miguel, Catanduanes. Weiss (1995), the founder of theory of change states that it

is an explicit process of thinking through and documenting how a program or intervention is

supposed to work, why it will work, who will it benefit and the conditions required for success.

Theory of change in microfinance posits that an access to credit gives chance to borrower to

make their enterprise grow. Through their additional income, households assess to a better health

care, education, food, housing and leisure will increase. (Jameel, 2015).

INPUT PROCESS OUTPUT

 Effect of  Quantitative  Enhance the

microfinance data were delivery of
services to sari- analyze using microfinance
sari store SPSS (Statistical services
owner’s Package for the
borrower Social Sciences),
business, also known as
financial and IBM SPSS
personal status Statistics, a
in Poblacion, San software
Miguel, package used for
Catanduanes. analysis of
statistical data.

Figure 1

The Conceptual Paradigm

 Chapter III

RESEARCH DESIGN AND METHODOLOGY

Research Design

The researchers will employ the descriptive correlational method to determine the effect

of micro finance in the sari sari-store owners’ borrowers, personal and financial status in

Poblacion, San Miguel, Catanduanes. The researchers will conduct a survey questionnaire to

gather data.

Sources of data

The data will be collected from the sari sari-store owners in Poblacion, San Miguel,

Catanduanes who are member of any lending companies, started their business at least 1 year

ago, and respondent of this study.

Instrumentation and Validation

The researcher will use purposive sampling in obtaining the participants in this study.

This study will be conducted to determine the effect of micro finance in the sari-sari store owners

borrowers’ business, personal and financial status in Poblacion, San Miguel, Catanduanes. In

obtaining of this study, criteria were set. The respondents of this study are those who started sari-
sari stores at least 1 year ago to determine the effect of micro finance on the sari-sari store owner

and the store as well.

Data Gathering

The researcher will adapt the gathering instruments used in the study of Suyu et al.,

(2021), The impact of microfinance to borrowers. Business, personal and financial status and the

mediating rile of service satisfaction: Evidence from the Philippines. Some modification were

made on the instruments. The instruments were consist of the following parts: the respondents

profile and the effect assessment of microfinance as to business, personal and financial status of

the respondents. Table 1 shows the response given to the respondents and the interpretation of

the gathered data.

Table 1. Scoring guide use to interpret survey responses.

Satisfaction Impact

Weighted Mean Verbal Interpretation

1.00 – 1.74 Very Dissatisfied Very Low

1.75 – 2.49 Dissatisfied Low

2.50 – 3.24 Satisfied High

3.25 – 4.00 Very Satisfied Very High

Statistical Treatment of Data

 The data will be gathered and analyze. SPSS Package (Statistical Package for the Social

Science) will be use to analyze the data and to identify the effect of microfinance in the sari-sari

store owners.

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