CHAPTER I

INTRODUCTION

During these hard times, a lot of people would seek the help of those engaged in money

lending business. It’s a way to help support their families, to support financial needs of micro-

entrepreneurs and to ease poverty.

This research study aims to know the effectiveness of informal money lending business

to the micro-entrepreneurs. Informal money lenders are money lenders who are not licensed to

do money lending business. They are also called “5-6 money lenders” and are well known about

this kind of informal lending business which is patronized by some micro-entrepreneurs and

people who wants to put-up a new business in urban areas. “5-6” is the term used in such a

reason that they lend money with 20% interest. Like for example, if you borrow from them worth

500 pesos, you will be returning it at the amount of 600 pesos or 20% interest rate within one

month or upon the agreed condition.

Micro-entrepreneurs are the most patronizing party in this form of business because they

are the ones who are in needs of financial capital for the daily financing activities of their

businesses. In order for us to understand and give us the idea why do they are more preferred to

borrow in Bombay than other formal institutions, the selected researchers wish to understand and

measure the effects of this form of business to them, the advantages and the disadvantages.

In order to find ways in understanding the behavior of micro-entrepreneurs and to

identify and recommend solution for the problem encountered between informal money lenders

and micro-entrepreneurs, researchers conduct this research study to know more about the

strengths, weaknesses and threats of the informal money lending business and in order to

formulate reasonable decision that will lead to the competitive advantages in the informal money

lending business. Researchers try to study and analyze if the informal money lending business if

it is recommendable or not to the micro-entrepreneurs and to the general public.

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BACKGROUND OF THE STUDY

As a developing country, the Philippines have a large informal sector as comprised of

micro-enterprises and there are nearly 21.5 million micro entrepreneurs in the Philippines. Micro

entrepreneurs are the owners of small businesses that have fewer than five employees and have

start up costs of less than 10,000 pesos and with annual revenue less than 15,000 pesos.

Examples of micro-enterprise are bakeries, beauty salon, child care facilities, repair shops, arts

and crafts shops, painting businesses, contracting businesses, family-owned shops, auto body

shops, small-scale restaurants, and small-inventory trading businesses whose survival in the

business relies heavily on access to micro-financing businesses. These micro-financing

businesses usually comes from the informal money lending business called “5-6” lending

business and this is why researcher conduct this study that will give central attention to the effect

of informal money lenders to the micro-entrepreneurs in Barangay Batasan Hills, Quezon City

for the reason of Informal financier exist because there is a strong demand for them. (Mari

Kondo, 2006)

The judicial or extrajudicial demand under and subject to the provisions of Article 1169

of the Civil Code that in the absence of stipulation between the creditors and money lenders on

the rate of interest payable, the rate of interest will be 12% per annum. It means that if both

money lenders and creditors did not agree on interest payable, automatically, the interest is 12%

but if they agreed on interest payable under the Article 1856 of the Civil Code, the interest due is

what has been stipulated upon them. The agreed interest must have been expressly stipulated in

writing. (Hector M. de Leon Jr, 2009)

Barangay Batasan Hills is one who has the biggest micro-entrepreneur populations in the

Phillipines; micro-entrepreneurs are the one who borrow money from “5-6’ or informal money

lending business. Most of the micro-entrepreneurs are borrowing money from informal money

lenders due to lack of capital to start up their businesses or to support the day to day activities of

their businesses. (EzineArticles.com)

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This is why researcher would like to conduct this research study in order to know the side

of the micro-entrepreneurs who relies heavily in lending money to support their business that

will lead the researcher to know the strength, weakness, opportunity and threats of this lending

business to the micro-entrepreneurs that will result to the conclusion if it is recommendable or

not to borrow money in informal money lenders in order to support the business.

THEORETICAL FRAMEWORK

According to Mari Kondo, the Philippines as a developing country have a large informal

sector comprised of micro-enterprises. Many of these are severely restricted small vendors

operating in public markets, whose survival in business relies heavily on access to financing.

This usually comes from the informal sector is called “5-6.” because of the manner in which they

lend, “which charge a nominal interest rate of 20% over an agreed period of time. A person who

borrows 5 pesos from a “5-6”over a period of one week repays 6 pesos, including 1 peso interest.

There are two types of 5-6 financiers found in Philippine public market they are Filipino and

Indians (Bombay) “5-6” money lenders that require collateral or documents from their

borrowers. The success of the borrower’s business and loan repayment history provide a gauge

of the borrower’s credibility. Five-Six money lenders undertake daily collections of payment in

the morning, afternoon or both. A client’s daily payment is determined by the sum of the

principal borrowed plus its 20% nominal interest divided by the credit term. The loan

arrangement is flexible; if the clients fails to pay one day, it is understood that he or she will pay

for the day missed the next time around.

Although the business of micro-enterprises in the Philippines varies, this study focuses on

micro-entrepreneurs and the informal financiers catering to them in the public markets. The

informal sector of micro-entrepreneurs are classified into three according to the kinds of their

business, the first type are called ambulant vendors which are the poorest vendor in the public

market; they sell smoked fish, vegetables, fish balls, etc. They unable to buy or rent the stall,

they market their food along the sidewalks. The second types are the rolling vendors who sell

foods, dresses, or shoes in a customized vehicle, eliminating the need to rent a stall. They occupy

3

spaces at the back of public market together with the other vendors and the third are the stall

vendors, they are required to be residents of the place where the market is and pay P15, 000 per

stall annually. If the vendors are not genuine residents, they will pay P20, 000 annually to the

stall owner.

Mari Kondo explained that informal sector of micro-entrepreneurs which are the severely

restricted small vendors operating in public markets are relies heavily on informal money lenders

that serve as access to their financing aspect in order to survive their business. The theory of

Mari Kondo will guide and lead the researchers in answering the formulated problems that they

encounter and to know the strength, weakness, opportunity and threats (SWOT) in the research

which is all about the micro-entrepreneurs and informal money lenders who provides their

financial needs.

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CONCEPTUAL FRAMEWORK

The conceptual model that will be used in this research study is the input-process-output model

where it shows the series of boxes that are connected to each other.

FIGURE 1. Paradigm of the Study

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INPUT PROCESS OUTPUT

Demographic profile of the respondents Age Gender Civil Status Number of Family

Members Residential Type Source of Income Source of Loan Monthly Income

Statement of the problem Reasons of borrowing

money from informal money lenders

Amount that can be borrow from informal money lenders

Terms and conditions applied to each micro-entrepreneurs who borrow money from in formal money lenders

The advantages and disadvantages on the part of micro-entrepreneurs when they transact with informal money lenders

Questionnaire

Interview

Tabulation

To understand the behaviour of micro-entrepreneurs in order to find the strengths, threats and weaknesses of the business.

Identify and recommend solution for the problem encountered between informal money lenders and micro-entrepreneurs.

Conclusion for the subject matter of this study.

FEEDBACK

The Figure 1 shows the details and process that the researchers have conducted this study.

The demographic profile contains the needed preferences about the background or profile

of the respondents (age, gender, civil status, number of family members, residential types, source

of income, source of loan and monthly income). The statement of the problem contains all the

questions on the survey questionnaire and the needed statistical data for the study in order to

determine the number of the respondents.

The researcher processed this study with the use of questionnaires distributed to the

respondents; tabulation of gathered data’s using statistical treatment such as frequency and

percentage. This was produced further interpretation and analysis of data’s being collected.

The output will lead the researchers to understand and indentify the behaviour of micro-

entrepreneurs in order to find the strength, threats and weaknesses of the business and identified

the solution for in the proposed problems by both lenders and micro-entrepreneurs in order to

prove the effectiveness of the said business to the micro-entrepreneurs in recommending

alternative courses of action about the effectiveness of the informal money lenders to the micro-

entrepreneurs.

STATEMENT OF THE PROBLEM

In order to state the whole coverage of the study, researchers formulate problems related

to the effectiveness of informal money lenders, especially the so-called “5-6”, to the micro-

entrepreneurs in Batoda Terminal, Batasan Vendors Association Quezon City. It will pave the

way to gathering data and analysis of data gathered about the said topic. The stated problem will

be the guide of this study.

General Problem:

The main purpose of the study is to determine the effectiveness of informal money lenders (5-6)

to the micro-entrepreneurs in Batoda Terminal, Batasan Vendors Association.

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Specific Problems:

Specifically it sought to answer the following sub problems:

1. What is the demographic profile of the respondents?

1.1 Name (optional)

1.2 Age

1.3 Gender

1.4 Civil status

1.5 Numbers of Family Members

1.6 Residential Type

1.7 Source of Income

1.8 Source of Loan

1.9 Monthly income

2. What is the amount that can be borrowed from informal money lenders?

3. What is the most common reason why do micro-entrepreneurs borrowing money?

4. What are the terms and conditions applied to each micro-entrepreneur who borrowed

money from the informal money lenders?

5. What are the advantages and the disadvantages on the part of the micro-entrepreneurs

when they transact with informal money lenders?

SCOPE AND DELIMITATION

The researcher focused their study on the side of the Batasan Vendors Association, the goal

which is to measure the effectiveness of informal money lending business to them which located

near Batasan tricycle terminal with total number population of 155. From 155 total number of

population the researcher decided to have a sample size of 31 respondents which are selected

randomly from Batasan Vendors Association. It is part of the study are profile of the

respondents, location of the business which is in the Batasan Vendors Association near Batasan

tricycle terminal, the source of financial aspect of their business and the customers that the

respondents have. It is not part of the study the side of the lenders and their business operation.

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SIGNIFICANCE OF THE STUDY

The researchers strongly believed that this research study will provides a vital

information and importance to the following:

To the Business Students. This study will give information to the business students that

will serve as their source of information on the strength and weaknesses and in

developing strategy about money lending business.

To the Micro-entrepreneurs who are Planning to Borrow Money from Informal

Money Lenders. The result of this study may give awareness to micro-entrepreneurs

who are planning to borrow money from informal money lenders in relation to the effect

of informal money lenders in their business and how they will react in this situation.

To the Money Borrowers. The study will help them look into possible situations that

may guide them in deciding whenever they borrow money.

To the Local Government. Hopefully, this study and its result may lead to the local

government officials in implementing some laws and regulations that will help the

micro-entrepreneurs in supporting their business.

DEFINITION OF TERMS

1. Lender - any institution or individual who loans borrower money.

2. Micro Entrepreneurs - Micro entrepreneurs are the owners of small businesses that have

fewer than five employees and have start up costs of less than 10,000 pesos and also annual

revenue less than 15,000 pesos. There are nearly 21.5 million

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3. Debtors - An individual or company that owes debt to another individual or company

(the creditor), as a result of borrowing or issuing bonds. also called obligor.

5. Informal Money Lenders - They are not licensed to accept from the public such are

coincident illegal because they charge very high interest.

4. Competitive Advantage - Condition which enables a company to operate in a

more efficient or otherwise higher-quality manner than the companies it competes with, and

which results in benefits accruing to that company.

5. Bombay - The Indians who are engage in informal money lending business.

6. 5-6 - The money lending business with 20% interest rate within one month or on the agreed

period of time.

7. Securities - Money that is being used in money lending or something that has economic value

when used or exchange.

8. Interest - The amount that is being increased on the lend amount of money or the selling price

of the money that is being borrowed on the agreed amount.

9. Collateral - Is anything that has economic value that can be presented by the borrower to the

lender.

11. Money Lending Business – is a form of business where in the owner is engage in lending

money to the borrower.

12. Cash Advance – getting the salary ahead of time.

13. Bankruptcy – is a status of a person or any organization where one cannot reply debts

owned by the creditors.

14. Liquidity - The degree to which an asset or security can be bought or sold in the market

without affecting the asset's a price

15. Ambulant vendors – it is the poorest vendor in the public market; they sell smoked fish,

vegetables, fish balls, etc. They unable to buy or rent the stall, they market their food along the

sidewalks.

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16. Rolling store vendors – they sell foods, dresses, or shoes in a customized vehicle,

eliminating the need to rent a stall. They occupy spaces at the back of public market together

with the other vendors.

17. Stall vendors – are required to be residents of the place where the market is and pay P15,

000 per stall annually if the vendors are not genuine residents will pay P20, 000 annually to the

stall owner.

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Chapter II

Related Studies and Literature

This Chapter presents the current study into the context of previous related research. It deals with

the Related Literature and Studies which are great help to the researcher in carrying out the

study.

* As a developing country, the Philippines have a large informal sector comprised of

micro-enterprises. Many of these are severely restricted small vendors operating in public

markets, whose survival in business relies heavily on access to financing. This usually comes

from the informal sector is called “5-6.” because of the manner in which they lend, “which

charge a nominal interest rate of 20% over an agreed period of time. A person who borrows 5

pesos from a “5-6”over a period of one week repays 6 pesos, including 1 peso interest. There are

two types of 5-6 financiers found in Philippine public market they are Filipino and Indians

(Bombay) “5-6” money lenders that require collateral or documents from their borrowers. The

success of the borrower’s business and loan repayment history provide a gauge of the borrower’s

credibility. Five-Six money lenders undertake daily collections of payment in the morning,

afternoon or both. A client’s daily payment is determined by the sum of the principal borrowed

plus its 20% nominal interest divided by the credit term. The loan arrangement is flexible; if the

clients fails to pay one day, it is understood that he or she will pay for the day missed the next

time around.*(Mari Kondo)

Although the business of micro-enterprises in the Philippines varies, this study focuses on

vendors and the informal financiers catering to them in the public markets. The following types

of vendor are states below:

Ambulant vendors – it is the poorest vendor in the public market; they sell smoked

fish, vegetables, fish balls, etc. They unable to buy or rent the stall, they market their

food along the sidewalks.

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*The effectiveness of informal money lenders to the micro-entrepreneurs determined if they rely heavily in borrowing money. But accurate result must show in order to approve this.

Rolling store vendors – they sell foods, dresses, or shoes in a customized vehicle,

eliminating the need to rent a stall. They occupy spaces at the back of public market

together with the other vendors.

Stall vendors – are required to be residents of the place where the market is and pay

P15, 000 per stall annually. If the vendors are not a genuine residents, they will pay

P 20, 000 annually to the stall owner.

**Wulan stated in his study that informal money lending, informal credit in supply of

formal credit in developing countries. Despite an increase in supply of formal credit in rural

areas, informal lenders remain the dominant source of credit for the poorest households.

Improvements of productivity are important in the development process. Productive investment

requires funding and access to credit is crucial for the purpose. Credit might also be a mean tide

over bad time caused by sudden illness or an upcoming wedding for poor individuals. Previous

studies of the informal credit market demonstrate extremely high informal interest rates charged

on loans to poor individual order to make policies that can positively affect poor people’s living

conditions; we must understand how informal lenders set the interest rates.

**Norunn Haugen found in their study that village lenders in Nepal lend only to

individuals whom they know well. This indicates that village lenders know a potential borrowers

risk types and we assume that screening problems for village lenders are largely solved by

personalized relationships and interlink ages between markets. We suppose that village lenders

do not face any significant screening costs. Both village and market lenders were active in all

villages we visited. Market lenders who are not involved in local trade or village activities lack

first hand information about potential borrowers’ credibility.

These lenders solve the screening problem by for example using local middlemen,

traditional screening methods or written contracts. The market lenders’ use of written contracts

and the village lenders’ criteria for providing loans indicate that there are information problems

in these credit markets. However, the village lenders are better informed about certain people and

these therefore prefer to lend to one of these. The market lenders that are not involved in any

trade or other business in a village are equally uninformed about all the potential borrowers in

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the village and have to use other means to overcome the information problems like traditional

screening methods, collateral, written contracts or middlemen.

***Manny Canto stated on his article entitled “In Depth” that “it is an open secret that

these Indian Nationals are doing business all over the Philippines and their business is within the

ambit of economy. According to his research “Underground Economy: refers to the part of the

economy that generates income, but goes untaxed.

***Godofredo Rompers in his Sun Star comment on taxing “5-6” lenders. He states that

“money lending among those whom the banks, would never extend a loan to, and those who

believe borrowings from the banks is a lot of paper work and red tape, is a highly lucrative

business operation, able it a lot of hard work, sacrifice and patience. Interest, I think it is well

worth their sacrifice and patience. This kind of lending that is all over the rural areas is operated

only by the so- called “Bombay” or the Indian Nationals.

****The Great Greek Philosopher Aristotle has openly expressed his opposition against

Money Lending on interest. He says:

‘’Money maybe a useful instrument of exchange but when it tempts people to pile up unused

gains or accumulate wealth by lending money, it is sterile or unproductive and it promotes

disparity in riches and financial irregularities.”

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** The informal money lenders remains dominant, whenever the borrowers need then they always there to lend money. The study shows that we see money lenders in different places and it is an opportunity to conduct a study that will help to the micro-entrepreneurs.

** building relationship between the informal money lenders and borrowers will gain trust and loyalty. This is one of the factors also, why some of informal money lenders had a flexible operation.

*** Indians or the Bombay’s originate the informal money lending in the Philippines. They are the one who started it and some of the Filipino impersonated it. That is there are two type of informal money lenders exist in this country.

*** One of the reasons why most of the micro-entrepreneurs preferred to borrow money from informal money lenders is a lot paper works. It takes time to entrepreneurs who want a started capital of less 10, 000 for his/her business. Some of them are belong to the below poverty lines.

****Eugine Matura from Kigali in her write up about informal money lending stated that

“this illegal money lending has high side effects because it affects property and individual’s

security as well as crippling the nation’s economy”.

Legend:

* - Local study

** - Foreign study

*** - Local literature

**** - Foreign literature

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**** Money will become useful if it will use in a productive way that will produce wealth like invest it for the business.

**** Providing a capital for the micro-entrepreneurs is a good idea for creating a self-employed job. But paying back the money with a high interest can’t circulate the flow of the benefits. Effectiveness of this business will be shown if they have a big impact to the economy and micro-entrepreneurs in a good way.

CHAPTER III

Research Methodology

This chapter presented the research method used, population and sample design,

respondents of the study, the sampling technique and the instrument used, research instrument,

procedures in gathering data and the statistical treatment of the study.

Research Method Used

The researcher used the descriptive survey method to determine the effectiveness of

informal money lending business. This method sees to describe and understand the nature of

each respondent opinion about the effectiveness of informal money lending business, especially

the so-called “5-6”, to the micro-entrepreneurs in Batoda Terminal, Batasan Vendors

Association.

Population and Sample Design

Based on the statistical data from the secretary of Brangay Batasan Hills, the population

of micro-entrepreneurs in Batoda Terminal have a total number of 155. The researchers use

the simple random sampling design by getting the 20% or 31 respondents from total number

of populations as sample size in the population.

The Respondents of the Study

The target population of this study consisted of 31 selected micro-entrepreneurs who have

availed loan or clients of informal money lending business in Batoda Terminal, Batasan

Vendors Association. Every registered micro-entrepreneur had the chance to be selected on

the survey through simple random selection. The selected respondents are given the

questionnaire which is checklist questionnaire type for them to answer by checking their

answers on the given choices.

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Sampling Technique

The sampling technique or procedure used by the researcher is simple random sampling.

This was used to select number of individuals to be part of the sample size wherein the

researchers selected those individuals or respondents who are experience in borrowing money

from informal money lenders, especially the so-called “5-6”.

Research Instrument

The proponents used researcher made questionnaire and conduct an interview for gather

information for this study. The questionnaire is consisted of 4 parts questions wherein every

question are answerable by putting check mark on the box provided in the listed choices after

every questions made.

The researcher used the summated rating scale or Likert’s scale to measure the degree of

agreement/disagreement of the respondents to the given effects:

SD – Strongly Disagree

D – Disagree

A – Agree

SA – Strongly Agree

NA – Not Applicable

Data gathering Procedures

The researchers gathered data by distributing the questionnaire to the respondents

through a letter and personally administered to individual respondents. The respondents

answer the questionnaire with enough given time. Aside from questionnaire and respondents,

researchers also used books and surf through the internet for additional information. Data that

are relevant and reliable are gathered and data that are not are rejected by the researchers.

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Statistical Treatment of the Data

After the data needed were obtained from the respondents. Tallying, computing and

tabulating were made. The statistical formula that was applied in the computation is the

following:

Frequency/Percentage Distribution

The percentage distribution was use in computation of the profile of the respondents (Part

I) and the Advantages and Disadvantages of lending money from informal money lenders

(Part IV).

Formula:

P= fN∗100 %

Where:

P (Percentage) = The number of time any event occur in a period

F = Frequency note or proportion per hundred

N = Total number of respondents answer

Mean

The researcher used also this computation in order to know the mean of every criteria in

Part II which is all about the reasons of borrowing money from informal money lenders and Part

III consisted of terms and conditions of money lending procedu

Formula:

X = fx N

Where:

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X = Mean

fx = Total Criteria of the Respondents and Frequency

N = Number of the Respondents

The researchers used the arbitrary scale to prove a verbal interpretation to the scores

being calculated:

5-4.51 – Strongly Agree

4.50-3.51 – Agree

3.50-2.51 – Disagree

2.50-1.51 – Strongly Disagree

1.50-.50 – Not Applicable

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Chapter IV

Interpretation and Analysis of Data

This chapter shows the interpretation and analysis of data of every criterion that shows the

result of the profile of the respondents, the reason of borrowing money from an informal money

lender, terms and conditions of money lending procedure and the advantages and disadvantages

on lending money from an informal money lenders. The questionnaires that were answered by

the respondents are the basis for these results.

I. Profile of the Respondents

Table 1

Number and percentage of respondents according to their Age

Age Respondents Percentage

20 years old below 5 16.12%

21-30 years old 8 25.80%

31-40 years old 10 32.25%

41-50 years old 6 19.35%

51 years old and above 2 6.45%

Total 31 100%

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16%

26%

32%

19%

6%

Number of Respondents (Age)

20 years old below21-30 years old 31-40 years old41-50 years old51 years old and above

This table shows the age brackets of the respondents, 30-40 yrs.old being the highest with

percentage of 32.25% and the lowest consisting of ages 50 below with 6.45%.

Most of the respondents involve and participate in this study are at the age of 31 to 40

years old which is the 32.25% of the total respondents. These ages are mostly in the stage of

family.

Table 2

Number and percentage of respondents according to Gender

Gender Respondents Percentage

Male 11 35.48%

Female 20 64.51%

Total 31 100%

This table shows that out of 31 respondents, the female group got the highest percentage

of 64.51% or a total of 20 respondents. And male group of the respondents got 35.48% or a total

of 11 respondents. It means that most of the micro-entrepreneurs at Batoda Terminal are female.

20

35%

65%

Number of Respondents (Gender)

Male Female

Table 3

Number and percentage of respondents according to their Civil Status

Civil status Respondents Percentage

Single 9 29.03%

Married 20 67.74%

Widow/Widower 1 3.22%

Total 30 99%

. This table shows the civil status of all the respondents. Married respondents got the

highest percentage of 67.74% and widowed got the lowest percentage of 3.22%. This means that

they have already obligation in their family.

Table 4

Number and percentage of the Family members of the respondents

Number of Family

MembersRespondents Percentage

3 or below 7 22.58%

21

29%

68%

3%Number of Respondents (civil

status)

SingleMarriedWidow/widower

4 – 6 members 20 64.51%

7 – 9 members 4 12.90%

10 above 0 0

Total 31 100%

This table states the number of family members of each respondent. Most of the

respondents got 4-6 family members with a percentage of 64.51% and with a total of 20

respondents and with the lowest percentage of the respondents is 22.58% with a 3 bellow family

members.

Table 5

Number and percentage of respondents in terms of residential type

Residential type Respondents Percentage

Owned 16 54.83%

Rented 14 45.16%

Leased 0 0

Total 30 99%

22

23%

65%

13%

Number of Respondents (family Members)

3 or below

4-6 members

7-( members

10 above

This table shows the residential type of all the respondents. 54.83% or 16 of them are

living in a house of their own while 45.16% or 14 of them are just renting a house.

54.83% of the respondents have their own house. It means that they have no expenses for

payment of the house and this aspect is not the hindrance in paying back the borrowed money.

Table 6

Number and percentage of employees of the respondents

Number of employees Respondents Percentage

3 or below 22 70.97%

4 – 6 9 29.03%

7 above 0 0

Total 31 100%

23

55%

45%

Number of Respondents (residential type)

Owned

Rented

Leased

71%

29.%

Number of Respondents (employees)

3 or below

4 to 6

7 above

This table shows the number of employees of the respondents. 23 of them or 74.19% has

3 below employees and has the highest percentage. And 29.03% or 9 respondents and has 4-6

employees.

In terms of number of the employees of every micro-entrepreneur, 74.19% of them have

at least 3 employees. Since the member of their family raging from 4-6 members, there is a

possibility that these employees are members of their family.

Table 7

Number and percentage of respondents according to their monthly income

Monthly Income of the

BusinessRespondents Percentage

P5,000 or below 10 32.25%

P5,001-10,000 6 19.35%

P10,001 above 15 48.38%

Total 31 100%

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32%

19%

48%

Percentage of monthly income of the respondents

P5,000 or below

P5,001 - 10,000

P10,001 above

This table shows the Monthly income of all the respondents. 15 of them or 48.38% has a

monthly income of 10,000 above. And 6 of the respondents have a monthly income of 5,000 to

10,000 with a percentage 19.35%.

42.38% of the respondents said that the monthly income of their business raging from

10,001 and above. It means that most of them have enough income to pay back the borrowed

money daily and to continue the business.

Table 8

Amount that can be borrowed by micro-entrepreneurs from informal money lenders

Amount Respondents Percentage

P1,000 below 3 9.67%

P1,001-3,000 3 9.67%

P3,001-5,000 2 6.45

P5,001-7,000 7 22.58%

P7,001-9,000 2 6.45%

P9,001 above 14 45.16%

Total 31 100%

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This table

states the

amount of

money a

micro-

entrepreneur can borrow from an informal money lender. 45.16% or 14 respondents said that

they borrow 9,000 pesos above and two of them or 6.45% said that they borrow 7,000 to 9,000

pesos and another two borrow 3,000 to 5,000 pesos.

Most of the respondents borrowed the amount of money greater than P 9,001.It means that

most of them borrow a high amount of money with a high interest. Higher amount of money

equals higher amount of interest. This is also the reason why borrowing money from an informal

money lender in order to sustain the business is not recommendable.

II. Reasons of Borrowing Money from Informal Money Lenders

CATEGORY Weighted mean Result

1. Capital for the business 3.07 Disagree

2. Everyday expense of the business 2.73 Disagree

3. Lack of Knowledge about the Bank Loan

Agreement2.23 Strongly Disagree

4. No enough collateral to loan from a bank 2.77 Disagree

5. Simple procedure of borrowing 2.81 Disagree

6. simple negotiation with the leaders 2.42 Strongly Disagree

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10% 10%

6%

23%6%

45%

Number of Respondents

P1,000 below

P1,001-3,000

P3,001-5,000

P5,001-7,000

P7,001-9,000

P9,001 above

7. Daily Allowance for family expenses 3.0 Disagree

Total 2.72 Disagree

This table shows the reason of the micro-entrepreneurs in borrowing money from an

informal money lender. The capital for the business as reason show 3.07 in weighted mean

which means they are disagree. 2.73 is also disagree as everyday expenses of the business, lack

of knowledge about the bank loan agreement as reason is strongly disagree that has a weighted

mean of 2.23, the reason of no enough collateral to loan from bank has a weighted mean of 2.77

is disagree, simple procedure of borrowing has weighted mean of 2.81 is strongly disagree and

reason as daily allowance for family expenses is also disagree.

Most of the respondents are disagree in the stated reasons above in terms of borrowing

money. It means that there is also some collateral and procedures in borrowing money from an

informal money lender. It seems that they have enough knowledge and the ability to loan from

bank but they preferred to borrow money from an informal money lender.

III. Terms and Conditions of Money Lending Procedures

CATEGORY Weighted Mean Result

1. The moneylender must present an agreement

with the money borrower2.42 Strongly disagree

2. In the agreement, the amount must be stated 2.5 Strongly disagree

3. In the agreement, the interest rate must be

declared2.31 Strongly disagree

4. In the agreement, the mode of payment (e.g.

daily, weekly, monthly) is indicated.2.12 Strongly disagree

5. In the agreement, the due date must be

specified.2.46 Strongly disagree

6. The borrower must present collateral to the

lender3.15 Disagree

Total 2.49 Disagree

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This table presents the terms and condition of money lending procedure. Most of the

respondents are strongly disagree about the stated terms and procedures on the agreements,

because they don't want the moneylender present an agreement to them, they don't want the

amount that they want to borrow must be stated on the agreement, declared the interest rate,

indicates the mode of payment, they disagree that the borrower must present collateral to the

lenders, and specified the due date because they will pay them on the right time on what they had

been transacted.

IV. Advantages and Disadvantages of Lending Money from an Informal Money Lender

CATEGORY

PERCENTAGE

Agree DisagreeNot

Applicable

1. it is easy now to start the planned

business because of the money that can

be lend from informal money lenders

34.61% 46.15% 19.23%

2. it is easy to transact from Bombay 84.61% 15.38% 0

3. flexible payment 84.61 7.69% 7.69%

4. can borrow money through friends as a

referral92.30% 0 7.69%

5. less time consuming when paying loans

because Bombay is doing the house to

house collection of payment

80.76% 19.23% 0

6. no need to present any clearance and

other business papers when borrowing

money

88.46% 7.69% 3.43%

7. higher interest rate compare to banks 53.84% 42.30% 3.84%

8. more prone to bankruptcy because of day 34.61% 65.38% 0

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to day basis of collection

9. difficulty in paying borrowed money 42.30% 53.84% 3.84%

Total 69.53% 32.21% 7.12%

Table 1

The easiness to start a business with money that can be lend

The pie graph shows the easiness to start a business with money that can be lend from

informal money lenders, 34.61% of them said that they are agree, 46.15% are disagree which is

the highest percentage and 19.23% said that it is not applicable and which is the lowest.

Most of the respondents who participated in this study which 46.15% of the total

respondents are disagree on the category that it is easy now to start the planned because of the

money that can be lend from informal money lenders.

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34.61%

46.15%

19.23%

Percentage

AgreeDisagreeNot applicable

Table 2

The

Simpler to transact with an

Informal Money Lender

The pie graph shows the simpler to transact with an informal money lender, 84.61% of

the respondents said that they're agree and which has the highest percentage. 15.38% are

disagree, and no one respondents answered not applicable.

Most of the respondents in this study which 84.61% of the total repondents are agree on

the category that it is simpler to transact with an informal money lenders, because it is not the

same on banks that a lot of paper works and documents are required before you an borrow

money.

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84.61%

15.38%

Percentage

Agree

Disagree

Not applicable

Table 3

The Flexibility of payment

The pie graph shows the percentages of the flexibility of payment to informal money

lenders. 84.61% of the respondents agrees which is the highest among the respondents who

answered disagree and not applicable which has the same percentage of 7.69%.

Table 4

Friend as referral in borrowing money

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84.61%

7.69%7.69%

Percentage

Agree

Disagree

Not applicable

The graph

shows the

percentages of friends

as referral in

borrowing money, the 92.30% of the respondents agreed, and which is the highest percentage

compare to those 7.76% of the total respondents who answered disagree, and no one answered

not applicable.

Most of the respondents involved in this study which 92.30% of the total respondents are

agreed that they can borrow money through their friends as referrals.

Table 5

The trouble-free of the payment

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80.76%

19.23%

Percentage

Agree

Disagree

Not applicable

92%

8%

Percentage

Agree

Disagree

Not Applicable

The pie graph shows the the less time consuming when paying back money. 80.76% of

the total respondents are agreeing, while 19.23% of them disagreed and no one answered the not

applicable.

80.76% of the total respondents that are involved in this study are agreed and it is an

advantage that it is less time consuming when paying loans because of the informal money

lenders is doing house a house to house collection.

Table 6

No need to present any clearance and other business papers when borrowing money

88.46%

7.69% 3.43%

Percentage

Agree

Disagree

Not applicable

The graph above shows the percentages of advantages or disadvantages that there is no

need to present any clearance when borrowing money from informal money lenders. 88.46% of

the total respondents agreed, while 7.69% disagreed and 3.43% answered not applicable.

Most of the total respondents are 88.46% that are participating are agreed, and it is their

advantage that their no need to present any clearance and business papers when borrowing

money.

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Table 7

Higher interest rate compare to banks

The graph

represents the percentages that the informal money lender offer a higher rate compare to banks.

53.84% said that they're agree and it is the highest percentage, then 42.30% are disagreed and the

lowest percentage are the 3.84% of respondents who answered not applicable.

53.84% of the total respondents agreed that even the informal money lender offers a

higher rate than the bank, but it seems that it is also an advantage because it is easy to transact,

no clearance or other documents to be presented. They don't mind the rates; they mind the money

that they want to borrow.

Table 8

More prone to bankruptcy because of day to day basis of collection

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53.84%42.30%

3.84%Percentage

Agree

Disagree

Not applicable

34.61%

65.38%

Percentage

Agree

Disagree

Not applicable

The graph shows the percentage of more prone money to bankruptcy due of daily

collection. 34.61% of the total respondents were disagreed, while 65.38% of the total

respondents answered that they're disagree, and no one answered not applicable.

The 65.38% of the total respondents disagreed that it is more prone to bankruptcy

because of day to day basis of collection. It is an advantage for them because to pay daily is not

too difficult to them, and also they can save money.

Table 9

Difficulty in paying borrowed money

42.30%

53.84%

3.84%

Percentage

Agree

Disagree

Not Applicable

The graph shows the difficulty in paying borrowed money as advantage or disadvantage.

The 42.30% of the total respondents are agreed; while 53.84% of the respondents are disagreed

which is the highest and the lowest percentage are 3.84% of the total respondents who choose

not applicable.

Most of the respondents who participated in this study which is 53.84% disagreed on

difficulty in paying borrowed money because of the mode of payment, some will pay daily, some

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will pay weekly, and some others will pay monthly. They don't suffer in difficulty in paying

borrowed money because they are micro-entrepreneurs.

Chapter V

Summary, Conclusion and Recommendation

This chapter involves the conclusion and recommendation of the researchers using the

findings of the obtained and interpreted data given by the respondents using the questionnaires

that is being distributed to them.

The summary of findings is base on the gathered data and result of the study. This

research study desired to answer the following problems:

1. The reason of borrowing money from informal money lenders.

2. The terms and conditions of money lending procedure.

3. The advantages and disadvantages of lending money from informal money lenders.

Summary of Findings

1. Based on the criteria as reasons of micro-entrepreneurs in borrowing money from

informal money lenders as capital for business, everyday expenses, lack of knowledge

about the bank loan agreement, no enough collateral to loan from a bank, simple

procedure of borrowing and negotiation with the lenders and daily the reason of daily

allowance for family expenses has a total mean of 2.72 and described as disagree.

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2. The terms and conditions of money lending procedure involving the agreement about the

amount of money borrowed, interest rate, the mode of payment, specification of due date

and presenting collateral to the lender has a total weighted mean of 2.49 which means of

the respondents or the micro-entrepreneurs in Batoda Terminal are disagree about the

terms and conditions of informal money lenders in borrowing money.

3. The statements considered by the researcher based on the preferences of a money

borrower has a result of 69.53% of the respondents agreed that the stated statements are

advantages for the money borrowers in terns on lending money form informal money

lenders.

Conclusion

Based on the accumulated and interpreted data given by the respondents using the

questionnaires on the above mentioned study, the researchers found out that money lending

business is not a good source of capital in starting and on supporting the day to day activities of

the business. Through data that have given by selected respondents, the most reasons why do

micro-entrepreneurs and other businesses are borrowing money from informal money lenders or

“5-6” is that they have no other choice in borrowing money. It is easy to borrow money from

informal money lenders. In terms of interest rate, informal money lenders are having higher

interest rate compared to the banks and other formal institutions. Researchers also found out the

amount that can be borrowed from informal money lenders is ranging 9,000 pesos above,

researchers also found out that it is easy to borrow money from informal money lenders even if

proper agreement.

Recommendations

When starting-up a business, micro-entrepreneurs should avoid borrowing from

informal money lending business. Based on the study, chances of not being able to roll-

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over the cash for working capital are very high because interests paid to informal

money lenders eats up most of the proceeds of the business.

Still the best way to start a business is to use ones own capital. Because you will not be

paying high interest in loan from the revenue generated by your business and you will

be having the chance of big income of profit.

Money lending business plays an important role in the Philippine economy because

being the one who infuses capital to micro-entrepreneurs; it helps the country in

reducing unemployment rate. Using the borrowed money from “5-6” as an alternative

source of capital, the less fortunate or below poverty line family may start their own

small scale business in public market areas. It is recommended that the government

should initiate regulatory measures on these financing businesses as well as strengthen

the banking system offering more lenient, and easier financing scheme to entrepreneurs.

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