2004 Annual Report

VISION “People in communities live in abundance with strengthened faith in God and right relationship with their fellowmen and the rest of creations.”

MISSION “Sustainable Christian development Organization that contributes significantly to a poverty-free and Christ-centered Philippines.”

CORE VALUES Respect Integrity Stewardship Commitment to the Poor Discipline Innovation Excellence

GOAL FOR 2006 “To reach 150,000 Filipino families.”

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Looking Back

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The Year In Review

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Milestones

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Performance Recognition

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Audited Financial Report

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Organizational Profile

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Corporate Directory

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KMBI Board of Trustees

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Table of Contents

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Annual Report 2004

Messages

Annual Report 2004

K A B AK LAI BK A A LT I KP A TR AP AS RA A MSAAU N I NY C, . I N C .

M LAAUDN LNAAD BNU AH AB YU ,H A

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Message Congratulations, KMBI for a victorious 2004!

Truly it was a year marked by outstanding achievement and recognition. The expansion from seven to 24 branches was an extraordinary feat, signifying growth and progress. Amidst the vast development, we still managed to deliver excellent performance -- being hailed as Opportunity International’s number one large-scale partner, not to mention bagging the Gender Excellence award for the second time.

KMBI could not have gone this far if not for the valuable commitment of the board, management and staff. Amidst all the challenges we faced, everyone showed genuine dedication and passion for our work. Thus, I would like to commend everyone for their noble hearts and diligent hands‌ for ours is not just a vocation, but a God-given mission, seeking to bring about abundant life for our fellowmen.

To all the staff, I would like to express the board’s full support and gratitude.

Managers and key officers, thank you for exhibiting servant leadership. Program assistants, I salute you for your perseverance and great love for our clients. I urge you all to press on, and take part in our offered courses and trainings. Now is a time of equipping, a time for gaining knowledge and skills -- to better serve our clients.

To our local and international partners, we thank you for your wholehearted support and generosity. Because of you, we are able to reach an ever-increasing number of Filipino families. We continue to uphold our strong partnership, for the Philippines and beyond!

After a triumphant year, let us not remain complacent despite all the success. We have a long way to go, a long run to take. Let us set fix our eyes on the vision and mission of KMBI. Together, let us continue to pursue our purpose!

DR. AMELIA L. GONZALES, M.D. Chairman Board of Trustees

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Message Year 2004 was a year of great increase for KMBI. It was also a year of great grace. Stepping out in faith, we courageously pursued the theme, “Going global, growing local… for God’s glory.”

Beginning with 29,004 clients in 2003, we experienced a remarkable 195% growth in outreach, attaining a total of 85,457 clients. Massive expansion also took place, with the launching of 17 branches across all areas. Today, KMBI has 24 branches serving program members in Southern Luzon and Southern Mindanao.

Aside from increasing in number, we also strengthened training and development programs for our staff, as well as training programs for our local and international partners. We continued to develop transformational tools that are being used to enhance the lives of our program members. As a result, our centers have become places of learning where people interact, discover and apply new knowledge.

Indeed, God has enabled us to touch lives, both here and on the other parts of the world through some initiatives. One of those was the “Regalo mula sa Puso” project, a gift-giving venture that benefited some 20,000 poor Filipino families. There were also some recognitions from international partners but more than these, our hearts are more concerned with the impact God has allowed us to create in the lives of our people, families, and program members.

All this would not have been possible if not because of our staff - program assistants, managers and key officers - who have committed their hearts towards achieving the vision and mission of KMBI. I am deeply proud of you. On the other hand, I am grateful to our Board of Trustees who generously supported and unwaveringly guided us through all these years.

Today, as we continue to reap the fruits of our efforts, let us continue to plant seeds of faith, hope and abundance for our people... and give back the glory to our Lord and Savior Jesus Christ for all the things he has done, and he will continue to do out of his love for our nation and people. Together, let us go global and grow local… for God’s glory!

Annual Report 2004

ROSEMARIE C. CASTRO Execuitve Director K A B A L I K A T

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Looking Back

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abalikat para sa Maunlad na Buhay, Inc. (KMBI), a Christian microfinance and non-government organization, had its humble beginnings on March 1985 as a church-based credit program in a six square-meter choir room with only one worker. The following year, KMBI was able to assist 37 micro-entrepreneurs

through loans totaling Php145,000. Twenty of them were also provided with training on Cash Management. Since then, by God’s grace and sustenance, KMBI never ceases to grow in realizing its vision.

EVOLUTION

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MFI

From 1986 to 1997, which is the foundational period of the organization, KMBI evolved into a full-blown microfinance organization through the leadership of the then Board of Trustees (BOT) chairwoman Dr. Amelia L. Gonzales and execurive director Noel M. Alcaide, catering to poor families not only from nearby communities in Valenzuela, but also in Bulacan, Caloocan and Quezon City. In the middle of these foundational years, KMBI conducted strategic planning and carried out reengineering process to come up with “branch scale up” model that would reach significant number of clients, and design effective and efficient system to achieve organizational objectives.

Implementation, Expansion and Recognition The years 1998 to 2000 were the implementation years of KMBI in scaling up its branches.

Under the team of Aurelio C. Llenado, Jr. and Donato G. Alcoba, Jr., then chairman of the board and executive director, respectively, daily branch reporting and monitoring system were put in place; a tool for transformation program - the Road Signs Book 1 - was developed; expansions in Gen. Santos, Marbel, Davao, and Pasay/Pañaque were undertaken; and a Memorandum of Agreement to establish Opportunity Microfinance Bank (OMB) was signed.

The succeeding years (2001 - 2003) were spearheaded by two women, Dr. Amelia L. Gonzales as BOT chair and Rosemarie C. Castro as executive director. Under their teamwork, the transfer of five KMBI Metro Manila branches and some head personnel to OMB as part of the MOA was approved. It was also during their stints that some major highpoints were achieved such as devolution of Training department, creation of Research & Development/Publication department, standardization and expansion of MF operations, and recognitions from both national and international networks.

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The Year In Review

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ecalling how God moved in the midst of the organization’s undertakings in fulfilling its mission and duty, KMBI saw the year 2004 as an eon marked not only of expansion, but also of evolution and recognition. After 18 years of committed service in microfinance industry, God rewarded KMBI with 24 branches. From only

seven branches in 2003, God added another 17 branches into its fold as the year unfolded, such as Naga, Legaspi, Iriga and Gumaca in Bicol; Lucena in Quezon; Lipa and Batangas City in Batangas; Sta. Cruz, San Pablo, and Calamba in Laguna; Lower Cavite in Cavite; Muntiparlas (Muntinlupa, Parañaque, Las Piñas) in Metro Manila South; Compostela Valley, San Francisco and Surigao in Caraga; Kidapawan and Digos in Southern Mindanao. These 24 branches yielded some 85,457 clients and 2,683 Success Centers. Coming from its number of clients in 2003, KMBI posted a remarkable growth in its performance compared to the previous year .

2004

2003

VARIANCE

GROWTH POSTED

Client Outreach

85,457

29,004

56,453

195%

Loan portfolio (million Php)

232 M

89.9 M

142.1 M

158%

PAR (%)

0.76%

0.89%

0.13%

0.15%

Financial Self-Sufficiency

109.50%

109.86%

(0.36%)

(0.32)%

Operations Self-Sufficiency

113.41%

114.65%

(1.24%)

(1.09%)

PORTFOLIO DATA

Table 1 – Comparative Annual Performance

Aside from the expansions, KMBI evolved into a better and bigger organization. For the year 2004, KMBI experienced an increase of 171% in its workforce, and that is a total of 486 committed and endowed individuals supporting the demand of the organization’s expansion (see Table 2). A transition from decentralized support group (composed of finance, administrative and human resource departments) to centralized system was also put in place for the interest of enhancing asset and fund management, delivery of service,, and monitoring and evaluation.

A mission-driven organization, KMBI operated silently and continued to work hard in reaching out poor families, not expectant of any recognition. But God sees the works of his people. After being awarded for two consecutive years as top partner of the Opportunity International (OI) in small and large scales, respectively, OI recognized KMBI again in 2004 for two marks of distinctions, being the number one microfinance practitioner among its international partners in the large scale category, and top advocate for Gender Excellence.

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process done among the various microfinance institutions (MFI) from 36 countries.

Through the Women’s Opportunity Fund, OI chose KMBI to be its gender excellence for the year 2004 recipient because of its tireless effort in empowering women in poverty and facilitating holistic transformation. OI particularly gave premium to the testimonies of KMBI’s program members whom they interviewed as part of the selection process. They noticed from the interviewed program members, particular from the southern Philippines, not only economic progress but also a change in attitude among them through the KMBI success centers. The selection criteria for the award revealed KMBI’s distinction from other MFIs, that is, aside from providing financial assistance, KMBI is committed to facilitate holistic transformation in the lives of its program members, and that speaks of values formation, restored family relationship and a better view of faith in God.

500 450

The Year In Review

The Gender Excellence award, the second one for KMBI, was given after a selection

400 MF Operations (414)

300 250

Staff (168)

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Total No. of

100

MF Operations

200 150

Total No. of Staff (486)

350

Support Staff (72)

Support

2003

2004

Table 2 - Staffing Breakdown

Network KMBI is an active partner and network member of both local and international microfinance institutions, such as: 

Opportunity International Network

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Microcredit Summit Campaign

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Fundacion CODESPA of Spain

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Philippine Council of NGO Certification

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Alliance for Philippine Partners

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for Enterprise Development, Inc.

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Mindanao Microfinance Council Opportunity Microfinance Bank

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Micro-Finance Council of the Philippines, Inc.,

(APPEND)

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Milestones

Bigger and Better Organization 

Strengthened training and developmental program for the staff. KMBI invested on 28 trainings for its staff, as well as for its local and international partners, and MSI clients.

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Big-

Provided exposure training to the international partners from OI-China, OI-Mexico and Schmitz Stiftung.

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Participated in the training and consultancy project for OMB staff under the stewardship program.

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Provided training for the local partner TPKI (Talete King Panyulung Kapampangan, Inc. PKI) as tapped by PCFC to share experiences and practices to the MFIs in the Northern and Southern Luzon and Mindanao.

Transformational Activities 

Implemented nationwide transformation project called ‘Regalo Mula Sa Puso’ in its five areas of operations, namely Calabarzon 1, Calabarzon 2, Bicol, Caraga, and Southern Mindanao.

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Reached out to the typhoon and bombing victims in Bicol and General Santos.

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Launched Road Signs Book 2 (in Tagalog and English version).

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Implemented Purpose Driven Life book as staff’s devotional tool in all Branches.

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Milestones

Improvements & Developments 

Conducted training on Transformational Tools Facilitation (Road Signs, PDL & PCL)

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Researched on microinsurance implementations through MBA or third party insurer.

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Initial research on another financial offering, the individual loan, was also conducted.

Funds 

Received a grant of US$35,000 from Opportunity International - United States for Kidapawan branch.

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Granted with US$500 through the Gender Excellence 2003 award.

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Obtained an increase in loans from People’s Credit and Finance Corporation and OIKO Credit from PhP33.0M during 2003 to almost 99.1M in 2004.

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Performance Recognition

TOP PERFORMERS BEST PROGRAM ASSISTANT: Jeanmar Labanero Jeanmar of General Santos branch surpassed all the others in overall perrformance. As of the fourth quarter, she had a total client outreach of 344, loan portfolio of PhP1.28M, 0% PAR and 3.38% client turnover. In 1999, Jeanmar started in KMBI in the Bula branch. She was transferred to Marbel Unit at General Santos Branch in 2002.

With the Best PA award, she is now reaping the prize of her hardship and efforts. To her co-workers, especially the PAs, she says,”Whatever challenge you encounter, don’t give up.

Make it your stepping stone in life. Be strong and take courage for God is always at your side.”

Suzette Madayag, program unit supervisor at Marbel, shares a few things about Jeanmar. According to her, “Jeanmar interacts well with other people. She is trustworthy, and fully supports the endeavors of KMBI.” General Santos branch manager Evelyn Francisco praised her diligence and perseverance.

“Jeanmar really loves her work,” she says. “She deserves the recognition.”

BEST BRANCH MANAGER: Enrique Maca Butuan branch’s manager was named the Best Branch Manager of 2004. His branch catered to 4,316 clients and had a loan portfolio of PhP 15.7 million. From the time he assumed the position, he was able to increase the total number of clients by 19.64% and loan portfolio by 49%. Aside from this, he managed records well and implemented transformation activities effectively. He also modeled good values, such as discipline, integrity and commitment.

Enrique started with KMBI in May 1999 as a program assistant. He was assigned to several branches before becoming the program unit supervisor of Butuan, and eventually branch manager. To other staff, Enrique shares a few words of wisdom: “Everyday, do something that you don’t like but you have to. You will surely learn from the

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create positive change. Let us be initiators, not just reactors.”

Rhanny Barrera, area manager of Caraga, where Butuan Branch is located, believes that Enrique is a good leader. “Enrique brings out the best in people, encouraging them to perform to their full potential. As a person, he’s got a great sense of humor -- you will really appreciate his companionship.”

BEST BRANCH SUPPORT STAFF: Harry Dalanon Harry was hailed as the Best Branch Support Staff of the year. Having been with KMBI since January 2002, he was assigned to several branches in Mindanao and Luzon, before being transferred to the Head Office in November 2004. His performance showed brilliance in terms of job knowledge, dependability and quality. Aside from this, he participated actively in transformation activities.

He is also respectful, a good steward and committed to his work.

Hailing from Koronadal City, Harry graduated from Mindanao State University with a bachelor’s

Performance Recognition

experience. Aside form this, whatever the position we hold; it is our responsibility to

degree in Business Administration, major in Accountancy. He describes his experience with KMBI as “challenging and fulfilling.” By God’s grace, he cites that he has learned how to deal with people, adjust to living in different places and handle tasks responsibly. To other staff, he shares, “God loves to use ordinary people like us to do extraordinary things. He wants us to have a heart that is willing to obey, to follow Him and to depend on Him.”

SERVICE AWARDEES: Four employees received the Service Award, in recognition of their five years of dedicated service to KMBI, namely: 1. Rhanny P. Barrera (Area Manager, Caraga) 2. Vencent A. Abraham (Area Manager, Calabarzon 2 & Bicol)

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3. Ma. Margarita J. Robles (Branch Manager, Upper Cavite) 4. Beniefe J. Tungala (Accounting Associate, Kidawapan)

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Audited Financial Report

K P MG

pines Laya Mananghaya & Co. Certified Public Accountant & Management Consultants 22/F, Philamlife Tower, 8767 Paseo de Roxas Makati City 1226, Metro Manila, Philip-

Telephone Fax e-Mail

+63 (2) 885 7000 +63 (2) 893 8507 +63 (2) 894 1985 +63 (2) 816 6595 manila@kpmg.com.ph

PRC-BOA Registration No. 0003 SEC Accreditation No. 0004-F

BSP Accredited

REPORT OF INDEPENDENT AUDITORS The Board of Trustees Kabalikat Para Sa Maunlad Na Buhay, Inc. We have audited the accompanying balance sheet of Kabalikat Para Sa Maunlad Na Buhay, Inc. (a non-stock, non-profit organization) as of December 31, 2004, and the related statements of revenues and expense, changes in fund balance and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The accompanying financial statements of the Kabalikat Para Sa Maunlad Na Buhay, Inc. as of and for the year ended December 31, 2003, were audited by other auditors whose report thereon dated March 16, 2004, expressed an unqualified opinion on those statements, before the restatement described on Note 13 to the financial statements.

We conducted our audit in accordance with auditing standards generally accepted in the Philippines. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides reasonable basis for our opinion.

In our opinion, the 2004 financial statements referred to above presented fairly in all material respects, the financial position of Kabalikat Para Sa Maunlad Na Buhay, Inc. as of December 31, 2004, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the Philippines.

We also audited the adjustments described in Note 13 that were applied to restate the 2003 financial statements. In our opinion such adjustments are appropriate and have been properly applied.

March 28, 2005 Makati City, Metro Manila Philippines

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FinancialReport Report AuditedAudited Financial

KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A NON-STOCK, NON-PROFIT ORGANIZATION)

BALANCE SHEET DECEMBER 31, 2004 (With Comparative Figures for 2003)

2003

2004

(As restated in Note 13)

P24,186,666

P23,870,811

ASSETS Current Assets Cash and cash equivalents (Note 3)

198,987

198,987

239,479,401

93,925,375

4,144,399

789,834

268,009,453

118,785,007

Property and Equipment - net (Note 6)

11,167,991

6,071,597

Investment in Opportunity MicroďŹ nance Bank (Note 7)

15,900,000

15,900,000

2,287,654

1,146,800

P297,365,098

P141,903,404

Marketable securities - net (Note 4) Receivables - net (Note 5) Prepayments Total Current Assets

Other Assets

LIABILITIES AND FUND BALANCE Current Liabilities P15,641,732

P5,898,411

45,549,841

9,166,667

61,191,573

15,065,078

Long-term Debt (Note 9)

56,517,526

23,833,333

Capital Build-up (Note 10)

97,631,216

35,934,164

Fund Balance

82,024,783

67,070,829

P297,365,098

P141,903,404

Accounts payable and accrued expenses (Note 8) Current portion of long-term debt (Note 9) Total Current Liabilities

See Notes to Financial Statements.

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STATEMENT OF REVENUES AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2004 (With Comparative Figures for 2003)

2003

2004

(As restated in Note 13)

P110,755,456

P46,264,402

Donations and contributions

1,974,031

130,357

Other

1,673,619

1,445,555

114,403,106

47,840,314

Operating expenses (Note 11)

84,977,471

26,158,569

Administrative expenses (Note 12)

14,471,681

13,917,866

99,449,152

40,076,435

P14,953,954

P7,763,879

REVENUES Service income

EXPENSES

EXCESS OF REVENUES OVER EXPENSES See Notes to Financial Statements.

STATEMENT OF CHANGES IN FUND BALANCE FOR THE YEAR ENDED DECEMBER 31, 2004 (With Comparative Figures for 2003)

2003

2004

(As restated in Note 13)

P65,433,450

P59,538,805

FUND BALANCE Balance at beginning of year As previously reported

1,637,379

(231,855)

67,070,829

59,306,950

14,953,954

7,763,879

P82,024,783

P67,070,829

Prior period adjustment (Note 13) As restated Excess of revenues over expenses

See Notes to Financial Statements.

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Audited Financial Report

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2004 (With Comparative Figures for 2003)

2003

2004

(As restated in Note 13)

CASH FLOWS FROM OPERATING ACTIVITIES P14,953,954

Excess of revenues over expenses Adjustments for: Depreciation and amortization Provision for doubful accounts Write - off of receivables Prior period adjustment

P7,763,879

3,044,015 398,181 (684,449) 1,637,379

Excess of revenues over expenses before working capital changes Increase in: Marketable securities Receivables - net Prepaid expenses Increase (decrease) in: Accounts payable and accrued expenses Capital build-up

1,480,846 (231,855)

19,349,080

9,012,870

(146,905,137) (3,354,565)

(240) (43,285,536) (455,128)

9,743,321 61,697,052

(4,328,994) 17,156,323

(59,470,249)

(21,900,705)

Acquisitions of property and equipment Proceeds from sale of property and equipment Increase in other assets

(8,204,372) 63,963 (1,140,854)

(1,984,203) (496,811)

Net cash used in investing activities

(9,281,263)

(2,481,014)

Proceeds from long-term debt Payment of long-term debt

83,000,000 (13,932,633)

33,000,000 -

Net cash provided by ďŹ nancing activities

69,067,367

33,000,000

Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

NET INCREASE IN CASH AND CASH EQUIVALENTS

315,855

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

-

8,618,281

23,870,811

15,252,530

P24,186,666

P23,870,811

See Notes to Financial Statements.

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Audited Financial Report

KABALIKAT PARA MAUNLAD NA BUHAY, INC. (A Non-Stock, Non-Profit Organization) NOTES TO FINANCIAL STATEMENTS

1. Organization Kabalikat Para Sa Maunlad Na Buhay, Inc. (“the Organization”) is a non-stock, non profit microfinance and development organization which was organized on November 4, 1986 with the objective of assisting the low-income Filipinos in their pursuit for education, culture, civic, physical and economic advancement with the end in view that they will become responsible members and assets of society. To attain these objectives, the Organization conducts seminars, lectures and trainings by inviting resource persons who have expertise and knowledge in specialized fields and extends financial assistance at reasonable interest rates to economically active poor people.

On September 18, 2002, the Organization was certified by the Philippines Council for NGO Certification as a qualified donee institution in accordance with Revenue Regulations No. 13-98 for a period of three years. Accordingly, it is exempt from payment of income tax on income it received and the filing of income tax return covering such income. Such exemption, however, does not apply to income of whatever kind and character derived from the use of the Organization’s properties, real and personal, or from any of its activities conducted for profit regardless of the dispositions made of such income.

The Organization has 473 and 168 employees as of December 31, 2004 and 2003, respectively, and holds its office at No. 12, San Francisco St., Karuhatan, Valenzuela City.

2. Summary of Significant Accounting Policies The following summary explains the significant accounting policies which have been adopted in the preparation of the financial statements: Basis of Preparation The financial statements are prepared in conformity with accounting principles generally accepted in the Philippines and on the historical cost basis.

Adoption of New Accounting Standards Effective 2004 Effective January 1, 2004, the Organization adopted the Statement of Financial Accounting Standard 17/International Accounting Standards 17, Leases, which prescribes the accounting policies and disclosures for finance and operating leases.

Additional disclosures required by the new standard were included in the financial statements, where applicable.

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New and Revised Accounting Standards Effective 2005 Several new accounting standards are due to take effect in 2005 to complete the Philippines’ transition to international-based accounting standards. Accordingly, the Accounting Standards Council (ASC) approved the issuance of new and revised accounting standards, which are based on IAS, revised IAS and new International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The new standards are effective for annual periods beginning on or after January 1, 2005. Accounting standards issued by the ASC were re-named to correspond better to the issuances of IASB. Philippine Accounting Standards (PAS) correspond to adopted IAS, while Philippine Financial Reporting Standards (PFRS) correspond to adopted IFRS. The Organization will adopt beginning January 1, 2005 the following new and revised accounting standards which are relevant to its operations: New Accounting Standards 

PAS 19, Employee Benefits, prescribes the accounting and disclosures by employers for employee benefits, including short-term employee benefits, post-employment benefits, other long-term employee benefits and termination benefits. For post-employment benefits classified as defined benefit plans, the standard only allows the use of the projected unit credit method to measure the organization’s obligations and costs and requires a sufficient frequency of measurement. The standard requires as a minimum the recognition of a specific portion of net cumulative actuarial gains and losses when the net cumulative amount exceeds 10% of the greater of the present value of the defined benefit obligation or the fair value of the plan assets, but also permits the immediate recognition of all actuarial gains and losses.



PFRS 1, First-time Adoption of Philippine Financial Reporting Standards, sets out all transitional requirements and exemptions available on the first-time adoption of PFRS.

Revised Accounting Standards 

PAS 1, Presentation of Financial Statements, provides a framework within which an entity assesses how to present fairly the effects of transactions and other events and the criteria for classifying liabilities as current or non-current; prohibits the presentation of “extraordinary items” in the financial statements; and specifies the disclosures about the key sources of estimation, uncertainty and judgments management has made in the process of applying the entity’s accounting policies.

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PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, removes the concept of fundamental error and the allowed alternative to retrospective application of voluntary changes in accounting policies. It defines material omission or misstatements, and describes how to apply the concept of materiality when applying accounting policies and correcting errors.



PAS 10, Events After the Balance Sheet Date, prescribes the guidelines for events after the balance sheet date that requires adjustments and disclosures.



PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on recognition and measurement of items of property, plant and equipment. The standard also requires that each significant part of an item of property, plant and equipment should be depreciated separately.



PAS 17, Leases, provides a limited revision to clarify the classification of a lease of land and buildings and prohibits expensing of initial direct costs in the financial statements of the lessors.



PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the standard, the definitions and the disclosures for related parties.



PAS 32, Financial Instruments: Disclosure and Presentation/PAS 39, Financial Instruments: Recognition and Measurement. PAS 32 deals with the presentation and disclosure of financial instruments. PAS 39 provides recognition and measurement requirements covering most financial instruments other than assets and liabilities arising from employee benefit plans, own equity instruments, certain guarantees contingent consideration in business combinations and other exceptions. PAS 39 requires that all derivatives are recognized on the balance sheet and measured at fair value and requires all financial assets to be classified into “loans and receivables” “held-tomaturity”, “fair value through profit or loss” or “available-for-sale” categories. Loans and receivables and held-to-maturity financial assets are measured at amortized cost. All other financial assets are measured at fair value (with limited exceptions). Also, PAS 39 permits hedge accounting only when strict documentation and effectiveness testing requirements are met.



PAS 36, Impairment of Assets, establishes the frequency of impairment testing for certain intangibles and provides additional guidance on the measurement of an asset’s value in use.

Under prevailing circumstances, the adoption of the above new and revised standards will not result in substantial changes to the Organization’s accounting policies in 2005 except for PAS 19 and 39, the effect of which to the 2005 financial statements has yet to be determined.

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Cash and Cash Equivalents Cash equivalents are short-term highly liquid instruments purchased with the maturity of three (3) months or less from date of acquisition and are subject to an insignificant risk of change in value.

Receivables Receivables are stated at face value, net of allowance for doubtful accounts maintained at a level considered adequate to provide for potential uncollectible account.

Investments in stocks The Organization’s investments in stocks are carried at the lower of its aggregate cost or market value determined at the balance sheet date. The amount on which aggregate cost of the portfolio exceeds market value is accounted for as allowance for decline in value of marketable equity securities, which is charged to current operations.

Revenue Recognition Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the Organization and the amount of the revenue can be measured reliably. Revenues from loans and other related fees are recognized based on the accrual method of accounting.

Property and equipment Property and equipment are carried at cost less accumulated depreciation and amortization and impairment losses, if any.

Initially, an item of property and equipment is measured at its cost, which comprises its purchase price and any directly attributable costs of bringing the asset to working condition. Subsequent expenditures are added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance, will flow to the Organization. All other subsequent expenditures are charged to operations as incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the estimated useful life of the improvements or the term of the lease, whichever is shorter. The estimated useful lives are as follows: Number of Years Building and improvements

40

Leasehold improvements

3

Furniture and equipment

1-5

Transportation equipment

1-5

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The useful lives and depreciation and amortization methods are reviewed regularly to ensure that such are consistent with the expected pattern of economic benefits from those assets.

When an asset is disposed of, or is permanently withdrawn from use and no future economic benefits are expected from its disposal, the cost and accumulated depreciation, amortization and impairment losses, if any, are removed from the accounts and any resulting gain or loss arising from the retirement or disposal is reflected in current operations.

Asset Impairment The carrying amounts of the Organization’s property and equipment and other noncurrent assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses, if any, are recognized in the statement of revenues and expenses.

Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the Philippines requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3. Cash and Cash Equivalents This account consists of: Cash on hand and in banks

2004

2003

P24,186,666

P23,068,196

-

Short-term investments

802,615

P24,186,666

P23,870,811

Short-term investment represents thirty days cash placements on various dates. These placements earn income based on interests ranging from 4% to 6.5% in 2003.

4. Marketable Securities This account consists of: Marketable equity securities at cost Less allowance for decline in market value

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S A

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2003

P686,895

P686,895

487,908

487,908

P198,987

P198,987

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This account consists of: 2004

2003

P231,989,325

P89,871,036

Interest receivable

3,930,790

Accounts receivable

3,810,803

1,637,379 2,954,745

Loans receivable

239,730,918

94,463,160

251,517

537,785

P239,479,401

P93,925,375

Less allowance for doubtful accounts

Certain loans receivable are used as collateral for the Organization’s long-term debt (See Note 9).

6. Property and Equipment For the Year Ended December 31, 2004 Land

Building and Office Furniture Improvements & Equipment

Transportation Equipment

Leasehold Improvement

Total

Gross carrying amount: Beginning balance

P1,050,000

P5,184,211

P4,371,587

P848,352

Additions

-

774,000

4,246,181

-

3,184,191

8,204,372

Disposals

-

(754,345)

(1,860,616)

(104,551)

-

(2,719,512)

1,050,000

5,203,866

6,757,152

743,801

3,712,360

17,467,179

Beginning balance

-

1,813,921

3,218,403

791,024

87,374

5,910,722

Provisions during the year

-

123,021

1,514,614

34,692

1,371,688

3,044,015

Disposals

-

(754,345)

(1,796,653)

(104,551)

-

(2,655,547)

Ending balance

-

1,182,597

2,936,364

721,165

1,459,062

6,299,188

Beginning balance

P1,050,000

P3,370,290

P1,153,183

P57,328

P440,795

P6,071,597

Ending balance

P1,050,000

P4,021,269

P3,820,786

P22,636

Ending balance

FinancialReport Report AuditedAudited Financial

5. Receivables

P528,169 P11,982,319

Accumulated depreciation and amortization:

Carrying amount: P2,253,298 P11,167,991

Certain above properties are used as collateral for the Organization’s long-term debt (see Note 9).

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Areas of Operations/Directory

Audited Financial Report

7.

Microfinance Bank Project In the year 2000, the Organization, together with the other member-partners of the Alliance of Philippine Partners in Enterprise Development, Inc. (APPEND) established a micro-finance bank wherein the Organization will fully participate as a lead partner with an initial cash outlay of P100,000.

As part of the Securities and Exchange Commission (SEC) requirement, Opportunity Microfinance Bank (OMB), with an authorized capital stock of P800 million, invested P58 million representing its initial paid-up capital into a trust account. Immediately thereafter, the Organization invested a total amount of P8.3 million representing 83,000 shares of stocks to OMB. To date, the Organization has a total investment of P15.9 million or 159,000 shares of stocks in OMB.

8. Accounts Payable and Accrued Expenses This account consists of: 2004

2003

P4,188,294

P2,534,445

Unearned income

4,047,025

1,430,550

Accrued expenses

7,406,413

1,933,416

P15,641,732

P5,898,411

Account payable

9. Long-Term Debt Loan from Oiko Credit Foundation In a meeting held on April 1, 2002, the Board of Trustees approved the availment of a P33 million loan from Oikocredit Foundation Philippines, Inc., (Oikocredit) payable in three (3) years at 10.67% interest per annum on the first year; succeeding annual interest rate shall be the average interest rate paid on the 91-day Philippine Treasury Bills for all issues during the 6 months period preceding Oikocredit’s review plus five percent (5%) provided that the interest rate for the loan shall at no point be lower than 10%. The loan was used to fund the expansion projects of the Organization.

The loan is secured by the following: a. a first mortgage on real estate property of the Organization located in Karuhatan, Valenzuela with an area of three (300) square meters and improvements thereon; b. a first mortgage on the shares of capital stocks of the OMB, a partner, equivalent to 158,999 total shares with a par value of P100 each; c. assignment of loan portfolio and related securities which, at all times, shall have a face value of at least P9 million;

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d. a promissory note in form and substance acceptable to the lender.

Another loan was availed from Oiko Credit Foundation amounting to P55 million. The loan agreement was issued on June 23, 2004. The interest for the loan during the first year is 12.16% while the succeeding interest payments will be on a monthly basis calculated using treasury bill rates. Repayment is done in semi-monthly payments over a period of three years. The first payment was done on February of 2005, eight (8) months after the disbursal of the loan.

The loan is secured by the following: a. 50% guaranty from Interchurch Organization for Development Cooperation (ICCO) equivalent to P27.5 million; b. Continuing deed of assignment of loan portfolio and related securities equivalent to 120% of the outstanding loan balance; and c. Promissory note in form and in substance acceptable to the lender.

As of December 31, 2004, total balance of loan from Oikocredit amounts to P74.25 million.

Loan from People’s Credit and Finance Corporation (PCFC) The Organization has an outstanding loan from PCFC amounting to P15 million. This loan shall be used for the granting of sub-loans to finance micro-enterprise or livelihood projects of qualified sub-borrowers.

The interest rate for investment loan is at 12% and 3% for institutional loan. These loans are secured by the following: a. Assignment of loans receivable for which the proceeds was used; b. First mortgage on all acquired properties and equipment using the proceeds; and c. Post dated checks.

Loan from Taytay sa Kauswagan, Inc. (TSKI) On May 1, 2004, the Organization obtained loan from TSKI amounting to P11 million of which P10 million was already received as of December 31, 2004. The interest rate is at 10% for the first two (2) years, 11% for the third year and 12% for fourth and fifth years.

The agreement requires KMBI to open a microfinance branch in ParaĂąaque in behalf of TSKI, calling it Kabalikat sa Kaunlaran Project.

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Audited Financial Report

10. Capital Build-Up This represents initial membership contribution of P200 and the mandatory weekly savings amounting to P40 per member that earns interest at the rate of 6% per annum.

11. Operating Expenses This account consists of: 2004

2003

P45,416,628

P12,176,459

Financing cost

7,731,584

2,238,493

Transportation and travel

6,031,562

1,624,315

Rent

4,737,147

1,148,744

Communication, light and water

3,579,747

1,750,316

Meetings, trainings and conferences

3,254,200

1,879,762

Depreciation and amortization (Note 6)

2,505,110

1,036,592

SSS, Medicare, ECC and Pag-ibig contribution

2,442,421

687,861

Supplies

2,336,701

697,566

Printing

2,256,518

648,203

Representation and entertainment

1,222,848

134,112

Insurance

461,682

163,533

Doubtful accounts

398,181

566,868

Repairs and maintenance

380,541

99,035

Legal, audit and other professional fees

264,164

369,424

Taxes and licenses

127,739

121,150

Donations and contributions

43,973

19,141

Security services

30,175

205,800

1,756,550

591,195

P84,977,471

P26,158,569

Salaries and wages

Miscellaneous

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12. Administrative Expenses This account consists of: 2004

2003

P5,941,859

P8,170,740

Transportation and travel

1,417,487

696,135

Communication, light and water

1,404,739

750,135

Non MED expense

1,177,824

398,943

Meetings, trainings and conferences

814,348

805,612

Depreciation and amortization (Note 6)

538,905

444,254

Retirement expense

522,294

531,150

Representation and entertainment

328,022

57,476

Legal, audit and other professional fees

297,767

158,325

Supplies

295,542

298,957

Taxes and licenses

294,931

51,921

Security services

249,000

88,200

SSS, Medicare, ECC and Pag-ibig contribution

228,824

294,797

Advertisement and promotion

194,374

32,973

Donations and contributions

111,885

8,203

Printing

83,600

277,801

Gasoline and oil

74,428

11,204

Insurance

56,627

70,086

Repairs and maintenance

29,303

42,443

409,922

728,511

14,471,681

P13,917,866

Salaries and wages

Miscellaneous

13. Prior Period Adjustment Certain revenues pertaining to 2003 were incorrectly included in 2004. The financial statements of 2004 and 2003 have been restated to correct this error. A corresponding adjustment amounting to P1,637,379 was reflected in the 2003 result of operations.

14. Authorization for Issuance of the Financial Statements The Organization’s financial statements as of and for the year ended December 31, 2004 were authorized for issue by the Board of Trustees’ authorized representative on March 28, 2005.

15. Reclassification Certain accounts in the 2003 financial statements were reclassified to conform with the 2004 presentation.

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Organizational Profile

R

egistered as a non-stock, non-profit organization in the Philippines Securities and Exchange Commission, KMBI envisions “People in communities live in abundance with strengthened faith in God and right relationship with their fellowmen and the rest of creations.”

It works primarily for spiritual transformation and poverty alleviation through offering microfinance products and other services to the poor sector both in urban and rural locales. Relatively, KMBI’s mission is to become a “Sustainable Christian development organization that contributes significantly to a poverty-free and Christcentered Philippines.”

Operations, Products, and Services KMBI operates 24 branches located in the regions of Calabarzon and Bicol in Luzon, and Caraga and some southern provinces in Mindanao. KMBI provides group loan product to more than 85,000 “entrepreneurial poor” clients amounting from Php4,000 to Php20,000. Aside from this, KMBI also provides business development assistance, entrepreneurship training, and transformational activities facilitation. Very soon, KMBI shall offer other products such as microinsurance, individual loan, and housing loan.

Structure and Composition The organization has a total workforce of 486 personnel: 414 for the operations, while 72 are in the support group. Aside from the Operations group, seven other departments are working hand-in-hand with them, namely the Human Resources, Administration, Finance, Audit, Business Development, Research & Development/Publication, and Management Information System. All these, including Operations, are reporting directly under the office of the Executive Director. KMBI also has ad hoc committees that function as think-tank and recommendatory body for the different aspects of the organization’s operations like product development, purchasing, budget, recruitment, systems and policy improvement, and transformation. A formal committee, called Management Committee which is composed of department heads, assists the executive director in planning and implementation, through the guidance and governance of the Board of Trustees.

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Corporate Directory

CALABARZON 1

HEAD OFFICE

BATANGAS 2nd Floor Ferrel II Bldg.

Dy Silang St., Batangas City  (043) 722.2443

kmbi@pldtdsl.net OFFICE OF THE EXECUTIVE DIRECTOR roscastro@pldtdsl.net Rosemarie C. Castro Executive Director

CENTRAL CAVITE 3rd Floor Lolo Berong Bldg Nueno Avenue, Imus Cavite  (046) 471.4205 Fax (046) 472.0423

OPERATIONS DEPARTMENT Edgardo S. Mercedes Director Area Managers

Carmela N. Porras (Calabarzon 1) Vencent A. Abraham (Calabarzon 2) Enrique B. Maca (Bicol) Rhanny P. Barrera (Caraga) Nemwell P. Arzaga (S. Mindanao) ADMINISTRATION DEPARTMENT Concepcion B. Parantar Admin. Officer

AUDIT DEPARTMENT Sancho A. Montaos II

LIPA 2nd Floor Ornasco Trading Bo. Marawouy, Lipa City  (043)-756-5104 LOWER CAVITE 3rd Floor Orchids Bldg.

Daang Amaya I Tanza Cavite  (046) 885.2378 Fax (046) 85.2379 METRO MANILA SOUTH 1 2nd Floor Rudex Bldg.

Baclaran St., Pasay City  (02) 851.3582

Audit Officer (Luzon)

Madelyn P. Frijillano Audit Officer (Mindanao)

METRO MANILA SOUTH 2 2nd Floor B.Nenita Bldg.

8124 Dr. A. Santos Ave. Sucat, Paranaque  (02) 820.0271

BUSINESS DEVELOPMENT SERVICES Hazel Christine Z. Rosacia BDS Officer (Luzon)

Marifel C. Suplemento BDS Officer (Mindanao)

UPPER CAVITE 2nd Floor MBC Bldg.

Governor’s Drive, Old Bulihan Silang Cavite  (046) 890.0742 Fax (046) 890.1473

FINANCE DEPARTMENT Annalie D. Concepcion Manager Finance Officer

Joselito S. Penalosa (Fund Mgt./Gen. Acctg.)

CALABARZON 2

HUMAN RESOURCE DEVELOPMENT Liza D. Eco Manager HR Officers

Arthur N. Gonzaga (Training) Mary Grace M. Burgos (Admin.)

CALAMBA 3rd Floor Sajite Bldg.

National Road Brgy I Calamba , Laguna  (049) 545.5875 LUCENA 3rd Floor HR Bldg.

Quezon Ave., corner Gomez St., Lucena City  (042) 710.8775

RESEARCH & DEVELOPMENT Rizaldy R. Duque Manager

San Pablo 3rd Floor Jaojoco Bldg.

Burgos St., San Pablo City  (049) 562.1308

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Corporate Directory

BICOL REGION

SOUTHERN MINDANAO

IRIGA 2nd Floor Tan’s Bldg.

San Roque , Iriga City  (054) 456.6012

DIGOS 2nd Floor JMC Bldg.

Rizal Ave., Zone II Digos City Davao del Sur  (082) 553.9084

GUMACA 2nd Floor AQC Bldg.

Barangay Penafrancia Gumaca, Quezon  (042) 655.0065

DAVAO PROVINCE 2nd Floor ERGB Bldg.

Dalisay Gante Road  (084) 218.5643 Fax (084) 218.5644

LEGASPI 2nd Floor Rosario Salvador Bldg.

Rizal St. , Legaspi City  (052) 481.3441 Fax (052) 820.4547 NAGA 2nd Floor Thomas Enrile Bldg.

Penafrancia Ave., Naga City  (054) 811.8116

GENERAL SANTOS Door # 1 & 2 Aquino Bldg.

J. Catolico Ave. General Santos City  (083) 554.5908 Fax (083) 554.6048 KIDAPAWAN 2nd Floor Prudenciado Bldg.

Jose Abad Santos St. Kidapawan City, North Cotabato  (064) 278.3129

CARAGA REGION

BUTUAN 2nd Floor Lucebinino Bldg.

J.C. Aquino Ave., Butuan City  (085) 342.1816

MARBEL 2nd Floor Del Rosario Bldg.

Gen.Santos Drive cor. Aquino St. Koronadal City  (083) 228.6298

COMPOSTELA VALLEY 2nd Floor Mico Pharmacy Arabejo st., Nabunturan Compostela Valley Province  (084) 376.0802

METRO DAVAO Door 31 & 32 Carlos Villa Abrille J.P. Laurel St., Quirino Ave. Davao City  (082) 224.5905 | 225.3850 Fax (082) 224.6514

SAN FRANCISCO 2nd Floor Gift Gallery Brgy. 1 Bravo Comp.

San Francisco , Agusan Del Sur  (085) 839.1113 Fax (085) 839.3348 SURIGAO 2nd Floor Elipe Bldg.

Corner Narciso & Kaimo St. Surigao City  (086) 826.2442

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Corporate The Board of Directory Trustees

Dr. Amelia L. Gonzales CHAIRWOMAN

Emmanuel M. de Guzman

Aurelio C. Llenado, Jr.

VICE-CHAIRMAN

CORPORATE TREASURER

Atty. Servillano C. Mendoza CORPORATE SECRETARY

Eduardo C. Jimenez

Damiana D. Exiomo

MEMBER

MEMBER

Annual Report 2004

Dr. Ricardo B. Jumawan MEMBER

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Kabalikat para sa Maunlad na Buhay, Inc.

12 San Francisco St., Karuhatan Valenzuela City, 1441 Philippines  (632) 291.1484 to 86 | e-mail: kmbi@pldtdsl.net