2006 Annual Report

OUR GOAL is to reach out 250,000 clients by 2011.

Contents

lives

Message

4

Highlights

6

2006 at a Glance

8

Philippine Poverty

10

Pro-active Response to Poverty

11

The Catalysts

12

Road map: Goal 25.250

13

Financials

14

History 31 The People Behind 32 Directory 35

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message >>

THE VISIONARY “Our big heart for the poor pushes this service to pursue transformation even to the farthest communities in the Philippines.”

Being part of Kabalikat para sa Maunlad na Buhay, Inc. since the very beginning is a privilege in itself because I have personally seen how God’s hands have moved through this organization. Two decades of its existence bear marks of His guidance in the midst of countless challenges. Each year that passed is a testimony that He is faithful to carry the vision He gave us into realization.

ENVISIONING TRANSFORMATION

This year, the organization faced a different kind of challenge in that many of our clients were badly affected in the Bicol tragedy.

Most of them lost their sources of livelihood and our operation in the area was hindered for a time. However, the Board of Trustees and staff were quick to respond to the clients’ call for help. They extended time, strength and even resources to bring our clients back on their feet. This made me see that no amount of monetary gain or acclamations could equal this organization’s workforce.

I salute the board of trustees for exemplifying unity in diversity and for governing with God-given wisdom and humility. Your big heart for the poor pushes this service to pursue transformation even to the farthest communities in the Philippines. Likewise, I commend all the staff for dedicating your lives to this cause. You are a rare commodity.

This year, we started to dream of reaching 250,000 women micro-entrepreneurs on our 25th year. This will be our battlecry from hereon – achieve Goal 25.250! This number of women represents one million household members that will be transformed to abundance in Christ. My challenge, therefore, is for us remain obedient to His call, continually dedicate our lives for this cause, be united, increase our love for the poor and passionately exert our best for God’s glory.

Lastly, let us not forget that He who has been faithful from the beginning will be faithful to the end.

Dr. Amelia L. Gonzales Chairwoman and President Board of Trustees

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KMBI ANNUAL REPORT 2006

message >>

Life is a journey, and a journey has its beginning and end.

Man’s journey, regardless of how far he had traveled will not be remembered for so long without it being chronicled. KMBI, of which the Almighty God has breathed life into, has its beginnings and ends as well. Thus, this Annual Report 2006 is a chronicle that accounts God’s moving in KMBI’s journey. This is a journal that records in its pages the light and heavy treks we had done during the year.

Certainly the treks we started will have their ends; such also maybe the time to start another one. But our intention, as we anticipate modification or replacement of the initiatives we started in due time, is to see the treks we made serve their respective purposes.

The year was an era of new calling, new image and new wave for all the stakeholders of KMBI geared towards realizing bilateral aspirations. These include seeing in the near future a more significant and deliberate social and spiritual impacts through relevant programs and interventions, as well as financial independence characterized by abundance and stability. We believe that access to a well-functioning financial system, predicated in positive values and divine life purpose, can economically and socially empower individuals, in particular the impoverished people, allowing them to better integrate into the economy, actively contribute to development and protect themselves against economic shocks.

The stratagem is to capacitate our workforce in the area of personal and professional growth and equip them with life skills essential to the work of development. Another is to over-deliver financial and non-financial products, and entrepreneurial services that fit the business needs of the program members. Finally, we will augment the integrated programs en route for holistic transformation.

As we close 2006 and unfold 2007, we are ending a very fruitful year and beginning a new and promising journey headed to the realization of Goal 25.250 -- that is reaching to 250,000 clients on our 25th year of existence. All the strategies cited remain in drawing board until such time you choose to involve proactively in preparing the way for greater impact. Join me in this journey!

THE LEADER “We believe that access to a well-functioning financial system, predicated in positive values and divine life purpose, can economically and socially empower individuals...”

Edgardo S. Mercedes Executive Director

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performance reports >>

Operational Highlights “...the board and management thought of harnessing better the loyalty of the existing clients first before increasing the number.”

KMBI has remarkably grown since its conception in 1985. It has posted 85.55% growth on its outreach over the past five years. Looking at the rate of client outreach, year 2006 may not be as impressive as compared to 2004 and 2005.

This was brought by the organization’s decision to slow down in expanding and focus more in maintaining its client outreach especially that retention problem was prevalent in the industry. Although it still branched out in the regions of Calabarzon, Bicol, Socsargen and Davao, but not until the last quarter of the year, the board and management thought of harnessing better the loyalty of the existing clients first before increasing the number.

Comparative Organizational Performance PERFORMANCE INDICATORS

2006

2005

VARIANCE

89,628

88,812

816

Loan Portfolio (Php)

277.83 M

272 M

5.83 M

Ave. Loan Size (Php)

6,187.23

6,190.79

(3.56)

3.34%

1.90%

(1.44%)

Financial Self-sufficiency

149.29%

149.67%

(0.38%)

Operational Sustainability

150.54%

151.47

(0.93%)

Number of Branches

29

24

5

Workforce

551

471

80

Client Outreach

Portfolio-at-Risk

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KMBI ANNUAL REPORT 2006

performance reports reports >> >>

Financial Highlights In 2005, the Microfinance Information Exchange (MIX) released a review on the profitability of over 500 MFI’s worldwide.

With 21.39% return on asset, KMBI was declared to be the third most profitable microfinance institution all over the world.

KMBI’s operations in 2006 was tested by natural and man-made disasters, especially in Bicol region which was hit by two super typhoons. Despite the odds, KMBI managed to thrive both on its operational and financial performances. The minimal growth on its client outrach was cushioned by the high 96.66% repayment rate on the loans it extended to microentrepreneurs.

This translated an 11.86 percent increase on the organization’s total asset.

With the financial growth obtained, although there is still a long way to go, KMBI sees more prospects and opportunities to facilitate holistic transformation to an increasing number of women microentrepreneurs and their families.

“With the financial growth obtained, although there is still a long way to go, KMBI sees more prospect to facilitate holistic transformation...“

Comparative Financial Performance

PERFORMANCE INDICATORS

2006

2005

Operational Income

71,055,236

89,779,928

Asset

452,085,485

404,055,124

Liability

209,225,538

232,250,413

Fund Balance

242,859,947

171,804,711

5,231,000

17,125,000

Grants

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2006 at a glance >> Being twenty prompted the organization to review systems and movements made in the past years. A transparent internal assessment exposed previous years as time well-spent on organizational growth and maintenance.

This moved the organization to devise clear goals and systematized directions to strategically achieve the triple bottom-line goal: deepened and widened outreach, self-sufficiency and increased impact. These goals promise stability for the next five years. Hence, 2006 defined where the organization has been to shape its strategic road map towards poverty alleviation.

Areas of Transformation Widened To widen the organization’s sphere for community transformation, it expanded its operations through the establishment of new branches and splitting some of the current branches. New branches were established in Biñan, Daet, Tacurong and Koronadal City. On the other hand, Metro Davao branch was split into Metro Davao 1 and 2. This horizontal expansion also prompted the splitting of Southern Mindanao operations into North and South Cotabato and Davao operations to better serve the microentrepreneursin the area. With this, KMBI ended 2006 with 29 branches.

Program Impact Deepened Developing the potential of more than a hundred household beneficiaries for community enterprise in Koronadal, South Cotabato, the community-based enterprise development program (CBEDP) was commenced in early December. The project seeks to build the economic landscape of the community which is deprived of access to financing, market, common infrastructure and support services.

Ongoing sessions involve beneficiaries on participatory planning and capacity building until viability of the enterprise is achieved. Once the community is ready, microfinance program will be offered to the locale’s microentrepreneurs to further boost economic activities. This project is done in coordination with AusAID through Opportunity International Australia and is closely monitored by the Enterprise Development Unit until 2009.

Structure Fortified

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g KMBI ANNUAL REPORT KMBI ANNUAL REPORT 20062006

Edgardo Mercedes succeeded Rosemarie Castro who stirred KMBI during her last five-year stint. Alongside this was the further fortification of the organization’s structure brought by the following movements: (a) splitting of transformation focus to schematize programs that cater to its two internal clients - the staff and program members; (b) putting up separate offices for Luzon and Mindanao operations for better monitoring and supervision; (c) extracting publications from the Research and Development department for it to concentrate more on product development and other studies that will inform the organization’s decisions;

2006 at a glance >>

(d) defining market development as Enterprise Development Services unit’s major role; (e) creation of the Resource Mobilization and Communications department; and (f) branching out of the Training unit from the Human Resource Development department to fully focus on skills and capacitybuilding of the staff.

Systems Modified Reviews of the previous system revealed areas that obstruct effective facilitation of transformation in the lives of the clients. This led to the modification of the system in the aspects of recording, reporting, branch and center structures, loan application and processing, human resource management, among others. Since its implementation in November, the program assistants’ clerical load was lessened giving them ample time to conduct transformational activities in the communities. Likewise, number of forms was significantly reduced to 58% resulting to fast application processing time. To ensure efficient implementation of the modified system, branch staff were re-oriented and provided with developmental training.

Workforce Boosted The organization believes that transformation starts from within. Because of this, the mission statement was revised and made two-fold to give emphasis on the development of the clients and its human resources. People underwent internal and external trainings during the course of the year.

Ninety-seven percent of the board of trustees and staff participated in the quarterly Leadership Enrichment and Development (LEaD) sessions with a purpose of becoming pro-active servant-leaders in the communities. Moreso, 33 staff enrolled in the graduate program of the Microfinance

Success Institute. Aside from this educational advancement, the branch managers, program unit supervisors and branch accountants were equipped through in-house training on management and operations. Selected staff members were also sent to external training on public speaking, leadership, management development, stewardship, human development, among others. In the middle of the year, the staff was gathered in regional retreats to ignite their commitment and dedication to the cause of the organization.

Manpower count at year-end increased by 85%, from 471 to 551 staff members, as new branches were opened.

Partnerships Forged To pool financing and expertise towards poverty reduction, the organization forged new partnerships with Landbank Countryside Development Foundation and People Power against Poverty through Micro Enterprise (PPP-ME or PinoyME).

These two organizations share the mission of integrating the working and entrepreneurial poor into the mainstream economy. Specific actions achieved through this partnership were provision of microcredit, capacity-building services, research, publication and other innovative approaches.

Transformation Activities Strengthened Building up the social and biblical foundations of the internal and external clients has always been the focus of KMBI’s transformation programs. Among the programs were the formulation of the discipleship groups and distribution of Bibles to the staff, facilitation of seminar on biblical parenting, mass weddings, and implementation of four immediate post disaster responses to clients affected by disasters.

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poverty >> HOW POOR ARE THE FILIPINOS? • At least 14.8 million Filipinos lives on less than $1 a day, accounting for 1.5 percent of the people in the world currently trapped in extreme poverty.

• 19% of the population or 76.5 million lived on the $1-a-day international poverty line as of May 2000.

• Most of the poor Filipinos live in rural areas. Bicol and Central Mindanao are considered two of the poorest regions.

• Approximately 13.9% to 16.9% of the population sleep in hunger in 2006.

• About 72.8% are worried that food would run out before they get money to buy more.

• Approximately 3.67 million children under five years of age are chronically underweight.

• 2 out of 10 Filipino families do not have access to safe drinking water.

• About 2.9 million Filipinos are unemployed and 7.8 million are underemployed.

Sources: World Bank, Annual Poverty Indicators Survey (APIS), National Statistics Office (NSO), Social Weather Stations (SWS), Government Census, Food and Nutrition Research Institute (FNRI), and Central Intelligence Agency (CIA).

Poverty is hunger. Poverty is lack of shelter. Poverty is being sick and not being able to see a doctor. Poverty is not having access to school and not knowing how to read. Poverty is not having a job, is fear for the future, living one day at a time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack of representation and freedom.

– World Bank

10 g 10 g KMBI KMBI ANNUAL ANNUAL REPORT REPORT 20062006

WHAT KMBI DOES TO HELP REDUCE POVERTY

OuOour response >>

KMIBI pro-actively invests on holistic transformation or integral mission believing that it would reduce poverty slowly among the communities it serves.

HOW POOR ARE THE FILIPINOS? • At least 14.8 million Filipinos lives on less than $1 a day, accounting for 1.5 percent of the people in the world currently trapped in extreme poverty.

• 19% of the population or 76.5 million lived on the $1-a-day international poverty line as of May 2000.

• Most of the poor Filipinos live in rural areas. Bicol and Central Mindanao are considered two of the poorest regions.

• Approximately 13.9% to 16.9% of the population sleep in hunger in 2006.

• About 72.8% are worried that food would run out before they get money to buy more.

• Approximately 3.67 million children under five years of age are chronically underweight.

• 2 out of 10 Filipino families do not have access to safe drinking water.

• About 2.9 million Filipinos are unemployed and 7.8 million are underemployed.

Sources: Annual Poverty Indicators Survey (APIS), National Statistics Office (NSO), Social Weather Stations (SWS), Government Census, Food and Nutrition Research InstitutFood and Nutrition Research Institute (FNRI), and Central Intelligence Agency (CIA).

Build inclusive financial products KMBI ushers women microentreprenuers to its holistic transformational program, which incorporates financial and non-financial products and services. The financial package includes microcredit with a range of PhP4,000 to PhP20,000,

microinsurance and client build-up (CBU), to increase the clients’ capital accumulation over time.

Build healthy communities The organization’s approach to fighting poverty and facilitating holistic transformation is community-based.

Clients are grouped from 30 to 40 members in a trustbank (or center). Every week, clients gather as a community and openly interact with fellow micro-entrepreneurs, developing sense of social responsibility and accountability within their sphere.

Intervene thru enterprise development Through the Enterprise Development Services (EDS), clients are subjected to different training curriculum and programs, such as Improve Your Business and Success Circle, where clients are given continuous entrepreneurial inputs, alternative livelihood training, technical assistance, market linkage and increased opportunities for promotions and product brokerage toward achieving development or diversification in their businesses. Deepening of outreach is also achieved through the Community-based Enterprise Development Program (CBEDP).

Maximize women capacities Doors of opportunities are seldom open for microentrepreneurs because they do not possess proper training. This, aside from developing their enterprise, KMBI maximizes client capacities through additional training and projects towards educating them on values formation, health care, personality development and caring for the environment. These inputs lead to women being catalysts of transformation, firstly, in their homes, then, in their communities.

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the catalysts >> GENERAL SANTOS CITY. Belle sustained the family when her husband left them. However, she rose above her problems and worked her way up as a dressmaker with a big heart to share to others. Aside from being responsible for generating special projects for her trustbank group in General Santos City, she also helped disabled persons in her barangay continue a rag-making project which is their source of living. Belle bought the rags they produced with her small amount of savings. With this, she was able to help others even with the little she got. She also encouraged her group members to do the same and be good stewards of money, time and skills.

Helenita “Helen” Servas Innovator Butuan City

Milabelle “Belle” Maningo Initiator of Special Projects

BUTUAN CITY. For trouble-free cooking, Filipino households opt the usage of liquefied petroleum gas (LPG). But when Helenita Servas could not afford to buy LPG, she improvised a local charcoal stove. Together with her husband, they placed electricity-operated blower to the stove and made the entire package convenient, presentable and durable. Her usage of the stove did add savings to her pocket plus extra time to vend snack items. Upon realizing this, she introduced the product to her neighbors. Like she did, they were able earn the benefits of using it. Helenita desired that more and more people would get to use the product, so she acquired financial assistance through KMBI to increase her production. Today, she caters to more locales of Butuan City and other municipalities of Agusan del Norte. With increasing sales, she diversified her product into double-burner charcoal stove for large occasions and charcoal stove with battery-operated blower to cater communities without electricity.

GENERAL SANTOS CITY. Cindy joined KMBI’s team because she was captivated by its vision of seeing transformed lives in Filipino communities. Accepting KMBI’s job offering made her enthusiastic for further developments and adventures in her young life. As program assistant, Cindy began facilitating transformation activities.

Today, she gathers 314 program members in ten different trustbanks (or centers) in a week. She oversees their RoadSigns discussions and inputs her learning on business, marketing, finances and spiritual matters to these microentrepreneurs.

Candelaria “Cindy” Lopez Facilitator of Transformation 12 g

KMBI ANNUAL REPORT 2006

our road map >> In 2006, the organization set seven strategic directions to chart its path for full action leading to greater impact in the next five years.

This is through GOAL 25.250: Reaching 250,000 women microentrepreneurs on its 25th year of service.

complementary financial products and services in 2008. By that year also, automation of head office and branch recording system is realized. This greatly speeds up processes and transactions. On 2011, preparations for international expansion are commenced.

DIRECTION 4>> Establish bank and transfer sufficient and profitable portfolio from the NGO. In 2006, studies and preparations for banking have been initiated. By

DIRECTION 1>> Actively share Christ and promote Christian values. By year 2011, all members of the board,

2007, the bank is already established and fully-operational. Towards

staff and clients have heard the gospel and given the opportunity

portfolio to the bank, ensuring efficient transfer and transition of

to receive Christ as personal savior towards becoming responsible

personnel from NGO to Bank.

and productive citizens. This is through ensuring the presentation of gospel through the integration of evangelism strategies into mainstream operations and programs, and promotion of Christian values by revitalizing and fortifying discipleship programs.

DIRECTION 2>> Deliver demand-driven and

the end of 2008, KMBI is starting to transfer sufficient and profitable

DIRECTION 5>> Train and equip board and staff of both the NGO and the Bank on leadership and management toward technical expertise and social responsibility. Starting 2007, development and implementation of responsive competency-based training programs for the board

sustainable non-financial services for clients.

and staff are continued to produce a pool of world class leaders and

Starting 2007, sustainable non-financial services for clients based

trainers for the NGO and the bank.

on extensive market research shall be provided, such as enterprise development, social and environmental awareness programs, and other capacity building-related services.

DIRECTION 6>> Provide opportunities for personal development of board and staff of both the NGO and the bank. Starting 2007, provision of opportunities for

DIRECTION 3>> Maintain microfinance operations of the NGO. By the end of 2011, 250,000 clients nationwide

educational advancement is continued. On the same year, additional

are reached while additional 31 branches are established. The

provided for the staff and their families.

organization shall open four branches in Metro Manila and four

benefits packages benchmarked against MF industry standards are

2011. By 2007, Resource Mobilization & Publication (RM&C) and

DIRECTION 7>> Establish a training institute that will offer consultancy services and courses on microfinance, business management, research and related fields locally and internationally. By 2008, prepara-

Research and Development (R&D) units are fully operationalized.

tions for the establishment of the training institute is commenced.

R&D focuses on market development, market penetration, product

By the second semester of 2009, the training institute is already

development, and product diversification, while RM&C augments

established.

branches in Central Luzon in 2007, eight branches in Northern Luzon in 2008, open four branches in Northern Mindanao in 2009, seven branches in Visayas in 2010, four branches in Western Mindanao in

communication and generation of resources. This operationalization leads to the development and implementation of relevant PREPARING THE WAY FOR GREATER IMPACT

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financials >> Manabat Sanagustin & Co. Certified Public Accountants 22/F, Philamlife Tower, 8767 Paseo de Roxas Makati City 1226, Metro Manila, Philippines

Telephone +63 (2) 885 7000 +63 (2) 893 8507 Fax +63 (2) 894 1985 +63 (2) 816 6595 Internet www.kpmg.com.ph e-Mail manila@kpmg.com.ph

PRC-BOA Registration No. 0003 SEC Accreditation No. 0004-FR-1 BSP Accredited

REPORT OF INDEPENDENT AUDITORS The Board of Trustees Kabalikat Para Sa Maunlad Na Buhay, Inc. (A Non-Stock, Non-Profit Organzation) We have audited the accompanying financial statements of Kabalikat Para Sa Maunlad Na Buhay, Inc. (a non-stock, non-profit organization), which comprise the statements of assets, liabilities and fund balance as at December 31, 2006 and 2005, and the statements of revenues and expenses, statements of changes in fund balance and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes.

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the financial statements present fairly, in all material respects, the assets, liabilities and fund balance of Kabalikat Para Sa Maunlad Na Buhay, Inc. as of December 31, 2006 and 2005, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards.

MANABAT SANAGUSTIN & CO. EMERITA H. ESCUETA Partner

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KMBI ANNUAL REPORT 2006

March 30, 2007 Makati City, Metro Manila Philippines

financials >> KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A Non-stock, Nonprofit Organization)

STATEMENTS OF ASSETS, LIABILITIES AND FUND BALANCES December 31 Note

2006

2005

Cash and cash equivalents

4

P124,239,416

P74,784,819

Receivables - net

5

282,031,433

284,031,596

Prepaid expenses and other current assets

6

4,067,865

4,431,783

410,338,714

363,248,198

7

10,277,857

9,688,824

8, 11

28,917,920

28,917,920

ASSETS Current Assets

Total Current Assets Noncurrent Assets Property and equipment - net Investment in stocks

2,550,994

2,200,182

41,746,771

40,806,926

P452,085,485

P404,055,124

9

P16,436,917

P13,807,634

11, 12

12,259,234

34,606,002

28,696,151

48,413,636

Other assets Total Noncurrent Assets

LIABILITIES AND FUND BALANCE Current Liabilities Accounts payable and accrued expenses Current portion of long-term debt Total Current Liabilities Noncurrent Liabilities Long-term debt

12

10,320,733

31,339,134

Pension liability

10

8,281,149

2,623,994

Capital build-up

13

161,927,505

149,873,649

180,529,387

183,836,777

171,804,711

82,024,783

71,055,236

89,779,928

242,859,947

171,804,711

P452,085,485

P404,055,124

Total Noncurrent Liabilities FUND BALANCE Beginning of year Excess of revenues over expenses End of year See Notes to the Financial Statements.

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financials >> KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A Non-stock, Nonprofit Organization) STATEMENTS OF REVENUES AND EXPENSES For the Year Ended December 31, 2006 (With Comparative Figures for 2005)

Note

2006

2005

14

P209,694,295

P212,359,326

Donations and contributions

5,231,073

17,125,470

Others

4,663,340

3,628,546

219,588,708

233,113,342

116,260,746

122,391,751

REVENUES Service income

EXPENSES Operating expenses

15

Administrative expenses

16

EXCESS OF REVENUES OVER EXPENSES

32,272,726

20,941,663

148,533,472

143,333,414

P71,055,236

P89,779,928

2006

2005

P171,804,711

P82,024,783

71,055,236

89,779,928

P242,859,947

P171,804,711

See Notes to the Financial Statements.

STATEMENTS OF CHANGES IN FUND BALANCE For the Year Ended December 31, 2006 (With Comparative Figures for 2005)

FUND BALANCE Balance at beginning of year Excess of revenues over expenses See Notes to the Financial Statements.

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KMBI ANNUAL REPORT 2006

financials >> KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A Non-stock, Nonprofit Organization) STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2006

2006

2005

P71,055,236

P89,779,928

7,132,744 3,389,984 (1,943,098) -

2,834,933 3,929,448 (491,932) (118,933)

79,634,866

95,933,444

5 6

(3,189,483) 363,918

(46,895,196) (287,384)

9 10 4

2,629,283 5,657,155 12,053,856

(1,834,098) 2,623,994 52,242,433

97,149,595

101,783,193

87,472 (12,700,000) (2,450,281)

Note CASH FLOWS FROM OPERATING ACTIVITIES Excess of revenues over expenses Adjustments for: Provision for impairment losses on receivables Depreciation and amortization Receivables written-off Recovery in value of investment in stocks Excess of revenues over expenses before working capital changes Decrease (increase) in: Receivables Prepaid expenses and other current assets Increase (decrease) in: Accounts payable and accrued expenses Pension liability Capital build-up

5 7 5

Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in other assets Acquisitions of investment in stocks Acquisitions of property and equipment

8 7

(350,812) (4,183,626)

Proceeds from sale of property and equipment

7

204,609

Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt Payments of long-term debt

12 12

Net cash used in financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR CASH AND CASH EQUIVALENTS AT END OF YEAR

4

(4,329,829)

(15,062,809)

2,500,000 (45,865,169)

33,000,000 (69,122,231)

(43,365,169)

(36,122,231)

49,454,597

50,598,153

74,784,819

24,186,666

P124,239,416

P74,784,819

See Notes to the Financial Statements.

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financials >> KABALIKAT PARA SA MAUNLAD NA BUHAY, INC. (A Non-stock, Non-profit Organization) NOTES TO THE FINANCIAL STATEMENTS 1. Reporting Entity Kabalikat Para Sa Maunlad Na Buhay, Inc. (“the Organization”) is a non-stock, non- profit 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 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 March 12, 2003, the Organization was certified by the Philippine 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 registered address of the Organization is No. 12 San Francisco Street, Karuhatan, Valenzuela City.

2. Basis of Preparation Statement of Compliance The accompanying financial statements have been prepared in conformity with the accounting principles generally accepted in the Philippines as set forth in Philippine Financial Reporting Standards (PFRS).

The Organization’s financial statements as of December 31, 2006 were authorized for issue by the Board of Trustees’ authorized representative on March 30, 2007.

Basis of Measurement The Organization’s financial statements have been prepared on the historical cost basis.

Functional and Presentation Currency The financial statements of the Organization are presented in Philippine peso, which is the Organization’s functional currency.

Use of Judgments and Estimates The preparation of the Organization’s financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in future period affected.

Impairment of assets In accordance with the Organization’s policy on impairment of assets, the Organization performs an impairment test when certain 18 g

KMBI ANNUAL REPORT 2006

financials >> impairment indicators are present. In determining the present value of future cash flows expected to be generated from the continued use of the assets, the Organization is required to make estimates and assumptions that can materially affect the financial statements.

Estimated allowance for impairment of receivables The Organization maintains allowances for impairment losses at a level considered adequate to provide for potential uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Organization’s relationship with the client, the client’s payment behavior and known market factors. The Organization reviews the age and status of receivables, and identifies accounts that are to be provided with allowances on a continuous basis.

Estimated useful lives of property and equipment The Organization reviews annually the estimated useful lives of property and equipment based on the period over which the assets are expected to be available for use and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned. A reduction in the estimated useful lives of property and equipment would increase the recorded depreciation expenses and decrease noncurrent assets.

Pension and other employee benefits The determination of the obligation and cost of pension and other employee benefits is dependent on the selection of certain assumptions used by the actuary in calculating such amounts. Those assumptions include among others, discount rates, expected returns on plan assets and salary increase rates (see Note 10). In accordance with PFRS actual results that differ from the Organization’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future period.

While the Organization believes that the assumptions are reasonable and appropriate, significant differences between actual experience and assumptions may materially affect the cost of employee benefits and related obligations.

3. Summary of Significant Accounting Policies The accounting policies set-out below have been applied consistently to all periods presented in these financial statements.

Adoption of New Standards, Amendments to Standards and Interpretations The Financial Reporting Standards Council, or FRSC, (the successor body to the Accounting Standards Council) approved the adoption as part of PFRSs a number of new standards, amendments to standards and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

Amendment to Standard and Interpretation Adopted in 2006 Effective January 1, 2006, the Organization adopted the following amendment to standard and interpretation: Amendment to PAS 39, Financial Instruments: Recognition and Measurement – The Fair Value Option limits the fair value option to only those financial instruments that meet certain conditions. The conditions that are required to be met under the amendment are: where such designation eliminates or significantly reduces an accounting mismatch, when a group of financial assets, financial liabilities or both are managed and their performance is evaluated on a fair value basis in accordance with a documented risk management or investment strategy, and when an instrument contains an embedded derivative that meets particular conditions.

IFRIC 4, Determining Whether an Arrangement Contains a Lease provides guidance for determining whether an arrangement, PREPARING THE WAY FOR GREATER IMPACT

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financials >> comprising a transaction or a series of related transactions, that does not take the legal form of a lease but conveys a right to use an asset in return for a payment or series of payments, is or contains, a lease that should be accounted for in accordance with PAS 17, Leases.

The adoption of the above amendment to standard and interpretation did not have a material effect on the Organization’s financial statements.

New Standard and Amendment to Standard Not Yet Adopted The following are the new standard and amendment to standard which are not yet effective for the year ended December 31, 2006, and have not been applied in preparing these financial statements: PFRS 7, Financial Instruments: Disclosures requires extensive disclosures about the significance of financial instruments for an entity’s financial position and performance, and quantitative and qualitative disclosures on the nature and extent of risks.

Amendment to PAS 1, Presentation of Financial Statements – Capital Disclosures adds requirements to disclose the entity’s objectives, policies and processes for managing capital; quantitative data about what the entity regards as capital; whether the entity has complied with any capital requirements; and if it has not complied, the consequences of such non-compliance.

The Organization has not yet determined the potential effect of the adoption of the above standards and amendment to standard.

Cash and Cash Equivalents Cash includes cash on hand and deposits held at call with banks which earn interest at the respective bank deposit rates. 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.

Investment in Stocks Investment in equity securities is initially recognized at transaction price or the fair value of the stocks at acquisition date.

Held for trading equity securities are measured at fair value with gains or losses being recognized in the statements of revenues and expenses.

Available for sale equity securities are measured at fair value with gains or losses being recognized as a separate component of equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the statements of revenues and expenses. Stocks for which fair value cannot be reliably measured are recorded at cost.

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

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, except for land, are carried at cost less accumulated depreciation, amortization and impairment losses, if 20 g

KMBI ANNUAL REPORT 2006

financials >> any. Land is stated at cost less any impairment losses.

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 the location and condition for its intended use. Subsequent costs that can be measured reliably are added to the carrying amount of the asset when it is probable that future economic benefits associated with the asset will flow to the Organization.

The costs of day-to-day servicing of an asset are recognized as an expense in the period in which they are 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

3

Transportation equipment

5

The useful lives and depreciation and amortization method are reviewed at each balance sheet date to ensure that the period and method of depreciation and amortization 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 recognized in the statements of revenues and expenses.

Impairment of Assets Financial Assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

Impairment losses are recognized in the statements of revenues and expenses.

Non-Financial Assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If any such indication exists and where the carrying amount of an asset exceeds its recoverable amount, the asset or cash-generating unit is written down to its recoverable amount. The estimated recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. In assessing value in use, the estimated future cash flows are discounted to

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financials >> their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in the statements of revenues and expenses.

Recovery of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The recovery is recorded in the statements of operations. However, the increase in carrying amount of an asset due to a recovery of an impairment loss is recognized to the extent that it does not exceed the carrying amount that would have been determined (net of depreciation and amortization) had no impairment loss been recognized for that asset in prior years.

Operating Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating lease. Payments made under operating leases are recognized in the statements of revenues and expenses on a straight-line basis over the term of the lease.

Foreign Currency Transactions Foreign currency transactions are recorded in Philippine peso based on the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated to their Philippine peso values using the exchange rates prevailing at the balance sheet date. Translation gains or losses are recognized in the statements of revenues and expenses. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at dates of initial transactions.

Related Parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Transactions between related parties are based on terms similar to those offered to non-related parties.

4. Cash and Cash Equivalents This account consists of:

Cash on hand and in banks Short-term investments

2006

2005

P64,229,228

P52,341,125

60,010,188

22,443,694

P124,239,416

P74,784,819

Short-term investments represent thirty-day cash placements which earn interest of 5% to 7.5%.

Short-term investments include P4.2 million in time deposits inclusive of interest earned, with Opportunity Microfinance Bank (OMB), a related party (see Notes 11 and 12).

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KMBI ANNUAL REPORT 2006

financials >> 5. Receivables This account consists of:

2006

2005

Loans receivable

P278,064,840

P271,753,760

Other receivable

8,475,310

10,119,505

Interest receivable Less allowance for impairment losses

3,275,448

4,752,850

289,815,598

286,626,115

7,784,165

2,594,519

P282,031,433

P284,031,596

Certain loans receivable are used as collateral for the Organization’s long-term debt (see Note 12).

6. Prepaid Expenses and Other Current Assets This account consists of: Unused office supplies Prepaid expenses

2006

2005

P2,949,851 1,118,014

P3,258,079 1,173,704

P4,067,865

P4,431,783

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financials >> 7. Property and Equipment This account consists of: For the Year Ended December 31, 2006 Land carrying amount: Gross Beginning balance, January 1, 2005 Additions Disposals Balance at December 31, 2005 Additions Disposal Balance at December 31, 2006

Building and Improvements

Furniture and Equipment

Transportation Equipment

Leasehold Improvements

P1,050,000

P5,203,866 556,000 (334,750)

P6,757,152 810,135 359,642

P743,801 1,084,146

P3,712,360

1,050,000

5,425,116 128,250

7,926,929 1,893,618 (176,575)

1,827,947 1,128,563 (948,158)

3,687,468 1,033,195

19,917,460 4,183,626 (1,124,733)

1,050,000

5,553,366

9,643,972

2,008,352

4,720,663

22,976,353

1,182,597 531,544 (111,681)

2,936,364 2,240,191 136,573

721,165 68,851

1,459,062 1,088,862 (24,892)

6,299,188 3,929,448

1,602,460 467,285

5,313,128 1,691,674 (175,679)

790,016 265,117 (744,445)

2,523,032 965,908

10,228,636 3,389,984 (920,124)

2,069,745

6,829,123

310,688

3,488,940

12,698,496

P1,050,000

P3,822,656

P2,613,801

P1,037,931

P1,164,436

P9,688,824

P1,050,000

P3,483,621

P2,814,849

P1,697,664

P1,231,723

P10,277,857

Accumulated depreciation and amortization: Beginning balance, January 1, 2005 Depreciation and amortization Disposals Balance at December 31, 2005 Depreciation and amortization Disposals Balance at December 31, 2006 Net carrying amount: Balance at December 31, 2005 Balance at December 31, 2006

(24,892)

Certain properties are used as collateral for the Organization’s long-term debt (see Note 12).

8. Investment in Stocks Details of the Organization’s investment in stocks account are as follows:

Opportunity Microfinance Bank (OMB) - at cost Investment in stocks

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KMBI ANNUAL REPORT 2006

2006

2005

P28,600,000 317,920

P28,600,000 317,920

P28,917,920

P28,917,920

Total

P17,467,179 2,450,281

financials >> 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 investment of P100,000.

As of December 31, 2006, the Organization has a total investment of P28.6 million or 286,000 shares of stocks representing 12.79% interest in OMB. 9. Accounts Payable and Accrued Expenses This account consists of:

Accounts payable Accrued expenses Unearned income Others

2006

2005

P10,373,631 3,349,536 113,750 2,600,000

P6,599,404 3,179,663 2,444,296 1,584,271

P16,436,917

P13,807,634

10. Retirement Plan The Organization has an unfunded non-contributory retirement plan covering all regular employees. Retirement expense charged to operations in 2006 and 2005 amounted to about P5.7 million and P1.3 million, respectively. As of December 31, 2006 and 2005, the actuarial present value of pension benefits amounted to about P21,787,944 and P2,623,994. Below are components of the amounts recognized in the balance sheet.

Movements in the pension liability recognized in the balance sheets are as follows: 2006

2005

Pension liability at start of year Expense recognized in the statements of revenues and expenses

P2,623,994 5,657,155

P1,309,848 1,314,146

Pension liability at end of year

P8,281,149

P2,623,994

The reconciliation of the pension liability recognized in the balance sheets is shown below:

Present value of defined benefit obligations Unrecognized actuarial losses Recognized pension liability

2006

2005

P21,787,944 (13,506,795)

P2,623,994

P8,281,149

P2,623,994

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financials >> The amounts recognized in the statements of revenues and expenses are as follows: 2006

2005

Interest cost Current service cost Transitional liability recognized during the year

P5,289,796 367,359

P262,101 489,744 562,301

Retirement expense

P5,657,155

P1,314,146

Principal actuarial assumptions at the balance sheet date (expressed as weighted averages): 2006

2005

8% p.a 8% p.a 10% p.a

14% p.a.

8% p.a.

10% p.a.

Note

2006

2005

4

P4,000,000

P4,000,000

Discount rate Expected rate of return on plan assets Future salary increases 11. Related Parties a. Significant transactions with OMB during 2006 and 2005 are as follows:

Short-term investments Subscription of additional shares of stock Loan availment Others (rentals & utilities)

8 12

12,700,000 5,500,000 744,000

As of December 31, 2006 and 2005, the outstanding balances of accounts with OMB are as follows:

Short-term investments Loan payable

Note

2006

2005

4 12

P4,409,967

P4,192,721 P5,500,000

b. The key management personnel compensations representing short-term employee benefits amount to about P8.2 million in 2006, and P6.1 million in 2005. c. Total remuneration of key management personnel included in “Salaries and Wages� amount to about P1.2 million in 2006 and P1.3 million in 2005.

12. Long-Term Debt Loans from Oikocredit Foundation Philippines, Inc. In a meeting held on April 1, 2002, the Board of Trustees approved the availment of a P33 million loan from Oikocredit Foundation 26 g

KMBI ANNUAL REPORT 2006

financials >> 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 stock of 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; d. a promissory note in form and substance acceptable to the lender.

On June 23, 2004, another loan was availed from Oikocredit Foundation Philippines, Inc. amounting to P55 million. The interest for the loan during the first year is 12.16% while the succeeding interest will be calculated based on the treasury bills rate. The loan is payable semi-monthly over a period of three years.

The loan is secured by the securities enumerated above, as well as the following: a.Continuing deed of assignment of loan portfolio and related securities equivalent to 120% of the outstanding loan balance; and b.Promissory note in form and in substance acceptable to the lender.

As of December 31, 2006, the initial loan amounting to P33 million has been fully paid.

Loan from People’s Credit and Finance Corporation (PCFC) As of December 31, 2005, the Organization has an outstanding loan from PCFC amounting to P15 million which was pre-terminated on August 8, 2006.

In February 2006, the Organization obtained an institutional loan from PCFC amounting to P2.5 million which bears 3% annual interest and is payable quarterly until February 14, 2008. Proceeds of the loan shall be used for granting of sub-loans to micro financeenterprise or livelihood projects of qualified sub-borrowers. As of December 31, 2006, the outstanding balance of the loan amounted to P1.6 million.

The loan is secured by the post-dated checks issued by the Organization on behalf of PCFC. Loan from Taytay sa Kauswagan, Inc. (TSKI) On May 1, 2004, the Organization obtained a loan facility 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 the fourth and fifth years. The agreement requires the Organization to open a microfinance branch in Parañaque in behalf of TSKI, named Kabalikat sa Kaunlaran Project.

Loan from OMB On February 28, 2005, the Organization obtained a loan from OMB amounting to P5.5 million at 9% interest per annum for a period of

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financials >> one year, payable in four (4) equal quarterly payments. The loan is secured by the Organization’s short-term time deposit with OMB amounting to about P4.2 million as of December 31, 2006. On February 28, 2006, the loan from OMB was fully paid.

Details of the outstanding long-term debts follow:

Oiko Foundation Philippines, Inc. Taytay sa Kauswagan, Inc. People’s Credit and Finance Corporation Opportunity Microfinance Bank Less current portion of long-term debt

2006

2005

P11,000,000 10,000,000 1,579,967

P35,750,000 10,000,000 14,695,136 5,500,000

22,579,967 12,259,234

65,945,136 34,606,002

P10,320,733

P31,339,134

13. Capital Build-Up This represents initial membership contribution of P200 and the mandatory weekly capital build - up amounting to P40 per client that earn interest at the current bank rate on savings deposit plus 1% per annum. Capital build-up will be returned to clients when they leave the program.

14. Service Income Service income consists of loan fees, interest on loans, membership and processing fee from clients.

15. Operating Expenses This account consists of:

Salaries and wages Employee benefits and allowances Financing cost Rent Transportation and travel Impairment losses on receivables Communication, light and water SSS, Medicare, ECC and HDMF contribution Meetings, trainings and conferences Forward

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KMBI ANNUAL REPORT 2006

2006

2005

P44,988,395 20,308,439 8,736,478 7,682,528 7,429,613 7,132,744 4,723,828 3,720,244 3,037,011

P45,443,922 22,939,918 14,366,691 7,088,697 7,505,748 2,834,933 5,057,177 3,477,965 4,381,131

financials >> Supplies Printing Depreciation and amortization Insurance Taxes and licenses Legal, audit and other professional fees Repairs and maintenance Security services Donations and contributions Ads & Promotions Expense Membership dues Representation and entertainment Miscellaneous

2006

2005

2,768,671 1,913,436 1,874,725 638,047 403,897 123,555 P241,227 76,242 37,051 9,861 3,000 2,912 408,841

2,184,407 2,191,474 2,747,351 942,547 187,288 305,890 P263,671 52,512 20,338 8,988 1,193 389,910

P116,260,746

P122,391,751

16. Administrative Expenses This account consists of:

Meetings, trainings and conferences Salaries and wages Retirement expense Employee benefits and allowances Transportation and travel Communication, light and water Depreciation and amortization Supplies Non MED expense Membership dues Representation and entertainment Donations and contributions SSS, Medicare, ECC and HDMF contributions Security services Gasoline and oil Insurance Advertisement and promotion Legal, audit and other professional fees Repairs and maintenance Taxes and licenses Printing Miscellaneous

2006

2005

P6,194,512 6,055,125 5,657,155 3,333,019 2,811,541 1,973,421 1,515,259 822,657 639,399 563,745 518,133 448,823 342,730 150,000 139,402 95,424 94,106 84,317 71,300 62,277 1,237 699,143

P2,361,867 5,104,296 1,314,146 3,012,275 2,246,222 1,933,700 1,182,097 613,293 1,069,857 330,159 46,251 279,256 151,778 132,545 72,907 133,260 56,821 106,388 58,063 34,168 702,314

P32,272,726

P20,941,663

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financials >> 17. Lease Commitments The Organization leases office spaces for its 24 branches in Luzon and Mindanao for a period of two to three years, with options to renew the lease. Rent expense in 2006 and 2005 amounted to P7,706,053 and P7,088,697, respectively.

The future minimum lease payments under the above lease contracts are as follows:

Less than one year Between one and five years

2006

2005

P2,078,209

P3,549,502 2,078,209

P2,078,209

P5,627,711

18. Financial Instruments Financial Risk Management Objectives and Policies The Organization’s financial instruments consist of cash and cash equivalents, investments, loans receivable and bank loans. The main risk arising from the use of these financial instruments are interest rate risk, credit risk and liquidity risk.

Interest Rate Risk The Organization’s exposure to the risk for changes in market rate relates primarily to its long-term debt obligations with variable interest rates. However, most of the Organization’s existing debt obligations are based on fixed interest rates with relatively small component of the debts that are subject to interest rate fluctuation.

Credit Risk Credit risk represents the loss that the Organization would incur if counterparty failed to perform under its contractual obligations.

The Organization has established controls and procedures in its credit policy to determine and monitor the credit worthiness of customers and counterparties.

Liquidity Risk The Organization manages liquidity risk by maintaining a balance between continuity of funding and flexibility. Treasury controls and procedures are in place to ensure the sufficient cash is maintained to cover daily operational and working capital requirements.

Management closely monitors the Organization’s future and contingent obligations and sets up required cash services as necessary in accordance with internal policies.

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KMBI ANNUAL REPORT 2006

history >> Kabalikat Para sa Maunlad na Buhay, Inc., now with 29 branches

reengineering and strategic planning lead the organization to

and expanding, planted its first seeds in Valenzuela, Metro Manila.

embrace the “branch scale-up” model. With this effective and

Starting out as a small, church-based credit program, it opened

efficient system, a significant number of clients were reached.

a six-square-meter choir room to poor neighbors. Its vision

However, its vigor didn’t stop there.

was to see them live in abundance with strengthened faith in God. Even with only one worker, 37 neighbors were assisted into microentrepreneurship through loans amounting to Php 145,000.

Twenty of them were trained on cash management. Now the vision cuts through geographical barriers, sowing the same seeds to as far as Southern Mindanao.

From 1998 to 2000 KMBI’s scaling up was witnessed as it treaded higher grounds towards further expansion and strengthening. It started to apply the daily branch reporting and monitoring system based on SEEP and CGAP standards, conceptualize and implement a tool for transformation which is the Road Signs book series, open new branches in General Santos and Marbel, and sign a Memorandum

Climbing up

of Agreement to establish the Opportunity Microfinance Bank (OMB).

Retracing its steps, we find KMBI hurdling through challenges of

Strengthening its stride

growth and fortification from 1986 to 1997. With guidance and wisdom from God, through the leadership of the Board of Trustees, it grew to become a full-scale microfinance organization. From Valenzuela, it expanded its borders to Bulacan, Caloocan and Quezon City, catering to more poor families than before. Constant

2001 to 2004 were the years when KMBI needed to strengthen its stride. Among the courses that it took during these years were the following: * creation of a research and development / publication department * decentralization of the training department and centralization of the finance, administrative and human resource departments

With guidance and wisdom

from God, through the leadership of the Board of Trustees, it grew to become a full-scale

microfinance organization.

* putting up of 17 branches in Bicol, Quezon, Batangas, Laguna, Cavite, Metro Manila, and Southern Mindanao areas * reconfiguration of existing Southern Mindanao branches * standardization of MF operations * provision of national and international exposures and trainings for staff * recognition from both national and international networks.

It was also in 2004 that Opportunity International Network hailed KMBI as the number one microfinance practitioner among international partners in the large-scale category, as well as the top advocate for gender excellence.

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the board of trustees >>

Dr. Amelia L. Gonzales

Chairman & President

Emmanuel M. de Guzman

Vice Chairman & Vice President

Atty. Servillano C. Mendoza

Trustee & Corporate Secretary Aurelio C. Llenado, Jr.

Trustee & Corporate Treasurer Damiana D. Exiomo

Trustee

Eduardo C. Jimenez

Trustee

Dr. Ricardo B. Jumawan

Trustee

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KMBI ANNUAL REPORT 2006

the management >> Edgardo S. Mercedes Executive Director Liza D. Eco Deputy Director - SSG Annalie D. Concepcion Administration Manager Rizaldy R. Duque Res. Mob. & Communications Manager Vencent A. Abraham Operations Manager (Mindanao) Carmela N. Porras Operations Manager (Luzon) Arthur N. Gonzaga Training Manager & OIC - HRD Sancho A. Montaos II Finance & Accounting Manager Selven A. Raguro Research & Development Manager Hazel Christine Z. Rosacia Enterprise Development Services Head Charis Ken C. Layawan Transformation Coordinator Madelyn P. Frijillano Senior Auditor

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“We are beginning a new and promising journey heading to the realization of Goal 25.250... Join me in this journey!”

Edgardo S. Mercedes

Executive Director

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KMBI ANNUAL REPORT 2006