Proposed Enhancement Program for Creditors and Borrowers Based on Risk Management Insights in Client Appraisal

Abstract

Microfinancing institutions play a vital role in supporting community borrowers by providing short-term loans to address gaps in funding for household expenses, education, entrepreneurial initiatives, and other essential expenditures when primary income sources are insufficient. This study examines credit appraisal practices as a risk management strategy among microfinance institutions operating within the adopted communities of the College of Business and Accountancy, Teachers College, and the College of Arts and Sciences at the University of Bohol. This study employed a mixed-methods methodology and collected data from 71 participant-borrowers by administering surveys and conducting in-depth interviews. The creditors agree to the practice of credit appraisal to check the borrower's capacity to pay, mainly as part of credit risk management. Similarly,  credit appraisal is a generally accepted practice among community borrowers where past payment behavior and means to pay are factors. The results showed no significant difference between the parties involved in providing short-term credit to community borrowers, typically agreeing with the conduct of credit appraisal as required by the MFIs. This study suggests a program to strengthen borrowers' financial literacy through seminars to better credit handling behaviors and implement flexible payment terms with the MFIs, incorporating income cycles with the leveraging of technology to monitor credit in real-time. The creation of cooperatives and collective savings clubs are future opportunities to enhance community resilience and accountability.