Assessing the Islamic Lending Practices in General Santos City: The Case of Katiyakap, Inc.

Nor-Aiza R. Unas1, Jon Marx P. Sarmiento1*, Prof. Thaddeus R. Acua1, and Prof. Anne Shangrila Y. Fuentes2

1School of Management, University of the Philippines Mindanao, Mintal, Davao City, 8022, Philippines2College of Humanities and Social Sciences, University of the Philippines Mindanao, Mintal, Davao City, 8022, Philippines*Corresponding author. +6382-295-2750. marx_jon@yahoo.com

AbstractMicrofinance is considered as a poverty alleviation tool. It provides small loans to people with insufficient income which hinders them from making self-employment projects. Informal sector in the Philippines is comprised of microenterprises in a form of small vendors usually situated in public markets. They rely heavily on financing which usually comes from informal financiers. Muslim microentrepreneurs are predominant in public markets. Due to religious principles, they require a different type of financing, especially in lending. The elimination of riba or interest is the salient feature of Islamic lending. Islamic lending can provide assistance to Muslim microentrepreneurs who are rejecting the conventional lending. Katiyakap Inc., a non-government organization, offers 3 modes of Islamic financing; Musharaka or profit and loss sharing, Ijarah or leasing, and Murabaha or cost plus margin sale. This study was conducted to assess the Islamic lending practices in General Santos City. A total of 120 Muslim microentrepreneurs were interviewed. Cronbachs Alpha was used as a reliability test. Tobit and multinomial logistic regression were both employed. The results show that the practice of Islamic lending is prevalent in General Santos City public markets. Even though it is an informal transaction, 55% of the total sample preferred to borrow from their relatives while still adhering to the concept of Islamic lending. Among the modes of financing, Musharaka was the most preferred by those who have more years of business experience and Murabaha for those who are in the early years of business. For future studies, Muslim entrepreneurs operating in both small and large scale operation should be considered.Keywords: Cronbachs Alpha; Islamic Lending; Logit; Microentrepreneurs; Microfinance; Tobit

Abbreviations:MFI Microfinance InstitutionPEF Peace and Equity Foundation

Introduction

Microfinance is known to be a powerful poverty alleviation tool. It involves provision of financial services such as loans, savings, insurance, remittances, and transfers to low-income people whose economic standing excludes them from formal financial systems (Obaidullah & Khan, 2008). It extends small loans to people with insufficient income for self-employment projects that generate returns in allowing them to take care of themselves and their families (Rahman, 2007). It has been proven successful to many countries in addressing the problems of poverty. According to the report of the Economic Intelligence Unit, the business information arm of the Economist Group, Philippines is rated as the best in the world in terms of regulatory framework and practices in microfinance and top four best performing country in the overall business environment (Malaya Business Insight, 2012). However, Philippines is still considered as a developing country due to its informal sector comprised of microenterprises. Most of these microenterprises are severely resource-constrained small vendors operating in different public markets in the country (Kondo, 2003). These small vendors rely heavily on access to financing to make their business survive which usually comes from informal financiers called 5-6. This form of financier is found in Philippine public markets with a distinctive lending mechanism for Filipino and Indian lenders. The nature of this informal financing is similar to those of formal. Money lenders charge a nominal interest rate over an agreed period of time. However, this type of financing access does not require collateral or documents from their borrowers unlike in the formal sector. Furthermore, the ability of the borrowers loan payment history will determine the borrowers credibility. In a country like Philippines where there is a significant Muslim population, the concept of Islamic financing is significant. The concept of Islamic microfinance is different from the conventional types of institutions that offer financial assistance. It adheres to the principles of Islam and is a form of socially responsible investing. Investors who use their wealth for Islamic microfinance projects only involve themselves in Halal projects which benefit the community at large. Such projects include Zakat or charity, or trade and industry projects to develop a country's economy (Nazeer, 2012). The lending in Islamic microfinance differs from the conventional form due to the prohibition of riba or interest. It presents an alternative pattern for millions of people who are currently not served by conventional microfinance. It is imperative for the industry to adopt innovative and sound practices and prove that this type of financing assistance work to fully access sustainable services. This therefore requires the industry for a deeper and comprehensive market research to develop and implement appropriate business models for all levels. The Filipino Muslim population in the Philippines comprised 10% of the total population or 10.3 million Muslims in 2011 (National Commission on Muslim Filipinos, n.d. as cited in Philippines 2012 International Religious Freedom Report, 2012). In Mindanao, where most of the Filipino Muslim ethnicities are located, lies a limited number of financial assistance that would address to their specific needs. There are very few examples of microfinance institutions (MFIs) operating in the field of Islamic finance and Islamic banks (Segrado, 2005). Out of the forty six (46) microfinancing institutions nationwide, there are thirty nine (39) MFI NGOs providing credit to the poorest of the poor. However, only eleven (11) out of the latter are based in Mindanao and not all are operating in the field of Islamic finance (Lacorte, 2010). Most of the microenterprises all over Mindanao are usually found in the public markets, in the form of small vendors. In General Santos City public market, Muslim microentrepreneurs are predominant. These microenterprises, among many others, are in need of financial assistance to survive in the long run. These microentrepreneurs require a different kind of financing assistance due to their religious principles.One of the social enterprises situated in General Santos City is the Katiyakap Inc. which caters financial assistance to Muslim microentrepreneurs specifically to Muslim women. It was built primarily to look after the welfare of the Muslims that covered the provision of basic services and also poverty alleviation. As of today, Katiyakap Inc. has a total of seventeen (17) clients. Katiyakap Inc. started to tender Islamic finance last September 2012, with the help of the Peace and Equity Foundation (PEF). Currently, the Katiyakap offers three (3) modes of Islamic finance; Musharaka or profit and loss sharing, Ijarah or leasing, and Murabaha or cost plus margin sale. Under the project entitled Profit Sharing Micro-financing for Women Entrepreneurs of SOCSARGEN headed by the Peace and Equity Foundation, Katiyakap is one of the included social enterprises.As mentioned above, the clients of Katiyakap Inc. are Muslim women. The loan applications are managed by these microentrepreneurs. It is the preference of the Katiyakap Inc. to deal with Muslim women to make them economically empowered. Nevertheless, literature would tell us that a womans testimony is half of the man in terms of financial matters (Rafiqul-Haqq & Newton, 1996). Islamic financing has become widespread in both Muslim and non-Muslim communities. However, there are still Muslims who are using the conventional type of financing which is considered as Haram or forbidden in Islam. This practice may be a result of lack of awareness on the existing types of Islamic financing. This study will introduce the different modes of financing which are Halal or accepted in Islam. It would give a better understanding of the existing Islamic financing practices to those Muslims who still engage in the conventional type of financing. Hence, this study explored the different practices of Islamic lending and its prevalence in General Santos City and Lagao public markets. Furthermore, the different Islamic lending practices among the Filipino Muslim ethnicities were taken into consideration. The attitudes and characteristics of Katiyakap clients, informal Islamic lending clients, and Islamic lending non-clients were highlighted. The participation of Muslim women in decision-making with regards to financial matters was also determined. The findings of this study will help the Katiyakap, Inc. improve their operation as an Islamic microfinance. Being the only established Islamic MFI in General Santos City, their knowledge of the current practices of the Muslim microentrepreneurs can aid them from constructing appropriate financial assistance strategies for their clients. On the other hand, this information can provide business opportunities for the clients of Katiyakap Inc., specifically the Muslim women which can uplift their economic situation. In general, the practice of Islamic finance can help the Muslim microentrepreneurs in maintaining their business operation and at the same time ensuring that they are practicing the accepted form/s of financing under the Islamic law.The Islamic financial system supports the concept of participation in a transaction backed by real assets and at the same time, employing the funds in a profit and loss sharing foundation (Institute of Islamic Banking and Insurance, n.d.). Thus, Ahsan (n.d.) identified five (5) Islamic contracts for commercial transactions:1. Musharaka or profit and loss sharing In this contract, all participants share in the capital as well as the profits and losses incurred. The profits will be distributed as per agreed ratio while the losses are distributed as per capital ratio. Since both participants share the profit and loss, every participant of the contract is agent of the other. 2. Mudaraba or profit sharing There are two (2) participants under this contract; the person who contributes the capital and the person who contributes his/her skills or services to the venture. The profits are shared by both of the participants in a pre-agreed ratio. On the other hand, losses are distributed to the person who contributed the capital while the other loses his/her services.3. Ijarah or leasing An asset is passed to other participant against a periodic rent payment. The asset under this contract must be tangible. The rights will remain with the original owner of the asset and therefore will bear all the risks related to the ownership. 4. Salam or advance payment This contract is the exception to the general principle of instant exchange of counter values in a contract of sale. In the case of paying in advance, full payment must be observed. Installment in advance, however, is not allowed. 5. Murabaha or cost plus margin sale It is a sale of a commodity at cost plus margin and has fulfilled all the conditions of a valid sale. It may be a credit sale but deferred price becomes a debt and shall be dealt as a loan transaction. Under this contract lies the following conditions: a) it must fulfil all the conditions of a valid sale, b) the bank should purchase the asset from a third party and not from the customer itself, c) the bank must own the asset before it sells to the customer, d) the seller must know and disclose the cost including freight, insurance, taxes, etc., and e) profit may be fixed in aggregate sum or through agreed ratio to be charged over the cost. Materials and MethodsThe study was conducted in General Santos City, also known as Dadiangas, a part of the SOCCSKSARGEN region. It is situated at the southernmost tip of the archipelago. The respondents of the study were Muslim microentrepreneurs located at General Santos City and Lagao public markets.

Figure 2. Map of General Santos City, PhilippinesSource: Google Maps, 2013Complete enumeration was used as the sampling method in this study. A total of one hundred twenty (120) respondents were interviewed; seventeen (17) under the profile Katiyakap clients, forty (40) informal Islamic clients, and sixty three (63) non-clients. The data gathering activity was done during the last week of December 2013. Both primary and secondary data were employed in this study. Primary data were obtained with the use of structured survey questionnaires. Secondary data related to this study were acquired from electronic books, journals, and other online resources. The conceptual framework used in this study is consist of (3) divisions; factors, attitude, and practices (Figure 1). Under the factors, the socio-demographic which include age, sex, civil status, ethnicity, and household size and economic profile such as years in business, type of business ownership, capitalization, household income, and source/s of income were taken into account. These factors determined the different attitudes of the Muslim microentrepreneurs. Different attitude statements of the respondent were reflected under the four (4) categories: 1) cultural attitudes which described the respondents manner towards Islamic lending, 2) profit orientation attitudes described the respondents business orientation approaches, 3) risk attitudes explained the respondents behavior towards decision-making regarding his/her business, and 4) information seeking attitudes considered the respondents approach in searching for financial institutions that would help his/her business and other matters that are essential for the survival of the business. The lending practices of the respondents were either Islamic (no interest involved) or Non-Islamic (with interest). Both practices have formal and informal choices.

Figure 1. Conceptual Framework for Assessing the Islamic Lending Practices in General Santos City, Philippines: The Case of Katiyakap, Inc.

Cronbachs Alpha was used to determine the internal consistency of the items in the survey instrument or how closely related the set of items were as a group. The alpha coefficient ranges in value from 0 to 1 which may be used to describe the reliability of the factors extracted from a dichotomous or questions with two (2) possible answers and/or multi-point formatted questions (Pankhania & Jani, 2012). The closer Cronbachs Alpha coefficient is to 1, the greater the internal consistency of the items in the scale. The rule of thumb for the value of alpha used in this study was 0.6. The following twenty (20) attitude statements were used as items for the different analyses throughout the study:

Cultural AttitudeProfit Orientation AttitudeRisk AttitudeInformation Seeking Attitude

It is important that the terms of the lender are based on Islamic lending. It is important that I borrow and/or lend money only to Muslims. It is important that I only engage in Halal ventures. It is important that I do not give interest if I lend money to others. When borrowing money, I only ask to those who have Islamic financial assistance. It is important to receive the highest possible amount that can be borrowed. The period extended to repay the loan is always enough. The loan amount given is always enough to meet my business needs. The process in acquiring the loan was smooth. The loan as a whole has been so helpful to my business. It is important to avoid risky loans in the business decision-making. It is important to borrow money only when it is needed. It is important that my business is not always indebted. It is important to be cautious in borrowing money for the business. It is important to check the background of the people whom I lend money to. There is a limited access to financial services in General Santos City. There is a limited access to financial services that caters my needs as a Muslim. I consult with other businesses in my loan portfolio. As an entrepreneur, I know my options when I need financial assistance. I have gained knowledge to help me manage my loan portfolio.

Results and DiscussionA total of 120 respondents were interviewed and distributed to the following respondent-categories: (1) 17 Katiyakap clients, (2) 40 informal Islamic lending clients or respondents who asked for financial assistance from family, relatives, and/or friends while following the concept of Islamic lending during the period of January-December 2013, and (3) 63 Islamic lending non-clients or respondents who did not seek for financial assistance and/or did not engage in the conventional type of lending during the same period. On the average, a client coming from Katiyakap and informal Islamic is 38 and 30 years old, respectively while an average non-client is 32 years old. Majority of the respondents are female and married. The ethnicity of the respondents for each category varies. For the Katiyakap clients, majority were Maguindanaon (9). On the other hand, majority of the respondents from the informal Islamic clients (38) and non-clients (54) were Maranao. The average number of household members of a Katiyakap client, informal, and non-client are 5, 6, and 6. In terms of educational attainment, the Katiyakap clients had the highest number of years in education (12). Majority of these microentrepreneurs did not hold any leadership position in their respective community. In this profile, some variables under the civil status such as single and widowed and ethnicity such as Maguindanaon, Maranao, and Others appeared to be statistically significant. Among the three (3) respondent-categories, the non-clients had the highest number of years in business with an average of eight (8) years, followed by the informal Islamic clients with an average of six (6) years, and Katiyakap clients with three (3) years. The difference of the respondent-categories of Katiyakap clients and non-clients is statistically significant at 5% level. This implies that the higher the number of business years a Muslim microentrepreneur has, the more likely he/she will not seek financial assistance. Majority of the respondents are sole proprietor of their respective business. To maintain the operation of their business, both the Katiyakap and informal Islamic clients needed financial assistance. However, majority of the total population indicates that the non-clients do not need this form of assistance for their business. Roughly one (1) in every two (2) Muslim microentrepreneurs (53%) needs financial assistance. Meanwhile, three (3) in every ten (10) or 31% Muslim microentrepreneurs need Islamic financial assistance whether from formal or informal institution. Among the three (3) respondent-categories, the non-clients received the highest household income which amounts to PhP 54,604/month. The informal Islamic clients received PhP 41,287 followed by the Katiyakap clients with PhP 18,582/month. The difference of the incomes between Katiyakap clients and informal Islamic clients and Katiyakap clients and non-clients are statistically significant at 5% and 1% levels, respectively. Thus, Katiyakap clients had lower income compared to the informal Islamic clients and non-clients. This information implies that the Katiyakap Inc. is serving the lower income population of the Muslim society. In terms of business performance, the non-clients received the highest sales every month (PhP 50,484) followed by the informal Islamic clients (PhP 38,150) and Katiyakap clients (PhP 12,082). The difference of the sales between the respondent-categories is statistically significant at 1% level. The Katiyakap clients had the least amount of expenses among the three (3) groups. These clients are still developing microentrepreneurs which can be explained by their current business performance. These results explain that those respondents who are operating in their early years in business are more likely to seek for financial assistance. In addition, these respondents also received the lowest household monthly income and monthly business profit which will eventually encourage them to ask for financial aid. It can also be observed that the higher the number of years in business, the more expenses is needed for the business. These expenses may be used for expansion of the business. Overall, the non-clients obtained the highest profit among the three (3) groups. Most of these non-clients had multiple businesses which caused their good economic performance. Islamic Lending Awareness, Experience, and PreferenceOne of the factors that will greatly affect the respondents involvement in Islamic lending is their awareness of the said practice. Out of 17 Katiyakap clients, 14 or 12% of the total sample heard about the concept of Islamic lending prior to the orientation given by the said organization. On the other hand, majority of the informal Islamic and non-clients have not heard of such kind of lending. Majority of the respondents from the three (3) categories are aware of the prohibition of interest in Islam. In terms of practice, both Katiyakap and non-clients answered 3.94 in average while informal Islamic clients answered 4 in average (1 for No to 4 for Always).The lending history of the respondents during the period of January to December 2013 was evaluated. The results show that majority of both Katiyakap and informal Islamic clients borrowed money during the said period. Majority of the Katiyakap clients borrowed from a formal sector while informal Islamic clients borrowed from their relatives. In the case of non-clients, majority did not borrow. However, the non-clients borrowed the highest amount (PhP 96,500) followed by the Katiyakap clients (PhP 18,050) and informal Islamic clients (PhP 14,282) in average. The non-clients also had the highest amount of balance in their debt (PhP 81,250). In terms of their instalment, the Katiyakap clients had the lowest amount paid per instalment (PhP 2,765) in average, for twelve (12) instalments. Since Katiyakap Inc. is considered as a formal sector specifically an Islamic microfinance, the number of instalments and amount for each instalment are all included in the terms and agreements between them and the client and must be observed properly. In their transaction, majority of the respondents from the three (3) categories did not have a co-borrower. Among the respondents, the Katiyakap and informal Islamic clients still have their outstanding balance. In terms of having interest in the loan that they acquired, both the Katiyakap and informal Islamic clients loan did not have any interest. A total of four (4) or 8% of the total sample were given interest in their loan. These respondents were under the non-client respondent-category which refers to those who engage in borrowing and/or lending with interest. However, 1 (2%) Katiyakap client also had loan from informal non-Islamic scheme.Currently, the Katiyakap Inc. offers three (3) modes of Islamic finance; the Musharaka or profit and loss sharing, the Ijarah or leasing, and Murabaha or cost plus margin sale. In addition to these three (3), the Mudaraba or profit sharing and Salam or advance payment were also included in this study. Many of Katiyakap clients have experienced Murabaha as mode of financing. The informal Islamic clients experienced Salam while the non-clients experienced Mudaraba, Musharaka, and Salam. On the other hand, some of the informal Islamic clients experienced Murabaha and Salam as modes of financing in terms of lending. In terms of preference, majority of Katiyakap clients preferred Murabaha. It is commonly applied by the Katiyakap clients since it provides items which are used in the business. These clients are still in their early years which require them to invest for equipment needed for the business. Some of the items that were already provided by the Katiyakap to their clients were motorcycle, refrigerator, airconditioner, heat press and printer, among others. Since it is a cost plus margin sale, the amortization is 30% plus the cost of the item provided by the Katiyakap. For transparency purposes, the Katiyakap Inc. let the clients canvass for the item/s that they want. The schedule of the amortization will start thirty (30) working days after the transaction was made. This information is manifested in the contract provided by the microfinance. Furthermore, a total of four (4) clients or 3% of the total population prefer the Musharaka as a mode of financing for their business. In this financing, the Katiyakap and the borrower shares the profit and loss of the business by a given ratio; 30% for Katiyakap and 70% for the client. The schedule of the amortization will start after ninety (90) working days of the transaction. This information is evident in the contract provided by the microfinance. The computation of the profit from the business will be every three (3) months. Lastly, a client from Katiyakap Inc. preferred Ijarah among the five (5). In the Katiyakap experience, the clients applied for Ijarah usually for their farm redemption. In the case of the informal Islamic and non-clients, the common preference of the majority from these two (2) is the Musharaka. Since the businesses of these respondents are already established and have been operating for 6-8 years, they do not encounter much on problems such as acquiring equipment for their business unlike the Katiyakap clients. Their preference among the five (5) modes of financing, the profit and loss sharing, can lead to expansion of business. In this venture, the microentrepreneurs might choose to engage in partnership to properly manage the business especially in the taking part of capital.Women ParticipationDecision-making, in general, is one of the activities that need to be done in every household. In this study, the participation of women in household decision-making is highlighted. The answers of both male and female respondents are presented to check the consistency of the results. The results show that majority or 96% of the male respondents make decisions regarding the seeking of financial assistance with their spouse. This information is consistent with the response coming from the female respondents (93%). In addition, having the final say in the decision was not participated by the female respondents, according to 56% of them. It can be observed that majority from the respondents let the females do the request of the loan whenever they seek for financial aid. This is evident in both male and female responses. In the case of Katiyakap Inc., they let the female member of the household act upon the application of the loan since Muslim women entrepreneurs are their target clients. The Katiyakap Inc. preferred the females to manage the application because they believe that it is easier to make transactions with women. In addition, it is in the nature of Katiyakap Inc. to make the women economically or financially empowered. In the case of the non-clients, majority of the male respondents or 24% (6) of the total sample do not let the female of the household process their loan/s. As seen in the earlier part of this chapter, the non-clients applied the highest amount during the period of January-December 2013. This practice can be associated by the custom that Muslim men are in-charge of the household and therefore takes responsibility especially in financial matters. According to Dhami and Sheikh (2000), the economic responsibility for maintaining the household falls squarely on the shoulders of the man regardless if the wife is earning money or not. In lending money to other people, this decision is participated by both the male and female, according to 92% of the total population. The results also show that majority or 82% of the total population did not receive benefits from having financial access. However, in the case of Katiyakap Inc., the total population of its clients received benefits from the financial assistance that was offered to them. Since Katiyakap Inc. helped these seventeen (17) clients in the operation of their business in terms of acquiring items, partnership ventures, and farm redemption, it is in the clients advantage when it comes to having stable income. However, majority of the respondents or 33% and 49% of the total sample from informal Islamic and non-clients, respectively affirmed that there are no benefits from having financial access. Unlike Katiyakap clients, these two (2) respondent-categories do not have access from established microfinance institutions.Islamic Lending AttitudesWith the use of a 5-point Likert scale (1 for Strongly Disagree to 5 for Strongly Agree), the four (4) Islamic lending attitude-categories were employed with five (5) statements each. These categories are the cultural, profit orientation, risk, and information seeking attitudes. Under the cultural attitude, the informal Islamic clients had the highest mean rank (4.47). This result shows that informal Islamic clients were the most culturally inclined when it comes to seeking financial assistance by still applying the notion of what lending in Islam should be. Statements such as It is important that I only engage in Halal ventures and It is important that I do not give interest if I lend money to others support the impression that these clients opt to follow the Islamic lending concept.The Katiyakap clients had the highest mean rank in profit orientation (4.54), risk attitude (5.0), and information seeking (4.19). For the profit orientation, the result shows that Katiyakap clients were the most profit oriented. Statements such as statements The loan amount given is always enough to meet my business needs, The process in acquiring the loan was smooth, and The loan as a whole has been helpful to my business confirm their commitment with Katiyakap, Inc. specifically in their loan transactions. Moreover, the result under risk attitude-category implies that these clients were risk averse. They tend to avoid decisions that would put their business into a risky position since they are still developing. Hence, chose to start operating in a smaller scale. Lastly, the statements under the information seeking category such as There is a limited access to financial services in General Santos City, There is a limited access to financial services that caters my need as a Muslim entrepreneur, As an entrepreneur, I know my options when I need financial assistance, and I have gained knowledge to help me manage my loan portfolio prove that Katiyakap clients were able to ask for financial assistance from an Islamic microfinance. In this category, the non-clients were the least information seeker (3.61) which may led to their participation to informal sector such as the 5-6 lending scheme.Reliability AnalysisTo test the internal consistency of the statements used under the four (4) attitude-categories, Cronbachs Alpha was employed as a reliability test. Each category has five (5) statements. As mentioned earlier, 0.60 is the rule of thumb used in this study. Since the value of alpha appeared to be lower than 0.60, one of the items was removed thus, giving .608 as its new value for cultural attitudes. For the profit orientation attitudes, the value of Cronbachs Alpha (.803) satisfied the accepted reliability coefficient and therefore all of the items were retained. Moreover, the value of Cronbachs Alpha for the items under the risk attitudes is .903. All items were considered. For the information seeking attitudes, the value of alpha is less than the accepted reliability coefficient (.541). One of the items was removed thus, giving .672 as the new value of alpha. The reliability analysis reduced the attitude statements from twenty (20) to eighteen (18). The remaining statements satisfied the rule of thumb value of Cronbachs alpha. These results show that the questions used in the survey instrument were consistent internally except for two (2) items. These results also explain how closely related the set of items are in each group or category. The remaining attitude statements were employed for other analyses.Tobit AnalysisThe remaining statements from the reliability test were then employed for tobit analysis. The socio-demographic and economic profiles were used as independent variables. For the dependent variables, the cultural, profit orientation, risk, and information seeking attitudes were used as the dependent variable for each model, giving us a total of four (4) models. For the cultural attitude model, the results show that Maranao respondents had the lowest cultural attitude level. This is consistent with the results from the other analyses in this study. This model is significant at 5% level. For the profit orientation model, the results show that respondents who need financial assistance are most likely to have high scores in profit orientation attitudes. This model is significant at 1% level. Moreover, the results from the risk attitude model explain that Maranao and Iranaon respondents are less risk averse among the ethnicity groups. This model is significant at 1% level. Lastly, the information seeking attitude model shows that Maranao respondents are most likely to be not information seekers which explains their engagement in the conventional type of lending instead of the Islamic microfinance. This model is significant at 1% level.Multinomial Logit AnalysisThis analysis was used to model the attitudes that explain the preference of the respondents among the different modes of financing. In general, the results show that if a respondents score is high in a cultural attitude statement, he/she will most likely favor Musharaka or Salam. On the other hand, a respondent will most likely favour Mudaraba if he/she has a high score in a profit orientation attitude statement. Furthermore, Ijarah is the most likely preference of a respondent with a high score in a risk attitude statement. Lastly, a respondent with a high score in information seeking attitude statement most likely prefer the Mudaraba. Conclusion and RecommendationThe basis of the current lending practices of the Muslim microentrepreneurs in General Santos City public markets is still associated with their religious principles. Out of the total sample, majority or 150 affirmed their constant engagement in Islamic lending, formal or informal. In general, roughly one (1) in every two (2) Muslim microentrepreneurs (53%) needs financial assistance. Specifically, three (3) in every ten (10) or 31% of these microentrepreneurs need Islamic financial support whether from formal or informal institution. The practice of Islamic modes of financing were also observed. Katiyakap clients favor the Murabaha. In the case of the informal Islamic clients and non-clients, they favor the Musharaka. For future studies, Muslim entrepreneurs operating in both small and large scale operation should be considered. Financial institutions such as banks and microfinance can make use of these findings as a baseline for a possible adoption of Islamic finance to cater the needs of the Filipino Muslim population. ReferencesAhsan, S. (n.d.) Islamic Modes of Finance. Retrieved June 27, 2013, from http://www.kantakji.com/fiqh/files/finance/n294.pdf

Brown, J. (2002). The Cronbach alpha reliability estimate. Retrieved May 11, 2013, from http:// jalt.org/test/PDF/Brown13.pdf

Cook, D., Dixon, P., Duckworth, W. M., Kaiser, M. S., Koehler, K., Meeker, W. Q., & Stephenson, W. R. (2001). Binary Response and Logistic Regression Analysis. Beyond Traditional Statistical Methods. Retrieved June 22, 2013, from http://www.stat.wisc.edu/~mchung/teaching/MIA/reading/GLM.logistic.Rpackage.pdf

Dhami, S. & Sheikh, A. (2000). The Muslim family: predicament and promise. Western Journal of Medicine. Vol. 173(5), pp. 352. Retrieved February 21, 2014, from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1071164/#ref1

Dhumale, R. & Sapcanin, A. (1999). An Application of Islamic Banking Principles to Microfinance. Retrieved January 17, 2013, from http://info.worldbank.org/etools/docs/library/128748/An%20application%20of%20Islamic%20bank%20principles.pdf

Floro, M. S. & Ray, D. (1997). Vertical Links Between Formal and Informal Financial Institutions. Review of Development Economics 1 (1), 34 56. Retrieved January 21, 2013, from http://www.researchgate.net/publication/228728170_Vertical_links_between_formal_and_informal_financial_institutions/file/79e4150ec1b7bcbcc1.pdf

Fraser, H. & Kazi, V. (2004). Assessing the Relative Poverty of Clients and Non-Clients of Non-Bank Micro-finance Institutions in Tanzania: The Case of the Dar es Salaam and Coast Regions. Research on Poverty Alleviation, Research Report No. 04.2. ISBN 9987 417 26 4. Retrieved June 19, 2013, from http://opendocs.ids.ac.uk/opendocs/bitstream/handle/123456789/1801/04.2_Fraser_and_Kazi_.pdf?sequence=1

Gafoor, A. (n.d.). Islamic Banking & Finance. Retrieved January 18, 2013, from http://users.bart.nl/~abdul/book4ft.html

Garas, S.M. (2007). Internationalization of Islamic Financial Institutions: Challenges and Paths to Solution. Thunderbird International Business Review. Vol. 49 (2), pp. 225-249. Retrieved February 20, 2014, from http://www.albaraka.com/ar/media/pdf/Research-Studies/Internationalization.pdf

General Information on Islam. (n.d.). What is Islam?. Retrieved March 29, 2014, from http://www.islam-guide.com/frm-ch3-1.htm

Ghalib, A. (2010). Does Microfinance Reach the Poorest of the Poor? Empirical Evidence of Programme Outreach from Rural Pakistan. Retrieved June 18, 2013, from http://www.chronicpoverty.org/uploads/publication_files/ghalib_microfinance_pakistan.pdf

Gujarati, D. (2004). Basic Econometrics (4th ed.). Retrieved October 12, 2013, from http://faculty.ksu.edu.sa/mahmoud/DocLib7/Basic%20Econometrics%20-%20Gujarati.pdf

Huda, C. (n.d.). Muslim. Retrieved March 29, 2014, from http://islam.about.com/od/basicbeliefs/g/muslim.htm

Institute of Islamic Banking & Insurance. (n.d.). Retrieved April 17, 2013, from http://www.islamic-banking.com/what_is_ibanking.aspx

Joosub, M. (n.d.). Shirkah. Retrieved September 20, 2013, from https://www.google.com/search?q=joosub&oq=joosub&aqs=chrome..69i57j0l3.1265j0j1&sourceid=chrome&ie=UTF-8#

Kondo, M. (2003). The Bombay 5-6: Last Resource Informal Financiers for Philippine Micro-Enterprises. Retrieved January 21, 2013, from http://kyotoreview.cseas.kyoto-u.ac.jp/issue/issue3/article_298.html

Lacorte, G. (2010). Microfinance group wary conflicts in the ARMM. Retrieved August 25, 2013, from http://davaotoday.com/main/2010/07/10/microfinance-group-wary-of-conflicts-in-the-armm/

Lpple, D. (2012). Comparing attitudes and characteristics of organic, former organic and conventional farmers: Evidence from Ireland. Renewable Agriculture and Food Systems, 1-9. doi:10.1017/S1742170512000294. Retrieved January 26, 2013, from http://journals.cambridge.org/download.php?file=%2FRAF%2FS1742170512000294a.pdf&code=32e97d72d7744ecf5367dab8427fc72d

Leadaut, E. (2009). Microfinance, Social Capital and Households Access To Credit: Evidence From Cote DIvoire. Retrieved June 29, 2013, from https://smartech.gatech.edu/bitstream/handle/1853/36658/1252001241_LT_1.pdf

Li, L., Simonoff, J. S., & Tsai, C. L. (2007). Tobit Model Estimation and Sliced Inverse Regression. Statistical Modelling. Vol. 7, No. 2., pp. 107-123. Retrieved February 20, 2014, from http://archive.nyu.edu/bitstream/2451/26301/2/06-01.pdfMagnac, T. (2005). Logit Models of Individual Choices. Retrieved from http://idei.fr/doc/by/magnac/logit.pdf

Malaya Business Insight. (2012). PH remains a global leader in microfinance. Retrieved June 27, 2013, from http://www.malaya.com.ph/index.php/special-features/banking-and-finance/16373-ph-remains-a-global-leader-in-microfinance

McDonald, J. F., & Moffitt, R. A. (1980). The Uses of Tobit Analysis. The Review of Economics and Statistics. Vol. 62, No. 2., pp. 318. Retrieved February 19, 2014, from http://www.jstor.org/discover/10.2307/1924766?uid=3738824&uid=2&uid=4&sid=21103420978301

Natukunda, J. (2010). Microfinance Credit Lending Terms, Networks and Performance of Women Entreprises: The Case of Wakiso District. Retrieved June 19, 2013, from http://www.mubs.ac.ug/docs/masters/mba/Microfinance%20credit%20lending%20terms,%20networks%20and%20performance%20of%20women%20enterprises.pdf

Nazeer, T. (2012). Islamic Microfinance: A Model for Alleviating Poverty. Retrieved September 12, 2013, from http://muslimmatters.org/2012/02/21/islamic-microfinance-a-model-for-alleviating-poverty/

Obaidullah, M. & Khan, T. (2008). Islamic Microfinance Development: Challenges and Initiatives. ISBN: 978-9960-32-180-6. Retrieved January 21, 2013, from https://docs.google.com/file/d/1mzC5aROcJuUg6512QF2cjZ5_rxNgXmz2Jol7Ny5WKyrzF30reOUPjOlmEFAY/edit?pli=1

Pankhania, T. B. & Jani, H. J. (2012). Industrial Productivity Scenario: An Evaluation of Industrial Estate at Vitthal Udyognagar in Anand District of Gujarat State, India. International Journal of Applied Operational Research, Vol. 2, No. 2, pp.1-12. Retrieved October 14, 2013, from http://www.ijorlu.ir/files/site1/user_files_b406fb/admin-A-10-1-19-6ffb3e7.pdf

Philippines 2012 International Religious Freedom Report. (2012). Retrieved March 2, 2014, from http://www.state.gov/documents/organization/208472.pdf

Rafiqul-Haqq, M. & Newton, P. (1996). The Place of Women in Pure Islam. Retrieved March 17, 2014, from http://answering-islam.org/Authors/Newton/women.html

Rahman, A. (2007). Islamic Microfinance: A Missing Component in Islamic Banking. Kyoto Bulletin of Islamic Area Studies, 1-2, pp. 38-53. Retrieved June 14, 2013, from http://www.microfinancegateway.org/gm/document-1.9.50560/Islamic%20Microfinance.pdf

Segrado,. (2005). Islamic microfinance and socially responsible investments. Retrieved May 1, 2013, from http://www.assaif.org/content/download/246/3502/file/Islamic%20microfinance%20and%20socially%20responsible%20investments.pdfSigelman, L. & Zeng, L. (1999). Analyzing Censored and Sample-Selected Data with Tobit and Heckit Models. Political Analysis. Retrieved February 19, 2014, from http://polmeth.wustl.edu/analysis/vol/8/PA82-167-182.pdf

Starkweather, J. & Moske, A. K. (2011). Multinomial Logistic Regression. Retrieved June 22, 2013, from http://www.unt.edu/rss/class/Jon/Benchmarks/MLR_JDS_Aug2011.pdf

Tavakol, M. & Dennick, R. (2011). Making sense of Cronbachs alpha. International Journal of Medical Education, 2, 53-55. doi: 10.5116/ijme.4dfb.8dfd. Retrieved June 20, 2013, from www.ijme.net/archive/2/cronbachs-alpha.pdf

UCLA: Statistical Consulting Group. What does Cronbachs alpha mean? SPSS FAQ. Retrieved October 2013 from http://www.ats.ucla.edu/stat/spss/faq/alpha.html

Ullah, A., Khan, Z., & Yasin, H. M. (n.d.). Cooperative Microfinance Myth or Reality: An Economic Analysis of the Welfare of Marginalized Segments. Retrieved June 21, 2013, from http://conference.qfis.edu.qa/app/media/226

Vasisht, A. (n.d.). Logit Analysis. Retrieved October 13, 2013, from http://iasri.res.in/ebook/EB_SMAR/e-book_pdf%20files/Manual%20IV/8-Logit.pdf

Warde, I. (2000). Islamic Finance in the Global Economy. Retrieved January 17, 2013, from http://www.iefpedia.com/english/wp-content/uploads/2011/03/2000-Ibrahim-Warde-Islamic-finance-in-the-global-economy-Edinburh-University-Press1.pdf

Wuensch, K. (2011). Binary Logistic Regression with PASW/SPSS. Retrieved June 22, 2013, from http://core.ecu.edu/psyc/wuenschk/MV/Multreg/Logistic-SPSS.pdf

Xu, P. (2005). Effects of Farmers Risk Attitudes and Personality Types on Production and Marketing Decisions. Staff Paper # 05-10. Retrieved February 20, 2014, from http://ageconsearch.umn.edu/bitstream/28677/1/sp050010.pdf

23