Can Service Contracts Potentially Enhance the Creditworthiness of Transport Cooperatives? A Case Study from the Philippines

Abstract

We study, in an exploratory manner, the potential impact of service contracts on the cash flows and creditworthiness of two transport cooperatives in the Philippines. Annual audited financial statements for two periods (before service contracting [SC] and during SC) are examined using four financial metrics. The analysis reveals that the cash flows stabilized or improved in 2020–2022 when the two transport cooperatives participated in the SC program. The cash flow stability/improvement is a potential result of SC. We then presented the cash flow analysis to six credit officers and asked them to evaluate the creditworthiness of the transport cooperatives based on the cash flows. In general, the bank credit officers confirmed that cash flow improved after 2020 and that SC was a contributing factor to this improvement in cash flow, which has somehow enhanced the creditworthiness of the transport cooperatives as credit borrowers. The results of the study contribute to the field of financing for informal public transport reform, which is understudied in the literature. Moreover, this research is relevant for global policymakers and transport scholars, including those in regions such as North America and Europe, offering insights into how SC can enhance the financial sustainability of smaller transport operators.