[6] The word barangay originated from balangay, a type of boat used by a group of Austronesian peoples when they migrated to the Philippines.

[2][citation needed] When the first Spaniards arrived in the Philippines in the 16th century, they found well-organized, independent villages called barangays.

However, historian Damon Woods challenges the concept of a barangay as an indigenous political organization primarily due to a lack of linguistic evidence.

Instead, barangay is argued to be a Spanish invention resulting from an attempt by the Spaniards to reconstruct pre-conquest Tagalog society.

The encomienda of 1604 shows that many affluent and powerful coastal barangays in Sulu, Butuan, Panay,[11] Leyte, Cebu, Pampanga, Pangasinan, Pasig, Laguna, and the Cagayan River were flourishing trading centers.

There were smaller barangays with fewer people, but these were generally inland communities, or if they were coastal, they were not located in areas that were good for business pursuits.

Traditionally,[13] the original "barangays" were coastal settlements formed by the migration of these Malayo-Polynesian people (who came to the archipelago) from other places in Southeast Asia (see chiefdom).

Business with traders from other countries also meant contact with other cultures and civilizations, such as those of Japan, Han Chinese, Indians, and Arabs.

[14] These coastal communities acquired more cosmopolitan cultures with developed social structures (sovereign principalities), ruled by established royalties and nobilities.

During Spanish rule, through a resettlement policy called reductions, smaller, scattered barangays were consolidated (and thus "reduced") to form compact towns.

This was quickly replicated by the national government, and in 1974, President Ferdinand Marcos ordered the renaming of barrios to barangays.

[19] After the People Power Revolution and the drafting of the 1987 Constitution, the Municipal Council was restored, making the barangay the smallest unit of Philippine government.

Their function is to conciliate and mediate disputes at the barangay level to avoid legal action and relieve the courts of docket congestion.

The exact amount of money is determined by a formula combining the barangay's population and land area.