Amazing growth of microfinance

Microfinance may have taken its roots in the countryside, but it is now fully embraced as a powerful driver of the economy.  The term actually takes on different meanings, depending on its application and the sector it benefits (private or public, etc.).

At the helm of providing access to microfinance to as broad a sector as possible are the country’s rural banks. I certainly don’t count as an authority in banking or economics or anything related to these, but I am an ardent listener, interested to learn anything outside my sphere. So, when one of our resource persons patiently talked about the subject during an on-cam interview for our TV show Business & Leisure, I sat up and listened.

What readily comes to mind when you talk of microfinance is what the rural banks started out to do, which is to provide small loans to micro and small entrepreneurs, mostly in the countryside. These are usually collateralized for the protection of the banks. USAID started a program called MABS (Micro Access to Banking Services) and later enlisted the country’s numerous rural banks to partner with the agency. USAID fully funded this program which was started 15 years ago in Mindanao. Through MABS, loans were given out to micro and small entrepreneurs who couldn’t come up with the necessary collaterals. Instead, what was focused on and closely monitored was the borrower’s cash flow. The program took hold in Mindanao where many small and struggling businessmen enlisted in MABS and successfully paid off their loans.

USAID actually partnered with the Rural Bankers Association of the Philippines (RBAP), the umbrella organization of reliable and well-capitalized rural banks for the MABS program, where they further developed products for rural banks which would lessen the bank’s risks of lending to small entrepreneurs without collateral. It was actually the association, RBAP, which developed the approach of relying on the borrower’s cash flow in lieu of securing collateral.

After 15 years, MABS has successfully served over a million micro borrowers, with loans amounting to over P40 billion given out to small entrepreneurs. It has changed lives in Mindanao, but MABS has spread to many other parts of the Philippines. It is especially effective in areas that have little or  no access to banking services.

After 15 years of successfully funding and closely monitoring the program, USAID has exited from the program, leaving RBAP with the technology and expertise to handle the microfinance program on its own. RBAP readily assumed the role that USAID gladly passed on to them, and they have incorporated it into their own program.

Business & Leisure spoke with RBAP president Leandro Garcia who seemed very pleased with how the program has indeed changed thousands of lives in Mindanao and in other far flung areas in the country. The partnership that was forged between USAID and RBAP has in fact expanded well beyond their expectation. Since August 2010, some 197 banks have been certified by the RBAP and the Rural Bankers Research and Development Foundation, with the Bangko Sentral issuing a notice of no objection. RBAP has so mastered the technology that they are inviting other rural banks who have not yet enrolled into the program to try it out – they can provide them the necessary technology and provide them too with the training and support to carry out the program successfully in their areas.

After they exited from the MABS program, USAID went into another program, an offshoot of the old MABS.  This time it involves Mobile Money Services (it is called SIM program, but I don’t know what the acronym stands for) which is an altogether new concept in the provinces. Garcia says the SIM program is slowly gaining grounds in the countryside, but it has not grown by leaps and bounds.  It takes time, and a lot of resources, to educate our brothers in the hinterlands to embrace the new concept of using mobile money for deposit to pay their bills and other obligations, but the rural banks are again at the forefront of getting the idea assimilated in the provinces, but it’s not a walk in the park, as they came to realize. “I think the No. 1 lesson we learned, if we want to develop it, we’ll have to have other players in the loop…so everything can now be done through mobile,” says Leandro Garcia.

They are also now into micro insurance—“more on the life term insurance of micro borrowers,” explains Garcia. Their target is to have at least a million micro beneficiaries.  So far, they already have about 400,000 clients, but they clearly need more support to educate our brethren in the countryside.  It is not easy to promote micro insurance; there are a lot of clients out there that need to be covered, but insurance is not among their priorities. These are the farmers and small entrepreneurs who feel that the money they will spend for insurance premiums are better spent on their actual business operations. They need to be educated on the far-reaching benefits of micro insurance which have been packaged into affordable, pliable schemes to accommodate or fit into the operations of these farmers and small entrepreneurs.

Our rural banks have grown so much in number in recent years, and a few of them are so well-capitalized that they could easily be counted in the scale of thrift banks. The capital infused into these rural banks come mainly from the owners of the banks themselves, unlike commercial banks that are allowed to get investors to come in, or get more capital infusion through foreign equity or even through the stock exchange. This is the edge of commercial and thrift banks over the rural banks, which is why they are pushing for the bill in the Senate that would allow them to accept foreign equity in rural banks. The House has apparently approved a  40 percent equity.  It is up to the Senate to determine what equity will be passed.

Mabuhay!!! Be proud to be a Filipino.

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