Big help for small businesses

DAVAO CITY – For too long, the country’s entrepreneurial poor, comprised of ambulant vendors, sari-sari store owners, tricycle drivers and microbusiness operators, have not been able to move forward because of limited credit access.

Many are at the mercy of loan sharks or usurers who charge exorbitant interest rates of at least 10 percent a month.

But with the help of the Rural Bankers Association of the Phils. – Microenterprise Access to Banking Services (RBAP-MABS) Program which is supported by the United States Agency for International Development (USAID), a growing number of rural banks have started to realize that lending out to small businesses can be good business.

The Program has helped rural banks expand loan and deposit services to microenterprises and other groups comprising the lower socioeconomic level.

After beginning with four banks in 1998, MABS participating banks have increased to 55, covering more than 130 branches. More than 120,000 microenterprise borrowers have also benefited from the Program and more than 190,000 new microdepositors have opened up savings accounts.

MABS provides one-on-one technical assistance, workshops, seminars, in-bank coaching, and exposure and training visits to member banks to significantly and profitably increase the services they provide to the entrepreneurial poor.

Focusing only on capacity building, the MABS program aims to transfer best practices and develop microfinance products and services offered by rural banks in the country.

Credit access made easy

According to MABS Chief of Party Atty. John Owens, anyone who has been operating a viable business or economic activity for at least a year, has a good credit history and sufficient capacity to repay a loan is qualified as a borrower.

First time borrowers can borrow from P3,000 to P25,000 which they must repay over a period ranging from two to four months, while repeat clients in good standing may borrow up to P150,000, payable in 12 months.

Service charges are usually two to three percent up front and interest rates range from two to three percent per months. These rates compared favorably to the eight to 20 percent charged by moneylenders and the rates of five percent or more charged by pawnshops.

"These loans are offered quickly, at lower rates, and generally for longer terms than are available from moneylenders, allowing clients to invest and expand their businesses," Owens continued.

Banks modify their microcredit products to suit market needs, although all the participating banks strictly adhere to two basic principles – zero tolerance to overdue payments and cash flow/character-based client analysis.

To ensure that the borrowers pay on time, payment options can be weekly, bi-weekly, or monthly, depending on cashflow.

A big boost to microfinancing

As of February 2004, a total of 38 banks, covering 128 branches have adopted the MABS approach while 17 banks with several branches currently being trained.

Having serviced the needs of more than 120,000 microenterprises nationwide since 1998, participating rural banks have also attracted more than 190,000 additional microdepositors as of February 2004. Participating rural banks’ microdeposits are P604 million and outstanding microloans disbursed by participating banks since 199 exceed P3.6 billion, according to Owens.

The number of active borrowers has increased to 47,222 with the loan portfolio balance rising to P392 million as of February this year, more than triple the P112 million registered in 2001.

Principally operating in Mindanao, the RPAB-MABS Program has expanded coverage to Visayas and Luzon in 2001.

A tried and tested approach

Like hitting two birds with one stone, MABS has helped speed up rural development while improving participating banks’ performance and service since 1998.

Among its beneficiaries is Mrs. Vergie de la Rosa, a public market stall owner in the Cabadbaran town in Agusan del Norte.

De la Rosa, who initially borrowed P15,000 from Greenbank of Caraga, a MABS participating bank, used the money to purchase additional stocks other than the school supplies and plastic goods she had been selling for the past years.

Within a year after receiving the loan, she was able to acquired an additional stall and hire another five employees. She could not have done so without the loan, despite having been in the business for 10 years.

"I thought I could never make my business grow until I received my first microloan from the Greenbank of Caraga," she said.

Even as the participating banks’ loan portfolio increased during the past years, the average portfolio at risk (PAR) for more than seven days dropped from five percent to 4.75 percent as of 2003.

Some participant banks, particularly Eagle Awardee Rural Bank of Dulag in Leyte, have maintained a zero percent PAR on a daily basis.

Operating within a conflict affected area in Mindanao (CAAM), the Rural Bank of Tacurong, which adopted the approach starting in 2001, has disbursed more than P112 million in microloans to more than 12,000 borrowers to date.

Efforts continue

"I commend the existing MABS member-banks for making the project work. And I would like to stress that USAID commits its full support to make the MABS approach adopted by all rural banks in the country," USAID Deputy Mission Director Frank Donovan said at the recent MABS-RBAP Eagle Awards Night.

The awarding ceremonies, which acknowledged seven banks nationwide, three of which are from Mindanao, was part of the RBAP0MABS 2nd National Roundtable Conference held in Davao City last March 29 to 30.

More than 100 rural bankers, guests and sponsors attended the conference, which zeroed in on expanding the market through increased productivity.