Fruit and vegetable vendors are among the 19,000 microentrepreneurs in Mindanao with new access to bank credit. “Profits from the microlending program have allowed us to recover capital costs completely,” says one rural banker.
At 3 a.m. on a weekend morning, Ruth Asor brushes the sleep from her eyes and enters the tiny bakery attached to her home in Bayugan, a quiet town in Mindanao. Long before the heat of the day sets in, Ruth and her six helpers are mixing up batches of dough for pan de sal, for her customers to dip in their breakfast coffee.
Microentrepreneurs like Ruth make a major contribution to the economy of the region. Not long ago, Ruth would never have imagined that she could borrow money from a bank to grow her business, and few bankers would have found her a likely client.
But times have changed. Since 1997, with assistance from a program known as MABS, rural banks throughout Mindanao have been helping microentrepreneurs – dressmakers, vendors, rickshaw divers, small restaurant owners – expand businesses without recourse to “five-six” loan sharks who charge 10 pecent interest every month, or an annual rate of 150 percent.
“MABS saves borrowers a lot of money,” said Lief Doerring, a senior manager for the Microenterprise Access to Banking Services project.After several years of project work, more than 19,000 borrowers with no prior access to bank credit are successfully repaying short-term loans, and 68 rural bank branches are finding they can turn a profit by lending to this new type of client. Bankers new to microlending are astonished at how quickly these programs take root and flourish.
“Profits from the program allowed us to quickly recover capital costs completely,” said Nicolas Lim, president of the Rural Bank of Kapatagan Valley in Lanao del Norte. “It’s an investment that pays off in just one year.
“Funded by the United States Agency for International Development (USAID), the program works by setting up microfinance units in rural banks. Once managers understand that microlending works, the MABS team trains microfinance specialists to analyze this segment of the market and design credit programs that meet the needs of small borrowers. Bank officers are taught to manage the loans and minimize portfolio risk – currently a low 2 percent among participating banks.
The team is also exploring ways to establish a credit reference bureau to let independently owned, geographically distant rural banks share information about borrowers. “It’s imperative that rural banks adopt an attitude of zero tolerance toward delinquency,” said Doerring.
This isn’t always easy when borrowers are friends and neighbors. But setting expectations at the outset works to everyone’s advantage, he said. “If borrowers know they have to repay the loan, they’re more honest about their needs, and loans are structured so they can pay.”
An important part of MABS’ training teaches loan officers to treat clients like professionals, get to know them well, and establish long-term relationships. “Borrowers who repay often come back for repeat loans,” said Doerring.Loan terms range from three to six months, with annual interest rates of 24 to 48 percent – higher than “prime” rates, but in line with microlending norms and far lower than “five-six” rates.Microfinance principles advanced by MABS have led to improvements in the overall banking system. “For 90 percent of our commercial portfolio we now follow the same procedures that we follow for microfinance,” said Lourdes Pineda, compliance officer at the Rural bank of Santo Tomas in Davao del Norte.
“After training in cash-flow lending, zero tolerance, and credit investigation, our staff has adopted strong credit discipline as the culture of our bank,” added bank president Rosele Solis.Clients are satisfied, too. “My store is bigger now,” said Job Flores, who sells balut. Flores took out a loan of 16,000 pesos to expand his shop. “I only had two employees before, and now there are five.” Candle-maker Trinidad Cupas, who borrowed 25,000 pesos, said of the program, “Interest rates are low, and service is fast. Also, the collector comes to the house, so we don’t have to go to the bank.
“This year, the MABS Program is expanding in Mindanao, and the Rural Bankers Association of the Philippines is replicating it in Luzon and Visayas. MABS is also looking to expand activities in Muslim areas of Mindanao that have been troubled by the long-running conflict.
“We’ve made a start despite the threat of conflict,” says Doerring. “After attending a workshop, the manager of one Muslim-owned rural bank started a successful lending operation targeting Muslim women. It combines Islamic banking principles with our microfinance system and bridges a cultural divide few local banks have been willing to cross.”
Fruit and vegetable vendors are among the 19,000 microentrepreneurs in Mindanao with new access to bank credit. “Profits from the microlending program have allowed us to recover capital costs completely,” says one rural banker.
At 3 a.m. on a weekend morning, Ruth Asor brushes the sleep from her eyes and enters the tiny bakery attached to her home in Bayugan, a quiet town in Mindanao. Long before the heat of the day sets in, Ruth and her six helpers are mixing up batches of dough for pan de sal, for her customers to dip in their breakfast coffee. [Read more...]
