How to Avoid an India-type Microfinance Crisis in the Philippines

April 5, 2011 By Leave a Comment

Photo 1As prologue to the BSP’s (Bangko Sentral ng Pilipinas) National Microfinance Stakeholders Summit held on April 5, the Rural Bankers Association of the Philippines Microenterprise Access to Banking Services (RBAP-MABS) with support from USAID/Philippines and the Microfinance Council of the Philippines (MCPI) jointly held a pre-summit seminar on April 4 discussing “How to Avoid an India-type Microfinance Crisis in the Philippines”.

Opening the forum, RBAP President Corazon Miller described the India microfinance crisis as “a wake-up call for microfinance practitioners in the Philippines to begin the proactive process of strengthening transparency, following consumer protection practices, improving governance, and becoming better at communicating the value of Microfinance services.”

Led by Ms. Elisabeth Rhyne, Managing Director of ACCION International’s Center for Financial Inclusion and organized for the microfinance stakeholders in the Philippines particularly rural banks, NGOs, credit cooperatives and others, the seminar provided interesting discussions on some of the issues that led to the microfinance crisis in the India.

Ms. Rhyne outlined the developments leading up to the crisis in India, particularly in the southern state of Andra Pradesh, where the largest microfinance institutions are located. Some historical notes provided context to the build up of the crisis there, as she traced how the banking industry in India had risen from years of operating only state owned banks to the time of privatization after the financial sector was liberalized. She also pointed out that the microfinance industry in India is an “orphaned” sector because the regulators did not pay attention to the industry.  Even after some of the institutions did become regulated as formal financial institutions, the regulations kept them in a tight leash allowing them to offer only group loans and prevented them from offering deposit services.

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The Pioneering Work of “Beyond Codes”

November 3, 2010 By Leave a Comment

By: ACCION International

It is easier to endorse the Client Protection Principles than to implement them. In the summer of 2008, the Center for Financial Inclusion embarked on a two-year research project to assess how financial institutions put client protection into action. This pioneering work has provided a knowledge base enabling the microfinance sector to advance from principles to practice. A final synthesis of findings was published this month in “Beyond Codes: The Foundation for Client Protection in Microfinance.”
The Beyond Codes project worked with 12 institutions, of various sizes and forms, operating in Bosnia, India, Kenya, Mexico, and the Philippines. The goal was to evaluate the institutions’ performance in client protection and develop an assessment methodology.
The report gives in-depth analysis for each principle, extracting lessons from institutions and evaluating how market forces, regulation, business norms, maturity, and internal processes affect performance.
The assessments showed that as a group, the institutions performed best on the principles of appropriate collections practices and avoiding over-indebtedness. Ethical staff behavior and transparency were principles for which some institutions excelled and others lagged. The weakest principle for the group was redress of grievances, with many MFIs having no mechanism for resolving complaints.
Overall, regulated institutions perform better than unregulated ones, possibly because the procedures required for regulated institutions have a spill-over effect on the institutions’ client protection practices. Additionally, regulated institutions tend to have better compliance, monitoring, and complaints-handling systems.
Another interesting observation is that “good client protection practices do not appear to be directly related to an institution’s mission to serve the poor.” In other words, even the organizations most dedicated to improving clients’ lives might have poor client protection practices.
The Beyond Codes research created the foundation for the Smart Campaign’s next phase, focused on implementation. By informing the Smart Campaign’s assessment methodology and tools, Beyond Codes offers actionable resources that help financial institutions turn good intentions into good practices.

It is easier to endorse the Client Protection Principles than to implement them. In the summer of 2008, the Center for Financial Inclusion embarked on a two-year research project to assess how financial institutions put client protection into action. This pioneering work has provided a knowledge base enabling the microfinance sector to advance from principles to practice. A final synthesis of findings was published this month in “Beyond Codes: The Foundation for Client Protection in Microfinance.”

The Beyond Codes project worked with 12 institutions, of various sizes and forms, operating in Bosnia, India, Kenya, Mexico, and the Philippines. The goal was to evaluate the institutions’ performance in client protection and develop an assessment methodology.

The report gives in-depth analysis for each principle, extracting lessons from institutions and evaluating how market forces, regulation, business norms, maturity, and internal processes affect performance.

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Cantilan Bank Celebrates 30 Years of Progressive and Excellent Community Banking Services

June 18, 2010 By Leave a Comment

By: Eric Miller, guest blogger

Cantilan BankMore than 500 attendees packed into a basketball gymnasium in Cantilan’s town square to celebrate the 30th anniversary of Cantilan Bank. The gala highlighted the banks remarkable growth over the past three decades and underscored the important role microfinance services played in their success.

MABS started working with Cantilan Bank 11 years ago, when it had just three branches and 35 employees. Now, the bank is 260 employees strong with 12 branches across Surigao. The bank-wide loan portfolio grew from around P50M to P652M. The number of microfinance borrowers is 39% of Cantilan’s total borrowers with a client base of over 8,400 hard-working microentrepreneurs, small farmers, and store owners. The number of deposit accounts is 58,522 with P524M in deposits. More importantly, there are 3 depositors to every borrower, and voluntary savings by micro-depositors comprise 50% of total microloans outstanding. Indeed, the bank has grown drastically by continuously evolving to better serve their clients.

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RBAP-MABS joins the 2nd Beyond Codes Dialogue group

November 11, 2009 By Leave a Comment
Thirty-six representatives from financial institutions, networks, development organizations, and consulting and rating firms joined the Dialogue for the Beyond Codes action research project held on November 9 and 10 in Washington D.C. The Dialogue group composed of industry experts and practitioners from the US, Mexico, Africa, India, Bosnia and the Philippines shared field experiences and discuss research results , validated and weighed universal indicators for the assessment process, and made recommendations on next steps to the Smart Campaign Steering Committee.
The dialogue is part of the agreement between RBAP-MABS, ACCION International, and the Microfinance Council of the Philippines to work together in protecting the rights of financial institutions’ microfinance clients in the Philippines. The Philippine was represented by General Charles Hotchkiss, Executive Committee Chairman of Cantilan Bank.  Cantilan Bank is a Microenterprise Access to Banking Services (MABS)-participating bank and the first and only bank in the Philippines that allowed for the assessment of its client protection practices.  Mr. Tomas Gomez IV, Chairman of the Rural Bankers Research and Development Foundation, Inc., and Mr. Eulogio Masilungan, Research and Monitoring Coordinator of MABS, also attended the Dialogue.  They were joined by Ms. Pia Roman of the Central Bank of the Philippines, Ms. Lalaine Joyas of the Microfinance Council of the Philippines, and two representatives of non-government organizations (NGOs) providing microfinance services in the Philippines.
The Smart Campaign, spearheaded by the Center for Financial Inclusion at ACCION International, is a global effort to unite microfinance leaders in keeping clients as the driving force of the industry.  This campaign provides microfinance institutions with the tools and resources they need to deliver transparent, respectful and prudent financial services to all clients.  Basic to the campaign are the Client Protection Principles, which are the minimum standards that clients should expect to receive when doing business with microfinance institutions. Among these are avoidance of over-indebtedness, transparent pricing, appropriate collection practices, ethical staff behavior, mechanisms for redress of grievances, and privacy of client data.
The participants shared positive feedback on the assessment process and results, citing the usefulness of the process for examining their own operations. They also cited the support from the institutions’ senior management and involvement of industry associations as crucial to ensuring the strength of the assessments.
Client protection innovations were also highlighted from institutions around the world during the Dialogue.  These included pilot projects on financial education in Caja Morelia and Compartamos in Mexico; piloting a debt counseling center in Bosnia jointly established by Mi-Bospo, Partner and Eki, and Cantilan Bank’s new system to receive client feedback via cellular phone text messages which has made it easier and faster for clients in the Philippines to share their feedback with the bank.  Cantilan Bank also presented its other client protection practices such as the use of the cashflow analysis in determining the loan amount to be extended to its clients, the operationalization of its own internal list to keep track of clients who regularly miss their amortization payments, the practice of providing detailed explanations of loan contract provisions to its clients, its bank-wide Code of Conduct, and the financial literacy programs it offers to unbanked populations.
MABS also shared its initiative to encourage its participating banks to proactively adopt pro-consumer practices such as conducting presentations on Client Protection Principles in its trainings and roundtable conferences, and providing client protection self-assessment guide to rural banks.

Thirty-six representatives from financial institutions, networks, development organizations, and consulting and rating firms joined the Dialogue for the Beyond Codes action research project held on November 9 and 10 in Washington D.C. The Dialogue group composed of industry experts and practitioners from the US, Mexico, Africa, India, Bosnia and the Philippines shared field experiences and discuss research results , validated and weighed universal indicators for the assessment process, and made recommendations on next steps to the Smart Campaign Steering Committee. [Read more...]

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MABS takes off for ACCION’s consumer protection research project

June 27, 2009 By Leave a Comment
ACCION International Center for Financial Inclusion’s Senior Fellow and Beyond Codes Project Head Heather Clark together with representatives from the RBAP-MABS Program, MCPI, and BSP in reviewing Cantilan Bank’s overall and microfinance operations by conducting interviews, facilitating discussions, observing operations and checking out bank practices and policies. Also in the picture are members of Cantilan Bank’s senior management including Ret. Generals William Hotchkiss III and Charles Hotchkiss, and General Manager Raul Urbiztondo.

ACCION International Center for Financial Inclusion’s Senior Fellow and Beyond Codes Project Head Heather Clark together with representatives from the RBAP-MABS Program, MCPI, and BSP in reviewing Cantilan Bank’s overall and microfinance operations by conducting interviews, facilitating discussions, observing operations and checking out bank practices and policies. Also in the picture are members of Cantilan Bank’s senior management including Ret. Generals William Hotchkiss III and Charles Hotchkiss, and General Manager Raul Urbiztondo.

As part of the Rural Bankers Association of the Philippines’ partnership with ACCION International and Microfinance Council of the Philippines, Inc. (MCPI) for the Beyond Codes Action Research Project, technical staff from MABS, ACCION, MCPI and the Bangko Sentral ng Pilipinas (BSP) visited Cantilan Bank from June 22 to 26 to research and assess the bank’s practices toward consumer protection and transparency. [Read more...]

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