USAID/Washington designated the Philippines as its ‘Mission of the Month’ for April 2011, and highlighted the Rural Bankers Association of the Philippines – Microenterprise Access to Banking Services (RBAP-MABS) program as a project that has demonstrated impact. During the event, the program’s success stories and lessons learned were shared with officials at the USAID headquarters in Washington, DC.
Melissa Scudo, Chemonics’ Director for Asia, presented the program’s history, work with rural banks, technical approach, and innovations in the field of microfinance. The RBAP-MABS program supported by USAID/Philippines works with rural banks to sustainably expand microenterprise access to banking services throughout the Philippines.
A cross section of USAID personnel engaged in a lively discussion about the MABS Approach, which RBAP-MABS has been implementing to strengthen commercial microfinance services and its linkages to economic growth and poverty alleviation in Philippine rural areas.
The RBAP-MABS program began in 1997, focusing first on Mindanao. Back then, rural banks were reluctant to offer microfinance services because of some unpleasant experiences with a failed government program, and the misconception that the poor can’t pay. Without access to banking services, entrepreneurs turned to informal lenders such as relatives, and even moneylenders who charged high interest rates for credit. Eventually, however, more and more rural banks began to see the great opportunities in microfinance. In 2001, RBAP-MABS began expanding its outreach through the rest of the Philippines, and still continues to do so now.
In terms of national coverage, rural banks have the best combined outreach with more than 2,700 branches and other banking offices, covering about 85% of all municipalities. Rural banks are also accessible, with branches and other banking offices close to the target market. Over the years, they have demonstrated that they are more effective in understanding the characteristics of the local market that they operate in. They also offer a better range of financial services compared with credit-only microfinance institutions. Moreover, rural banks offer clients the ability to provide savings services, which also help the banks to sustainably mobilize sufficient resources for lending without resorting to donor or government-targeted lending programs of the past.
The MABS Approach is a standardized system designed to equip rural banks with resources and know-how to plan, pilot and launch microfinance products and services. With a variety of vehicles to support adoption and sustainability of the best practices, the methodology starts with an initial portfolio assessment of the bank, senior management, and the current capacity of the bank to offer microfinance services. Then, RBAP-MABS provides comprehensive technical assistance to assist the banks in conducting market research and developing new demand-driven products that are competitively priced. All banks carefully pilot test these services before rolling them out.
For microfinance lending, a special emphasis is placed on prudent borrower selection through character reference checks, cashflow analysis, close borrower monitoring, and targeted efforts to increase deposit mobilization. This is to achieve dual goals of (1) encouraging asset growth (savings) among borrowers, and (2) increasing the institution’s ability to provide loans with their own fund sources. This helps the rural banks build their independence from more costly and potentially riskier forms of larger donor or government funded loan capital.
RBAP-MABS also facilitates access to a range of financial services broader than those of traditional microfinance credit-alone institutions. Through the years, it has developed various products and services, including micro-agri loans for small farmers, housing loans, and more recently, microinsurance.
Facilitating access to financial services and not just credit is an important distinction that separates the Philippines from India, allowing it to veer away from the latter’s unsustainable micro-credit growth practices. Other positive characteristics of the Philippine microfinance industry include: (1) low average microfinance loan sizes (indicating emphasis on smaller loans that continue to target the microfinance sector); and (2) rural banks that offer access to a better range of services and products (i.e. housing microfinance loans for home improvements, microinsurance, and cheaper remittance and mobile money transfer services) that help shield borrowers from economic shocks.
The RBAP-MABS program has also benefited from one of the best enabling policy, legal and regulatory environments in the world. One example is that the Central Bank of the Philippines (BSP) has developed guidelines (circulars) that clarify the role of rural banks and better promote and encourage micro credit, micro deposits, micro agri lending, housing microfinance, insurance products, mobile phone banking and even the expansion of other banking offices to offer a promote a broader range of financial products and services.
RBAP-MABS works with rural banks to introduce new technologies for increasing transparency and efficiency, reducing human error, and increasing scale and outreach of financial services. It has developed technologies for standardizing and honing rural bank management information systems (MIS) to store, aggregate and report data in order to monitor loan and deposit activity.
RBAP-MABS also developed methods and systems for the transformation of financial services delivery through mobile phone banking and other branchless banking options. Rural banks now serve over 170,000 clients who have access to banking services via mobile money platforms, and who receive banking alerts and information via text. With support from RBAP-MABS, rural banks have now facilitated more than 9 billion pesos (US$200 million) in mobile banking transactions.
Since 1999, RBAP-MABS participating banks have provided more than 2.7 million microfinance loans, totaling more than PhP 34.5 billion (more than $730 million) to more than 800,000 microenterprise clients. These banks are also managing more than 2 million micro deposit accounts to date, and are beginning to offer microinsurance services.
By working closely with the private sector, an ‘ecosystem’ of providers and technical consultants has arisen to provide services that will sustain the RBAP-MABS efforts – well beyond the current funding provided by USAID/Philippines. Thus, the program’s objectives and activities are expected to continue and expand.
A Q&A session followed where questions were raised concerning the overall macro and microeconomic considerations of poverty alleviation in the Philippines. Also discussed were the linkages that could be found between microfinance successes and overall poverty reduction strategies. It was noted that these should be part of a larger strategy, where microfinance is one important component. It was also pointed out that microfinance needs a supportive enabling environment to enact the necessary changes at the micro level. This is to allow for an expanded industry to provide access to financial services for the enterprising poor and other low-income households.