Transcript Inclusive and Innovative Approaches in Philippine Rural

Rural Financial Inclusion and
New Microfinance Technologies in
the Philippines
Джовита М. Корпуз
Совет по сельскохозяйственной кредитной политике
Jovita M. Corpuz
Executive Director, Agricultural Credit Policy Council
Member, APRACA Executive Committee
National Conference on
Microfinance in Russia: New Strategies of Success
The National Association of Microfinance Market Stakeholders
Park Inn Pribaltiyskaya Hotel
19-21 November 2008, St. Petersburg
Rural Financial Inclusion and
New Microfinance Technologies in
the Philippines
Jovita M. Corpuz
Executive Director, Agricultural Credit Policy Council
Member, APRACA Executive Committee
National Conference on
Microfinance in Russia: New Strategies of Success
The National Association of Microfinance Market Stakeholders
Park Inn Pribaltiyskaya Hotel
19-21 November 2008, St. Petersburg
Outline of Presentation
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Policy Background
Product Innovations
Process Innovations
Success Factors, Issues and Challenges
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1 Background
1970s - 1980s
• Supply-led and highly subsidized directed credit programs
(DCPs) for small farmers and other rural poor
• Government provided loans either directly or through
private rural banks at subsidized interest rates
• Proliferation of DCPs
Result: DCPs failed
 DCPs suffered high delinquency
 Bankruptcy of rural banks
 Subsidies went to big borrowers
 DCPs did not reach the poor
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Credit Policy Reforms
• Termination of government directed credit programs
• Formulation of agri credit and microfinance strategies
anchored on the following policy principles:
– Increased participation of the private
sector
– Adoption of market-based financial and
credit policies
– Focus on proper management and
utilization of the loan fund
– Active participation of banks and
government financial institutions
– Government to provide the enabling policy
and regulatory environment and critical
support services
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Credit Policy Reforms
The shift from supply-led credit
and subsidies -• paved the way for financing models that
are demand-driven and market oriented such as Grameen banking
• MFIs increased in number – now totaling
5,308 composed of 500 NGOs, 229 rural
and thrift banks and 4,579 credit
cooperatives
• The number of poor with access to
credit significantly increased from the
1990s
– MFIs have granted more than PhP74
billion (US$1.54 billion) to over 3
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Innovations & New Microfinance
Technologies
• Aim: Microfinance innovations are aimed at
wider and deeper rural financial inclusion of the
poor
• Types of innovations
– Products : (i) agri microfinance,
(ii) micro insurance, (iii) housing
microfinance, (iv)
savings/deposits, (v) capability
building
– Processes : (i) Automated Teller
Machine (ATM) Cards, (ii) Mobile
phone banking
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2.1 Microfinance for Agriculture
Agri-Fishery Microfinance Program
• a cash flow-based lending approach with flexible repayment
terms (i.e., based on household’s income cash flow and not only
on the activity financed by the loan)
• loans are for agricultural activities and non-farm microenterprises
• Land Bank of the Philippines lends
program loan fund to rural banks,
cooperatives, irrigators associations and
other people’s organizations for
relending to agricultural households
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2.1 Microfinance for Agriculture
12 rural banks and 7 cooperatives have lent to nearly 6,000
agricultural households close to PhP 70 million (US$1.46
million)
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2.2 Micro Insurance
• Micro insurance refers to insurance systems designed for the
poor which is characterized by simple product design, frequent
and affordable premium payments, fast and timely payment of
insurance claims, and uniform benefit packages
• Types of micro insurance provision:
– Informal “damayan” system: Regular small amounts of
contributions from borrowers to be given in fixed amount
in case a borrower or any member of his family dies
– Formal : (i) establishing mutual benefit associations
(MBAs) or (ii) linking with a commercial insurance provider
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2.2 Micro Insurance
• Center for Agriculture and Rural
Development - Mutual Benefit
Association (CARD-MBA)
– Offers life and disability insurance, loan
redemption scheme and obligatory provident fund
members
– Provides life insurance coverage to 600,000 lowincome Filipinos
• Risk Management Solutions, Inc. (RIMANSI)
– Network of professionally-managed MBAs that develops and offers risk management
solutions to member-owned micro-insurers, strengthening their capacity in providing
risk protection services to the poor
 Has helped established 5 MBAs and currently providing insurance coverage to over
50,000 households
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2.3 Microfinance for Housing
- Involves the application of microfinance principles and
methodologies to the provision of shelter finance
- Consists mainly of loans to the poor and low-income
households for:
i. Home improvement or repairs
ii. Housing construction
iii. House and/or lot acquisition,
and/or
iv. Access to basic infrastructure
or public services
- Serves the housing finance
needs of the working or
entrepreneurial poor
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2.3 Microfinance for Housing
Microfinance for Housing Project
• ADB-assisted social housing and
community development program
jointly executed by the Housing and
Urban Development Coordinating
Council (HUDCC) and the
Development Bank of the Philippines
(DBP)
• Loan features:
– Loan maturity: 5 years for home improvement, 10 years for house
construction and house and/or lot purchase
– Amortization schedule: either daily, weekly, semi-monthly or monthly
– Maximum amount for home improvement is PhP 150,000 (US$ 3,125)
and PhP 300,000 (US$6,250) for house construction and house and/or
lot purchase
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2.3 Microfinance for Housing
• Enterprise Bank, Inc. is one of the earliest MFI banks
to implement a microfinance housing program (June
2006) in selected provinces in Mindanao
– Loanable amount of P5,000-P25,000, payable
within 6-12 months in weekly installments
– 24% interest rate per annum
 Loans of almost P5 million (US$104,000)
granted to 1,141 clients for home repairs and
improvements
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2.4 Savings and Deposit Products
• Mostly a component of microlending programs/loan products
• Compulsory or mandatory savings and deposits
– Integrated in loan program where small, frequent (weekly) savings
deposits are required
– Intended to enforce savings discipline among borrowers and boost loan
portfolio of MFI
• Voluntary savings now form part of
services on top of compulsory savings
due to capacity and willingness of the
poor to save
 Microfinance borrowers in the Philippines
have become net savers with combined
bank deposits of almost P2 billion as of
end-2007
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2.5 Capability Building
• ACPC’s Institutional Capacity Building (ICB) Program
– Provides grant funds for ICB activities of farmers and fisherfolk
organizations to strengthen their capability in accessing and managing credit
funds
– Eligible projects for funding
• Conduct of relevant training, seminars/workshops
• Exposure trips to success cases of finance, savings and business
development methodologies
• Coaching, consultancy and technical services to beneficiary
organizations
• Management information systems projects
 In 2007, ICB programs benefited 1,360 farmer organizations with
about 9,972 members
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2.5 Capability Building
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2.5 Capability Building
• MFI approaches to capability building
 Financial literacy – capability building activities focused on increasing
public’s knowledge of financial concepts, skills and attitudes
 Business development services – entail (i)
establishment of business development centers
that facilitate market linkages; and/or (ii)
conduct of training and mentoring activities on
livelihood and income-generating activities,
marketing, management, quality control, product
development, etc.
 Community development – involves (i) community organization thru the
formation of action groups, (ii) community capability building employing
hands-on training and exposure, etc. and (iii) community-owned projects such
as livelihood, health, environment, infrastructure, and others
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3 Process Innovations
• use of new technology by MFIs
– increasing the convenience of clients and improving MFI
efficiency, lowering cost of operations
– expand MFI outreach including the poor
• innovations used by banks/MFIs
– automated teller machine (ATM)
– phone and internet banking
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3.1 Automated Teller Machine (ATM)
Cards for the Poor
• Implemented by MFIs (such as TSPI and CARD Bank) in
partnership with big commercial banks (LBP and BPI) since
2001
• ATM system allows clients to withdraw
loan funds and savings at any machine
nearest to the borrower, doing away with
the check encashment process at the
MFI.
 Reduces transactions costs of
both borrowers and MFIs
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3.2 Mobile Phone Banking
“Text-A-Payment” (TAP) Scheme
• Pioneered by microfinance-oriented Rural Banks in
partnership with the country’s major communications
network (Globe Telecom)
• Uses short message service (SMS) technology through the
G-cash product to make microfinance repayments
• G-cash product “turns a cell phone into an electronic wallet,
allowing the sending and receiving of cash and make
payments” through SMS
 More convenient and less costly to clients
 Lowers banks’ transaction costs and increases
productivity of account officers
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3.2 Process Innovations
How does TAP work?
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4 Success Factors/Lessons
• No “one size fits all” program for microfinance; loan products
should be specific and tailor-fit to the needs of the clientele/poor
• Features of effective microfinance products
 Cash flow based lending: loan amount and repayment scheme based on
household cash flow
 Simple and minimal documentation requirements
 Fast processing, timely releases of loans
and insurance claims payment
 Supported by capability building
 Effective M&E
Agri microfinance product has the most potential for reaching
the “unserved and underserved rural poor”
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4 Issues and Challenges
Some issues that have constrained the potential of microfinance to
extend wider outreach of its services to more poor and lowincome households:
• Microfinance services, particularly
microfinance for agriculture, remains
limited
• Stiff competition among MFIs
• Low preference of MFIs to cater to new
micro entrepreneurs
• Weak capacity of micro insurance providers
• Lack of appropriate and comprehensive
microfinance database and indicator system
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