MANILA, Philippines – There was a time, not too long ago, when microfinance was a difficult and unpopular issue to push as a model of poverty alleviation.

After all, the ubiquitous “five-six” system was the preferred – and often, only – money lending scheme available to many underprivileged Filipinos who did not have enough money or assets to deal with banks.

Along came Rafael B. Buenaventura in 1999, who suddenly began pushing for the widespread adoption of microfinance in the local financial system, to the surprise of many of his friends who knew him more as a high-flying international banker than a banker to the poor.

“‘Five-six’ is such a heavy burden on the poor,” said Buenaventura then, referring to ‘loan sharks’ scheme where they lend the equivalent of P5 and collect P6 the following week [an interest rate of 20 percent per week or the equivalent of 1,040 percent per annum]. “Imagine charging poor people something like this. It’s immoral.”

Peer pressure system

Under the microfinance scheme, accredited financial institutions are allowed to lend out as much as P150,000 per borrower, collateral-free. Interest rates may go anywhere form 36 percent to 50 percent per annum, which is significantly lower than what loan sharks charge.

Despite the absence of collateral, the repayment rate stands at 98-percent, thanks in part to a peer pressure system where co-borrowers credit standings are based on the loan status of their fellow microfinance clients.

The bulk of microfinance borrowers take out loans of less than P25,000 to start small businesses.

Pioneered by the Grameen Bank in Bangladesh, the model was untested in the Philippines and had its share of skeptics.

Fortunately for Buenaventura, he had the perfect bully pulpit for his unusual advocacy. Not only was he a banker of international repute, he was also a central banker, heading the Bangko Sentral ng Pilipinas (BSP) as its governor from 1999 to 2005.

From this high perch, he was able to convince lawmakers to include provisions for microfinance in what would eventually become the General Banking Law of 2000, which enshrined the unusual role of the central bank in promoting microfinance.

Known to his friends as “Paeng,” Buenaventura passed away after a long battle with cancer on Nov. 30, 2006.

But his battle against poverty in the country since then has been carried on by his family and friends through the Rafael B. Buenaventura Center for Microfinance.

Organizational issues

According to its executive director Leonilo “Topper” Coronel, the foundation has been quiet, but very active in its advocacies.

“Right now, we’re providing mentoring services to various microfinance institutions which are experiencing organizational problems,” he said in an interview. “It’s been a busy time for us.”

But what kind of help or expertise could big-city bankers share with small-town microfinance people?

“For sure, we don’t give them any credit and collection training anymore,” Coronel said. “These people are way better than us when it comes to these issues.”

Instead, the RBB Center for Microfinance helps small microfinance firms in resolving their “organizational issues.”

Coronel – who is also executive director of the Bankers Association of the Philippines – said the foundation was active in issues like helping microfinance outfits deal with the sudden boom in their number of borrowers.

“Some used to have 50,000 loan accounts, but suddenly, they now have to deal with 100,000 loan accounts,” he said, explaining that the popularity of microfinance has left many firms struggling to keep up with the growing business.

“What we did through Paeng’s foundation was to tap retired bankers who are now ‘living off interest’ [from their retirement money] to help,” he said. “These are people like Gilbert Jose, who was Paeng’s former human resources manager at Citibank, Tina Mossesgeld and Mike Andaya.”

Piracy on the rise

He said the foundation was also helping microfinance firms deal with the growing attrition rate in the industry since poaching has become the norm.

“We’re helping them deal with attrition because pirating rates are rising,” he said. “These microfinance officers have amazing resumés. Some are preachers and marriage counselors in the morning and credit managers and collectors in the afternoon.”

Indeed, the latest numbers from the BSP show that there are now 230 microfinance institutions nationwide, with P6.4 billion in loans to over 800,000 borrowers.

There are also about P1.6 billion worth of savings lodged with these institutions, mainly from their borrowers.

Coronel pointed out that many microfinance firms have access to funding from multilateral funding institutions, but need hand-holding for them to move to the next level of operations.

“Kailangan akayin mo sila minsan [You have to help them sometimes],” he said. “This is the value-added service we’re providing. This was part of Paeng’s vision.”

To extend its reach, the Buenaventura microfinance foundation has linked up with PinoyME micro-enterprise group that helps underprivileged members lift themselves out of poverty through entrepreneurship.

Missionary zeal

“What we have is a missionary zeal,” Coronel said, adding that Buenaventura’s vision is shared by his foundation’s trustees, which include former Development Bank of the Philippines chairman Antonino Alindogan, former Monetary Board member Teodoro Montecillo, Bank of the Philippine Islands president Aurelio Montinola, JP Morgan Chase Philippines chair Roberto Panlilio, former BAP president Deogracias Vistan, and Paeng’s elder brother, Cesar Buenaventura.

“Next year, we plan to institutionalize the work of the foundation,” he said. “This was his dream. This is what he would have wanted.”