PH microfinance experience ‘stuck in 3rd gear’
(Last of three parts)
ARIS Alip’s goal is ambitious. It is nothing less than the eradication of poverty in the Philippines—a country where an estimated 25 million live below the poverty line and are unable to eat three full meals a day.
And Alip—the founder and managing director of Center for Agriculture and Rural Development (CARD)—believes that microfinance is the vehicle that will lift millions of Filipinos out of crushing privation to become more productive members of society.
Since 1986, the low profile microfinance institution he founded has been lending small amounts to members in the hope of jumpstarting their entrepreneurial dreams whether these be setting up small eateries, opening stalls in wet markets or sari-sari stores.
“With microfinance, I believe we can win the war against poverty in the Philippines,” Alip said.
By the numbers, CARD is the country’s most successful microfinance operation. Its lending network reaches an estimated 3.3 million Filipino families, translating to about 15 million beneficiaries (at an average of five members per family).
It has more than 1,600 branches and outlets, mostly in rural areas, and commands 10,300 full-time staffers who manage a loan portfolio of P12 billion.
“The average loan size per borrower is P4,500 to P5,000 which borrowers use to set up handicrafts businesses, food vending activities and sari-sari stores. And loan sizes increase depending on their repayment track records,” Alip said. “In fact, we’ve gone as high as P500,000 for some of the more successful borrowers.”
Most importantly, interest rates are low in relation to the risk profile of these borrowers: between 6 percent and 20 percent per year, with no collateral needed.
No ‘five-six’ zones?
“When we come in to a certain geographic location, the ‘five-six’ money lenders have no choice but to bring down their rates as well or they go out of business,” he said, referring to the loan sharks who charge an average rate of 120 percent per year for similar amounts.
“When we enter a community and start lending to them, the five-six people can no longer enter it,” Alip said, explaining that CARD put particular focus on penetrating hard-to-reach areas, including conflict zones like Mamasapano and Shariff Aguak in Maguindanao.
But for every community reached by CARD and other microfinance firms, millions of Filipinos remain beyond their reach, leaving them at the mercy of loan sharks for their daily financial needs.
“The Philippines is composed of 7,107 islands, and many areas are hard to reach,” he conceded, noting that the microfinance scheme of credit management required daily visits to borrowers to collect installment payments. “There are constraints like the high transportation costs to reach these areas.”
It is an impressive model that many large banks have tried to copy, mainly by poaching staff from CARD to jumpstart their own microfinance activities—a practice that has produced mixed results.
Banks go microfinancing
“The culture in the big banks is very different,” Alip said, when asked about reports that microfinance bankers were hard pressed to replicate their successes once employed with big banks and sitting in cushy air conditioned offices in Makati City.
“Microfinance bankers speak a different language, dress differently and have different styles of managing their clients.”
“In fact, we don’t call them ‘clients.’ We call them ‘ate’ and ‘kuya,’” he said.
On top of this, structural factors have so far capped the rise of microfinance to a few pockets of success while many Filipinos remain at the mercy of usurious lending rates.
“Microfinance needs the government’s support,” said banker and microfinance advocate Leonilo Coronel. “First, there needs to be an institution these lenders can run to for financial support in case their entire loan portfolio gets wiped out, for example, when a typhoon devastates an entire community where their lending activities are centered on.”
He added that a more comprehensive database of microfinance borrowers was also needed, with data being sourced from and shared by various lenders, to make sure that the high credit quality of the scheme and not polluted by bad data or window dressing activities that make loan portfolios look healthier than they really are.
‘Microfinance? What’s that?’
“If the Philippine microfinance experience were a car, we would remain stuck in third gear as we are now without these measures,” he said. “We can go faster, and we need to.”
In the meantime, eatery operator Sharon Salgado tends her stall in Suki Market in Quezon City, waiting for the day she can get access to more affordable credit. For now, she is mired in the financial equivalent of a hand-to-mouth existence, paying daily installments to loan sharks who charge her interest rates of 120 percent per year.
“When we need money, we go to five-six lenders,” she said in Tagalog. “They’re always available and they’ll lend you the money right away, no questions asked.”
Asked if she has ever heard of microfinance and its poverty-easing low interest rate lending scheme, Salgado gives a confused look, and shakes her head: “Microfinance? What’s that?”
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