Digital technology boosts ASA Philippines’s profitability

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SMALL banks and microfinance institutions (MFIs) in the Philippines are realizing the importance of digital technology to achieve higher degree of operational efficiencies, and are seeking to offer more services to the unbanked and underserved portion of the country’s over 100 million population.

Experts said investing in digital technology, such as cloud-based systems, can deliver positive results for the microfinance sector as their revenues increase with wider reach and higher volume of transactions.

ASA Philippines, a major microfinance nongovernment organization (NGO), which offers collateral-free loans as little as P5,000 ($93) to nearly 1.7 million women entrepreneurs all over the country underscored the importance of deploying digital technology to enhance their operations. 

“We used to be known as a company with only paper and pencil, but now we have an automated system,” said ASA Philippines President and CEO Kamrul Hasan Tarafder, referring to how the company’s microfinance officers and agents once handled transactions in the field, in report posted in the company’s web site.

After interconnecting all its 1,150 branches using a cloud-based system in 2016, Tarafder said ASA Philippines achieved a turnaround in two years compared to the challenge it experienced in the first 12 years of its operations, expanding to the remotest places in the country and quadruple its product offerings. “Now I can check our financial standing any moment, anytime. Previously, I had to wait almost until the end of the month to understand the performance, audited status of the institution, profitability, portfolio quality, etc.,” Tarafder said.

“That gave us the courage, both the management and the board, for greater expansion. Our system helped us to get even to remote places—we are in Itbayat and in Sitangkai,”  Tarafder said.  Itbayat is a town in the northern Philippine province of Batanes, while Sitangkai is the southernmost municipality of the Philippines.

Migrating to the cloud benefited ASA. Tarafder said ASA’s net income jumped more than 150 percent in 2016 from a year earlier, while its loan portfolio climbed 57 percent in the same period. Its loan portfolio further increased by an annual 52 percent in 2017. Developed as an in-house product for ASA, the cloud-based system also helped the MFI diversify its products. From just two types of loans—business loan as well as water and sanitation loan—ASA now offers nine loan products, including educational financing, housing loans and agriculture financing.

“The most important achievement was diversifying our portfolio. We could not have managed multiple loans without the cloud system,” Tarafder pointed out. Since 2000, the Asian Development Bank has been working closely with the government and other development partners to support the Philippines’s goal of increasing the poor’s access to finance and addressing high-income inequality in the country. The ADB Board of Directors recently approved a $300-million loan to fund reforms under the Inclusive Finance Development Program. The program provides the resources on ADB’s work started the 1990s in helping the government create a vibrant microfinance industry.

Under the Inclusive Finance Development Program, ADB has worked with the government to identify priority reforms to increase financial inclusion. These reforms include, strengthening agriculture finance; improving financial literacy; expanding micro insurance, crop insurance, and Islamic finance; as well as encouraging digital innovation in the banking sector.

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