Quest to end ‘5-6’ lending scheme in PHL gains traction

By Rizal Raoul Reyes | Contributor

Fely Bocanegra, a vegetable vendor at the Santa Ana public market in Manila, relies solely on the ever-present Indian money lender for her daily business capital. Under the usual setup, a 20-percent interest is charged to the borrower payable up to 30 to 40 days, and collection is made on a daily basis.

In Photo: A woman sells chili peppers and spices in the market district of Divisoria in Manila on January 6, 2014. To address the huge demand of 2 million poor entrepreneurs in the country, microfinance non-governmental organization ASA Philippines is issuing P2 billion in bonds, to contribute to the poverty-alleviation program of the national government.
In Photo: A woman sells chili peppers and spices in the market district of Divisoria in Manila on January 6, 2014. To address the huge demand of 2 million poor entrepreneurs in the country, microfinance non-governmental organization ASA Philippines is issuing P2 billion in bonds, to contribute to the poverty-alleviation program of the national government.

“We have no choice but to go to the money lenders for our capital,” Bocanegra said in Filipino. President Duterte recently expressed disgust over the lending practice, calling it a “usurious” scheme that puts poor Filipino borrowers at a disadvantage.

Nevertheless, Bocanegra said she would immediately shift to another financing option if it is available. “The availability of an organized microfinancing institution is going to be a big help for vendors like me,” she said.

Milestone

To address the huge demand of 2 million poor entrepreneurs in the country, microfinance non-governmental organization ASA Philippines is issuing P2 billion in bonds to contribute to the poverty-alleviation program of the national government.

“This issuance is a milestone not only for us, but for the entire microfinance industry, as it allows us to further grow and expand, and essentially contribute to the level of financial inclusion in the Philippines, laying a strong foundation for the development of the lives of the poor ‘Nanays’ across the country, who, through their hard work, use the funds they borrow to generate necessary income to improve the lives of their families,” ASA Philippines Foundation CEO Kamrul Tarafder said in a recent media interview during the signing agreement.

The issuance is the largest by an individual microfinance institution (MFI) so far, and will largely be used to fund ASA’s expansion and related projects through 2021.

BPI Capital is the lead arranger of the issuance, and its initial bondholders are BPI, Land Bank of the Philippines and the Philippine National Bank. The Credit Guarantee and Investment Facility (CGIF), a guarantee facility established by the Government of the Philippines together with China, Japan, South Korea and the Asian Development Bank, is partially guaranteeing the bonds, which will have a five-year maturity period and an interest rate based on PDST-R2, plus a credit spread mutually agreed between the parties.

“This issuance marks a significant step in ASA’s corporate maturity, graduating from purely bank financing to a capital markets issuer, and extending the duration of its liabilities to more closely match its investment profile,”  Eric Luchangco, head of Debt Capital Markets for BPI Capital, said.  “We were honored to have been given the opportunity to arrange this deal for ASA.”

“The partial credit guarantee for ASA demonstrates that bonds have a catalytic role to play in financing MFIs as a viable alternative longer term funding source to short-term bank loans,” said Kiyoshi Nishimura, chief executive of CGIF. “The successful issuance further supports the Philippine government’s priority initiatives toward poverty reduction and financial inclusion.”

ASA Philippines was established in 2006, after receiving donations from the Assisi Development Foundation and the Ninoy and Cory Aquino Foundation. In November 2007 the PLDT Smart Foundation became its third benefactor.

Since its inception 11 years ago, ASA Philippines claims it is the first MFI in the country to achieve a milestone of having over 1 million active borrowers.

Women power  

As far as ASA Philippines is concerned, women hold the sky, so to speak, in microfinance. “Absolutely, women are more responsible borrowers. They are more responsible, more diligent, more loyal and good payers. It is a global trend. That is why we give them preference,” Tarafder said.

Boosted by the recent growth, Tarafder says ASA Philippines now needs to look more toward the capital markets to fuel its expansion. From its humble beginnings in 2004, ASA Philippines has, by the end of last year, grown to employ 5,964 full-time staff catering to 1,273,136 borrowing clients. By 2021, the organization—already present in 850 locations across all 82 provinces—projects an increase of an estimated 700,000 borrowers to its base, and a corresponding growth of 100 percent in its portfolio.

As of 2016, ASA Philippines has disbursed P91.6 billion in loans, and recorded a recovery rate of 99.92 percent. It has also spent close to P760 million for benefits and activities, including death, hospitalization, disability and health-care benefits, child feeding, scholarship and business development programs, which directly impacted over a million Filipinas and their families.

Requisites

First, the borrower should be a woman. Loans are evenly divisible by a thousand (example P1,000, P2,000, etc.) and no up-front deductions. Initial loan ranges from P6,000 to P10,000, depending on the borrower’s business capacity to pay. Service charge is 15 percent for six months. Payments are made weekly in the amount of P50 for each thousand pesos borrowed.

Beneficiaries should be between 18 and 60 years old. Nevertheless, Tarafder said they can also grant a loan to women who are still active at 65. “If she can run the business, she will be given a chance.”

To determine the viability of a microenterprise, ASA Philippines will require a borrower to submit a summary of the business plan to the microfinance officer (MFO) for evaluation. “It will not require a PowerPoint presentation, but just a simple summary what items a sari-sari store will carry,”  Tarafder said.

Meanwhile, the MFO will also go to the borrower’s residence to personally collect the payment. “They don’t need to go to [the] bank. The difference is that in microfinance, service is at your doorstep. Everything is inexpensive,” he said.

It is also part of the know-your-client (KYC) process of ASA Philippines, according to Tarafder.

With already over a million Filipino women as clients, ASA Philippines is now seeking medium-term bonds for the services it offers to its entrepreneur-borrowers. In addition to traditional microloans for business, these services include financing for water and sanitation products, housing improvements and solar-energy systems for homes; as well as providing scholarships, health-care benefits and business-development training. “We will be expanding our loan portfolios for corporate social responsibility projects as part of helping the people,” said Tarafder.

ASA Philippines will be embarking on a bolder step soon, as it plans to be the go-to facility in microfinance and replace the traditional money lenders. But Tarafder acknowledges it is a huge challenge. “We have to provide good service to beat them,” he pointed out.

As part of their KYC approach, ASA Philippines will also use the mobile phone for documenting their clients.  The MFI will take the photo of a client and send all the information to its main office for data filing.

Market access  

Providing market access to products produced by women entrepreneurs, such as processed food and woven fabrics, remains a challenge, according to Pacita Juan, chairman of Aszean Women Entrepreneurs Network.

Fortunately, the establishment of the Great of the Gender Responsive Economic Actions for the Transformation of Women program of the Philippine Commission on Women (PCW) and DFAT Canada, together with ECHOsi Foundation as private-sector partner, is in its full steam on its second phase.

Juan said accessing markets entails collaboration between ECHOsi and PCW conducting market-matching between microentrepreneurs and small, medium enterprises. “They can be components of a bigger or fancier product, or simply a product that will be brought to more sophisticated markets they never met before,” she said.

Juan said they opted to focus on women because several of them are performing work at home, and cannot or may not have the time to seek out customers or markets for what they do.

“Many women work part-time on crafts, while also taking kids to school or doing housework. These part-time producers will not even have time to sell their products at the right price or at the right venues,” she noted.

To give them market access, ECHOsi and private investors established the Great Women Café and Showroom. “We need to give them a show room,” said Jeannie Javelosa, head curator and boss of the GW Showroom. “I have been working with these women for many years now and it helps that we now have one place for their crafts and weaves,” she added

GW also plans to expand in Asean, as many of their counterparts in the region look at Great Women as a good program for accessing markets, even for tribes in Myanmar and Thailand, Lao PDR and Cambodia, whose cultures are like the Philippines.

Image Credits: Micha360 | Dreamstime.com, Julian Abram Wainwright/Bloomberg

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