Savings for the Poor: Eradicate 5-6 Lending

Similar to the program of PM Modi of India called MUDRA short for Micro Units Development and Refinance Agency, the Philippines can also do the same to address the needs of the poor families and entrepreneurs.

Banking Reform: Micro Saving and Loans

Most individuals have been excluded from the benefits of formal banking system. Therefore, they never had access to insurance, credit, loans and other financial instruments to help them establish and grow their micro businesses. So, most individuals depend on 5-6 from local money lenders for credit. The loan comes at high interest and often with unbearable conditions, which make these poor unsuspecting people fall in a debt-trap for generations. When businesses fail, the borrowers become vulnerable to the lender’s strong-arm tactics and other forms of humiliation.

Clearly, the potential to harness and nurture these micro businesses is vast and the government recognises this. Today, this segment is unregulated and without financial support or cover from the organised financial banking system.

The principal objectives of the Bank are:

1.   Regulate the lender and the borrower of microfinance and bring stability to the microfinance system through regulation and inclusive participation.

2.  Extend finance and credit support to Microfinance Institutions (MFI) and agencies that lend money to small businesses, retailers, self-help groups and individuals.

3.  Register all MFIs and introduce a system of performance rating and accreditation for the first time. This will help last-mile borrowers of finance to evaluate and approach the MFI that meets their requirement best and whose past record is most satisfactory. This will also introduce an element of competitiveness among the MFIs. The ultimate beneficiary will be the borrower.

4.  Provide structured guidelines for the borrowers to follow to avoid failure of business or take corrective steps in time. The Bank will help in laying down guidelines or acceptable procedures to be followed by the lenders to recover money in cases of default.

5.  Develop the standardized covenants that will form the backbone of the last-mile business in future.

6.  Offer a Credit Guarantee scheme for providing guarantees to loans being offered to micro businesses.

7.  Introduce appropriate technologies to assist in the process of efficient lending, borrowing and monitoring of distributed capital.

8.  Build a suitable framework  for developing an efficient last-mile credit delivery system to small and micro businesses.

Major Product Offerings

Borrowers will be classified into three segments: the starters, the mid-stage finance seekers and the next level growth seekers.

Three loan instruments:

1.    Starter: covers loans upto PhP 50,000/-

2.    Sustaining: covers loans above PhP 50,000/- and upto Rs 500,000

3.    Growing: covers loans above PhP 500,001 and up to PhP 1,000,000

Initially, sector-specific schemes will be confined to “Land Transport, Community, Social & Personal Services and Food Product sectors”. Over a period of time, new schemes will be launched to encompass more sectors.

The Offerings will also include:

1.    ATM Card

2.    Portfolio Credit Guarantee

3.    Credit Enhancement