Since 1997, USAID’s Microenterprise Access to Banking Services program has worked with over 120 banks with more than 1,300 branches in the Philippines to help improve and expand their services for micro-entrepreneurs including services such as mobile banking.
With technical assistance from the program, participating rural banks have worked with more than 950,000 clients in microloans totaling 39 billion pesos — more than $900 million. With help from the program, rural banks are lending money to poor micro-entrepreneurs — dressmakers, vendors, rickshaw drivers, and small restaurant owners — previously forced to borrow from “five-sixers,” loan sharks who charge up to 20 percent interest per day.
Borrowers who had no access to credit are successfully repaying short-term loans to rural banks that have discovered they can turn a modest profit by lending to this new type of client. The program works by setting up microfinance units in rural branches of private banks.
Once managers are sold on the idea that micro-lending can work, the project trains microfinance specialists to analyze this segment of the market and design credit programs that meet the needs of small borrowers. Bank officers are taught to manage the loans and minimize portfolio risk —at a low 3 percent among participating banks.
Key elements of the approach include a zero-tolerance policy toward delinquent loans, which has resulted in excellent portfolio quality and profits for participating banks. These results have caught the attention of rural bankers looking to expand their financial services into new niche markets.
An important part of the training teaches loan officers to treat clients like business customers, get to know them well, and establish long-term relationships. Borrowers who repay successfully often come back to borrow higher amounts. To promote sound management, the program designed a software package, “Rural Banker 2000,” that helps rural banks manage data through online communications and database retrieval. The software is available to all rural banks free of charge.