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Monday, October 23, 2017 | MANILA, PHILIPPINES
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   banking report
Date posted: Monday, November 28, 2016 | Manila, Philippines

3rd Quarter Banking Report (2016)

Q&A: Tapping an NGO to reduce ranks of unbanked

PRESIDENT Rodrigo R. Duterte’s plan to spread development to neglected areas outside "imperial" Metro Manila and other urban centers such as Cebu and Davao has cast light on the readiness of these unbanked and underbanked areas to the expected flow of resources. Traditionally the preserve of informal lenders and of one or two rural banks, such areas in the past two decades have seen the emergence of more semi-formal conduits of finance in the form of microfinance institutions.

CARD Bank, Inc. is one such microfinance-oriented rural bank that secured Bangko Sentral ng Pilipinas (BSP) consent to operate in 1997. CARD Bank is a product of the Center for Agriculture and Rural Development, a foundation organized by a group of 15 rural development practitioners. A member of the CARD Mutually Reinforcing Institutions (MRI), the bank extends credit to small farmers and tenants, as well as offers deposit products. BusinessWorld researcher Lourdes O. Pilar traveled to CARD MRI’s head office in San Pablo City, Laguna to talk to the former executive director of CARD Bank, Inc. and now CARD MRI deputy managing director, Flordeliza L. Sarmiento. What follows are excerpts of the interview:

Is there a room in the rural areas for big banks? Why or why not?
Yes, there is a possibility for big banks to operate in rural areas. However, compared to commercial banks and considering the potential market, microfinance banks can offer services that are more suited to rural communities which are mostly engaged in small livelihood activities. Big banks see the potential of microfinance in helping the rural communities through linkages and partnerships with microfinance banks, pawnshops, among others. For example, the Rizal Bank, Inc. (RBI) and Bank of the Philippine Islands (BPI) partnership.



How big is the unbanked population in areas outside the urban centers of Metro Manila, Cebu and Davao?

There is still a big part of the population that remains unbanked. We can refer to the data from BSP (Bangko Sentral ng Pilipinas)for that. But based on our experience, when we open branches in the island provinces where there is no formal banking institution, we see a lot of opportunities in helping the unbanked. You know, the business model of CARD MRI is we first open microfinance NGOs (nongovernment organizations), and then, when they are mature and ready for formal banking, we open bank branches and transition them to our bank branches. But before that happens, we first search for other means to transfer funds and do other financial transactions to achieve our goal of reaching out to other marginalized Filipinos. Like now, we have partnerships with pawnshops. CARD NGO is the marine of CARD MRI, which means CARD NGO is the one that initially does the organizing in remote areas. Afterwards, it will be transitioned into a formal banking institution, either CARD Bank, Inc., RBI and CARD SME Bank, the three banks of CARD MRI. Once the CARD NGO Unit was processed into a bank, the formal banking products or services apply, such as savings, automated teller machines, remittances, lending and other services offered by the formal bank. But even if the three banks of CARD MRI already exist, there are still areas that are not 100% saturated. One of the strategies of CARD MRI is to set up another CARD NGO, the development services for the hardcore poor. CARD MRI also provides non-financial services, they have education program, scholarship program and health education. It is a one stop shop institution.

How big is the underbanked population in areas outside those same urban cities?

Even those in the urban areas, you can still find underbanked individuals. That’s why we intensify our efforts in these places. Some of the citizens depend on loan sharks, while some are unaware of microfinancing. Outside the metro, there is an even larger potential to help. That is why we enter even areas where there is perceived conflict or have difficult terrain. We believe that by doing this, we could provide development in these locations and somehow, there could be peace. Unbanked are those individuals that haven’t experienced bank services and the banking system, while the underbanked, are those individuals involved with banking system but with very limited services. Most of them are not aware what microfinance is, they are not even aware of a better way of looking at financial needs for their existing small businesses, such as sari-sari store, selling native delicacies, etc. They are afraid to get loans from banks and resorted to loan sharks. I realized the importance of the role of formal financial institutions in the community and that is to educate the public particularly the individuals who are vulnerable or individuals who are not aware of the consequence of owing a debt to a loan shark. CARD MRI banks comply with regulations and requirements mandated by the BSP. It is non-negotiable and needed to comply just like the other microfinance [institutions]. CARD MRI is fully aware on how to deliver their services properly and to protect their client.



What hinders big banks from reaching those populations (unbanked/underbanked)?

Basically, it’s the proximity to the unbanked and underbanked as well as the kind of products and services they offer. For instance, in terms of membership and loan availment, the process is long and big banks require clients various documents that meager households cannot comply. Big banks require collateral for loan availment. Most rural households are used to traditional way of saving money, which is plain depositing. Big banks are usually located in business districts and they lack structures outside the metro, unlike microfinance institutions whose presence can reach even remote areas. Big banks or commercial banks resolve this through establishing partnerships with a microfinance institution in the form of loan or they become shareholders. Some big banks acquire rural banks and then use these to operate microfinance services.

Are there services that the unbanked/underbanked need that microfinance institutions cannot provide?

Microfinance institutions per se cannot provide all the services that the unbanked/underbanked needs. These may be medical services such as hospitalization, funeral services, affordable medicines, and formal education up to college. That is why CARD MRI addressed this concern by setting up our own institutions that will handle all these needs. We have our own pharmacy called BotiCARD, Inc. We have our own school, the CARD-MRI Development Institute (CMDI) where we offer senior high school and college education. We offer scholarship program for the members’ children until they graduate and we recruit them as part of the CARD MRI. Just recently, we collaborated with a group of doctors as we plan to open a hospital in Quezon in 2018. We have already acquired the land for that. This hospital will cater to the needs of members who cannot afford to go to high standard hospital, those with financial constraints or members with difficulty of raising money for hospitalization. This is the hospital for the clients and less privileged families.

How does the unbanked/underbanked cope without those services? Who/which entities fill the void?

They usually resort to free services from the government, which are not available in some provinces. That is why we continuously look for ways to complement these and innovate products and services that will respond to the people’s needs. Knowing their needs is easy for us because we have direct contact with them through our center meetings where we meet them weekly or monthly. In reality, unbanked individuals often resort to loan sharks, this is why we strategize to strengthen our market size especially among businesses with daily cash flow which loan sharks would also prefer.

Has your bank received offers from other big banks and/or foreign lenders to buy you out? Or, has your bank taken in a strategic partner? If yes, which banks are those?

We continuously receive proposals for partnership, but we cannot disclose these. One of our banks, the RBI has partnered with BPI. This is to help our expansion in the island provinces. We even receive offers that want to purchase the company when it was not even for sale. We have a very strong commitment to our vision-mission which is to eradicate poverty. Our focus is to develop products and services that will directly help our members. When other institutions see that we are a good market, they would recognize this as a good prospect. And we value our clients deeply that some of them even become shareholders, albeit a certain criteria must be met.

What are your prospects for expansion across the Philippines?

Underbanked areas like islands, underdeveloped and marginalized communities. That is why we are expanding in Visayas, Mindanao and the northern part of our country by opening more of our bank branches in these areas. Just this month we opened three branches: two in Mindanao and one in Abra. This year, we opened 11 bank branches: six CARD Bank branches in Mati, Tagum, Bangued-Abra, Laoag, Candon and Boracay; three CARD SME Bank branches in Vigan, General Santos and Lapu-Lapu; and two RBI branches in Dumaguete and Bayawan. There is still more room for expansion in our existing areas of operation. We want to support the government’s efforts in providing financially inclusive products and services.

What factors determine your expansion prospects?

Areas with high incidence of poverty. This is one of the main factors that we probe when we expand. You can say, there is a big opportunity for MFIs like us -- opportunities to help. That is because we are in the business of povery eradication.
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