2nd Central Luzon and Bicol Region Microfinance Convention (2004)
CREATING PROFITABLE AND SOCIALLY RESPONSIBLE MFIs
LBP President and CEO Gary B. Teves
People?s Credit and Finance Corporation
2nd Central Luzon and Bicol Region Microfinance Convention
March 10, 2004
PCFC president and CEO Lumen Cabigas, heads of our partner microfinance institutions, convention delegates, other distinguished guests, good afternoon.
LANDBANK is truly honored to join the key microfinance practitioners from Central and Southern Luzon in this important convention. Most of the MFIs in the country are based in this region, thus, making you an important segment of the Philippine microfinance system.
Our presence in gatherings like this is LANDBANK's way of showing our support to your sector. LANDBANK considers MFIs as its strategic partners in the pursuit of our countryside development thrust as you help us in further expanding our outreach.
Your theme: "Balancing the economic and social benefits of microfinance operations," is very timely and relevant as this captures two important dimensions of microfinance.
I will use these two concepts as the main points for my presentation this afternoon. Towards the end, I will share with you how we can strike a balance between the economic and social benefits in microfinance operations by referring to LANDBANK's own experience.
Microfinance, past and present
Let me begin by sharing with you the conditions of microfinance 20 years ago.
In the 80s, only a handful of institutions are engaged in microfinance operations. Most, if not all, financial organizations viewed microfinance as high-risk and non-profitable.
This stems from the idea that the poor are not credit worthy and are considered high risk borrowers due to their lack of formal training as entrepreneurs.
However, the stories of microfinance operations through the years, have dispelled this concept. Experiences of our successful MFIs strongly indicate that the poor are knowledgeable about doing business as they are very familiar with the local markets. Records of MFIs also show that the poor have high repayment rates and can even amortize interest rates on a sustained basis.
Profitability and social responsibility
According to Asian Development Bank president Tadao Chino, microfinance can be appreciated from two perspectives, namely: profitability and social responsibility.
The economic benefit is best manifested in the increasing number of financial institutions going into microfinance. The Bangko Sentral ng Pilipinas notes that there are about 110 financial institutions in the country actively engaged in microfinance.
But more than its economic aspect, microfinance involves a social dimension. Through the products and services offered by MFIs, the poor can pursue their small entrepreneurial ventures which are their primary source of livelihood. It helps enhance the ability of poor households to increase income, build assets and reduce their vulnerability to economic stress. In the process, microfinance helps uplift the lives of the underprivileged.
Considering all these, we can thus treat microfinance as a viable economic venture and at the same time, a socially responsible business activity.
Recognizing its contribution to spur growth especially in the countryside, LANDBANK has been providing support for microfinance activities. As of end-2003, LANDBANK extended loans totaling P5.5 billion through the People's Credit and Finance Corporation. These were channeled through 200 MFIs all over the country and benefited 60,000 new borrowers.
LANDBANK is also in the final stage of developing its own microfinance unit to further extend the Bank's financial services to the underprivileged. At present, we are in the process of selecting 10 microfinance institutions which will serve as our pilot conduits.
Striking a balance
Given our crucial role in developing communities and its people, it is imperative that we give equal premium on ensuring our financial viability.
How then can we continuously strike a balance between the economic and social benefits of microfinance operations in such a competitive industry?
We can begin by developing a strong commitment to serve the poor. This entails not just delivering the job we are expected to do but being the best at it.
Aiming for excellence in our operations require a sustained and collective effort from everyone in the organization. At LANDBANK, we are constantly gearing towards improved operational efficiency. A great part of this includes continuously seeking ways to enhance our systems and procedures.
For this year, LANDBANK's theme is pursuing our mandate through enhanced customer service. Among our main goals are achieving faster loan processing time and installing additional ATM units. Microfinance institutions can likewise launch an intensive customer related campaign to improve their service delivery. Conventions like these are a good venue to stimulate creative ideas and share experiences.
In the process, we can also ponder on the following guide questions developed by the International Food Policy Research Institute with the end goal of being more responsive to the needs of our target clients.
The first three questions require going back to the basics.
What kind of financial services do the poor value? What economic activities are the poor engaged in? What are the existing sources of financial services available to the poor and how do they use them?
These interrelated questions would help us know our clients better and help us improve our products and services. Armed with these information, we would be able to devise programs and schemes that best fit their requirements and repayment capabilities.
Lastly, we could also review the combination of financial instruments (such as credit, savings and insurance) that are most appropriate given the demands of different types of clients.
To end my speech, allow me to quote ADB director to the Philippines Mr. Gunter Hecker: "The challenge in microfinance is to mainstream good practice into operations and to increase the outreach to the poor on a sustainable basis."
In essence, we need to work towards constantly improving our operations. In doing so, we will be more effective in reaching out to a greater number of our poor clients thereby continuing to help them chart their own paths to progress.
Thank you and a pleasant good afternoon to all.