In 2017, SEDPI conducted a series of trainings on “Innovations and Trends on Financial Inclusion” held in Baguio, Cebu and Davao. It aims to provide capacity building training to microfinance institutions in improving delivery of pro-poor financial services towards financial inclusion of microenterprises.
Industrial Guarantee Loan Fund (IGLF) supported the conduct of the training. IGLF is a government-owned credit program (through the National Economic and Development Authority) administered by the Development Bank of the Philippines (DBP) under the supervision of a Governing Board composed of NEDA, BSP, DTI, DOF, and UP-ISSI. It used to be the longest running lending facility in the country assisting MSMEs with their credit needs.
Through a focus group discussion, the participants were asked to identify the strengths and weaknesses of MFIs in the Philippines, as well as to identify the opportunities and threats in the microfinance industry. The result of the study is interesting because it provided insights on how microfinance practitioners perceive the industry.
Profile of respondents
A total of 157 participants from 56 microfinance institutions all over the country. Most are top management (32%) or middle managers (62%) of their respective microfinance institutions and holds a college degree (74%). More than half are male (58%) and married (71%). Most of the participants finished college (74%).
The participants noted that a strong microfinance institution must have a clear mission, vision, goals, objectives, and core values. They also mentioned other values, characteristics and services which support these.
According to the participants, being a pro-poor community-based organization is one of the greatest strengths of an MFI. Giving high value to customer care and client/member empowerment also contribute to the successful operations of MFIs.
The service-oriented mindset of MFI staff and commitment to work also add to the strength of MFIs. These strengthen the relationship of MFIs to their clients and build loyalty between the two.
With teamwork and good governance within the branches, MFIs are able to inculcate financial discipline among its member. Thus, helping the MFIs fulfill their social responsibility of helping the marginalized sectors.
Services and other activities
MFIs offer non-collateralized loans with low interest rates. This is one of the many features of MFIs that greatly appeal to the masses.
Aside from loans, MFIs also offer microinsurance, other benefits, and various social development programs which are all focused on building the capacity of their members.
The participants noted that requiring less documents for their wide array of products and services helps MFIs in their promotions and client retention.
Other characteristics which MFIs consider as their strength include their customization of services based on their clients’ needs. In addition, having access to external funds also help them improve their operations.
The participants identified several weaknesses common to their MFIs. These can be categorized into the following areas: delinquency management, client selection and management, leadership, product design, and monitoring and evaluation.
They noted that most MFI still need to improve on their delinquency management. They have high PAR and experience high occurrence of fraudulent activities. These may be due to poor leadership or governance of the organization and of the clients and poor implementation of policies.
Delinquency is also often caused by external factors such as disasters and calamities – one thing that an MFI has no control over.
Poor leadership among the staff has also been identified as one of the weaknesses of MFIs. In addition, low salary and lack of benefits for staff contribute to their poor performance. This leads to fast staff turnover.
Client Selection and Management
The participants also cited poor conduct of CIBI as one of the weaknesses of their organizations. There were also some of them who also cited client over-indebtedness as their weakness.
They also noted poor and limited product design as weaknesses of MFIs. Their resistance to innovation and lack of business contingency plan also hinder the smooth operations of MFIs.
Monitoring and Evaluation
Some clients use their loans for other purposes including non-productive activities. The participants noted that they still need to improve their monitoring system.
The participants cited various opportunities which can help MFIs improve their operations.
The participants noted that MFIs have strong government support and are linked with various offices. They can easily address legal concerns both in the administrative and operational aspects with these partnerships.
They also remarked that the ASEAN integration is another opportunity which could open doors for the microfinance industry.
There is also a pool of local and international organizations which can give support to MFIs, cooperatives and NGOs.
Participants cited tax exemption for cooperatives as an opportunity that must be explored.
The huge market of financial demands supports the need for MFIs and cooperatives which provide accessible financial services to the marginalized sectors. The addition of these institutions not only provides financial services but also generates employment for the locals.
Returning OFWs is a market segment that may also be explored by the industry.
Climate change, despite its negative effects, is an opportunity for MFIs and cooperatives to provide additional services to their clients such as additional insurance for calamities.
Mobile banking can help organizations improve their services by increasing their accessibility. Clients who live far from the branches would have easier access to funds through this.
The participants identified the following threats to MFIs and cooperatives:
Government policies allowing commercial banks to provide MF retail services entails an increasing number of competitors in the industry.
In line with the restrictive government regulations on MFIs, tax repeal on cooperatives was also considered a threat by the participants. Other political interventions may also hinder MFIs and cooperatives to have efficient operations.
Lack of financial literacy of clients and further training for staff may also decelerate the progress of the branches.
Some commercial banks are now also providing microfinance retail services. Thus, there is an increase in the competitors in the industry.
The high foreign exchange rate was also cited by the participants as a threat to the industry. This determines the economic status of the country which also affects the capacity of MFIs and its clients.
Natural calamities may damage the assets of the MFIs and the clients. If unprepared, both the MFI and its clients may have difficulty in recovering and resuming normal operations.
Pest and diseases on agriculture also affect the livelihood of some clients. This can lead to non-repayment and delinquencies.
Technology is both an opportunity and a threat to the industry. Other organizations who have better resources can utilize technology to improve their services and become more appealing to the masses.
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