Creative microfinancing

We just heard about these microbanks recently, but it’s a great idea and I was wondering why the bigger boys did not think about them first. These are really small offices that actually have the basic functions of a bank but on a much smaller scale.

Rizal Commercial Bank Corp. (RCBC) is pioneering in microbanking under the microfinance platform of RCBC, and this is now called the Rizal Micro Bank (formerly Merchants Savings and Loan Association). From what I understood from Mrs. Lourdes “Long” S. Pineda, president and chief executive officer of the Rizal Micro Bank, they have just secured the nod from Bangko Sentral to open their very first Micro Bank Office (MBO), and this “satellite bank” is now open for business  and they are gearing up to open their next MBOs very soon. BSP decided to venture into these MBOs because of the steep costs of setting up a regular bank branch. Any bank setting up a branch would have to budget between P8-10 million, and if the targeted area is a remote poblacion or town whose population is so much less dense than Metro Manila for instance, then the initial investment would not be worth it.

These MBOs will be set up in rural areas at the lowest cost possible to the bank. Their idea is novel and workable, and definitely not as costly because they are going to recycle container vans which form the basic infrastructure of the MBO. As many of us know, there are hundreds of container vans just rusting away at the domestic ports and these can be purchased cheap, then rehabilitated and recycled into an instant micro business office.

A container-type office can be set up between 20 to 30 days, whereas a regular branch would take somewhere between three to five months, depending on the size of the branch office. And, these recycled container vans-turn-into-MBOs cost only between P2-2.5 million versus the P8 – 10 million budget for a regular branch.

Actually, these MBOs will not really be located in the most rural of areas – call them semi-rural – and their focus is micro finance loans ranging from P50,000 – P300,000 following the guidelines of the BSP. Mrs. Long Pineda says that with this, they can serve the so-called “missing middle” which largely remains un-served. They are too small to be minded by the unibanks, savings or thrift banks and too big to be served by cooperatives and non-government organizations. As Mrs. Pineda explains it, they have segmented all the possible markets to serve: their unibank unit serves the corporate loans while their savings and thrift banks serve SMEs and other such loans as housing, car loans, etc., while the MBOs cater to clients in between the micro and small categories. In fact, there are even businesses that are classified as small but their loan requirements are even smaller than the micro businesses, and here, the MBO can come in. At present it is this segment that has been neglected by the banking industry, and because of this, it is the money lenders that are most active in the P50,000 to P1-million loan level now.

So who comprise the clientele of these MBOs? They are basically the micro entrepreneurs who, though they own their business, have no access to credit facilities from banks because of the stringent documentary requirements. Many of these micro entrepreneurs do not have employer’s certifications or bank statements that reflect sizable savings or retained earnings which the banks expect to see. The MBOs have effectively weeded out these documentary requirements and have opted to rely on their own loan officers to evaluate each and every loan applicant.

When you think about it, it is not as simple to evaluate a loan applicant without the benefit of documents like banks statements, income tax returns, etc. The loan officer has to factor in the household, the lifestyle, etc. For instance, a loan applicant may rightfully say that he has three dependents which include the wife and two children, but an ocular inspection of the house could reveal an extended family, house help doubling up as employees, a service vehicle being amortized, etc. Mainly, the risk lies in a bank overlooking these small details, in effect allowing these loan applicants to be over-indebted, and this is what these micro banks guard against.

Actually, as Mrs. Long explains it, MBOs can really accept deposits, that is if the daily balance does not exceed P15,000 (they call these micro deposits), dispense small loans, even accept and pay out remittances, but the values of all these services are necessarily kept low because they intend these MBOs to operate on a cashless basis. Cash handling will be kept to the minimum, though the mother bank may deploy ATMs in these offices. Employees retained in each office will only be between two to three at any given time, excluding the loan officers who may visit from time to time to evaluate loan applications. The MBO is linked to the Internet and attached to a regular branch, and the bank’s strategy for expansion is to have not too many branches, but with each branch having many satellite MBOs.

Micro financing, thought by many to have started in Bangladesh, actually originated in Latin America. In the latest studies, Peru ranks no. 1 here, but last year we moved up to no. 3, proving that the Philippines has adopted micro financing quite well despite the fact that the country still lacks a credit bureau. Though we are faring very well despite this, we hope our legislators will see the urgent need for a credit bureau which will help our banks tremendously in screening clients and wedding out the bad eggs.

Brandy-flavored ice cream anyone?

Congratulations to Fog City Creamery, the newest player in the ice cream industry, for their latest venture where they partnered with Emperador Distillers to come up with a distinct ice cream flavor that spells l-u-x-u-r-y.

Emperador is a de luxe brand with a great heritage and excellent quality, and I understand they sought out the owner of Fog City Creamery after a daughter of one of the bosses tried out their ice cream and fell in love with it.

“It all started in San Francisco where I was based for ten years….I really like ice cream flavors that are adventurous…. I would like to give Manila a taste of San Francisco,” says Fog City Creamery owner Edy Gamboa. According to Emperador bosses Edward Gador and Carlos Vergara, it is artisan ice cream at its best – everything is home made with no chemicals, not even stabilizers, and this, Edy says, is how ice cream should be made. They have partnered with a small dairy farm and use only free-range chicken eggs, and their biggest size is a half-gallon because their ice cream is meant to be consumed, not stored for a long time.

This brandy-flavored ice cream which comes luxuriously with apricots, pistachios, etc. will be released in time for the holiday season.

By the way, Edy is the driven entrepreneurial daughter of Star columnist Rey Gamboa. Way to go niece!

Mabuhay!!! Be proud to be a Filipino.

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