While emulating successful – albeit, rare – Filipino entrepreneurs, and honoring them with awards and heaping praises on the miracles they have accomplished, there is little being done to improve credit access to micro businesses.
The credit window of commercial banks for MSMEs are rarely accessed by micro and small entrepreneurs, and yet these very same target beneficiaries say that they desperately need the capital to grow their businesses.
Largely because of the “barriers” that commercial banks impose on micro and small businesses that need credit, and even on individuals who need quick loans to bridge their financial needs, micro lending in the Philippines thus is thriving.
Micro-lenders, who run businesses capitalized with at least P1 million, and who lend out as low as P5,000 to individuals and businesses with no collateral requirements, are in fact, contrary to common notion, charging much less than commercial banks.
They are friendly to talk to, quick to draw out a lending contract, and will generally be cordial in the next weeks as they visit to collect repayments based on an agreed installment schedule.
For a country that has 98 percent of its registered businesses categorized as micro and small, it is ironic that the giant network of local commercial banks are unable to service this sector — much less look at the minute financing needs of Filipinos who earn not more than P50,000 a month.
“Barriers”
For micro and small entrepreneurs, like sari-sari store owners or stall operators in a market or mall, there is often not enough collateral that is acceptable to a local commercial bank to cover the financing needed, usually needed to bridge cash flow or sometimes to expand the business.
More importantly, the paperwork involved in taking out a loan from a bank is often too tedious and time-consuming for an entrepreneur that is often harried already by the operational day-to-day pressures of running the business.
Commercial banks admit that it’s not that funds are not available, since the law has prescribed that they set aside loan windows specific to small lending. Rather, they say they just have a human resource pool that is simply undermanned and overqualified to cater to the vagaries and quirks of micro lending.
With the economy heating up, these banks complain they have not enough bankers available to service the loan requests by big companies and conglomerates to finance the onrush of expansion projects.
Two faces
Micro-lenders, therefore, are just too obliging to fill in the gap. Interestingly, there are two distinct faces of micro lending in the country.
The first is one dominated by Filipinos, usually those that have accumulated enough capital from their overseas jobs and who make themselves accessible in their hometowns. They are part of the local community, and therefore have better access at gauging the individual or proprietor’s paying capacity.
Because micro financing is often unsecured lending, the possibility of incurring bad debts is only too real. It helps that these lenders have “personal” access to borrowers and their family members to somehow mitigate a bad transaction so that they are able to collect the most from bankrupted clients.
The other side of micro-lending is the Indians, or what we have grown up to regard as “Bumbays.” A local market or a row of commercial establishments will invariably have one, and more often, owning a motorcycle that can be seen going around.
The term 5-6 (P6 paid back for every P5 loaned on a daily basis) is no longer the norm, with these Indians flexible enough to complete with Filipino moneylenders in the locality.
While these foreigners, reportedly shored by with capital directly mobilized in India, are unable to fully integrate with the community, they are easy to approach to – and of course, are dead giveaways to anybody who is out looking for unsecured credit.
Between these two, it is the Indian moneylenders who have a winning track record: very few have gone under from bad debts. Filipino moneylenders will have to learn more from these competitors who have withstood generations and global and local economic crises.
Partnerships
Notwithstanding the current state of competition between these two major segments of micro-financing in the Philippines, what is apparent is that credit is finding its way to those that badly need it. Where the big banks have failed, these small moneylenders have managed to score wins.
Of course, the system could be improved further to make more capital accessible and to be more effective for those micro and small businesses. And perhaps too, this could be seen as a route, a sort of back door, for the government to consider.
Together with the experience of micro-financing institutions (MFIs), which are in a totally different league than micro-lenders, there’s a wealth of knowledge and experience that will not only make financing available to micro and small businesses to help them expand.
MFIs, like the Microenterprise Access to Banking Services project funded by the USAID, seek out beneficiaries belonging to poor sectors that need additional income by starting new livelihood opportunities.
By providing business management training, these MFIs have had a good track record in helping start-ups belonging to the poor sector with initial capital outlays of as low as P5,000, and building these up to levels that have pulled the beneficiaries out of poverty.
Looking for new ways
The problem of bridging financial and technical resources to our micro and small entrepreneurs so that they may become stronger and therefore be a more potent force in providing more jobs and better income to more disadvantage Filipinos has been a riddle hounding the government for so long.
If the current remedies are not working, it is time to find new ways of solving this problem. We badly need to provide more instruments to quick-start inclusive growth for the majority of our poor countrymen.
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