EXPERIENCE SHARING: Micro Credit Strategies A PCFC Mindanao Team Presentation for the ENRAP II Philippines National Workshop

OUTLINE OF PRESENTATION  Contributory Factors to MF GROWTH  Strategic Options in MF  Highlights on the People’s Credit and Finance Corporation operations

CONTRIBUTORY FACTORS TO MICROFINANCE GROWTH  Policy environment  Resources available for microfinance  Retail capacity for microfinance

CONTRIBUTORY FACTORS TO MICROFINANCE GROWTH Policy environment: BSP started to promote the setting up of specialized microfinance bank BSP started to promote the setting up of specialized microfinance bank BSP in the process of relaxing the moratorium on branching BSP in the process of relaxing the moratorium on branching BSP set up a microfinance unit within itself to ensure better oversight BSP set up a microfinance unit within itself to ensure better oversight The adoption of common standards for all MFIs encourages effective governance The adoption of common standards for all MFIs encourages effective governance

CONTRIBUTORY FACTORS TO MICROFINANCE GROWTH Resources: Funds for re-lending (PCFC, LBP, DBP, etc.) Funds for re-lending (PCFC, LBP, DBP, etc.) Capability building Funds (PCFC, PDTF, etc.) Funds (PCFC, PDTF, etc.) Providers (FRIEND, EBI, CARD, NWTFI, TSKI, CUES, MABS, Punla, etc.) Providers (FRIEND, EBI, CARD, NWTFI, TSKI, CUES, MABS, Punla, etc.)

CONTRIBUTORY FACTORS TO MICROFINANCE GROWTH Retail Capacity: Funds - Wholesalers and retailers Funds - Wholesalers and retailers Capability building Funds (PCFC, PDTF, etc.) Funds (PCFC, PDTF, etc.) Providers (FRIEND, EBI, CARD, NWTFI, TSKI, CUES, MABS, Punla, etc.) Providers (FRIEND, EBI, CARD, NWTFI, TSKI, CUES, MABS, Punla, etc.)

CONTRIBUTORY FACTORS TO MICROFINANCE GROWTH Retail Capacity: Common Capability Building Needs General management skills and systems General management skills and systems Specific topics pertaining to MF technology Specific topics pertaining to MF technology Specific topics relative to the type of MFI Specific topics relative to the type of MFI

Preparing for Expansion Clarify Expansion Strategy vis-à-vis VISION Clarify Expansion Strategy vis-à-vis VISION Assess Institutional Status Assess Institutional Status Market and Competitive Analysis Market and Competitive Analysis Develop Branch Viability Model Develop Branch Viability Model Project Resource Requirements Project Resource Requirements

Institutional Assessment Areas Performance: Performance: –Define performance areas, standards, targets –Review actual vs. targets and standards –Identify variances and reasons for variances Review Business Model Review Business Model Delivery Systems Delivery Systems –Products/Services –Methodologies/delivery systems –Viability Models

Institutional Assessment Areas Organizational Building Blocks Organizational Building Blocks –Leadership and Governance –Management Processes – planning, organizing, motivating, controlling –Human Resources –Management Information Systems –Financial Management

Institutional Assessment Areas Staff development– KSAs (knowledge, skills, attitudes) or competencies Staff development– KSAs (knowledge, skills, attitudes) or competencies Systems and process development and implementation (standardization and replication) Systems and process development and implementation (standardization and replication) –Product Development –Management Planning and Control Systems –HR Systems –MIS systems –Internal Control Systems –Financial Management

Market/Competition Analysis Assess Market Potential Assess Market Potential Assess Competition Assess Competition Assess Self Assess Self Decisions Decisions –Target segments –Product/service positioning –Expansion strategy

Area/Market Potential Assessment Who? Market Segmentation Who? Market Segmentation How big? Market Size Estimate How big? Market Size Estimate What are wants? Market Segment Demand Analysis What are wants? Market Segment Demand Analysis

Competition Who? Who? What services? What services? How delivered? How delivered? How received by market segments? How received by market segments?

Market and Competitive Analysis Compare products and services: Compare products and services: –Market preferences viz. competition viz. your own Identify/Validate positioning options - Identify/Validate positioning options -

9 Ways to Build Product Demand MFI Product ExistingModifiedNew MARKETExisting Sell more of our existing products to our existing types of customers (market penetration) Modify our current products and sell more of them to our existing customers (product modification) Design new products that will appeal to our existing customers (new product development) GeographicallyModified Enter and sell our products in other geographic areas (Geographic expansion) Offer and sell modified products to new geographical markets Design new products for prospects in new geographic areas New Sell our existing products to new types of customers (segment invasion) Offer and sell modified products to new types of customers Design new products to sell to new customers (diversification)

Poverty line Entrepreneurial Poor Individual Lending Grameen Group Liability ASA Income Level

Difficulty in moving up from small farmer (micro-enterprise) lending Gap in loans between (roughly) P ,000 and P1-2,000,000 Gap in loans between (roughly) P ,000 and P1-2,000,000 Potentially greater risks require analysis of business, not just family cash flows Potentially greater risks require analysis of business, not just family cash flows Analysis is costly and collateral requirements may be more stringent Analysis is costly and collateral requirements may be more stringent

Strategic Options Managing the clients’ risk by offering micro- insurance covering death, health and hospitalization benefits; Managing the clients’ risk by offering micro- insurance covering death, health and hospitalization benefits; Building up their assets through funds for housing, their children’s education and their own pension; and, Building up their assets through funds for housing, their children’s education and their own pension; and, Capitalizing on economic opportunities and growth by means of enterprise loans, training and marketing linkages. Capitalizing on economic opportunities and growth by means of enterprise loans, training and marketing linkages.

Philippine Microfinance Program As implemented by the: Peoples Credit and Finance Corporation (PCFC) in partnership with Private Microfinance Institutions

People’s Credit & Finance Corporation “The lead government entity specifically tasked to mobilize resources from both local and international funding sources for microfinance services for the exclusive use of the poor”

PCFC MANDATE : to provide the poor with access to credit BASIC STRATEGIES : Wholesale Lending to accredited microfinance institutions Capability Building of MFIs

PCFC’s Accomplishments

GEOGRAPHICAL COVERAGE: MFI Visibility Map As of August 2005, PCFC thru its 203 Active MFIs PARTNERS is serving: 80 of 80 Provinces (100%) 117 of 117 cities (100%) 1,284 of 1,493 towns (86%)

PCFC MFI - PARTNERS Number of Active MFIs,

Number of Active MFIs, By Type As of August 2005 PCFC MFI - PARTNERS

Loan Volume (‘Php Million’) Year Cumulative Loan Releases Releases for the Year , , , , , ,4691, ,8331,364 As of Aug '057, Outstanding Balance P2.9 B (As of 8/31/05)

End client Outreach

Income generating projects with daily or weekly cash flows Types of Livelihood Activities Noncollateralized lending for: 2005 Buy & Sell / Vending45.95% Sari – Sari Store41.29% Livestock Raising5.56% Food Processing1.84% Dress Making/RTW1.51% Others 3.85%

Capability Building Support ( ) FUND SOURCE AMOUNT OF GRANT Number of CoursesNumber of Participants ’ Tota l Total FOREIGN GRANTS P 14.8 Mn68- 1,964- PCFCP 0.89 Mn TOTALP Mn , ,711 TRAININGS COURSES CONDUCTED: Leadership and Governance Training Performance Appraisal People’s Development (Trainor’s) Internal Control Leadership and Livelihood Training Creativity and Innovations for Work Excellence Account Management

PCFC’s Highlights Expansion in GEOGRAPHICAL COVERAGE, especially hard to reach areas Expansion in Client Outreach Mainstreaming of Rural Banks in Microfinance Continuous Capability Building

Thank you and Good Day!