CARD MRI’s business of eradicating poverty has turned it into one of the most profitable microfinance institutions in the country

For developing countries where majority of the population is poor, one of the most important (and most hopeful) strategies in eradicating poverty is microfinance. A practice started in the 1970s by economist and 2006 Nobel Peace Prize winner Muhammad Yunus—founder of the most famous microlender, the Grameen Bank—microfinance renounces the conventional wisdom that the poor are not credit-worthy. In the three decades since Yunus gave his first loan to a group of Bangladeshi women, the number of microcredit borrowers has increased exponentially.

Today, the Grameen Model is applied the world over. Here in the Philippines, the Center for Agriculture and Rural Development Mutually Reinforcing Institutions (CARD MRI) has been a leading innovator.

CARD MRI started in 1986 as a normal NGO that helped the landless rural poor uplift their quality of life. After 10 years of operation, it evolved into a Microfinance Institution (MFI) under the leadership of its founder, Jaime Aristotle B. Alip, Ph.D., an agriculturist who was introduced to microfinance when he worked for the Philippine Business for Social Progress (PBSP).

“The objective of our foundation was really to create a financial institution that’s owned and managed by the poor, particularly the ‘nanays’ (mothers),” says Alip. “I wanted to move towards the direction of assisting women because not only do they have the capability to translate credit into income-generating activities, but their first priority will always be the family—food and education, housing, clothing, basic things. You really bring about total change in the family. That to me is what development is all about.”

Defying Convention

In terms of anti-poverty policies, microcredit is undoubtedly the most visible innovation this country has seen in the last three decades. Back then, majority of the population had no access to credit from big banks, even rural banks, says Alip, because the existing regulation then was that 70 percent of pure loans must be collateralized.

When the poor needed to borrow, and they do at some point or another—to pay for healthcare, to set up a sari-sari store or to fix their roof—they would go to moneylenders and end up paying exorbitant interest rates.

Now they can borrow from MFIs at significantly lower rates. What makes CARD MRI different from other MFIs, however, is that “our loans are 100 percent collateral-free,” informs Alip. “We challenge the conventional banking wisdom that there should be a collateral. Mahihirap kasi ang pinapautang namin (our clients are the poor). Especially in our case, the landless and assetless.”

The bank’s payment system sets it apart from others, too. A loan, which starts as small as P1,000 to P3,000, is paid weekly and is spread over three months, six months, or a year, depending on the capability of the nanay.

“As they gain more experience and success in a project, we increase the loans,” says Alip. “Talagang nagbabayad (they make it a point to pay them back). Since we started, our repayment rate is near perfect at 99 percent, and this is all reflected in our books, which are audited by the SGV (SyCip Gorres Velayo & Co.).”

Incorporating Microsavings into Microfinance

Given how the Philippines is constantly visited by tropical storms, like Ketsana that left thousands of people homeless, it is becoming increasingly clear that the most important element of microfinance isn’t really lending, but savings. If you don’t have a bank account (because you can’t afford to open one), and all your money is stashed in a tin can under the bed, chances are if another disaster strikes, savings can be wiped out in minutes.

To address the financial security concerns of its clients, CARD MRI started offering a Savings Mobilization program, where the minimum weekly savings required is only P50. Over time, a depositor has the prerogative to increase that amount.

“Walang bangko na tumatanggap nun (no bank will accept that rate),” Alip says, “but we do it because our business model is really by the poor, for the poor, and serving the needs of the poor people.”

When it comes to collections of both loans and savings, “we bring the bank to their doorsteps,” says Alip. “We have 37 banks all over the country, and we have 300 banking offices (extension offices of a bank) na nakalagay sa mga outposts sa mga barangay (which are located at barangay outposts). One option for the nanay is to go to these centers, but if they cannot afford to go because they come from far-flung areas, we go to them. That’s what differentiates banking with the poor.”

Sticking to the Business Model

Since acquiring its license from the Central Bank to do microfinance, the CARD group now has a total of 1.2 million clients. And true to its vision of alleviating poverty, the group put up its own school, the CARD MRI Development Institute (CMDI), and has also ventured into mutual funds through the CARD Mutual Benefit Association (MBA), the first micro-insurance institution in the country where all of CARD MRI’s clients are members.

CARD MRI members at a center meeting in Bondoc. These are all individually remarkable achievements, which clearly show that the CARD group has the potential to be entirely transformative.

“If you are really in the business of helping the poor, you have a different mindset,” says Alip. “How do you bring the country to work together in order to reach all the poor people, give them loans and change their lives?”

A Vibrant, Thriving Industry

The microfinance industry, Alip says, “is robust. We have the Microfinance Council wherein all MFIs are members, and we’ve established standards for performance, repayment rates, outreach, etc. In fact, we have regular training programs so that everybody is within the industry’s practices.”

Competition among MFIs is also very vibrant, Alip says. “I like competition—because when you bring about competition, innovation comes. You bring about challenges in all the MFIs to always assess their services and the way they do business. This is beneficial because services improve and there’s lower interest rates being offered, which streams down to the nanays’ advantage.”

Three years ago, the Microfinance Council recorded a 5.2 million poor population in the country. Today, the industry has reached about 2.7 million of that figure. “There’s still 3 million people unserved,” says Alip. “We should bring the battleground to these individuals. Right now what CARD is doing is to expand into the indigenous and mountainous areas, because that’s where access to microfinance is needed most.”

Published in the Business Agenda Section of Manila Bulletin, May 17, 2010.

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