BY AMADO P. MACASAET
Realizing that microfinance is an underbanked sector but an emerging
major engine of growth in the banking sector, Rizal Commercial Banking
Corp., the country's fourth-largest universal bank, opened an additional
13 new micro-lending offices last July.
Lorenzo Tan, president and chief executive officer of RCBC, said in an
exclusive interview with Malaya Business Insight that so far the bank
has released 4,500 loans to 864 micro-entrepreneurs.
Microfinance appears to be messy because the number of borrowers is
large. However, Tan is emboldened to go heavy into the business after
seeing that non-performing loans are only 0.5 percent of total loans of
micro borrowers.
The low risk of default is seen by Tan as an indication that small
entrepreneurs do not want to besmirch their credit reputation because
they want to go on borrowing in the hope of expanding their operations.
The philosophy in microfinance is that even if a good number of
borrowers default, the lending bank will hardly be affected because the
size of individual loans is small.
On the other hand, a few defaults in the billions of pesos among giant
borrowers may force a less stable bank to run to the Philippine Deposit
Insurance Corp. for advances.
RCBC has seen the lower end of the market and consumer finance as a main
area of lending concentration. In 2010, 25 percent of the bank's
portfolio went to consumer finance, 8 percent to small and medium
enterprises, and 67 percent to corporate borrowers.
By 2015, the mix of the portfolio will be reversed. Tan estimates that
by that year, 36 per cent of the portfolio will go to consumer loans and
15 per cent to SMEs. Corporate loans are expected to come down from 67
per cent in 2010 to 49 per cent by 2015.
There are no numbers for microfinance in the presentation made recently
to select clients.
RCBC completely recognizes the necessity of servicing the lower end of
the market, particularly microfinance. The bank believes that
empowerment of the poor is a longer-lasting solution to economic
problems and poverty.
At present, market vendors and the smallest of the small business people
survive on 5-6 lending operation of the Indians. A fish vendor, for
example, borrows P5 in the morning and pays the lender P6 in the afternoon.
Despite the Shylock rates, operations of the Indian lenders continue to
grow because money is lent on the spot. There are no forms to fill out.
No financial background is required.
But Tan said the excessive rate of the Indians is not the only
"punishment" the borrowers have to go through. He said the Indians never
teach their borrowers the basics of entrepreneurship because they do not
know any better.
The interest charged by Indian lenders is about 7,000 percent a year.
Yet, they survive, according to Tan. RCBC's rate is remarkably higher
than market but Tan said RCBC is looking at ways to reduce the interest
rate it charges to micro borrowers.
Micro lending becomes expensive and messy because the lending banks go
out of their way to teach the borrowers the basics of preparing balance
sheets and knowing which expense is related to the business and which
ones are not.
Before long, Tan said, micro borrowers will learn entrepreneurship,
considering that their businesses are small at the beginning.
What Tan dreams of is seeing the high rate of unemployment reduced by
self-employment through micro finance.
Tan sees bright opportunities with the unaided eye. He mentions that the
Philippines is the 12th most populous nation in the world. If a good
number of the people can be given purchasing power – microfinance is one
way – higher demand for products and services will naturally follow.
He pointed out that 56 per cent of the population is younger than 25
years; 71 per cent is below 35.
About 10.5 million Filipinos are younger than four years.
What this could mean is that the Philippines is "armed" with younger
people who can make a living with their sinews.
Six million household have computers, making electronic banking easier
to accomplish. There are 10 million people with broadband and Tan said
the number is growing. Roughly 80 per cent or 80 million people are
cellular phone users.
The high dependence on OFW remittances is best indicated, Tan said, by
the fact that 46 percent of households have relatives working abroad.
The continued growth of BPO is supported by the fact that 18 percent of
the population has relatives working in outsourcing operations.
All these, Tan said, are opportunities that RCBC is trying to make use of.
According to Tan, annual remittances of OFWs amount to $18 billion. This
puts purchasing power in the hands of dependents at home but,
surprisingly, the higher demand has not pushed inflation that far.
The country gets $11 billion a year in BPO revenues and the figure is
expected to double in about five years.
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