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Funding That Dream

Banks are not snubs, just say ‘microfinance’




Bangko Sentral ng Pilipinas

Young Filipinos or those aged 16 to 24 years old may not be aware of this yet but they, too, can access microfinance services.

The Bangko Sentral ng Pilipinas (BSP) defines microfinance as “deposits, loans, payment services, money transfers, and insurance” to the low-income group or the “economically active, entrepreneurial port” for their “microenterprises and small businesses” and availing of these products will “raise their income levels and improve their living standards.”

The young business people are not necessarily poor as defined by national statisticians, but they could be low to middle-income individuals because they are just starting out, economically.

BSP Governor Benjamin E. Diokno sees big opportunities for all Filipinos to tap microfinance as a “transformative power” for inclusive growth.

In a recent forum, Diokno stressed that with the economy posting growth for more than 80 quarters in a row, it is a time for “new opportunities for enterprise and collaboration” for micro, small and medium enterprises (MSMEs).

This is a good entry point for young business-minded people.

The BSP has issued more than 40 microfinance-related circulars since 2000 when it first decided to adopt microfinance as an advocacy. This advocacy eventually morphed into financial inclusion.

“Today, financial inclusion is not merely an institutional advocacy— it is a strategic imperative,” said Diokno.

The central bank’s banner program for financial inclusion is the National Financial Inclusion Strategy (NSFI) launched in 2017, and the NSFI is focused on MSMEs and the agriculture sectors.

“Still, the potential for MSMEs has yet to be realized, [although] MSMEs accounted for 99.6 percent or about 911,768 of the country’s enterprises. It also employs about 61.6 percent of the total work force,” said Diokno. “The reason for this is low capital investment with MSME business loans only representing about 9.2 percent of total business loans. The problem is MSMEs have a reputation as ‘low profit and high risk.’ Perhaps this issue is intensified if the MSME borrower is under 24 years old.”

The low profit and high risk perception results to “scarcity of appropriate financing products and inability of banks to cater effectively to MSMEs.”

Filipino adults running an MSME business shy away from approaching banks to try to apply for business loans, more so for the young entrepreneurs who may have no credit history to show banks and no collateral to support their loan proposals.

There is no great barrier for an ambitious and driven young Filipino, aged 16 to 24, who wants to try to take out a business loan. They just have to research, inquire, and open a bank account for as low as P100 initial deposit.

On the issue of credit worthiness, the BSP has instituted the Credit Information Corp. And, according to Diokno, they are now collaborating with the Government of Japan to establish a Credit Risk Database. “[This] will produce scoring models predicting the creditworthiness of SMEs (and MSMEs) to help improve their access to finance through risk-based lending and lessen the dependence of banks on collateral,” he said.

As early as 2014, the BSP has had risk-based lending, which makes it easier for borrowers to have access to financing as this allow banks to look more into the borrower’s capacity to pay the loan rather than based on collateral.

“In the last two years, the BSP has also created a policy package to address the commonly cited barriers to participation in the formal financial system, such as the lack of funds, documentary requirements, and means to travel to financial institutions. These policies aim to help the unserved and underserved establish a financial footprint that would enable them to avail of and maximize products and services in the market,” said Diokno.

The youth, as aspiring micro-entrepreneurs, have long been a targeted loan market for some banks with microfinance units, not so much by big banks but through thrift or savings banks. The marketing may not be too aggressive but the loan products are available. These are also in digital services and other easy-to-open deposit accounts, such as the basic deposit accounts that have no maintaining balance.

For a more approachable setup for small business owners, the BSP has approved the creation of branch-lite units two years ago.

Presently, there are 1,874 branch-lite units and 40,000 cash agents. Also, the number of banks offering basic deposit accounts, which have fewer financial and documentary requirements and almost tailor-made for young borrowers, have reached 77 by end-June this year.

There is no great barrier for an ambitious and driven young Filipino, aged 16 to 24, who wants to try to take out a business loan. They just have to research, inquire, and open a bank account for as low as P100 initial deposit.

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