MICROCAPITAL STORY: The Philippine Government Grants $3.7m to Five Microfinance Institutions: Rural Green Bank of Caraga, Enterprise Bank, People’s Bank of Caraga, Talacogon Agro-Industrial Multi-Purpose Development Cooperative, and Rural Bank of Placer

In August, the Philippine government dispersed PHP 169.7 million (USD 3.7 million) in loans to five microfinance institutions (MFIs) in the Caraga region of Mindanao in accordance with the Rural Micro Enterprise Promotion Program (RuMEPP). The Small Business Corporation (SBC), a government finance agency, funneled the loan to the Rural Green Bank of Caraga, the Enterprise Bank, the People’s Bank of Caraga, the Talacogon Agro-Industrial Multi-Purpose Development Cooperative (TAMDECO), and the Rural Bank of Placer, which in turn redistributed the funds as loans to thousands of micro-entrepreneurs in Caraga.

RuMEPP is a seven-year program spearheaded by the Department of Trade and Industry (DTI), an executive department of the Philippine government. The International Fund for Agricultural Development (IFAD), a Rome-based United Nations agency, has established a USD 22.9 million fund for RuMEPP’s operations, according to the Philippine Information Agency (PIA). IFAD lists the total cost of the program at USD 27.5 million. Through RuMEPP, the Philippine government hopes to improve the economic outlook of five of the country’s poorest regions: Cordillera Administrative Region (specifically Kalinga), Bicol, Eastern Visayas, Caraga and SoCCSKarGen, the last of which is an acronym representing four provinces and one city in central Mindanao.

RuMEPP aims to reduce rural poverty by spurring technical and financial support for the purpose of creating jobs and raising household incomes for 200,000 low-income households in nineteen of the Philippines’ poorest provinces, says the Manila Bulletin. One of the program’s components is the Microfinance Credit Support Component, which provides (through the SBC) wholesale loans to local MFIs such as rural banks and cooperatives to encourage lending to micro-entrepreneurs. Every year for seven years starting in 2008, the SBC has committed to drawing from an IFAD-donated USD 15 million funding pool and disbursing at least USD 2.2 million in microfinance loans. Of the USD 2.2 million allocated for 2008, at least seventy percent will be dispersed within the RuMEPP regions. For Caraga, some USD 12.6 million is available in credit from the SBC for qualified MFIs.

The Philippine Information Agency published a breakdown of the financial flows to the five MFIs in Caraga. The Rural Green Bank of Caraga, an MFI in Agusan del Norte, and the Enterprise Bank, an MFI in Surigao del Sur, both received about PHP 60 million (USD 1.3 million), or about thirty-five percent, of the total loan amount from the Philippine government. Two MFIs in Agusan del Sur, the People’s Bank of Caraga and TAMDECO, jointly received PHP 30.4 million (USD 666,931), while the Rural Bank of Placer in Surigao del Norte accepted another PHP 19.0 million (USD 416,832).

The Philippine government does not publicize specific information on the terms of the loans, but the websites of some MFIs do shed some light on the terms available to the five MFIs and micro-borrowers. Through its Micro Financing Program, SBC provides both wholesale re-lending to “medium” and “large” MFIs and retail re-lending to micro-borrowers for one-year, renewable terms. Medium MFIs receive a minimum of USD 65,000 and a maximum of USD 1.1 million for the first year, but the maximum limit increases to USD 2.2 million for every year thereafter. Large MFIs receive a minimum of USD 325,000 and a maximum of USD 2.2 million for the first year, but the maximum limit increases to USD 4.3 million for every year thereafter. SBC offers slightly different loan terms to rural and cooperative banks. Their minimum is USD 4,333 and maximum is USD 1.1 million for the first year, which increases to USD 2.2 million in succeeding years.

The Rural Green Bank of Caraga, the only one of the five target MFIs in Caraga with a website, offers three loan products: Buhi-Buhi, Bulak and Trees. Buhi-Buhi loans offer public entrepreneurs with at least one year of business experience and a daily income amounts of up to USD 217. Women engaged in business for at least six months can avail of the Bulak loans, but depending on their marital status they must have either their parents’ or their husband’s consent to participate. Women have up to six months to pay off an amount ranging from USD 65 to USD 758, on which they are charged a two percent monthly interest rate. Finally, the Green Bank offers to local residents with a steady income at least one year of business experience their Trees loan, with an initial capitalization of up to USD 70 and an interest rate of 2.5 percent per month payable over a period of up to six months.

The Rural Green Bank of Caraga is an MFI headquartered in Butuan City, Agusan del Norte in the Philippines. It was founded in 1975 as the Rural Bank of Nasipit in Nasipit, Agusan del Norte. The MIX Market rated the Green Bank four out of five stars in terms of the level of its information disclosure. Its gross loan portfolio totaled USD 30.5 million at the end of 2007, and at least 91 percent of the Green Bank’s operations were comprised of micro-loans. At the end of 2007, the number of active borrowers totaled 72,742. The return on assets was .70 percent, and the return on equity was 5.38 percent. The total debt-equity ratio was 765.50 percent.

Founded in 1972, the People’s Bank of Caraga (PBC) is currently headquartered in Agusan del Sur. The MIX Market rated the PBC as three out of five stars in terms of the level of its information disclosure. Its gross loan portfolio totaled USD 6.7 million at the end of 2006, and 41 to 50 percent of the Green Bank’s operations were comprised of micro-loans. At the end of 2005, the number of active borrowers totaled 25,541. At the end of 2006, the return on assets was 7.19 percent, and the return on equity was 44.43 percent. The total debt-equity ratio was 573.56 percent.

Founded in 1991, the Small Business Corporation is the Philippine government’s third largest financier of small and medium enterprises (SMEs). As of September 25, SBC has posted on its website an up-to-date 2006 balance sheet. Total assets are USD 42.6 million with current loans and long-term receivables at USD 10.2 million. Total debt-equity was at 75:1. The Small Business Corporation, the Enterprise Bank, the Talacogon Agro-Industrial Multi-Purpose Development Cooperative (TAMDECO), and the Rural Bank of Placer do not report to The MIX Market, the microfinance information clearinghouse.

Additional Resources:

Department of Trade and Industry of the Philippines (DTI)

DTI: 2009 Appropriations Budget

International Fund for Agricultural Development (IFAD)

IFAD: Rural Microenterprise Promotion Programme Documents

Manila Bulletin Online: “Businesses boom in Caraga”

MIX Market Profile: The Rural Green Bank of Caraga

MIX Market Profile: The People’s Bank of Caraga

National Economic Development Authority: RuMEPP Loan Terms

Philippine Information Agency (PIA) Press Release: “Feature: RuMEPP as a vehicle of economic revolution”

PIA Press Release: “P168.65-M RuMEPP funds released in Caraga”

“Report and Recommendation of the President to the Executive Board on Proposed Financial Assistance to the Republic of the Philippines for the Rural Microenterprise Promotion Programme”, presented at the Eighty-Fourth Session of the Executive Board of the International Fund for Agricultural Development: 18-20 April 2005.