The Global Crisis and Microfinance: A Rural Bank’s Perspective 2009 RBAP-MABS National Roundtable Conference May 12-13, 2009 Hyatt Hotel and Casino Manila Brig. Gen. Charles Y. Hotchkiss (Ret.) Chair – Executive Committee

What is the global financial crisis? The global financial crisis is an ongoing issue which put a number of countries into a recession and the major stock indices into a downward spiral. The crisis came to the forefront of the business world and media in September 2008 with the failure and merging of a number of American financial companies with the sub- prime mortgage crisis.

How does the global financial crisis affect microfinance? Indeed, how does it affect Cantilan Bank?

According to Kate McKee, CGAP official and former head of Microenterprise development at USAID: “It’s in times of crisis that we see what microfinance is really made of. During past emergencies, microfinance has held fast. And even as the current global banking mess has gone from bad to worse, recent headlines have global and industry leaders asserting that microfinance can and should be able to withstand it.”

How does Cantilan Bank view the financial crisis? It is a Challenge and growing concern as unemployment could increase, and deposits and loans might decline But also, it’s an opportunity to strengthen the bank and become better at what we do through: – Staying true to our mission and vision – Better strategic planning and expanding in multiple ways – Innovation – Better attention to our human resources – Better customer care

Cantilan Bank’s Market Profile Caraga Region is one of the poorest regions; many families are engaged in micro and small enterprises as a major income source An agricultural and fishery-based economy Export-oriented mining industry has become important in recent years Overseas Filipinos, 17K, send money regularly to their families thus helping fuel the economy

Possible Effects to Local Economy and Microentrepreneurs We anticipated there may be reduced family income and a reduction in remittances and that: – Income from microenterprise will cover much of the family’s needs – More sales on credit due to reduced liquidity of households – Possible reduction in sales – Higher spending to meet basic needs may affect client’s capacity to meet obligations and save In reality, remittances are up this quarter and there are no reports of OFWs coming home in our region.

Possible Challenges & Responses of CBI: CHALLENGES Delinquencies may rise if risks are not properly managed Reduced deposit balance due to heavier withdrawals and fewer new accounts RESPONSES Tighter monitoring and control of delinquencies Promote and encourage greater savings mobilization to help clients weather the crisis

Effects on the MF Market Environment Demand for loans may increase but the bank will have to be more careful during the screening process. Increased competition by other microfinance players may lead to over-indebitedness. Therefore, we need to guard against clients with multiple loans, especially at this time (credit bureau may help).

What has been the impact of the crisis to Cantilan Bank, so far? SELECTED INDICATORS: TRENDS

Bank wide portfolio declined due to fewer qualified applicants, tightened loan policies for clean loans, P10 M loans were written off in Dec.’08. But loan volume has been rising since. After Sept. 2008, deposits managed to increase. The episodes of decline were due to the shutdown of mining companies. Deposit levels have stayed much higher than they were prior to the onset of the global financial crisis.

After cleaning up our loan portfolio in December, the number of loan accounts bank wide managed to rise in the first quarter of 2009.

The decline in MF loans is not directly related to the global financial crisis; rather it is due to internal challenges that we’ve started to address. The bank tightened loan screening for both new and repeat clients to improve portfolio quality. Portfolio growth comes mostly from repeat borrowers and, to a lesser extent, from new borrowers. MICROFINANCE PORTFOLIO

The dips in deposits are due to withdrawals to pay for loans and the need for additional cash due to inclement weather and/or seasonal farm production needs. Notwithstanding, micro deposits are up since a low in August 2008.

The Bank’s Initiatives: To update the strategic and operational plans guided by the bank’s mission and vision Expansion – vertical & horizontal – based on market research and MABS Approach To align the budget to improve staff capability and adopt available technologies to improve cost-efficiency and bank expansion Pro-active stance across loan products to better manage delinquency

Improving Products and Delivery New product development & enhancements Encourage contractual micro-savings – Even among regular loan clients Provide additional insurance coverage other than credit life to reduce risks to clients as well as to the bank Expand mobile phone banking and ATMs in other branches

Human Resources Invest in training to produce well-trained, analytical, motivated field staff Localized hiring Hiring of undergraduates

Delinquency Management Proactive approach in microfinance has been adopted for regular loans Contractual savings product is integrated in all loan products as added service to borrowers, as a source of low cost fund, and to help manage credit risk

In Conclusion The global financial crisis has had little negative impact on the bank’s operations The crisis offers an opportunity to improve our fundamentals, what we do and how we do them so that we are prepared for any crisis, domestic or global!

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