This presentation on avoiding over-indebtedness was presented during the Microfinance Council of the Philippines Annual General Meeting entitled "Making a Difference: Multi-Stakeholder Action
Towards Responsible Microfinance" held in Manila on July 28-29, 2011.
Power point presentation on enterprise performance management
Avoiding Over-indebtedness
1. Avoiding Over-Indebtedness John V. Owens, RBAP-MABS Making a Difference: Multi-Stakeholder Action Towards Responsible Microfinance July 28-29, 2011
2. The USAID-supported RBAP- Microenterprise Access to Banking Services (MABS) Program provides technical assistance and training to rural banks in microfinance best practices. The program is designed to develop the capability of rural banks to profitably provide financial services (loans, deposits, insurance, money transfers and mobile banking) for microenterprise clients.
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6. Key Indicators As of May 2011 Cumulative No. of New Borrowers > 868,000 Cumulative Amount of Loans Disbursed > PhP 40 B Total No. of Micro-deposits > 1.45 M Total Volume of Micro-deposits > PhP 2 B
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13. How can MFIs promote avoidance of over-indebtedness?
No of active borrowers = 246,579 Micro loan portfolio balance = over P2.1B
No of micro-depositors = 1,446,772 Total Amount of Deposit Balance – over P2.B
RBAP-MABS introduced Housing Microfinance and has been working with rural banks to conduct market research, develop, pilot, and rollout various housing microfinance products to their clients. More than 2,600 borrowers have received housing microfinance loans exceeding totaling more than PhP 80 Million.
OBOs/MBOs can now accept deposits and is designed to fit the capacity and serve the needs of basic sectors. Features of Micro-Deposit includes: Minimum maintaining balance not exceeding P100 Not subject to dormancy charges Only for individual clients whose ADB balance does not exceed P15k No frills account to address to basic deposit account and increase savings consciousness to the low-income population.
Incorporate credit investigation and background investigation Determine character/capacity to repay Payment history Visit to business Interview neighbors, other businesses, barangay, other creditors Incorporate cashflow lending approach Ensure that clients borrow within their means. We normally recommend a 25% adjusted debt capacity rate for first clients, gradually increasing to up to 50% based on good track record and good business performance Increases in loan size should be capped at no more than 30% from one cycle to the next Make sure client sees, his or her cashflow situation and is educated on responsible borrowing
These are some of the most common causes of over-indebtedness: The client is issued multiple loans at one or several institutions because: The institution lacks information on the client’s liabilities (e.g. non-existent credit bureaus), and /or Loan officers are incentivized to oversell credit products. Repayment schedules do not match clients’ business cycles (e.g. agriculture). The institution relies on guarantees as a substitute for adequate capacity analysis. Accidents, disease, or natural disasters.