Digitizing microfinance: Innovations for a still tech-reluctant small consumer market

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By Carmelito Q. Francisco and Maya M. Padillo
Correspondents

WHEN Lafayette A. Lim joined the family business armed with a computer science degree, he was eager to put his education into action.

In the late 1990s, he initiated the launch of their New City Commercial Center (NCCC) supermarkets website, which included a platform for ordering online.

The online shopping idea proved to be ahead of its time and was soon abandoned.

But NCCC went on to grow into one of the biggest homegrown companies in Davao City, currently with a network of shopping malls and supermarkets in the Davao Region and Palawan, various retail distribution brands, agricultural production, and most recently, commercial property development.

Now almost two decades after his failed online shop project, Mr. Lim, as chief executive officer, is steering the NCCC Group of Companies into digital platforms.




And he is taking along small enterprises, just like how his family started, and cooperatives on the digital journey.

NCCC, in partnership with blockchain firm TraXion Tech Inc., launched in May the Ka Partner program, an online-based credit line to cooperatives and affiliate companies, which members and employees can use to shop at NCCC supermarkets.

“We start with the supermarket because that provides the basic needs,” said Mr. Lim.

“In emergency cases like when you need to buy diapers, milk and you don’t have that cash right away, NCCC provides that facility where they can shop (using the credit line), and settlement will just be through the cooperative,” said Ann J. Cuisia, founder and chief executive officer of TraXion.

Ms. Cuisia said the project aligns with the firm’s strategy as a financial technology firm to link “with banks, institutions like NCCC that provide an avenue for transaction management for the unbanked. So our focus is the underserved and unbanked communities.”

Dominador D. Catacutan, Jr., NCCC chief financial officer, said under the Ka Partner program, the cooperatives or companies like the security service provider determine the credit limit themselves based on their financial capacity as an organization and their membership.

The program uses both cards with QR codes and a mobile phone application for cashless shopping.

In effect, Mr. Catacutan said, the program provides their partners “with a hi-tech system for managing the grocery loans of their members.”

Mr. Lim said it is important to help develop cooperatives, even if these are considered competition in the retail business for the group, because they provide “a great balance.”

“Corporations are owned by capitalists, so those that cannot own corporations can be part of a cooperative wherein the members own the business,” he said.

Ms. Cuisia said what the company has launched is a “minimum viable product” and the system is ready for extension to other applications.

“This is technology, this is open to more functions, based on the wishes of the market as we grow and engage them more,” Ms. Cuisia said.

In an earlier interview, the Traxion chief said the firm also wants to directly work with cooperatives, particularly those related to the agriculture industry.

“In Mindanao, there are several cooperatives that we are engaging and talking to right now, explaining how this works,” she said during the TechUp Pilipinas Agri Summit held in Davao City in August 2018.

RELUCTANT
The Federation of Cooperatives in Mindanao (FEDCO), composed of cooperatives that produce Cavendish bananas for export, said it is open to using financial technology, but has yet to find a service that works for the group’s needs.

FEDCO Assistant General Manager Flordelyn A. Saavedra, in an interview with BusinessWorld, said the federation previously partnered with BPI Globe BanKO, but it lasted for only a couple of years because not many members participated.

“We used to partner with BPI Globe BanKO wherein cash deposits and withdrawals can be done via Globe lines, but it was more of personal savings (for members)” and not related to the cooperatives’ operations, Ms. Saavedra said.

She said the low participation rate was due to limited branches and partner agencies where members can open an account as well as connectivity issues, especially in the more remote farm areas.

For the operations of the cooperatives, she said simple bank-to-bank transactions work fine within the group and with their foreign buyers.

“As of now we are okay with the bank-to-bank transaction. Effective naman (it’s effective enough). The growers are not technologically adept and need to be educated… majority of them are not updated with the latest technology,” the FEDCO official said.

Various social development organizations involved in microfinancing — which have been adopting automation to ease internal operations as well as access for their clients composed of small consumers and micro and small entrepreneurs — also face reluctance in the market over new technology.

CARD Bank, a part of the Center for Agriculture and Rural Development-Mutually Reinforcing Institutions (CARD-MRI), is expected to complete the rollout of its digital product, konek2CARD, before the end of the year.

Marivic M. Austria, president and chief executive officer of the bank, said the konek2CARD, which uses a mobile phone application, has been set up in 17 out of its 94 branches across the country.

The big challenge, however, is that “the profiles of our clients are (mostly) not used to using cellphones (for financial transactions),” said Ms. Austria in a phone interview, noting that the bank’s core clientele has an average age of 55 and live in rural areas.

The solution, she said, is providing actual demonstrations for the clients to give them hands-on experience for the platform.

“If you are going to lecture, it is quite difficult (to convince the clients), but if you allow them to experience it, it would be easier for them to use it… They can even narrate their experience to other members,” said Ms. Austria.

With konek2CARD, clients can use their smartphones instead of going to a CARD Bank branch to monitor their account and for loan payments.

Ms. Austria said the company is working on expanding the applications for bill payments.

The target of the bank, established in 1997, is to grow its client base from 2.8 million at present to 3.5 million by next year with new clients being made to adopt the technology.

About 108,000 clients have so far adopted the platform.

“Gradually, they (all clients) will not be using passbooks,” she said.

Aligned with the adoption of digital technology, the bank has also provided its account executives with tablets to keep track of the clients they serve as well as expand their base.

ASA Philippines Foundation — a nonstock, nonprofit organization offering microfinancing using a fixed-rate system that makes it compliant with Shari’ah law, or the Islamic way of banking that prohibits the imposition of interest — shifting to a computerized and interlinked system in 2016 allowed its people on the ground to reach more potential clients by easing accounting and day-to-day functions.

“When we started, we never thought we would become this big,” said Ma. Mylene Beato, the foundation’s regional monitor assigned to Davao, who started working with the foundation in 2006, just two years after it was established.

When the Davao operations started in 2010, Ms. Beato said the foundation had less than 100 individual clients who were clustered as groups within common communities, and ASA Philippines’ workers went around on bicycles acquired on loan.

“Everything was manual, it was tedious,” she said, speaking in mixed English and Filipino.

Ms. Beato said technology improved efficiency and allowed the foundation to be more competitive in the microfinancing industry, where the alternatives are legitimate institutions such as rural banks and informal lending groups.

“Now, clients are the ones who come to us,” she said, then consults her smartphone to report that the foundation currently has 31,343 clients in the Davao area and a target of at least 34,000 by the end of the year.

Nationwide, ASA Philippines as of end-May 2019 had a branch network of 1,613 serving over 1.8 million borrowers with a loan portfolio of over P19 billion.

The foundation was established by Kamrul H. Tarafder, who started in the microfinance industry with ASA Bangladesh and later worked with the United Nations Development Program to teach the ASA methodology to microfinance institutions in the Philippines.

ASA Philippines kickstarted operations with donations from the Assisi Development Foundation, the Ninoy & Cory Aquino Foundation, and later PLDT Smart Foundation, but has since been running without grants.

Borrowers Samra Mangcong ang Sherley Boisan, among the first clients in Davao, said the growth of ASA Philippines parallels that of their small businesses and improved living conditions.

“We borrowed from other lenders (in the past), including usurers, but it is only ASA where we have developed a lasting relationship,” Ms. Mangcong, who buys and sells malongs (a traditional tubular cloth) on installment, said in the vernacular.

Ms. Boisan, on the other hand, has expanded her eatery with coin-drop internet service machines that her son manages.

Both women have borrowed as much as P50,000 each per loan cycle for their businesses and to improve their homes.

ASA Philippines clients can also maintain a “savings fund” at a maximum amount of P20,000, which can be withdrawn any time, said Davao Branch Manager Charlyn Dacalos.

Ms. Beato said there are no immediate plans yet to adopt technological innovations on the client side, but added it could not be far off considering how the foundation has grown and wants to continue expanding.

Ms. Mangcong, on the other hand, said she is not too eager for now to use any internet-based or mobile phone system in her dealings with ASA Philippines.

Mas ok man (it’s better),” she said, to maintain human interaction.

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