Turning Around: Licking the PAR ProblemExperience of the Rural Bank of Digos, Inc.

2009 RBAP-MABS National Roundtable ConferenceMay 12-13, 2009

Hyatt Hotel and CasinoManila

Gionvanni D. GabrientoManager, Human Resource & Administration

RURAL BANK OF DIGOS

• The bank opened and started operating on February 17, 1956

• The bank is the PIONEER BANK in Digos, Davao del Sur

• In the 80’s the bank was hounded by:Problems in the sugar and coconut industriesFailure of Masagana 99Peso DevaluationBad economy

RURAL BANK OF DIGOSThe bank turned a new leaf in the

90’s: New Management- Increased

capitalization, computerization, opened 3 branches

Business partnerships with Bangko Sentral ng Pilipinas, Land Bank of the Philippines, Coconut Industry Investment Fund Finance Corporation

Entry of the Microenterprise Access to Banking Services in Mindanao (MABS-M)

RURAL BANK OF DIGOS

In the horizon is a brighter 2000’s: Head Office & component

departments had been created Professionalization of the Human

Resources and Administrative Department

Infusion of additional capital Opened 2 more branches Received the Regional and National

Award from Land Bank of the Philippines

MICROFINANCE BACKGROUND

HOW AND WHEN MICROFINANCE STARTED: The bank was one of the pilot banks of the

MABS Program MABS trained the bank in microfinance in

1998 Main Branch, Digos, Davao del Sur One loan product for microentrepreneurs Four Field Staff, each with a target of 120

accounts Zero PAR in the first 3 years of operation

MICROFINANCE BACKGROUND

Microfinance Products:Negosyo Palambuon Pundo Padaghanon (NPPP)

KAABAG SA MAG-UUMA (KASAMA)- a short term loan that caters to small farmers with household agricultural activities and sources of income other than the farm , for the purpose of helping them with their financial requirements. A market driven product which identifies and meets clients needs based on character and cash flow.

- a short term loan to assist microenterprise operators to expand their businessoperations and accumulate their own capital that will, in due time, make themless dependent on borrowed funds. It focuses more on microenterprises that generate regular daily sales and on microenterprise operators who currently depend on loans from informal moneylenders for working capital.

MICROFINANCE BACKGROUND

Support from MABS:Countless trainings and seminars

Transportation equipment – motorcycles

Office equipment – computers, printers

Branch visit and technical assistance

Regular product Evaluation

PROBLEMS ENCOUNTERED AFTER SEVERAL YEARS

1. Clients immediate change of address / relocation - cannot be located

2. Complacency and lack of supervision of Account Officers

Haphazard CI / BI and loan evaluation Relaxed collection efforts (tolerance of delinquent

clients)

3. Lack of follow-up training for Account Officers and Supervisors

4. Multiple borrowings of clients (from other lending institutions)

REMEDIAL MEASURES

1. Tutok, Dikit, Kulit Strategy Rigid follow up of delinquent clients Demand letters

2. Follow up and collect from loan Co-Makers

3. Filing complaints against delinquent clients in the Barangay Court

4. Seizure of personal/business assets of delinquent client

5. Regular evaluation of MF Supervisor, validation thru area visits

REMEDIAL MEASURES

5. Re-training of Account Officers and other bank staff

Make sure loans are properly evaluated Client validation visit Regular monitoring of AO performance

6. Year-end branch and staff incentive based on:

Number of Active Borrowers and Loan Portfolio Level of Portfolio at Risk

MICROFINANCE PERFORMANCE

Dec. 2004

Dec. 2005

Dec. 2006

Dec. 2007

Dec. 2008

50,000.00

250,000.00

450,000.00

650,000.00

850,000.00

PAR > 30 days Php PAR > 7 days Php

5-YEAR PORTFOLIO AT RISK

MICROFINANCE PERFORMANCE

Performance Indicators Dec.

2004 Dec. 2005 Dec. 2006 Dec. 2007 Dec. 2008

Active Borrowers 1,478 1,296 1,233 1,709 1,580

Loan Portfolio 6,506,900 5,391,896 5,518,089 8,851,910 9,439,937

Field Staff 17 12 11 15 11

Cum. No. of Loans Disbursed

10,865 14,785 18,621 23,897 28,814

Cum. Amount of Loans Disbursed

88,640,21

8 119,772,970

149,770,043

192,294,151

236,960,171

LESSONS FROM EXPERIENCE

1. Hawklike staff performance monitoring is key to success in microfinance

2. Preparing and training the staff in the basics of microfinance lending is of utmost importance

3. Prudent conduct of CI/BI and Cash flow evaluation = quality loan portfolio

4. Intensified collection efforts (no room to relax) = disciplined clients

LESSONS FROM EXPERIENCE

5. Patience is a virtue in dealing with both AOs and clients

6. A good relationship with clients encourages loyalty

7. Give to Caesar what is due to Caesar – branch incentive program works!

PLANS FOR THE FUTURE(Moving Forward)

Development of new loan and deposit products

Market Penetration/ Expansion

Updating of existing product manuals

Continuing training and seminars for bank officers and support staff

Opening of new branches

END OF PRESENTATION