CHAPTER 1. Private Partnerships for Inclusive Growth

The Development Challenge

Microenterprises represent 90 percent[5] of the number of businesses in the Philippines. These microenterprises employ 37 percent of the country’s workforce and are the primary source of livelihood for 40 percent of Filipino households. Most microentrepreneurs historically had little access to reasonably priced formal credit, which businesses need to expand. Formal financial institutions (i.e., banks and credit unions) had generally not focused on low-income households or microenterprises due to their small size and difficulty in assessing credit-worthiness. In addition, banks viewed small loans as too costly to administer to earn a positive return. Because of this, the only credit available to microenterprises was that offered by moneylenders, pawnshops, and to a limited extent, nongovernmental organizations and government programs. The high cost of these forms of credit precluded microenterprises from growing, and there was little or no formal access to savings services that would allow this subsector to save its way out of poverty.

USAID Investment in Strengthening the Rural Banking Sector

With USAID support, the Rural Bankers Association of the Philippines launched the MABS Program in 1997 to address the problem of limited access to banking services: loans and deposit services. An assumption was that formal financial institutions could most efficiently provide financial services. MABS’ objective was to help privately owned banks develop the capability to profitably provide services to the microenterprise sector.

The rural bank industry began in the 1950s as a way to encourage private investment and expand access to banking services in rural communities. Typically, rural banks are family-owned, with relatively modest start-up capital requirements. USAID focused the program on rural banks because 1) they are in a position to offer services in virtually every municipality through a collective network of 2,100 branches and other offices, and 2) their relatively low cost and overhead structures suggested that they were best positioned to competitively offer commercial microfinance services. More importantly, as banks, they were able to offer secure savings services as well as to eventually source all their financing needs from private capital without the need to rely on the government or international donors.

The program was expected to have a four-year life, with the possibility of extension to ensure attainment of objectives or expand the original objectives. Initially, MABS’ objectives were to assist 20 rural banks in Mindanao to develop the capability to profitably provide loan and deposit services to 8,000 microborrowers and 15,000 microdepositors. It was intended that participating banks would have found their microfinance experience sufficiently attractive to make offering microfinance services a permanent and substantial part of their business.

After a successful initial phase of MABS, USAID/Philippines continued and expanded support for the program. USAID extended MABS in 2001 and again in 2004. New goals were established to expand the delivery of the MABS Approach to 350 participating bank units and expand access to new microfinance loans to 500,000 microborrowers. A number of additional targets in terms of numbers of microdepositors, average portfolio size of participating bank units, participation of banks with multiple branches, and experimentation with microagricultural lending were also established.

Exhibit 4. Indicators as of June 2012




Phase 1: Nov. 1997 – Sep. 2001
    1. Banks receiving MABS technical assistance



    2. Microborrowers served



    3. New microdepositors served



Phase 2: Oct. 2002 – Sep. 2004 
    1. Rural bank units (head offices and branches) receiving MABS’ technical assistance



    2. Cumulative microborrowers served



    3. Cumulative new microdepositors served



Phase 3: Oct. 2004 – May 2008 
    1. Bank units receiving MABS’ technical assistance



    2. Cumulative microborrowers served



    3. Cumulative new microdepositors served



    4. Bank branches offering microagri-loan product



Phase 4: 2008 – Sep. 2012 
    1. Bank units receiving MABS’ technical assistance for microloans and microdeposits



    2. Cumulative microborrowers served



    3. Cumulative microloans disbursed (in billion PHP)



    4. Cumulative new microdepositors served



    5. Rural bank clients registered to use mobile phone banking services



    6. Bank branches offering mobile phone banking



    7. Value of monthly mobile phone banking transactions (in million PHP)



    8. Bank branches offering microinsurance



    9. Active persons covered by microinsurance



    10. Bank branches offering microhousing loans



    11. Cumulative number of microhousing clients



    12. Cumulative number of bank branches offering the microagri-loan product



    13. New microagri-loan product clients



Rationale for MABS-4

By 2007, USAID’s investment of $17 million through MABS had resulted in some 300 bank branches extending microfinance services to 500,000 microenterprises. Participating banks had disbursed the equivalent of more than $300 million in microloans. As indicated above, MABS accomplished several key objectives to help ensure the continuing and growing availability of commercially oriented microfinance services to millions of microentrepreneurs and low-income households in the Philippines. Notwithstanding this success, most microenterprises had limited access to reasonably priced commercial microfinance services. Therefore, USAID considered it important that banks already offering microfinance services would continue to do so, while expanding their microfinance clientele. In addition, USAID wanted to assist MABS in reaching additional banking units. The successful first three phases of the program provided a base of support and services that USAID thought could be built on to expand services to existing microenterprise clients, as well as to new clients.

Staff of participating banks were trained on how to conduct market research. This photo, taken on October 10, 2009, shows Cantilan Bank trainees interviewing clients during microagri-loan product development training.

At the end of MABS-3, USAID realized that two things remained to be accomplished. First, USAID wanted to assist RBAP and the MABS Program to take steps to help ensure continued and expanded availability of bank-provided microfinance to microentrepreneurs, smallholder farmers, and low-income savers. Second, RBAP, through MABS, should take advantage of the fact that participating banks had a base of more than 500,000 microclients with established credit and deposit histories. USAID realized that this substantial client base could be assisted with a range of new financial products and services. USAID also wanted to ensure that lessons learned about commercial microfinance through MABS were made available to interested practitioners around the world.

Final performance targets under MABS-4 included:

  • Continue to increase the number of banks and branches participating in MABS to an additional 310 branches and provide 24 billion PHP in microloans to an additional 450,000 microborrowers
  • Expand access to small farmers by helping participating banks offer microagri-loan products
  • Expand access to mobile phone banking services to microenterprise clients of participating banks
  • Increase access to microinsurance services throughout the country in collaboration with private sector insurance providers and participating rural banks
  • Develop and implement microhousing products and services
  • Support the use and access of credit bureau services by rural banks


[5] Philippine National Statistics Office, Survey of Establishments in the Philippines, 2000.



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