How Micro-Lending Programs Make a Huge Difference to Your Agents
In countries like the Philippines, the outsourcing industry plays a major role in propping up the nation’s GDP as well as the economic progress that agents see in their lives. A high-paying job in the BPO sector makes a huge difference in pulling agents and their families out of poverty. But is that enough?
In a culture where the poor survive through the goodwill of others, borrowing money is as natural as breathing air. Many lenders, however, are as unnatural and exploitative as you can imagine. That’s why many agents find themselves trapped in a debt cycle, living paycheck to paycheck.
Rethink, the fair trade outsourcing company that I built in the Philippines and later in Philadelphia, makes it possible for agents to get out of that unending cycle of borrowing money, only to pay off their debts with the income they earned, and borrowing again to sustain their daily needs.
Employee development programs designed to help.
Earlier this year, we created a unique development program of making zero-interest loans, which the borrower may use to buy a motorcycle or invest in a business, to our agents. As a lender, it may seem counter-intuitive to forgo monthly interest, but the main purpose of the loan is to help someone in need and not to exploit that weakness in order to turn a tidy profit.
Take Rethink’s Motors for Progress Program, for example. In this program, we buy a motorbike for an agent. Over time, the agent pays back the bike’s retail price through monthly amortization.
The continued use of the bike is not contingent on any criteria, such as the agent’s performance at work. He or she wholly owns the motorcycle but it has to serve its purpose, which is to help shorten the agent’s commute to and from work. The bike cannot be sold or transferred to another person, of course. Otherwise, what’s the point of giving the agent a loan?
In addition to the motorcycle program, we also launched a Microloans for Business initiative that will give some of our agents the financial capital to start a small business of their own.
Here’s why Rethink chooses to lend a hand.
In the Philippines, a loan is an acceptable option for the working poor when times are tough. Cash loans are common and lenders charge up to 20% as interest. Many cash loans only allow 10 to 14 days for repayment, but if the debtors were able to pay on time, they would be able to get their next loan either at a lower interest or at an extended period of 30 days.
Rather than depend on these lenders to finance their small business or buy a motorcycle, Rethink’s agents are better off taking out a loan at zero-interest rate from the company and pay off that loan for more than 30 days.
With the money, an agent can buy a motorcycle and use it to cut through traffic and shorten his or her travel time. A car does the same for Americans going to and from work, but a car is very expensive in the Philippines.
Not only that, the use of private vehicles like automobiles and trucks is regulated in some parts of the Philippines through a number coding scheme. Motorcycles, however, are exempted but still subject to certain rules, such as the use of helmets and large, color-coded plates.
Based on the company’s Impact Reports, most of Rethink’s agents use public transportation which consists of jeepneys, tricycles, and pedicabs. Unlike jeepneys, tricycles and pedicabs don’t have registered routes and they are prohibited from picking up passengers in major highways. These vehicles do not have a permanent schedule, unlike buses in the US where people can wait at a bus stop and expect a bus to arrive at the designated hour.
Most of the time, the public has to find a jeepney with enough space for one or two people. When every jeepney that passes by is full, people will have to wait for HOURS for those jeepneys to complete their route and return to the city to pick up more passengers.
Imagine going home, really tired at the end of the day, and standing or walking around for hours to find an empty seat in a jeepney. Isn’t that dreadful?
A motorcycle is the least expensive mode of transportation for agents who live outside the city or in areas where traffic is so bad. It’s also a better option for traveling through flooded streets because the motorcycle’s engine is right under the rider’s seat and higher off the ground compared to cars.
For agents who are interested in becoming entrepreneurs, an infusion of funds through a personal loan can help them start a small business. For those who already have a business of their own, that loan can keep their business afloat whenever they need to buy new inventory or to pay off their previous creditors.
Aside from the business loan, these young entrepreneurs also receive business advice and mentoring from the company. Our Director of Impact and Marketing is there to help the agents overcome the challenges of growing a business from the ground up.
Micro-entrepreneurship is an effective solution to the poverty cycle.
Since we launched the program, several agents have increased their household incomes to middle-class status through micro-entrepreneurship. Two have a computer shop, and one has an online business that makes use of Facebook’s Marketplace to sell various products ranging from cosmetics to apparel.
Before we award a loan, each potential borrower goes through a review. The questions are mainly economic, like “How much do you spend on food each month?” But there are also questions about the household’s social structure and lifestyle. We’re trying to get to the bottom of the cash-flow question: Is the Agent and their household living in a way where they can safely borrow without worry of repayment?
Most of our agents live with children, parents, cousins, aunts, and uncles. Expenses become bloated. While some household members are working adults, total income is usually insufficient for the support of the family.
Nudge agents in the right direction.
If you give people the opportunity and ability to earn a suitable income, they’ll get themselves there without much intervention. In Rethink’s case, we redesigned how our agents are compensated and what kind of development programs are available to them.
Instead of blaming the poor for making “bad” choices, let’s redesign the tools for fighting poverty to make them more conducive to success, according to Eldar Shafir, one of the authors of Scarcity: Why Having Too Little Means So Much.
That’s why we chose to apply a two-pronged approach to fighting poverty. The first prong attacks the insufficiency of a salary increase based on tenure. Instead, we give our agents increases (yes, that’s plural!) based on how much progress they’ve made in our Learning and Development programs.
In our English Proficiency program alone, we have seen two or three agents jump up two rungs in their skill sets. After they completed their training, they received twice the salary increase that their fellow learners got.
The second prong attacks the lack of access to income-generating opportunities. Some of our agents have assets in their family that can be used to create a new income stream. They have plans but they can’t fully realize them yet because their savings aren’t enough, and they don’t have sufficient access to capital.
For example, one of our agents has a spacious backyard that their family wanted to turn into a small poultry farm, if only they had capital to buy the day-old chicks, build the raised cages, set up the lights and feeding bowls, and buy the feeds and vitamins. Through our Microloan for Business program, this agent can finally make her family’s dream come true.
Redesigning the way agents cope with scarcity.
With salary increases and additional income streams, agents have more disposable income to spend on things that matter. Some use that money on educating siblings. Others use it to minimize the financial burden of a family member who is ill. Meanwhile, several have made good use of the money to start a small business, wherein other members of the household can be productive.
What does an employer get from all of these? A happier workforce is one great result; an improved job performance is another.
When your agents aren’t focused on solving their personal problems, which they frequently bring to work, they can do more for you and your business. When they aren’t stressed about what’s happening in their lives, they have more time and energy to put into making your customers happy.