KMBI: Dealing with and planning for the immediate and long-term impacts of COVID-19 in the Philippines
In 1985, Kabalikat para sa Maunlad na Buhay Inc. or KMBI began as a church-based credit programme in Valenzuela City, in Metropolitan Manila. From that informal set-up, it was registered with the Philippines’ Securities and Exchange Commission on November 27, 1986 as a non-stock, non-government development organization.
In 2002 it developed a “scale-up model” in doing microfinance, which was internationally known as the “Trust Bank” model. It was coupled with a standardized operating and accounting system that has led to the phenomenal expansion of KMBI throughout the Philippines.
Since 2003, the organization has started institutionalizing a more holistic set of products and services, providing a range of financial and non-financial interventions. This includes microenterprise loans, agricultural microfinance loans, microinsurance products, capital build up, business skills development, and scholarship programmes among others.
KMBI has actively reached out to low-income microentrepreneurs on the islands Luzon, Visayas and Mindanao. To date, KMBI has 79 branches and 23 satellite units all over the archipelago serving over 195,000 clients, their families and their communities.
We invited Ms. Hazel Christine Bayaca, the Deputy Executive Director of KMBI, for an interview. Hazel oversees KMBI’s transformational development through the institution’s programmes and services.
Q. What operational challenges is KMBI facing given the current situation in the Philippines?
Major operational processes had been suspended during the lockdown, which took effect on March 15, 2020 in the Philippines shutting down loan disbursements, collections or any other profit generating activity. Adding to this are the fixed expenses of staff salaries, taxes, rent, and utilities that we continue to bear. This has created a liquidity crisis.
Microfinance institutions have been included in the omnibus issued by the Philippines’ government on May 1 as an essential service, thus permitting them to operate under the lockdown situation. However, the messaging needed cascading to the lowest local government units. Loan officers, area and branch managers are unable to cross the neighbourhoods and meet clients. Social distancing prevented normal activities from being conducted like that of centre meetings.
Since May 4 we have revived some of the operations in the General Community Quarantine (GCQ) areas. And now with the government permission on June 1, putting the whole Philippines on GCQ/MGCQ, we are gradually moving to 100% operations. The major challenges left with both the institution and its clients are mobility and transportation and limited or absent funds.
Q. How are you coping or what new innovations have you made?
Going forward, everything will be different. The core of our operational model of community-based lending will undergo a significant change. The centre mutual guarantee and community collateralization model will be redefined. Centre meetings may no longer continue in the same fashion. The underwriting and operational processes might move to individual accountability and borrowings.
Digitalization would be key to the strategy with a special emphasis on prioritizing digitalization of the loan repayment and disbursement process. With the ongoing partnership with the ILO, we are embarking on creating a digital financial service ecosystem — providing an opportunity to our clients to become merchant agents with fintech partners. This enables them to carry out payments, remittances and e-load services, thereby increasing their income and improving access to the communities. KMBI too would be enrolled as a biller, initiating digitization of the loan collection process for now. This would provide multiple avenues to the clients to make the payments and access the services of KMBI. The lockdown and future restrained movement would inhibit travel to bank branches, thus partnering with other digital touch points will create access points closer to the community.
The capital buildup savings, which were earlier available to the client at loan maturity, are being explored to be made withdrawable, maybe up to a certain threshold whilst protecting the organization from further liquidity issues. Rationalizing expenses and restructuring are also underway.
Q. What impact have you seen on economic activity or on clients?
Our loan base comprises of convenience store owners, traders, other micro, small and medium entrepreneurs and agricultural farmers.
Even during the lockdown we have had instances where some of the agricultural loan borrowers were eager to repay their loans and take out additional loans for the production of food. Convenience store owners thrived until their supply lasted. Those segments of clients that are into trading and other entrepreneurial ventures have been hardest hit.
Q. What do you see as the implications on economic activity once restrictions are lifted?
Apparently, economic activities should resume once restrictions are lifted. At the onset, I see a slow restart at the microenterprise level due to lack of funds and mobility. But if MFIs will be given enough leeway and support by the government, they will be able to help in the quick recovery of microentrepreneurs. In the long term, concerted efforts through intervention programmes by both private organizations and government agencies to support the health of MSME industries will start to bear fruit.
Q. What do you foresee as the longer term implications? Do you expect a fundamental shift in business strategy or operating model?
It is difficult to pinpoint the exact horizon of short or long term. We are expecting tepid economic activity till until the fourth quarter of 2020.
We are currently reviewing the operating model to make it more efficient and setting in place new operating guidelines. Around September or October we might resume a “new” normal, operationally and start to see small positives no earlier than the first quarter of next year. Digital financing and individual accountability will be the new key planks of operation, though we would still like to believe that we would be able to keep a sense of community to a certain extent.
In our current model, the clients themselves handle their loan amounts and now we might have to involve the loan officers. Thus, our new guidelines would have to ensure that the internal controls do not get compromised while we still are able to focus on protecting portfolio quality and mitigating portfolio risk.
Eventually, group solidarity may continue with centre meetings still taking place, albeit in smaller groups. In fact before the lockdown, we were about to pilot smaller groups.
The silver lining of this challenging time is the solidification of relationships within the microfinance industry. Organizations are sharing their learning experiences, which helps ease re-entry. A recovery programme has been outlined in collaboration and being deployed by many organizations’ leaders. We are now looking at a crystalized unified approach that will definitely hasten the recovery process. A proof in point is the inclusion of microfinance as an essential service after approaching the government together as a special working group under the Microfinance Council of the Philippines Inc., in partnership with the Alliance of Philippine Partners in Enterprise Development.
