Savings-linked solutions in the Philippines
The Philippines experiences about 20 typhoons every year. The island of Mindanao, home to Oro Integrated Cooperative (OIC) and Nabunturan Integrated Cooperative (NICO), the two savings and credit cooperatives that I am supporting as part of the ILO’s project on integrated risk management solutions, has experienced the Sendong and Pablo typhoons in the past, which left thousands homeless. The plight caused by these disasters is still fresh in the minds of members. This year the region has also experienced earthquakes and subsequent aftershocks.
Members typically cope with these emergencies by taking out a loan. The saving habit among members is generally very low. Both OIC and NICO are keen on instilling the habit of saving, and increasing saving deposits to help members have access to their own funds during times of emergency. OIC also wants to increase long-term savings to balance liquidity for the long-term loan products it offers, and NICO is keen on providing a health insurance benefit to its members.
To design integrated risk management solutions, we started with market research, including focus group discussions, in-depth personal interviews with members and staff and an analysis of the current products offered. The research with members included questions relating to risks faced, coping mechanisms, saving habits and credit behavior. Health and calamities topped the list of risks faced by members. OIC members also wanted an education product to help their children pay for college.
Based on the demand of its members and the requirements of the cooperatives, the following products have been launched:
NICO’s “Health Saver”
This is a five-year savings product with added health insurance. Members need to save a small monthly deposit (a minimum of PHP 500 (USD 10) to a maximum of PHP 2,500 (USD 50)) for five years. The interest rate is 6% per annum, which is higher than the regular savings interest.
The member gets a hospitalization income benefit for him or herself and two dependents. The member pays for the insurance premium for the first year, after which the premium is deducted automatically from the accumulated savings balance.
In case of hospitalization, members avail of PhilHealth insurance and NICO’s hospital income benefit. If there is a shortfall, a member may withdraw from this health savings account. In case of a further shortfall, members may take a loan, which is subject to the member’s ability to pay.
OIC’s “Health & Disaster Savings”
This is again a minimum five-year savings product with added calamity insurance. Members are provided a free calamity insurance once the accumulated balance reaches PHP 5,000 (USD 100). The insurance covers damage to property and health reimbursement due to natural disasters. Members need to save a small deposit (minimum of PHP 500 (USD 10) to a maximum of PHP 2,500 (USD 50) per month for a minimum of five years. The interest rate given is 5% per annum.
After the five-year term, members can withdraw the interest earned and stop contributing deposits; however, they can only withdraw only for an emergency.
OIC’s “SAFE Plus for the Co Op Kid”
The purpose of this savings is to build a college fund for a child. In the savings plan, members need to save for 10 years or until their child enters college. Withdrawals are permitted in instalments of two per year spread over the duration of the college term. During the deposit period, free life insurance is offered to the member. The insurance is equal to the accumulated balance. In case of a member’s death, the child can withdraw from the fund when he or she reaches legal age.
All the three products have a pre termination penalty in case the withdrawal is made for any other purpose than intended for. To ensure persistency in savings, a pre-termination fee is levied and the account closed in case of non-deposit of the minimum committed amount.
All three solutions are anchored on savings with a relevant insurance bundle. This ensures that a member can access their own fund rather than taking out a loan with a high interest rate, which can put additional burden on an already difficult situation. The insurance is provided by CLIMBS, a cooperative life and general insurance company. For the cooperatives, it builds member loyalty and provides them with the needed liquidity for a long duration term.
We will track the performance of these products over the coming months to ascertain whether access to such products does indeed change member savings behavior. Stay tuned for the results.
