Microfinance lenders are getting the message

Tuesday, November 20, 2007

Running a small bank that is big on microfinance can be tedious work. Take it from Omar Andaya, whose family owns Greenbank, a rural bank based in Butuan city in the southern Philippine island of Mindanao.

Each week, Mr Andaya has to send out credit officers to collect loan payments of 500-1,000 pesos ($11.5-$23) from 32,000 micro-borrowers.

But thanks to mobile phone banking, at least a thousand or so of Mr Andaya?s borrowers have began to simply ?text? the money to the bank using cellular phones linked to Globe Telecom, the country?s second-biggest wireless phone company.

?We have increased our credit officers? efficiency,? Mr Andaya says.

The bank has about a third of its 1.1bn peso loan portfolio lent to village store owners, farmers, snack food makers, and other borrowers who owe no more than 150,000 pesos. ?Text-a-payment,? as the scheme is called, has proved so cost-effective that Mr Andaya deducts half a percentage point from the monthly interest rates of borrowers who use the facility.

But the experiment could have much wider relevance in the world of microfinance, where many organisations are looking at ways to reduce costs and bring down lending rates.

It may be cheaper to borrow from a microfinance company than the moneylenders that are often the only other source of funds for the poor.

Continue reading “Microfinance lenders are getting the message

Source: Financial Times (link opens in a new window)