Taking out loans with no collateral is now possible, thanks to the use of a new risk rating system
By the third quarter of 2009, select rural banks will start accepting loan applications from micro, small and medium enterprises (MSMEs) even if they only have little, or do not even have any, collateral to show.
This is through an agreement forged by the government financed lender Small Business Corp. (SB Corp.) and the Rural Bankers Association of the Philippines (RBAP) promoting the use of the borrower’s risk rating (BRR) system in assessing the loan application of MSMEs instead of the traditional collateral-based scheme.
Benel P. Lagua, SB Corp. president and COO, told Entrepreneur that the BRR system was developed by the agency in 2006 through a technical assistance loan from the Asian Development Bank.
“It’s a modified credit scoring system that helps analyze the paying capacity of potential borrowers irrespective of the collateral. SB Corp. has been using this BRR since the latter part of 2006 and it has helped a lot in the improvement of the quality of our accounts,” Lagua said.
Through this system, the MSMEs only need to fill out a loan application form, submit the required documents such as the business registration and the financial statement, and then just wait for the rural banks to make the assessment. Using the BRR, the banks will know the capacity of the borrower to pay, the risk rating, the amount that can be lent, and the interest rates to be applied.
“The banks will know if the loan is risky, moderate, very risky or safe. Then there will be the corresponding interest rates. In the case of SB Corp. our interest rates range from 9 percent to 13 percent (per year). So if you are deemed as very risky, you will probably get the 13 percent interest rate,” Lagua explained.
The role of the partner banks
To bring it closer to the communities, Lagua said they decided to talk to RBAP for the rollout of this project, since the rural banks are the ones that really touch base with the MSMEs, especially in the provinces. If the rural banks will use the methodology correctly, they will be able to lend more to SMEs without the need to put emphasis on the collateral.
Lagua said the company has picked 10 rural banks to pilot the program, and by the end of the year, at least three of them will be using the BRR system already. In a span of five years, he said, at least 100 rural banks should be onboard.
The first 10 banks will receive training on how to use the BRR system. Though the training cost seems expensive at P500,000 per bank, the expense will be shared by SB Corp., the participating banks and international donors.
Further, Lagua said SB Corp. will not impose on their partner banks the interest rates that they will use because it should be dictated by the market.
“We want to encourage them to lend to MSMEs. The mentality now is that loans should be based on collateral. The BRR approach will allow them to lend even without the collateral,” he said.
Of course, the banks will have to do the due diligence and validate the claims of the borrowers by talking to their suppliers and customers, among other ways. Assuming the documents are complete, Lagua said the loan can be released in one month.
SB Corp. devotes about 30 percent of its wholesale lending facility to their rural bank partners. This year, the agency has an available fund of P4.5 billion for lending.
“We expect the rural banks to have a big portion of the lending because by design, they are closer to the community so they know the MSMEs better,” Lagua said.
*Great news indeed, the access to capital will be greatly enhanced for the MSMEs.
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By Darwin G. Amojelar, Senior Reporter Manila Times
PHILIPPINE retailers on Thursday declared that the “worst is over” for them since they expect moderate growth this year and a possible recovery next year, citing strong overseas Filipino workers’ (OFWs) remittances and growth in the business process outsourcing (BPO) and tourism sectors.
At the sidelines of the 18th National Retail Conference, Jorge Mendiola, chairman of Philippine Retailers Association, said that the retail industry is expected to grow at a high single digit growth this year.
In 2008, the whole industry grew between 2 percent and 3 percent, Mendiola added.
The retail sector contributes an average of 12 percent to 15 percent to the country’s Gross Domestic Product (GDP) and is one of the country’s biggest employers. GDP is the total value of goods and services produced in a country in a year.
Frederick Go, the retailer conference overall chairman and president of Robinson Land Corp., said that the “worst is over” for the industry. “The industry was hard hit 18 months ago, but things are looking up. The industry would be doing quite well in the next 12 months.”
Mendiola and Go said that the growth would be driven by the strong remittances from Filipino migrant workers as well as growth in the business outsourcing and tourism sectors.
“These industries [outsourcing and tourism] have a lot room for growth and both are stable industries that have been contributing to the growth in the economy for the last few years, and we expect these factors to continue being the driver of the economy in the near future,” they added.
According to Mendiola, remittances from overseas Filipinos continued to flow, helping support consumer spending.
The Bangko Sentral ng Pilipinas (BSP) reported that remittances from overseas Filipinos for January to May reached $6.98 billion.
Opportunities from tourism
The passage of the Tourism Act of 2009, Mendiola said, also created fresh opportunities for retailers. “Tourism and retailing are closely allied and the Tourism Act will be a boon to both industries.”
The Department of Tourism earlier reported that tourist arrivals reached close to four million during the first semester of 2009 despite the global financial crisis and the swine flu scare.
Mendiola noted that consumers have also adjusted to the crisis.
“Consumers have begun to buy wisely, cautiously, most keen on value-for-money purchases,” he said.
Rowena Tomeldan, Ayala Malls Group’s vice president and deputy group head, said that most of the major retailers still experience moderate growth in traffic and sales despite the weak economic growth.
“Shopping continues to be part of the Filipino lifestyle and shoppers will continue to patronize your shops,” Tomeldan added.
She said that shoppers are still buying, but there have been shifts in their behavior, being more into comparative shopping and patronizing brands that have a solid track record.
Tomeldan added that much of the remittances from overseas Filipinos goes to consumer spending. “The opportunity lies in looking at market niches and segments that will buy and be loyal to your products.”
Growth seen
Go expects store sales in Robinson malls to grow by 8 percent this year.
“I think the worst is over. I think consumer confidence has recovered,” he said. “That is why we eagerly await 2010, when we, economists and experts forecast a recovery, hopeful that prospects will turn for the better.”
Mendiola, who also the senior vice president for operations of SM Shoemart Inc., expects his company to post double-digit growth in sales from opening of new malls nationwide.
Last year, he said, SM sales grew about 7 percent despite the first-half marginal growth.
For the whole industry, Mendiola said that sales are likely to grow double digit by 2010 as the economy is expected to recover.
With report from Chino S. Leyco
*An article that encourages business people engaged in retailing. Click Here to Read More...
PHILIPPINE retailers on Thursday declared that the “worst is over” for them since they expect moderate growth this year and a possible recovery next year, citing strong overseas Filipino workers’ (OFWs) remittances and growth in the business process outsourcing (BPO) and tourism sectors.
At the sidelines of the 18th National Retail Conference, Jorge Mendiola, chairman of Philippine Retailers Association, said that the retail industry is expected to grow at a high single digit growth this year.
In 2008, the whole industry grew between 2 percent and 3 percent, Mendiola added.
The retail sector contributes an average of 12 percent to 15 percent to the country’s Gross Domestic Product (GDP) and is one of the country’s biggest employers. GDP is the total value of goods and services produced in a country in a year.
Frederick Go, the retailer conference overall chairman and president of Robinson Land Corp., said that the “worst is over” for the industry. “The industry was hard hit 18 months ago, but things are looking up. The industry would be doing quite well in the next 12 months.”
Mendiola and Go said that the growth would be driven by the strong remittances from Filipino migrant workers as well as growth in the business outsourcing and tourism sectors.
“These industries [outsourcing and tourism] have a lot room for growth and both are stable industries that have been contributing to the growth in the economy for the last few years, and we expect these factors to continue being the driver of the economy in the near future,” they added.
According to Mendiola, remittances from overseas Filipinos continued to flow, helping support consumer spending.
The Bangko Sentral ng Pilipinas (BSP) reported that remittances from overseas Filipinos for January to May reached $6.98 billion.
Opportunities from tourism
The passage of the Tourism Act of 2009, Mendiola said, also created fresh opportunities for retailers. “Tourism and retailing are closely allied and the Tourism Act will be a boon to both industries.”
The Department of Tourism earlier reported that tourist arrivals reached close to four million during the first semester of 2009 despite the global financial crisis and the swine flu scare.
Mendiola noted that consumers have also adjusted to the crisis.
“Consumers have begun to buy wisely, cautiously, most keen on value-for-money purchases,” he said.
Rowena Tomeldan, Ayala Malls Group’s vice president and deputy group head, said that most of the major retailers still experience moderate growth in traffic and sales despite the weak economic growth.
“Shopping continues to be part of the Filipino lifestyle and shoppers will continue to patronize your shops,” Tomeldan added.
She said that shoppers are still buying, but there have been shifts in their behavior, being more into comparative shopping and patronizing brands that have a solid track record.
Tomeldan added that much of the remittances from overseas Filipinos goes to consumer spending. “The opportunity lies in looking at market niches and segments that will buy and be loyal to your products.”
Growth seen
Go expects store sales in Robinson malls to grow by 8 percent this year.
“I think the worst is over. I think consumer confidence has recovered,” he said. “That is why we eagerly await 2010, when we, economists and experts forecast a recovery, hopeful that prospects will turn for the better.”
Mendiola, who also the senior vice president for operations of SM Shoemart Inc., expects his company to post double-digit growth in sales from opening of new malls nationwide.
Last year, he said, SM sales grew about 7 percent despite the first-half marginal growth.
For the whole industry, Mendiola said that sales are likely to grow double digit by 2010 as the economy is expected to recover.
With report from Chino S. Leyco
*An article that encourages business people engaged in retailing. Click Here to Read More...
You have probably heard about it but I am looking forward to the Go Negosyo Youth Summit that is happening this September 11,2009. I have read the program and seen the seminars and other free information that is available and it does not get juicier than this.
To know more about the Summit, please click HERE.
What is a plus to the program is that the AKAFELLAS and the BLOOMFIELDS will be playing during the summit. Kudos ! Click Here to Read More...
To know more about the Summit, please click HERE.
What is a plus to the program is that the AKAFELLAS and the BLOOMFIELDS will be playing during the summit. Kudos ! Click Here to Read More...
This is going to be a little tough on the bones. When they say that building a business is 90% Emotions and 10% Technicalities, they were not kidding. Being in a business is a very emotional thing because of the MONEY involved. There are various ways that the money in a business can make or break the business and the business person:
1st- Without the skill of reading or making financial statements, one would not know the difference between SALES, GROSS PROFIT, NET PROFIT and so forth. I know a lot of people who take money to spend for their personal lives from SALES (if you think that is a good idea then I would suggest you get educated with financial statements.)
2nd- Mixing personal money and business money, almost all of budding entreps are guilty of this at the beginning but somehow we kind of evolve into 2 separate entities. Mixing personal money and business money will drive you nuts and chances are, you wife will scowl at you all the time. (guaranteed!)
3rd- Not knowing the ratios of a business and knowing the demographics of expenses in a business will leave you in the dark and lead to bad decisions. Ratios that need to be found out include but are not limited to: Income to Expense Ratios, Profit Margins, Return of Investment, Net Margins etc..
4th- Just because sales is good, business is good. This can become a very naive statement to make. Others would justify splurging and spending on liabilities just because they are selling very well, although there might be some truth to that, it is only a small piece of the grand financial statement. The bottom line is what counts and how consistent a business can give such a bottom line.
Truth be told, a business will often reflect the ability of the owner to manage his or her own finances. Small victories lead to much larger victories. Private victories lead to public victories. Yes, you have it right, one needs to manage his own personal finances before he can manage the finances of a business.
One of our readers, Jay Castillo has a very good article about this in his blog. Click here to read.
When I started out as a sole proprietor, I practiced paying myself first. Since I was single and had little liabilities, i managed to save 50-60% of my income to invest in my business and also to further my technical skills. All that hard work really paid off. If you have not started this habit, you can acquire information about managing personal finances from a lot of sources.
Be awesome! Click Here to Read More...
1st- Without the skill of reading or making financial statements, one would not know the difference between SALES, GROSS PROFIT, NET PROFIT and so forth. I know a lot of people who take money to spend for their personal lives from SALES (if you think that is a good idea then I would suggest you get educated with financial statements.)
2nd- Mixing personal money and business money, almost all of budding entreps are guilty of this at the beginning but somehow we kind of evolve into 2 separate entities. Mixing personal money and business money will drive you nuts and chances are, you wife will scowl at you all the time. (guaranteed!)
3rd- Not knowing the ratios of a business and knowing the demographics of expenses in a business will leave you in the dark and lead to bad decisions. Ratios that need to be found out include but are not limited to: Income to Expense Ratios, Profit Margins, Return of Investment, Net Margins etc..
4th- Just because sales is good, business is good. This can become a very naive statement to make. Others would justify splurging and spending on liabilities just because they are selling very well, although there might be some truth to that, it is only a small piece of the grand financial statement. The bottom line is what counts and how consistent a business can give such a bottom line.
Truth be told, a business will often reflect the ability of the owner to manage his or her own finances. Small victories lead to much larger victories. Private victories lead to public victories. Yes, you have it right, one needs to manage his own personal finances before he can manage the finances of a business.
One of our readers, Jay Castillo has a very good article about this in his blog. Click here to read.
When I started out as a sole proprietor, I practiced paying myself first. Since I was single and had little liabilities, i managed to save 50-60% of my income to invest in my business and also to further my technical skills. All that hard work really paid off. If you have not started this habit, you can acquire information about managing personal finances from a lot of sources.
Be awesome! Click Here to Read More...
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