Despite its beauty and diversity, the location of the Philippines archipelago along the Pacific Ring of Fire makes it vulnerable to natural disasters such as typhoons. The economy also faces several other challenges, including income inequality and inadequate infrastructure. Filipino women bear the brunt of gender inequality in the labour market, which stymies their ability to provide for their families.
This is where ASA Philippines, as a microfinance institution, has found its niche. Its mission is to provide accessible financial services to low-income families, and it has successfully given microloans, from below US$100, to women, providing them with the tools and resources to lift themselves and their families out of poverty.
Setting up ASA Philippines
In 2004, Kamrul Tarafder, President and CEO of ASA Philippines Foundation (ASA Philippines), alongside Ambassador Howard Dee, a philanthropist and a former Philippine ambassador to the Vatican and Malta, established the microfinance institute, ASA Philippines, with financial support from the Assisi Development Foundation and the Ninoy & Cory Aquino Foundation.
ASA Philippines opened its first branch in Camarin in Caloocan before expanding nationwide. It aims to effect social change in communities by helping poor families escape poverty through the provision of microfinancing, which enables people to establish microenterprises.
Tarafder elaborated, “Poor communities are always the ones left behind. They are the last-mile challenge of the supply chain. I think the poor are major contributors of taxes in any country, because the taxes are already built into the price tags of finished products. However, it is hard to reach them when there are tax credits or transfers to be made. So we decided that we will be committed to helping the poor through the women.”
Women tend to have higher repayment rates compared to men. They are also inclined to be more risk-averse and committed to improving their households, more likely to invest their income in their children’s healthcare and education. Hence the funds would be disbursed for the betterment of future generations.
ASA Philippines offered collateral-free loans for as low as PHP 5,000 (US$90) to women entrepreneurs. From just two clients after a month of operation, it grew rapidly and quickly broke even in three years. That was when Tarafder decided he would stop using grants and turn to capital markets for funds.
The business model
ASA Philippines utilised a group lending model, which led to higher repayment rates. Loans were extended to individuals, yet the responsibility to repay the loan was collectively assumed by the family of the borrower, particularly by those who were employed. Individuals seeking loans had to connect with their families to form groups of 20 to 30 to apply collectively. ASA Philippines’s staff would usually meet with clients as a group within the neighbourhood for smooth collection.
Each ASA Philippines branch handles roughly 60 to 75 groups of borrowers. It uses rigid selection criteria to ensure the funds only go to those in need.
As the foundation grew across its 1,700 branches in all 82 provinces, it turned to capital markets for funds by issuing bonds. Compared to relying on unpredictable donations, issuing bonds offered ASA Philippines a more sustainable and a more scalable financial model when large amounts of capital were required.
As the leading micro-financing institution in the country with a mandate to empower women, ASA Philippines also floated a gender bond, a type of social bond that would attract socially conscious investors. The Asian Development Bank (ADB) gave ASA Philippines a US$30 million (PHP 1.658 billion) loan. Said Tarafder, “We are the first Non-Governmental Organisation in ADB’s entire history to receive a direct loan without a sovereign guarantee. That was a historical event for us.”
New financial products
Even in difficult times, like in the aftermath of the deadly Haiyan typhoon, ASA Philippines did not lose sight of its mission and took the bold step of freezing all loan collections for an indefinite period of time. It even offered a five-step intervention strategy for those who suffered the worst damage to their homes. This strategy included psychosocial intervention, food relief, grants of up to US$72, malasakit (compassion) finance for home and business repair, and lastly business finance. Tarafder did not want to seize any collateral as it could diminish the company’s goodwill, and instead preferred to extend the tenure of the loans or even waive them when necessary.
In 2020, the economy entered a recession due to the global pandemic. ASA Philippines extended the tenure of their loans indefinitely and gave affected clients more money to look after their families and told them to pay back later. “Now our malasakit loans, which totalled PHP 7.2 billion (US$130 million) in 2022, have to be 10% of our total portfolio,” said Tarafder.
Going digital for the future – while staying personal
In January 2016, ASA Philippines connected all its 1,150 branches using a cloud-based system, helping it to rapidly expand in just two years to the remotest places in the country. This quadrupled its product offerings. By 2018, ASA Philippines had reached roughly 2.2 million women beneficiaries. But it chose not to implement wholesale credit scoring yet, as Tarafder explained, “I did not want to lose the personal touch in our interactions with clients.”
Tarafder believed the ASA model could be adapted by any entrepreneur with the desire and will to reach out to a larger population at the lower strata of the society. Investors should gain satisfaction in the form of social change, as the efforts of ASA Philippines have shown.
This case study “ASA Philippines: Making Financial Inclusion Possible” was written by Assistant Professor of Finance (Education) Aurobindo Ghosh and CW Chan at the Singapore Management University. For further details on the case, please visit the CMP website by clicking here.