EOC and Microfinance

The practice of EOC and Microfinance in Bangko Kabayan

by Teresa Ganzon

Chiara Lubich’s concept of the Economy of Communion was a revolutionary idea that immediately resonated in our hearts. It transformed our way of looking at our business. We found a renewed commitment to work and gained new understanding on the way the rural bank could be managed and how it held incredible potential to benefit the common good.

We decided to adhere to this concept and as a consequence, grow our business beyond the one-unit rural bank that it was. By doing so, we could provide more employment, increase our coverage of financial services and also, earn more profits to be shared in the Economy of Communion.

When we decided to expand our rural bank, Francis and I realized we faced two major challenges: we needed more know-how and we needed more money. Neither one of us was trained to be a business manager, much less a banker. Francis is a lawyer by profession and I studied journalism.

To transform our business and make Chiara’s vision of an economy of communion a reality, we would need much more than our good intentions, enthusiasm, and hard work. We would need more competence and more capital.

Fortunately, there was Ancilla, a management consultancy and also an EOC enterprise that we could turn to for the tools and the training that we needed. Just as important was the experience of reciprocity that we were making as two EOC enterprises working together, reinforcing each one’s resolve to be faithful to this new economic paradigm.

Capital was the other critical resource we needed. Our bank had always been profitable. However, growing the bank by adding new branches required bigger capital.

Here, our small stockholders surprised us with their enthusiasm to join our cause.  One of our partners even lent us money to raise our capital without demanding a bigger share of the ownership of the bank.

We saw in these events the positive signs that God wanted us to proceed in this direction.

Our rural bank began fifty years ago in 1957. For almost 35 years, it remained a one-unit office. In 1991 – challenged by Chiara’s bold ideas – we began to expand the bank into different towns in the province of Batangas. Between 1991 and 1997, we set up eight branches.

We also wanted to formalize our commitment to the communities we served, and promote the culture of giving among our employees and customers. In 1996, we set up a corporate foundation that applied a percentage of the company’s income to finance social development projects. One was a scholarship program to help poor students. Another was to offer seminars in such fields as livestock production and proper waste disposal. Our newest project is to offer business development services to our microfinance clients so they can better manage and grow their enterprises.

 Gradually, the culture of giving improved the lives of our colleagues. It also influenced the communities we served. In one instance, some of our employees – on their own – saved every month an amount to start a scholarship fund to send two children of their fellow employees to school.
In another, when a client’s house and all his possessions burned, killing his daughter as well, the staff of other BK branches came to his rescue. They collected clothes, food and money for him. He was so surprised and enormously grateful since he did not believe that a bank could be so concerned and helpful!

After the Asian crisis of ’97, like many financial institutions, we found ourselves with reduced volumes of business and many borrowers were unable to pay their loans.Thanks to the genuine relationships of reciprocity with our clients, nurtured through the years, our depositor base remained stable and that saved the day for us in terms of liquidity. Still, we were in dire need of increasing our loans or we would run losses for a good number of years.

We looked at some options. A few banks grew in spite of the crisis through salary and consumer loans for teachers. We eagerly applied for accreditation from the Dept. of Education in charge of the program, and were approved.
However, some bureaucrats sought for themselves an accommodation fee in addition to the legal amount. This “extra commission” was a common industry practice to ensure collection. This type of business would have been attractive since there was hardly any competition in our area, giving us “first-mover” advantage.

However, we felt we could not profess that God was our silent partner while engaging in corruption. We also realized that instead of our avowed goal of promoting the development of new enterprises, we would be reinforcing instead a culture of debt and consumption.
We discussed this issue in unity with others of the same vision and faith, just as we did when confronted with major decisions, and found the courage to drop this loan program.

Meantime, we heard of microfinance, offering small loans ranging from $50 to $3750, collateral-free, to the so-called “unbankables” or higher risk segments of the population. Studying the matter, we decided to explore it first through our corporate foundation, seeing it as a social program rather than a genuine credit product for a bank.
At a time when we were suffering from defaults of secured loans, it seemed crazy to go into collateral-free lending, without the comfort of an automatic salary deduction mechanism.

Within just two years, however, the amount we had originally allocated for microfinance – around  $3750 tripled, and customers grew to 500.
This situation, validated by the shared experiences of some generous rural bankers who pioneered in the Grameen–type of microfinance, encouraged us to convert this program into a regular bank product.

This decision required our serious commitment to fundamental changes in many areas of our operations: hiring more people; giving more training, especially to account officers whose jobs required long hours in the field; designing new procedures adapted to microfinance’s small but frequent transactions; investing in computer hardware and software; most of all, shifting our traditional emphasis on collateral – a habit formed by over 30 years of traditional rural bank lending.

Over time, a significant transformation was silently taking place in our business landscape: through these micro loans, our business was slowly transforming our customers – these so called “unbankables” who are basically poor and dependent.
Through these micro loans which required no collateral, the bank was giving them the all-important stamp of trust, as if to say, “We trust you with our money because you deserve our trust.”

And trust begets trust. These loans gave them confidence to start home-based businesses. As their business grew, they supported themselves and their families, and earned self-respect.
As their business thrived, they learned the discipline of repaying their loans and managing their earnings. As their earnings grew, they learned the value of savings and began to take their financial destiny in their own hands.

Through regular group meetings held by their account officers, they learned to support each other – positively through encouragement, and negatively through compliance by peer pressure; they experienced the power of unity and discovered that in unity there was strength. Speaking with one voice, they learned to lobby local officials for services they deserved.

As our customers changed, they in turn changed our understanding of the business. We understood that for our business, the customer we are privileged to serve is the rural micro and small entrepreneur; and that the purpose of our business is to provide him – through our products and services – the opportunity, the means and the tools to become productive, self-sustaining and ultimately, financially independent.

We also understood something that was exceedingly important to our business, our mission, and our Christian faith. Our experience in microfinance gave us indelible proof of the truth in the gospel’s teaching: “Give and you shall receive.”
We were overjoyed to see our original insight confirmed and expanded: that when a business is transformed into a means to serve our fellowmen, the business sets in motion the  process that creates not only an incalculable amount of good, but also the very mechanism that ultimately ensures the business’s own survival, growth and prosperity.

By helping the unbankable customer today  break free from the chains of poverty, we were enabling him to raise his standard of living and buying power. When he does, today’s unbankable customer will become Bangko Kabayan’s regular client tomorrow.
He also becomes the brand image of the bank in the community and serves as it’s best advertisement. Today, in fact, this is already happening as Bangko Kabayan’s clients start to give back and respond in kind. This, after all, is the true meaning of reciprocity.

At present, more than 50 employees of the bank are involved in the delivery of microcredit. Microfinance lending now serves over 8,000 customers and covers 13% of our loan portfolio. That means   over $2M in loans not secured by collateral. An astonishing 97% of this amount is paid on time and we have less than 1% write-off rate.

Amazingly, these 8000 customers were able to raise $1.5M in savings. This milestone experience gave them great joy and confidence for they discovered that despite the smallness of their business and their self-image of being poor, the ability to save was within their reach!

We started initially with two basic microfinance programs. Today, we have added three new products, allowing our clients to borrow bigger amounts for their enterprises. They can also get loans for their children’s education.
We have started to pilot mobile phone banking services in partnership with a telecom firm. This will permit us to reach distant clients who may now pay their loans through SMS. We are also on track to develop micro-housing and micro-agri loans.

Sharing the experience has brought almost 200 other rural banks in the country to go into microfinance lending so that today, it is the sector that delivers microcredit to the most number of clients.
Rural banks use their expertise of banking, risk management and low cost fund mobilization for social outreach, sustainable development and nation-building. At the same time, they improve their own viabilities as rural financial institutions due to healthy profits generated by this lending program.

Bangko Kabayan has changed dramatically since 1991 when Chiara Lubich’s prophetic vision of the Economy of Communion first set us on fire./ From just one office then, we have grown to twelve branches today and are on our way to putting up two more branches this year. From 21 employees, we have grown to 230. The $1.2M, one-unit bank today has $____ in assets.

This year, we received for the fifth consecutive year, a national award for being one of the Philippines’ most outstanding rural banks in microfinance. The foundation for our success has always been the values that drove Bangko Kabayan as an enterprise.
Among these values, three in particular, stand out: first, our commitment to always build unity and reciprocity with everyone – customers, employees, suppliers and shareholders – involved in the enterprise;
second, our commitment to be true to our mission to be a partner in developing the countryside;
and third, our deep and abiding faith in God’ presence in the institution and Divine Providence which accompanies us daily in our life as an economy of communion enterprise.

But the principles of Chiara’s EOC concept – radical as it is – trace their roots to the teachings of Christ and saw their first authentic expression in the life of the first Christians.
Today’s times may have changed, but the relevance and value of these evangelical principles which underpin EOC principles remain unchanged. Like a compass, EOC principles today guide us unerringly in managing Bangko Kabayan.
Beyond the call of sharing our profits, EOC keeps us focused on the right practices for managing our enterprise in the face of today’s challenges:
practices such as ethical decision-making and seeking consensus; respect for the rights and dignity of people; protection of our environment and the building of long-term relationships of reciprocity with all our stakeholders.
In all these, we are constantly called to renew our commitment to do not only what is right, but also what is God’s will.

Bangko Kabayan’s journey could have been more difficult were it not for the encouragement of other EOC firms with whom we shared insights and experiences. The unity we forged with them will be strengthened even more when we develop a business park where EOC firms can work side by side, living together this ground-breaking experience.  Here, in this communitarian experience that we share with people from all walks of life, we have found a way to consecrate our business to God so that Jesus’ last prayer may be fulfilled: “Father, that they may all be one.”




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