College launches micro financing scheme vs 5-6

Naga College Foundation President Mario Villanueva, MPDC Rico Alvia, Kgd. Antonio Rubio representing Mayor Philip Salvador Senar and members of the Magarao Hilot Association launch the first ever Indigenous Community Revolving Fund Project, a community-based micro financing scheme designed to fight and replace exploitative credit schemes including 5-6

A NEW community-based micro financing scheme which will benefit the poor borrowers was launched to fight and replace the 5/6 credit scheme. Its operation has just completed the first 6-month project cycle with 25 members of the Magarao Hilot Association who volunteered to join the pilot project. Called Indigenous Community Revolving Fund or ICRF, the project is being introduced by the Naga College Foundation in Bicol and is being pilot-tested by Magarao LGU through its Municipal Planning and Development Office (MPDO).

The scheme is based on an internationally tested system of savings and capital provision for enterprise projects of marginalized and disadvantaged groups that are not qualified to access loans from banks or their lending intermediaries and are continuously becoming victims of exploitative micro credit schemes. The pilot project registered a 74% return of investment after its first cycle of 6 months. The target is 200% return on investment after 12 months. Their initial capital of P50,000 grew to P87.013.08 or a gross profit of P37,013 as of April 29. This includes the capital build-up share, service fees and profits of the member borrowers. Twenty one loan applications were submitted and 17 of them were approved. Nine members who borrowed had repeat borrowings. The loans were initially related to farming, piggery, sari-sari store, beauty salon operation and E-load and support to computer shop.

As a community-based micro financing scheme, ICRF does not adopt the financing principle of “capacity to pay” for any kind of loan. Instead it uses the principle of “loan is given because the borrower needs capital for an enterprise”.

The target groups are those with marginal education and training; hence the loans do not use interest based on time but on profit margins of enterprise projects.

The strategic goal of ICRF is to help reduce poverty through organizing self-help groups and by installing in them a system of owning and managing financial capital, by training them in practical business management strategies and by developing the culture of savings and investments.

The Naga College Foundation, Center for Corporate Social Responsibility believes on the theory that no country can achieve economic progress without strong communities and entrepreneurial people. The school has developed the Training Manual of tools and implementing guidelines of the ICRF which has the following characteristics:

Fund is owned and managed by and for the benefit of members a small People’s Organization, system is designed for short-term transitional enterprise projects (1day-4 Months), maximum amount of loan is not more than the minimum amount given by Banks, no Interest on loans but profit margins and sharing from enterprise ventures.

Profit margins: 20% profit margin for every enterprise project for the first 1 year of operation, profit sharing: out the 20% profit margin 10% is retained by the member-borrower, 5% goes to their capital build-up, the remaining 5% is budgeted for operation and maintenance, no collaterals: the Fund is owned collectively by all the members.

No voluminous and complicated forms: only three 1-page forms each, no co-makers: all members are considered as co-owners of the Fund; Terms of payments: flexible, agreed between the Borrower and the Fund Manager, there are guidelines for failed enterprise project caused by act of nature, there are guidelines for failed enterprise projects caused by negligence of the borrower. The PO is authorized to give penalties for other offenses agreed by the members.

Fund Management is given to a Fund Manager who is appointed for 6 months, renewable, assessment, collection and audit is assigned to a 3-member committee appointed for 12 months, overall management is governed by the officers of the PO and its general membership.