GFA Microfinance Business School (MBS) Manila, Philippines

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1 GFA Microfinance Business School (MBS) Manila, Philippines Project Overview To assist 1,200 of the poorest of the poor urban slum dweller families to break the cycle of poverty through a unique combination of capital, technology and education. Some of these slum inhabitants suffer from disabilities and illnesses that limit their capacity to escape from the cycle of poverty and hopelessness in the slums. These families are not able to access traditional microfinance as they have only minimal assets, leading many to turn to money sharks who charge interest rates of over 20% per month and are known to use intimidation and violence. Grant Amount: Est. at US$350,000 over 2 years The project aims to collect enough fees by year three to be self-funding. New branches will then be added to increase the scale and out-reach of the Project. Project Objectives 1. To combine microfinance with education and mentoring to very poor people living in the Manila slums to help them develop income producing businesses as a means of lifting themselves out of poverty. 2. To develop an advanced Micro-finance model that is replicable in other localities in the Philippines and SE Asia and follows the Grameen Seven Principles. The Grameen Foundation Australia Microfinance Business School is unique: Targets the Most Disadvantaged: Participants will be women who typically have no ability to access funds from traditional microcredit providers. Self-Managed Groups: Communitydriven methodology for loan management to foster local ownership, empowerment and minimise overhead costs. Training: Compulsory participation in the GFA/PricewaterhouseCoopers business education training course to provide beneficiaries with better business skills and to ensure they have a well thought through business plan. Capacity Building: Support development and income maximisation of entrepreneurial business owners through ongoing group skills training and advice. Successful female business owners will be supported to become mentors in their communities. Cloud-Based IT Platform: To monitor all loan activities, reduce administration costs and provide early warning of potential delinquencies. Impact: The key measurement tool will be social impact (not just repayment rates) of lifting incomes of beneficiaries and their families / communities. Encourage Gender Equality: Training will include aspects of working together successfully as a family unit with dedicated sessions for male partners.

2 The project has completed a successful pilot stage involving 600 women borrowers receiving an average of US$125 loans. The next stage of the project aims to improve the project design and roll out the model to 1,200 women with an average loan size of US$200. Beneficiaries The borrowers will predominantly be women as they are less transient due to their domestic responsibilities as mothers, whilst men often travel in search of work. As a result, a loan and education model that requires a longer-term commitment has more appeal to women. However, an objective of the program will also be to encourage men to remain with their families to invest in the development of a family business that will provide long-term financial security. Beneficiaries will be those seeking to escape the uncertainty and insecurity of the informal sector through the creation of sustainable micro-businesses to support their families. The project aims to reach those with the highest needs within the slum communities, including families with no assets, the disabled or ill and those with little or no education. Approximately 4 million people live in the 526 slum areas around Manila, where conditions are extremely poor. The slums are overcrowded and have little or no sanitary facilities or electricity and food is of low quality. As a result, many occupants suffer from serious health issues but have limited access to medical facilities. Crime is another endemic problem in the slum communities. The World Bank estimates that 15-20% of those living in poor communities suffer from disabilities. The disabled in the Manila slums are at an extreme disadvantage. The Dumpsite communities suffer from the most extreme conditions as the hazardous fumes and dangerous environment increases the risks to the inhabitants. Loan Process A community-driven loan model will be used where the borrowers participate in managing their microfinance program to minimise costs, but with the support of Loan Mentors, an Internal Auditor and a Loan Monitoring Administrator. Borrowers will pay a small compulsory fee (equivalent to 1% per month) to cover the cost of maintaining and further developing the program. A savings and health insurance program will also operate. The program will access existing community groups that have a history of successful leadership and management in their community activities, with the majority likely to be religious groups or parent/local council groups. 2

3 Each group will select an initial 50 members to participate in the training program. Loans will be released only after successful completion of the education program for which a certificate will be awarded following business readiness assessment. Loans will be repaid in 25 weekly instalments commencing a week after the issuing of the loan. Each Community Group will form a Centre consistent with the Grameen approach. Borrowing Communities will elect their own leadership committees in consultation with the GFA Project Manager & Mentors. These committees will manage the collection and recording of payments made at the weekly group meetings using electronic-tablets that will automatically upload information onto a centralised i- cloud database to ensure ease of reconciliation, effective monitoring by GFA and collection of important impact assessment data. Business Education Program Education is an integral element of the MBS with all borrowers attending compulsory education activities. The curriculum has been designed by GFA in conjunction with PricewaterhouseCoopers (PwC) Manila. Trainers will focus on assisting the personal and professional development of the borrowers. The trainers and mentors will receive ongoing training from GFA and PwC on business development concepts and effective mentoring skills. The education program will include: New Borrower Business Course the course will run for 8 weeks prior to the release of the first loan. It will provide the borrowers with the basic skills necessary to create a successful small business. Graduates will be guided through the process of finding sensible micro-business opportunities. Certificate of Competence in Micro/Small Business Management Attainment of the certificate will be essential before loans are made available. Group Training Sessions once every fortnight the entire group will meet to receive training based on their needs as their businesses develop. Small Cluster Mentoring Sessions Once every two months borrowers will meet for mentoring sessions where they will be able to discuss their specific issues with project trainers. The sessions will also enable project staff to monitor their progress and amend the sessions to better reflect their needs. Gender Focused Training and Mentoring - Female focused mentoring sessions will enable women to discuss both their business issues and challenges they may face at home regarding acceptance of their business activities. A male focused session will be given for partners of the female micro-entrepreneurs. 3

4 Microfinance Methodology Pilot Success A pilot program using the community-driven microfinance methodology has been trialled by GFA in the Manila slums over a two-year period. The Program targeted the urban slum squatter communities and reached over 600 families in 15 different high-need communities of Manila with a total of PHP 1,861,000 (US$43,700) lent. Reasonable repayment rates were achieved. Defaulters were typically members returning to the provinces to assist their families or were affected by sickness. Some borrowers requested a restructuring of their payment plans to repay more slowly, largely due to lower business turnover than anticipated. All borrowers used the loans to create small businesses with the majority proving successful. Many clients now have a borrowing history of 2-3 cycles and are requesting higher loans. Both borrowers and the committees reported feeling empowered through ownership of their community s microfinance program, and indicated that the loans have made tangible differences to their lives. Organisational Model and Co-Worker Structure The program will be managed as a Social Business following the Grameen Seven Principles ( with management control from GFA and active participation from the local communities. An experienced Project Manager will oversee the program with the assistance of two Loan Mentors (Loan Officers who will provide advice and coaching), an Internal Auditor (who will review systems and processes as well as conduct regular program audits) and an administrator (who will do the book-keeping and co-ordinate the follow-up on any late loan repayments). 4

5 Financials The development of the MBS requires social capital funding of USD 350,000 in Phase One. Of this approximately USD 220,000 is used as permanent capital to support loans. USD 65,000 will be advanced to first time borrowers in the first year with loans averaging around USD 120 each and repayable in equal installments over 6 months. This will enable the USD 65,000 to be recycled approximately 2.2 times in the first year to at least 1100 borrowers. The balance of the permanent capital is then used to enable first cycle borrowers who establish a good credit record to borrow larger amounts to support their businesses in second and third cycle loans over the first two years. The additional funds will cover the start-up and operating costs of the school for the first 24 months at which point the fees collected should be sufficient for the MBS to operate without any external funding injections. In Year Three the MBS will seek further capital as part of a planned Phase Two, in order to reach out to further borrowers in existing and new communities. The longterm objective will be to reach capital of $US1m and reach to over 5,000 borrowers. OVERVIEW OF FINANCIAL PLAN (USD) (Phase One) Loans Year 1 Year 2 Year 3 First Cycle 65,000 - Second Cycle 48,000 30,000 - Third Cycle - 78,000 - Sub Total 113, ,000 - Setup Costs Office Setup 2, IT System Setup 2, Project Start-Up 5, Working Capital 5, Sub Total 14, Management Costs Educator / Senior Management 30,000 30,000 0 Sub Total 30,000 30,000 0 Running Costs Staff Salaries 27,000 27,000 27,000 Staff Allowances 5,250 5,250 5,250 Rent 6,000 6,000 6,000 Utilities/Dues 4,500 4,500 4,500 IT System Ongoing 2,500 2,500 2,500 Legal/Accounting Fees 1,500 1,500 1,500 Misc. Office Expenses 1,250 1,250 1,250 Reserves 2,000 6,500 - Sub Total 50,000 54,500 48,000 Forecast Fee Income 17,500 32,500 48,000 FUNDING REQUIRED 190, ,000-5