Unleashing the Power of Microfinance: The CARD MRI Experience

By Jaime Aristotle B. Alip
Founder and Managing Director of CARD MRI

Presented at the 2008 Magsaysay Awardees' Lecture Series,
Magsaysay Center, Manila, 3 SEPTEMBER 2008

I. The Initial Years

It was 1986. The euphoria brought about the by the People's Power Revolution permeated all sectors of society. Hope was in the air. The Cory magic did wonders for the local development community. At least 3,000 NGOs mushroomed, capitalizing on the revitalized interest of international donor agencies to help in rebuilding the country. With a capital of 20 pesos and a battered typewriter, I established the Center for Agriculture and Rural Development together with 14 rural development practitioners to promote rural enterprises among the poor by providing them with access to credit and savings.

Takayoshi Amenomori, then Secretary General of the Asian Community Trust, gave CARD its first program support of $20,000 to implement a training-focused economic assistance program for landless rural workers in San Pablo City and Bay, Laguna. It would be the first of many time-bound projects, ranging from cow dispersal to deep-well installation. Even as CARD built its track record, it attracted the attention of other donors: PDAP, DAR-DRDAP, Philippine-Australian Community Assistance Program, UNESCO, Grameen Trust, Catholic Relief Services, Land Bank of the Philippines, RKK Fund for Peace, Misereor, Bilance, PCFC, Plan International, World Vision, German Savings Bank Foundation and CGAP, among others.

CARD's initial experience in providing credit to the poor was almost a disaster. In the first place, we did not have a clear definition of who were the poor we wanted to serve. We let the members of our organized groups decide when to pay back their loans. We did not institute rigid supervision. We did not consider savings to be important. We never paid thought to cost recovery. In other words, CARD typified the infantile donor-driven development foundation, guided only by its social mission.

Consequently, only two of seven groups provided with loans were able to repay on time. Internally generated savings was almost nil. In the meantime, our resources were slowly dwindling.

We looked to Bangladesh for inspiration, then considered the mecca of sustainable microfinance. Inspired by the Grameen Bank and its founder, Prof. Muhammad Yunus, we pilot-tested a modified Grameen model, adopting modifications but not deviating from the essential features of Grameen: exclusive focus on the poorest of the poor, particularly women, formation of small groups of 5 like-minded individuals, small loan amounts and small repayments in weekly meetings, and compulsory weekly savings, among others. The promising results of the pilot phase led to the creation of the Landless People's Fund, which we envisioned would become a bank owned and managed by landless poor women.

II. Shifting Paradigms: From Poverty Alleviation to Financial Systems Approach

We shifted our paradigm from a poverty alleviation approach to a financial systems approach, when we established the CARD Mutually Reinforcing Institutions as a business model.

Today, CARD is composed of a group of mutually reinforcing institutions: the CARD NGO, the CARD Bank, the CARD Mutual Benefit Association (MBA), the CARD MRI Development Institute (CMDI), CARD Microinsurance Agency (CAMIA), and the CARD Business Development Services (BDS). All these institutions are dedicated to ultimately empower the poor, by upholding the core values of competence, culture of excellence, integrity, family spirit, humility, and simplicity.

The CARD NGO was established in 1986 in response to the growing poverty incidence in the country. As early as December 1995, the CARD, Inc Board of Directors began discussing its transformation into a bank as a natural extension of CARD's original vision of creating a bank owned and managed by poor women. This became a reality in 1997, when CARD Bank was granted by Bangko Sentral ng Pilipinas (BSP) the license to operate as the very first microfinance-oriented rural bank in the Philippines. Two client-members sit on its board.

The CARD MBA is the microinsurance arm, which provides life insurance to more than 2.5 million individuals, contributing to about 14% of the total number of insured persons in the country. It is wholly owned and governed by client- members. In addition, CARD MBA is providing assistance to other microfinance institutions resolved to create their own MBAs through the Build-Operate-And-Transfer (BOAT) program. To date, there are six local MFIs under the BOAT program. In 2008, CaMIA, or CARD Microinsurance Agency, was created to provide nonlife insurance, such as housing insurance for catastrophic events, and funeral benefits for members.

The CMDI offers both degree and non-degree programs that address primarily the learning need of staffs and members of CARD Mutually Reinforcing Institutions. Likewise, credit with education are also courses developed by CMDI for the client-members of CARD MRI. A few non-degree courses, often customized to specific requirements by a requesting party, are available to staff of other microfinance institutions in the Philippines and other countries. The advanced degree courses, Master of Arts in Organization Development (OD) and the Master of Science in International Economic Community Development (IECD) both major in Microfinance Management, are open to microfinance professionals who aspire to go up the career ladder or to simply specialize in microfinance management. This significant expansion in its education program was made possible by partnering with the Southeast Asia Interdisciplinary Development Institute (SAIDI), and Southern New Hampshire University (SNHU).

CARD BDS serves as the marketing arm of the CARD MRI. It caters to the increasingly sophisticated needs of the mature members. It provides business clinics which allows them to avail of services such as business consulting, forward and backward integration and larger capital. In cooperation with Microventures Inc. (MVI), the HAPINOY stores, a large network of small convenience stores, are being linked by BDS to suppliers so that they can avail of price discounts and promotions.

All these mutually reinforcing institutions are working towards our goal of reaching one million clients by 2009 and to go where few financial institutions dared to go: unserved areas in the country where majority of the poor lives.

III. Reaching the Poor and Low-income Families with Effective Microfinance and Business Development Services We started to deliver microfinance in two communities in Laguna in 1988. As of June 2008, CARD MRI was serving more than 680,000 clients through a network of 629 branches spread nationwide-from Sulu and Tawi-Tawi in the south, to Ilocos Region in the north. In 2007, CARD MRI started to spread its wings to the rest of Southeast Asia by forging strategic partnerships with institutions in Cambodia, Vietnam, Indonesia and Hong Kong.



CARD MRI has consistently maintained a near perfect repayment rate since 2001, which contributed to its financial viability as per CGAP standards.

IV. Success Factors

1. Good governance. One vital function of the board is to be the custodian of the organization's mission. Beyond the statistics, the most daunting challenge for CARD remains its ability not to lose track of its original mission - that of serving the poor - particularly at the juncture when CARD as a social development foundation transformed into a bank. As currently structured, the CARD MRI boards share some members in common. This overlap is considered crucial in ensuring that the vision of CARD MRI remains consistent with the original mandate, even as it conducts its businesses in a commercial fashion.

We have invited individuals to serve as independent board members who bring with them expertise and perspectives that we may not have internally.

We have been able to retain many our clients by being true to our commitment to empower them by giving them not just access to resources but more importantly, by providing them the ownership of these resources. I have always maintained that only by creating a vehicle for asset ownership, can we ensure that the poor will gain control over their own resources and over their own destiny." Hence, clients have been made to participate in the governance and ownership of CARD Bank and CARD MBA. The Board of the MBA is completely client-led, while on the board of the Bank sit two representatives of the clients members, thus ensuring that the voice of the membership are heard at the highest policymaking body. As well, the relevant unit heads are also involved in different board committees: governance, audit, investment, thus ensuring their expertise are harnessed and they too are involved in decision making.

Together, they have put in place mechanisms that ensure that the principles of fairness, accountability and transparency are practiced. For instance, promotions are based on merit, even as staff performance is evaluated twice a year. Even the board members undergo an evaluation performance yearly.

2. Financial Transparency. The Board made sure that a strong internal control system is in place to promote financial transparency. As CARD grows, the risks it faces also increase; these may pose a threat to the MRIs if not managed properly. All funds are accounted for and are made known to the clients. Hence, aside from external audit, we have institutionalized an internal control system performed not just by the audit unit but by top and middle management. Each institution of CARD MRI has an active audit committee that meets every month and is headed by independent professionals. Rewarding staff and branches which scored high in the audit ratings demonstrate the importance placed on the implementation of internal controls.

3. Capable middle and upper management. Our vision for CARD MRI is to become not just a good institution, but a great institution that will endure the test of time. It is for this reason that CARD MRI places a very high premium on staff development and training. To this end, CARD MRI invests considerable resources to build the competencies of its upper and middle management. In-house staff training is complemented by sending key officers to pursue post-graduate education. Six have graduated from the Asian Institute of Management, while almost a hundred are taking up Master's degrees in Organizational Development or International Economic Community Development. In order to retain them, they receive a compensation package that are at par with industry standards.

4. Account Officers are motivated to work with the poor. As the front line staff, each account officer serves as the primary contact point with the clients. It has been CARD's policy to recruit them from the communities where CARD are operating to ensure that they have a handle on the local condition and that language barrier is avoided. Another important HR policy is not to place undue importance on high educational attainment; premium is placed on a prospective AO's demonstrated commitment to work among the poor. This policy is borne by the fact that our program caters to poor people, to whom small loans are provided; it would be unwise to hire people with high education and long work experience, who would demand high salaries, to administer small loans to the poor.

5. Balancing financial and social performance. The wide array of financial and nonfinancial products and services offered to members enabled CARD MRI to help them attain their social and financial aspirations, such as improve their income, attain food security, send their children to school, build assets, and mitigate risks. The outcome is a satisfied clientele, who, by word of mouth, become an effective marketing tool in a competitive market.

6. Culture of listening to clients' voices and innovating to meet their needs. As we put in place policies and procedures that will enable us to keep our institution focused on reaching the poor, we also put in place a mechanism that would tell us whether those who remained in our program are satisfied with our products, and how we deliver these products. This culture of listening to clients is pervasive at all levels of the institution. At the branch level, through center meetings and Center Chief consultative dialogues. At the Head Office level, periodic as well as surprise visit by management to branches and centers. Additionally, the Research Unit is tasked to look at pressing operational issues as the need arises in addition to regularly conducting exit surveys, focus group discussions and participatory exercises among members. It is through this openness to change and the culture of innovation that CARD MRI was able to design new or improve existing products and services that best meet the financial and nonfinancial requirements of its members. For instance, the shift from Grameen to ASA model was actually a result of listening to client complaints about the burden of joint accountability, which was compelling them to vote with their feet (client exodus).

7. Also key to our institutional growth was the adoption of a business model that recognizes that the poor is not a homogeneous group, and that they need a wide range of financial and nonfinancial services to develop successful businesses and move themselves and their families up and out of poverty. CARD MRI's business model emerged in response to these differing needs: we established a group of institutions each of which cater to a specific product or service demand and which mutually reinforces each other. I liken the CARD MRIs to a symphony orchestra, with each of the MRIs having its own mandate, headed by a leader with his/her own area of expertise, responsibility, authority and accountability. As one entity, the MRIs produce "music" (products and services) that gives delight to our "audience" (our staff and clients).

Aside from being able to respond to the varied needs of our members, our aim is to grow into a financially self sufficient institution in order to attain our mission of wider and deeper outreach, and to attain economies of scale. We were able to tap local and international financial markets rather than continuing to rely on scarce donor funding. Thus today CARD MRI accesses loan from the government's People's Credit and Finance Corporation, Land Bank of the Philippines and Development Bank of the Philippines; commercial banks like Citibank, Metrobank, UCPB, Deutch Bank, Planter's Bank, Hongkong and Shanghai Bank Corporation; and social investors such as Oikocredit, GF USA and CORDAID.

8. Adherence to our core values. Simplicity reflects our good stewardship of resources, they be time, people, money. We never tire of telling our new staff how we grew our initial twenty pesos ($0.50) into its present several million dollars asset. This simplicity and prudent use of resources are reflected in small and big ways - the type of cars we use, keeping a low profile, recycling paper (the shift from Grameen to ASA was driven by the need for efficiency and effectiveness; translated into practical terms, it meant less paperwork to save not only the time of staff and clients but reams of paper as well.) Competence: to develop expertise in our core business, we do our work with dedication; seek more knowledge and skills, search for innovations that will help us do our job better.

We are not stingy, though where our staff are concerned: scholarships, financial incentives, exposure visits and training locally and abroad. Our leaders are truly like parents, providing the support while staff are still learning to walk, prodding, rewarding their efforts, challenging them to soar. And this kind of nurturing has made us believe that what keeps the CARD family together is this strong sense of family spirit. We create for each other a comfortable working environment where sharing, caring, honesty, and hard work make the stuff of our daily lives.

9. Last but not least, the government provided a regulatory environment that supports the growth of the microfinance industry.

IV. Personal Insights and Learnings from Lifework

I humbly believe that we are already a successful organization and that we have already done great things. Still, there remains a great deal to do. Hence, we have not stopped dreaming.

Succession strategies must be put in place if an institution is to flourish well beyond the lifetime of its founders. We are building institutions that will last not just 20 years, not just 50 years, but institutions that will outlive us, and will be managed by all stakeholders' children. We dream of passing on the reigns to the next generation, who will take CARD MRI to greater heights, from a good institution to a GREAT INSTITUTION. To attain this, we recognize the importance of strengthening the leadership skills and competencies of the middle and the upper management staff. Significant investment is being allocated in this direction.

An organization who takes care of its people and consider them as its most valuable resource will be rewarded with loyalty. True to this, we are as well putting in a significant amount of resources in keeping our staff happy, rewarded and contented in working with us. This is expressed through a competitive benefit package and an objective career path policy. We pay specific attention to the academic development of our staff, thereby furthering their personal and professional development.

Shared decisionmaking builds ownership. Our organization follows the concentric model of management in the sense that under the umbrella of the CARD MRI exist several organizations. Each of these organizations is managed by a person with his/her own set of skills and competencies, and accountable to each other for the management and outcomes of her/his own institution, even as what hurts one, hurts the operations of the others. Authority and decision making does not reside on one person alone; it is shared. This type of decision making is cascaded from each institutional head to the most basic management unit in the branch. Thus, at the beginning of each year, the schedules of the various meetings (among the different boards, executive committee, combined executive and management committees, field staff provincial meetings) are already set, and these schedules are sacrosanct.

V. Words of Advise to Prospective Servants of the People

1. Work hard and work smart. I have always enjoined my staff to give their best to whatever they do. Para sa akin, hindi puede ang "puede na." (For me, a lackluster performance is not acceptable). Working smart for me means being creative in finding simple solutions to a seemingly complex task.

2. Pursue your vision with passion. Be strong in your belief that what you envision is the right thing to be. If your rallying point is to empower others, be ready to sacrifice your own interests. Be prepared to be scoffed at because of the seeming absurdity of your ideas. People thought I was crazy when I first broached the idea of a bank owned and managed by poor Filipino women. Today, it's a different story.

3. Microfinance is a lifetime commitment, even as everyday, many people join the ranks of the poor. Start by working with women, even as money placed into their hands are invariably used to improve the well-being of their families: better food on the table, access to education for their children, improvement in living conditions, savings for expected and unexpected events. And that is what development is all about! Additionally, you would need to ensure that you are there for them on a long-term arrangement, until they have reached a firm step up and out of the ladder of poverty. This necessitates that you aim for sustainability, as donors expect you to be on your own feet after a time. Teach the poor financial responsibility, as microfinance is not charity; it should bring dignity, not perpetuate self-pity. You would need to innovate, heed clients' voices, even as the poor's needs evolve over time. You would need to keep a balancing act between your institution's financial and social imperatives. In all of these, God will reward your sincerity to be of service to the marginalized with His Guidance and Providence.

Finally, let me end by quoting Robert Frost in his poem, The Road Not Taken:

"Two roads diverged in a wood, and I, I took the one less traveled by, And that has made all the difference"