FAIRBank to extend to firms cash flow-based loan program

Thursday, October 28, 2010

HOMEGROWN rural bank First Agro Industrial Rural Bank (FAIRBank), which has helped the micro, small and medium enterprise (MSME) market with its cash flow-based lending, intends to improve its operations to make money-lending accessible to the SME market in the province.

Although plans for expansion will be put on hold until the middle of next year, FAIRBank president Gil Verallo said the focus of the bank this year is on reviewing its performance over the last 10 years in order for the bank to “capitalize on the right things.”

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“The bank has been very bullish in putting up branches in many areas across the province. It is also high time to focus more on improving the bank’s operation rather than going so fast in terms of expansion,” Verallo said. FAIRBank, which started its commercial operations in 1999, has about 12 branches located in the different areas in Cebu Province.

Verallo stressed that they will be putting more emphasis in making loan opportunities available and accessible to the bank’s still untapped market, which are the MSMEs.

He said tapping this market is a lucrative move because MSMEs compose 99.7 percent of establishments in the country. Access to finance, he said, is one of the perennial problems of MSMEs.

To address this problem, FAIRbank employed a cash flow-based lending for SMEs in 2004 through the Private Sector Promotion (SMEDSEP) Program of the Department of Trade and Industry (DTI) and German Technical Cooperation (GTZ) to make financing accessible to MSMEs.

GTZ introduced cash flow-based lending or risk-based lending technology that utilizes non-traditional forms of collateral such as moveable assets, accounts receivable, inventory, equipment and personal guarantees to support loan applications for MSMEs.

The lender looks at the business health of an enterprise and uses this to determine action on the application and the amount of loan that will be granted.

Although the approach may seem riskier, Verallo said this wasn’t the case because you will know early on the capacity of the client to pay back the loan.

Since the implementation of this type of lending, Verallo said the bank was able to increase its number of MSME clients.

Fairbank reported that the huge allocation of loan portfolio as of August this year belonged to SME regular loans where the huge income from loans was also generated.

It added that the SME loan portfolio was at P196 million in 2009, higher than the P170 million in 2008, mostly coming from the wholesale and retail trade industry.

Among the bank’s SME partners is the Despi Egg Farm in Sta. Fe Bantayan, Cebu. The company started with 6,000 heads of layer chicks but today, the Egg Farm houses 30,000 heads and produces 5,000 trays of eggs weekly.