KPS-Small Enterprise and Economic Development (KPS-SEED) Microfinance: Nurturing the seeds of change through microfinance

The Katotohanan, Pagkakaisa, at Serbisyo Foundation, Inc. (KPS Foundation) is a member organization within the family of urban poor establishments based in General Santos City formed after the EDSA People Power Revolution in 1986.

“The perspective was really truth, unity, and service. ‘Yung triumvirate na ‘yan, is actually a solution to poverty for us. Nagsimula ‘yung KPS Foundation with an issue of land tenure, kung saan ‘yung mga kababayan natin na nakatira sa mga danger zone, ‘yung merong mga threat of demolitions, ino-organisa nila to have a secure tenure. Then by doing that, lumabas ‘yung additional problems ng communities. One of the major problems is ‘yung economic opportunity nung mga communities na na-organisa. [That triumvirate is actually a solution to poverty for us. KPS Foundation started because of an issue with land tenure, wherein those living in the danger zones, facing the threat of demolitions, were organized to have a secure tenure. One of the major problems that surfaced was really the lack of economic opportunities for the communities that were organized.] That’s why in 1996, the organization started with a savings and loan program,” says Rodrigo Olarte Jr. or Jun, Executive Director of KPS-Small Enterprise and Economic Development (KPS-SEED) Microfinance, Inc.

Jun was one of the three pioneer employees of KPS-SEED. “It wasn’t KPS-SEED yet at the time, it was a savings and loan program of the KPS Foundation. This was way back in 2001, a year after I graduated college. This was my first job, and we will be celebrating our 20th year this year. I started from the ground as a community organizer, and when KPS-SEED started, my first job was an account officer. I organized women in different barangays in General Santos City and introduced the microfinance program as a livelihood and financial inclusion program,” he shares.

According to Jun, General Santos during those times was considered as the booming city of the South. There were new economic opportunities, particularly in the fisheries sector. There were a lot of industries emerging all around the city. Most of the major canning factories in the Philippines are in General Santos. Because employment opportunities are in the city, there was a large-scale migration from adjacent provinces. The cost of this rapid development, coupled with an already uneven distribution of land in the city, were displacements and other issues. “Dapat sustainable development, walang maiiwan ‘no? [Development should be inclusive, sustainable, right?] But that’s the effect when you grow too fast as a city,” he remarks.

Microfinance – a two-fold strategy for poverty alleviation

Recognizing that the nature by which a microfinance institution operates is very different from how a foundation is run, the program spun off and was formally registered as a new organization in 2003, focusing mainly on the economic interventions and entrepreneurial development services of the KPS Foundation.

Jerome Panilagao, Operations Director, has been with KPS SEED for 18 years. An accountant by profession, he started as an auditor and has since held various roles within the organization. Before being at the helm of operations in 2012, Jerome was the finance manager of the organization. He and Jun drafted the first operations manual of KPS-SEED’s microfinance operations.

“Microfinance is a very broad strategy for poverty alleviation but it’s not a ‘cure-all’ strategy. In our practice, it’s a two-sided program – financial interventions and social performance interventions,” says Jerome.

“We have this guiding principle that the first approach for us to encourage members to join the program is not through loans. We orient the members on financial literacy, educating them on the ins and outs of family budgeting. And then, we do offer savings, the concept and value of savings. “‘Yun ‘yung isa sa mga aspeto na medyo may kagat dun sa mga member [That is one aspect that really catches the interest of members], and then we offer micro-insurance. The first entry of the members is not directly loans, it’s savings, it’s micro insurance, and then later on kapag na-develop na ‘yung kanilang livelihood projects, then we do offer the loans. Not all of the members when they joined the program may mga livelihood projects na. Some of them ay kaka-start pa lang, some of them wala pang need for loan, so mag-grow muna with the program [The first entry of the members is not directly loans, it’s savings, it’s micro-insurance, and then later on when they have developed their livelihood projects, we do offer loans. Not all of the members already have livelihood projects when they joined the program. Some of them do not have the need for loans yet, they first grow with the program],” he adds.

KPS-SEED saw this as an opportunity to change the mindset of its members. “Money is not the solution. It’s the attitude, it’s the mindset, it’s the skills. So, we do orientation, we do trainings and seminars,” says Jun.

Soon enough the seeds of hard work the organization has sown started to reap fruits. “Word of mouth na rin. Sila na ‘yung lumalapit kasi nakikita nila ‘yung usefulness talaga ng program. In micro-insurance, kapag may nangyari sa household, nakakatanggap talaga ng benefits [The information is now being passed by word of mouth. The people themselves now come to us because they see the usefulness of the program. In micro insurance, when something happens in the household, they receive support],” he says.

Sheila Madrijanon, a resident of Tupi, South Cotabato, first heard of KPS-SEED back when one of its branches was located in their town. “Noong una, nasa poblacion pa ‘yan ng Tupi, meron daw magandang microfinance na mababa lang ang interest, madali i-follow-up ‘yung mga loan, kaya may isang taga-dito sa amin na nagsabi, gusto mo bang mag-loan sa KPS? Maganda naman talaga ang serbisyo nila sa mga tao. ‘Yung kagandahan sa kanila ay hindi kasi siya na buo na kinukuha sa amin, bale weekly siya kinukuha. ‘Yung iba kasi buo kinukuha, kaya pine-prefer ng kapwa ko member na sa KPS na lang. [When they started a branch here in the center of Tupi, I was told that there is a microfinance that offers low interest. I was told it was easy to follow up loans with them, one of my neighbors then asked me if I would like to avail of their loan. They indeed offer good services. The good thing is that they allow us to pay little by little. Others require full payment, so my co-members and I prefer KPS],” she shares.

While entry to the organization’s microfinance program is through individual membership, they facilitate the formation of centers, a group of 10 to 25 members based in the same area. Sheila and nine others formed a center and became members of KPS-SEED. She has been a member for ten years now.

“Noong unang una kong loan 6,000 [pesos] lang ‘yun, pero nakapagbigay sa akin ng magandang buhay. Kasi noong una ‘yung tindahan ko, nagsimula ako sa parang kalakat lang. For almost three years, kalakat lang ‘yung tindahan ko. Tapos naglaki, naglaki ‘yung loan ko, nakayanan ko naman siyang bayaran. Tapos nagpagawa ulit ako [ng tindahan] na hollow blocks na siya, pero katabi lang siya [My first loan was only 6,000 pesos, but that gave me a better life. I started my store with bamboo panels only. Then I was able to access bigger loans, which I was able to repay. I rebuilt my store, and it was made of hollow blocks this time, but it was still in the same location],” she shares.

After five years, she decided to invest some of her earnings in a small piggery business. Sheila notes that the weekly amortization helped her pay off her loans, “‘Yung sa kanila kasi 250 pesos lang weekly, hindi siya mabigat sa bulsa, kaya na-rolling ko ‘yung perang na-lo-loan ko. Samantalang ‘yung iba, pag-loan mo,

bawas ‘yun sa loan. Kasi mag lo-loan ka, kailangan mo nga ‘yung kapital tapos babawasan pa. [With KPS, you only have to pay 250 pesos weekly, which was manageable, so I was able to grow my investments. Unlike with others, when you take out a loan, payment is already deducted from the amount given to you. You avail loans because you need the capital, and they will not even give you the full amount].”

From a small home store, Sheila’s sari-sari store now stands along the main highway. “Nung dun pa ako sa likod, bihira lang naman ang mga tao ‘dun. Kami-kami lang, hindi siya kagaya sa highway kasi kapag nasa highway, sari-saring tao ang naga-bili tapos mabilis talaga ang income kapag nasa highway. Kaya nakakaluwag kami.” [When it was still located at the back, there were only a few people there. It was just the neighbors. It’s not like now that we are along the highway, and many people pass by. Income is better now, that’s why we are better off now.]

KPS-SEED engages with their members and communicates with them through these centers for disbursement, collection, and information sharing on new programs and other updates. It also serves as a venue, through their weekly meetings, for members to share their ideas on their respective livelihood and entrepreneurial activities or discuss challenges within the community and how to address these.

Sheila has served as the leader of their center, continuously encouraging her co-members. “‘Yun lang naman ang sabi ko sa kanila. Kapag Wednesday pa lang, naka-prepare na kayo kasi malaking tulong ang KPS sa inyo. Imagine ang loan ninyo babayaran ninyo six months, hindi naman ‘yan masakit sa bulsa kasi 24 weeks tapos unti-unti. Hindi naman mabigat sa bulsa kung ginamit sa tamang proseso. Sabi ko, tingnan ninyo, nung nag-loan ako, nag-start ako 6,000 [pesos] lang. Tapos pinag-ipon-ipon ko lang, kahit kakaunting 10 pesos, pina-alkansiya ko pa. Sabi ko, kapag hindi ka magtipid, hindi ka marunong maghawak ng pera mo, talagang hindi ka aangat. ‘Yung isa pa ‘yung bumbay, marami talaga. May nagdaan dito, sabi niya, ‘te magkuha ka. Naku, ang interes niyo sa dalawang buwan ay 2,000 [pesos]. Sabi ko, dalawang sakong bigas na ‘yon. Tapos sabi niya, noong una, nagakuha ka man. Sabi ko, noong una, pero na-realize ko na ang laki pala ng kinukuha mo sa amin. Malaki ang interes. Isipin niyo na lang, sa dalawang buwan, 2,000 [pesos] ang interes niya. Kapag nag-loan sa KPS, ilan lang, six months niyo pa babayaran.” [That’s what I always tell them. Be prepared already come Wednesday because KPS is a big help for us. Imagine we can pay the loans though six months, that’s manageable because we can pay little by little for 24 weeks. I tell them, look at me, I started with a 6,000-peso loan only. I only saved up as little as 10 pesos, I even put it in a coin bank. You really have to save, if you don’t know how to handle your money, you won’t be able to achieve any positive change. Another thing are loan sharks, there were a lot of them. One will drop by here and ask me if I would like to get a loan, but I refuse. I say that the interest rates are extremely high, my 2,000 pesos can already buy two sacks of rice. I was told that I used to avail of the loans, so I say that it was before I realized we were taken advantage of. I tell my co-members, just think of these loan sharks, they get 2,000-peso interest in just two months. With KPS, it is a smaller small amount, and you can even pay up to six months.]

Many success stories have come out of the centers, such as one in a coastal community in Sarangani wherein they started with renting out only one fishing boat, then they were able to grow the business into a community-managed association.

“‘Yung sentro mismo also are so organized that they can now address the problems of their own communities. For example, patubig. Another center in Kiamba [Sarangani] I think, may problema talaga sila sa water. Walang source, marumi ‘yung source, so the center itself nag-save sila, then they put up their own for the community. [The centers themselves are so organized that they are able to address the problems of their own communities. For example, irrigation. Another center in Kiamba, Sarangani encountered problems because their water source was unclean. The center itself saved up and put up their own for the community.] That’s what they do,” adds Jun.

KPS-SEED’s various microfinance programs are being implemented across all centers. Availment only varies depending on the needs of their members and their capacity.

Building back better post-pandemic

KPS-SEED is now operating in three regions – Soccsksargen, Davao, and Cebu, with 17 offices and close to 12,000 active members.

They were introduced to the Foundation for a Sustainable Society, Inc. (FSSI), through one of the foundation’s member organizations, the Partnership of Philippine Support Service Agencies (PHILSSA). PHILSSA is a national network of social development organizations working primarily on urban issues and concerns. The KPS Foundation is an organizing member of PHILSSA.

“The first project with FSSI was crucial sa expansion namin with the Davao region. [The first project with FSSI was crucial in our expansion with the Davao region.] It was the time in 2014 that we’ve decided to expand our microfinance operation in Greater Davao. It was a big help for us. We were poised to open two areas that’s around six to eight branches in Davao. FSSI was among the partners na kasama namin in the expansion phase in 2014 [FSSI was among the partners that were with us in the expansion phase in 2014],” Jerome recalls.

“We’re thankful that since 2014, nandito na ‘yung FSSI talagang partner namin. Malayo-layo na rin ‘yung ating narating, malaki-laki na rin ‘yung disbursement namin with the funds coming in from FSSI, and thousands of households already benefited from that particular partnership. [We are thankful because FSSI has been our partner since 2014. We have come a long way, we have already disbursed large amounts from the funds coming in from FSSI, and thousands of households have already benefited from that particular partnership],” Jun says.

FSSI’s triple bottom line (3BL) approach also serves as guide for KPS-SEED on how to develop and improve as an organization, aligning their endeavors towards a common vision.

In 2020, during the pandemic, KPS-SEED’s four branches ceased operations for almost three months and the livelihood of their members have been severely affected, with more than 30% of their portfolio being unable to meet their financial obligations and were in need of refinancing.

“Immediately we took upon ourselves to call the help of FSSI, and they responded promptly,” Jerome shares. FSSI currently supports KPS-SEED’s micro-restart program, their pandemic response program which aims to assist member-borrowers who are severely affected by the COVID-19 pandemic to recover economically through financing for new business opportunities and refinancing of pandemic halted business projects. “We were dealing with thousands of borrowers. Marami-rami rin ‘yung kailangan talaga i-refinance, so we had to pinpoint sino talaga ‘yung may need [A lot of members were in need for refinancing, so we really have to pinpoint who needs it the most],” Jun says.

The original design of their micro-restart program had a timeline of three years, ending in 2023. The organization has slowly gained ground. From the 3,300 members who have availed of the program, 30% has already been reintegrated back to their regular programs. They also adjusted the members’ weekly amortizations based on their capacity to pay, for them to recover. Jerome considers this as one of the best practices that the branches implemented.

They are continuously looking into how the members are recovering from the pandemic. “Operations-wise, it’s crucial to know the scenario down the ground. That’s the first thing that you need. When the pandemic broke out, the first thing that we did was to come up with a report on the status of the members. Ilan ‘yung hindi na nakabayad, ilan ‘yung affected, ano ‘yung feedback nila [How many failed to meet their financial obligations, how many were affected, how are they doing.] I think that gave us a framework on how we are going to address the needs of the members,” Jun says.

This set up is embedded in how the organization operates. Their management adopts a bottom-up approach and decides on matters, particularly improvements to their programs, by consulting their membership. In fact, members are represented in the KPS-SEED Board.

As a result of the experiences during pandemic, they have also observed that members have been conscious on being able to build savings. Their savings generation from members increased by 20%.

However, challenges remain, as some of their members are still paying less that the required weekly amortizations. Many of the vendors both in General Santos and Cebu who relied on busy industrial areas for their livelihood have returned to their provinces during the pandemic, and others have decided not to come back. Locating them has been a challenge.

The financial literacy program of KPS-SEED was also recalibrated during the pandemic. They used to conduct it through face-to-face orientations. Instead, they integrated the program in the loan application, and it became more of a one-on-one training. Jun also sees that development in microfinance is going towards technology-based financial interventions. KPS-SEED is now eyeing to roll out their financial literacy program in the format of a digital application. Their monitoring system also utilizes an open-source digital data collection and management toolkit.

Another realization of the organization during the pandemic was the importance of food security. KPS-SEED thought of how it can make a difference in that particular aspect. For them, it was a process of learning new and better ways to produce food on the table. KPS-SEED partnered with other organizations and experts for technical assistance on free-range chicken farming. They have started this venture for more than a year, with the goal to marry the project with microfinance.

Currently, 98% of their clients are women, although they view their loans as household loans as benefitting the entire family, they understand that men should also have an active role in the household. They are introducing the free-range chicken farming enterprise basically to encourage men to venture into, as an additional income generating project for their household.

“It’s technology financing. We have the technology on free-range chicken, we know how to do it, we can teach you and we can fund you,” says Jun.

This is also a way for the organization to diversify into other sustainable projects that will balance the reach of their microfinance operations, another important learning during the pandemic.

They are slowly integrating the free-range chicken farming in their microfinance operations. An initial integration is the consignment of organic eggs to members at a cheaper price. This is an additional opportunity for their members to earn because they are given up to two weeks to pay for the product.

Sheila’s sari-sari store is currently one of the egg dropping stations of KPS-SEED.

20 Years and Beyond

Jerome says that microfinance and KPS-SEED has given him a perspective different from his previous experiences in banks and other commercial institutions in the mainstream financial industry, because it was aligned to his principles. To him, their biggest accomplishment is seeing how concretely their programs have helped their members. “‘Yung fulfillment in addressing the poverty situation talaga sa baba [The fulfillment from addressing the poverty situation on the ground.] We have a firsthand knowledge of how a typical Filipino is living sa ground. In some way, you are providing them windows na makakatulong sa kanilang hanapbuhay, [alleviate] poverty, and you can see ‘yung anak ng mga miyembro na nag-graduate na ng college. ‘Yung mga success stories sa ground. I think that’s what’s keeping us here [In some way, you are providing them windows of opportunities to improve their livelihood, alleviate poverty, you can see the members’ children being able to graduate from college. The success stories on the ground. I think that’s what’s keeping us here],” he says.

On a personal level, Jun says of his work in the organization, “Siguro sa akin, nakikita ng mga anak ko ngayon, at their age, na ganito ‘yung trabaho ko, and I can see them proud of their dad. [For me, it is my children seeing me now, at their age, working with an organization like KPS-SEED, and I can see that they are proud of their dad.] I think that’s something to be proud of.”

He aims for KPS-SEED to double its 17 branches in the next five years and reach more people in need of its services. More than quantity, however, he wishes for the organization’s impact to be meaningful. “Mahirap kasi, if you have one million members and shallow naman ‘yung impact mo sa kanila. Then you have ten thousand members pero deep ‘yung impact mo sa kanila. That makes the difference. [It’s difficult if you have one million members but the impact on their lives is shallow. But then you can have ten thousand members and can have a deeper impact. That makes the difference].”

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