Banks are only for the Rich

banksFor the last half of 2012, I was desperate to find a decent bank willing to lend me money to finish my house at an interest rate that I can afford.  My wife, another Certified Public Accountant in the house besides myself, went through an options analysis including the Home Development Mutual Fund (HDMF) and a few commercial banks that promise interest holidays, or low interest rates, or fast processing and so on and so forth.  She found out that when one borrows from HDMF at an amount beyond Php750,000, the interest rates converge with that of commercial banks so we decided to apply a housing loan from both PS Bank and Bank of Commerce. 

 

The experience was not that pleasant.  Both banks were slow at responding to request for information and failed several times to get back to us as to the status of our applications.  PS Bank, for example, treats us as miserable clients, not worthy to be lent some money despite our positive and highly liquid cash position, because our access road is not yet developed though it exists.  In an age of cash-flow lending, its lending system is stuck to collateral issues that despite our explanation, our application got disapproved twice.  They told us we need to pave our access road so that our loan will be approved.  That time they did this assessment, our house was already 60% complete.

 

Bank of Commerce, on the other hand, eventually lent us the money, but not without making us feel miserable as well.  They said that after application, we will be able to get the approval we need and the first release in a month’s time.  After two months and after exhausting our savings, nothing happened.  All promises and a string of requirements; not until I burst in anger towards the close of 2012 did we get a positive response.  Both my wife and I felt that the bank employees enjoyed our powerlessness; they enjoyed hearing our pleas for consideration.It made us realize that banks exist not for financially insignificant people like my wife and me.  But we continued pleading to almost the point of losing our sense of dignity.  Had we the choice, we would not go through the same experience again. 

 

Banks, or financial access to banks, are just for the rich. I should say. Or with our case, the persistent poor who got angry towards the end.

 

In Abhijit Banerjee’s and Esther Duflo’s book, PoorEconomics, they posited the argument that “credit constraints are likely to be much tighter for very poor borrowers than for somewhat richer ones”.  However, they also presented cases, where capable, educated people, with strong business models were never trusted by banks.  They also presented cases that those that lent to the poor are not your banks – these are micro-finance institutions like Yunus’ Grameen in Bangladesh, Padmaja’s Spandana in India, or TSKI in the Philippines.  Banks are not for the poor.  When the world’s largest micro-finance institutions start to behave like banks, they might also start to lose the advocacies that in the first place, gave birth to their existence. Microfinance institutions then, are the options for the poor, as these institutions offer lesser interest rates than usurious money lenders, but less stringent in terms of requirements as compared to banks. 

 

But where will those in the middle range of the income spectrum, like me, go?  Surely, banks find us less bankable and more risky.  Microfinance institutions will also find us ineligible.There are limited options for us, as there are limited options for the poor.  In one study we conducted at the end of December 2012 in 11 agricultural barangays in Batuan, Duero, Guindulman, Pilar, and Sierra Bullones, we found out that the poor could not access banks, not even microfinance institutions as indicated in the graph below:

access to finance

 

When I talked with a friend who teaches at a local university here in Tagbilaran as to her sources of credit, she mirrored the results of the community study as depicted in the graph above.  Banks have not granted her loan.  If she needs immediate cash, she goes to her friends and family.  For bigger requirements, she borrows from the employee’s cooperative to which she is a member.  But at one time in her life, she wanted to put up a business venture but failed to do so because no single bank would finance her business and she was rated “not credit worthy”.

 

Banerjee and Duflo’s book, while not necessarily referring to the middle income group said that these borrowers “run the risk of being too large for the traditional moneylenders and microfinance agencies but too small for the banks”. Funding this set of people with financing needs will remain a challenge.

 

So you’re planning to go to the bank for your financing needs? Think again.

This post is written by Michael P. Cañares.  This is also available at http://www.boholanalysis.com.

 

A City Left to Rot

Travelling within Tagbilaran City is such a trouble and a great discomfort that I would rather stay at home than go somewhere else.  If I have a choice, I wouldn’t go to the city centre where the banks are located or report to my office at Step Up Consulting Services.  It would seem that as I drive, I can hear the shriek and the cry of the poor car coupled sometimes with my son’s loud “ouch” when I hit a pothole large enough to have his head banged against the windows.

Every person who lives in Tagbilaran City will understand when I say that Tagbilaran nowadays seems like a city left to rot.  I highlight three reasons below why I say so.

bad roadsPOINT 1Tagbilaran roads are outrageously bad, the streets within the city center are dirty caused by mud on rainy days or by dust when the sun is out.  If you live somewhere in Janssen Heights and would like to go to the St. Joseph Cathedral, you can never have a smooth ride except when you travel through the Dampas-Mansasa Road down to VP Inting St. and back to CPG East Avenue’s occasional potholes.

In the city government website in February 2010, an article appeared that was entitled “Mission Accomplished” . I quote the news item below:

“When Mayor Dan Neri Lim assumed office last 2004, only 15% of the roads in Tagbilaran City were in good working condition. Majority of the city roads were rocky and dilapidated.
According to City Engineer Pianicita Castolo, the city roads have been untouched for almost thirty years.
Thus the improvement and rehabilitation of these city roads started as soon as Mayor Dan Lim took office. Almost 68 million pesos were spent for the improvement, rehabilitation and maintenance of these city roads which started last 2004.”
Reading this article from history sounds like a joke, especially when you read it alongside a Bohol Chronicle article in April 2012 calling for the implementation of road projects.  According to the article, the city government appropriated Php282 million for road projects in the 2012 budget.  But you get to wonder where this money is spent. The only improvement I can see in the last week is the filling-up of potholes along B. Inting and G. Visarra Street with low-grade anapog that will get the streets muddy during heavy rains.
POINT 2Water is still a big problem. At our place in Dampas, water pressure is low at different parts of the day and there is intermittent service interruption. In other parts of the city, water service is not available as both Bohol Water Utilities Inc. and the City Rural Waterworks System are unable to increase service coverage.
In December 2011, Bohol Chronicle reports that:
“The Tagbilaran City Waterworks System is faced with limitations causing the deteriorating water service to its water subscribers in the city
Newly installed waterworks chief Engr. Servando Acedo admitted the increasing complaints on the water service is due to the limited pumping units amid financial constraints in putting up new water sources.
Acedo, who previously was assigned at the City Engineering’s Office, now heads the waterworks vice Engr. Wellington Pilongo who is reportedly on a “forced leave.”
Acedo said that as of now, the city waterworks has 19 pumping units with two out of service. However, he said that even if the 19 units will function, it is still no enough to satisfy the water consumers in the city.”
The 2010-2013 Executive Legislative Agenda admits this growing problem in the city and targets a 24/7 adequate supply of potable water in city households.  Its almost the end of term of our city government leaders and this target seems to be nothing but a wild dream.
dumpsitePoint 3.  Tagbilaran’s solid waste are still thrown in Dampas’ open dumpsite. Everytime the garbage truck passes through our house for the regular waste collection, I become intensely worried, as I know where the waste will go.  Back in 2008, UN Habitat reports that “The city generates about 92.6 tons (92,668 kgs.) of solid waste daily. Households are the biggest waste generators with 38.5 tons (41.46% of the total volume of waste). They are followed by general merchandise stores with 15.5 tons and the public markets with 14.6 tons per day.”  The figures are probably double now, as the projection for population is over 3% every year from 2008, besides the fact that tourism figures and business establishments have increased significantly since the 2008 study.
Back in October 2011, Bohol Chronicle reports that “The 2.6 has. garbage facility has been recommended closed due to large areas of exposed waste that could leak leachate into ground water and drainage systems aggravating the present health situation of surrounding communities.” This, amidst complaints from nearby towns like that of Barangay La Libertad, Baclayon whose residents complained after the nearest accessible road leading to the city was blocked by mountains of garbage reportedly strewn across the roads.”
What then is the future of Tagbilaran City?

It is alarming that these three problems, bad roads, water supply, and solid waste can very well kill the economic advantage that Tagbilaran holds as an entry point to Bohol’s tourism destinations.  But then, no one seems to be hearing. Despite how much has been written in Bohol newspapers, how loud the discussion gets in the radio, not one among our leaders has taken action.

This post is written by Michael P. Cañares.  This is also available at http://www.boholanalysis.com.

(photos taken from http://i.ytimg.com/vi/e_M_QEPkdrM/0.jpg and http://sin.stb.s-msn.com/i/26/68887DF64629626E59864479208.jpg)