November 21, 2000

Monday, Nov. 6: Orientation to empower and strengthen

After breakfast Lois Kitsch picked us up. Following a real-world Mr. Toad's Wild Ride through Davao City, we arrived at the office of CUES Philippines. CUES stands for CU Empowerment and Strengthening. WOCCU's Philippine project's goal is to empower and strengthen existing credit co-ops that agree to participate through education and training.

Lois and her staff work closely with the participating co-ops, teaching them about credit union management issues, providing advice and direction, but never giving orders. Doing the work for the co-ops won't create sustainability. However, teaching staff and volunteers how to plan and execute strategies for achieving specific goals will. The more successful co- ops pay the most attention.

WOCCU's project is funded by U.S. Agency for International Development (USAID). WOCCU works in cooperation with Freedom from Hunger. Training includes not only financial management, but health and other life issues. CUES Philippines trains through two programs.

  • Model CU Building, which addresses credit union institutional strengthening, savings mobilization and marketing focus, credit administration, safety and soundness, training, and short-term technical assistance.

  • Savings and Credit With Education (SCWE), an integrated financial and educational service delivery system: poverty lending targeting very poor, rural women; nonformal education on high-impact topics; and formation of savings and credit "associations" (small savings/lending circles of women).

At the office, we met the CUES staff and four CUES co-op representatives. We spent the day learning the project: what the components are; how changes are accepted and made; who does what (CUES staff vs. co-op staff); the impact on co-ops implementing WOCCU's Model CU Building; ratios and other goals; and branding.

Model CU building

Two co-op representatives explained how co-ops traditionally are run vs. run with WOCCU's Model CU Building. For example, traditionally, membership of credit co-ops has been homogeneous, closed groups primarily comprised of poor borrowers. In the Model CU, membership is diverse, in background and wealth. The result of the traditional approach to membership has been limited growth, chronic liquidity shortage and risk concentration. The result of switching to the Model CU is a balanced financial intermediary and institutional stability for savers and borrowers.

Other areas compared and contrasted included principal services; standards and policies; public image; source of funds; savings deposits; shares; and loans, which covered rates, credit worthiness, and loan size.

We learned that the four pillars of the Model CU are Ideology (vision, democracy, service and social); Financial Management (protection, structure, quality assets and rate of return); Products and Services (loans, savings, scoring and other services); and Operations (policies, procedures, systems and structures). All are modeled after international credit union principles and standards. CUES Philippines provides the materials--information and technology--necessary to build the four pillars.

A Model CU has adequate institutional capital; offers competitive market pricing; follows good business sense in operations; is a savings institution; doesn't depend on subsidized international and government loans; and is for everyone.

For CUES co-ops, these are revolutionary ideas. It took the first group of co-ops (called Batch 1) 15 months to understand, accept, and begin to implement the changes. The second group (Batch 2) implemented changes much faster for two reasons: 1) Lois and her staff didn't conduct the new round of training. People from Batch 1 did--peer to peer. 2) Batch 1 co-ops have had stunning successes. For example, the average delinquency of Batch 1 co-ops in December 1998 was a staggering 63.52%. But by the end of September 2000, it was less than 17%, and the goal for year- end is 9%.

Safety and soundness models

Co-ops also use WOCCU's PEARLS safety and soundness models. Similar to the U.S. CAMEL system, PEARLS uses ratios to monitor Protection; Effective financial structure; Asset quality; Rates of return and costs; Liquidity; and Signs of growth.

Twelve key PEARLS ratios are grouped under three headings: Financial Disciplines, Quality Services, and Operational Efficiency. Under Financial Disciplines, the key ratios are delinquency, provision for loan loss (less than 12 months and greater than 12 months), external credit, institutional capital, liquidity, and non-earning assets. Quality Services ratios are loan portfolio, savings deposits, total asset growth and membership growth. Operational Efficiency key ratios are financial costs and operating expenses. For more information on the PEARLS system, visit World Council's home page at woccu.org.

Lois and her staff began by training a group of Batch 1 co-op representatives through a process called CU-TE (CU Training and Empowerment). CU-TE graduates spread the word to fellow Batch 1 staff and volunteers, and then to Batch 2 and Batch 3 representatives. With co-op representatives training others, Lois and her team then act as mentors. Once a co-op reaches a pre-determined level, a new plan is introduced: Savings and Credit With Education (SCWE--pronounced squee).

Through SCWE, a co-op's field representative works with a group of four or five low-income (monthly income of less than $60), rural women. The field reps train the women in a Solidarity Group, on a variety of financial and health issues. The women form a lending circle, pooling savings and lending to one another, with the group responsible for repaying the loan if a member defaults. Once five Solidarity Groups are running, they unite to form one Savings & Credit Association (SCA). First loans are only 1,000 pesos (about $20), but upon successful repayment, subsequent loans will increase by 50% up to a maximum of 9,000 pesos ($180). At that point, the women--who have been associate or nonvoting members of the co-op--become eligible for full membership and access to larger loans.

SCWE takes financial services out to the provinces. According to WOCCU, by the end of this year, 20,000 women with an average monthly salary of US$100, organized in groups of 25 that reach 100,000 people, will benefit from access to financial services. They have zero-percent delinquency. Credit co-ops can have as many SCAs as staff resources can support. Ongoing training is involved, usually in the Philippine dialect, and always by women.

Branding

The key to the success of the U.S. branding program, America's Credit Unions, is that it be adopted by all credit unions. But in the CUES Philippines project, branding isn't automatic for all participating credit co-ops; instead, it's a designation. Here, the brand certifies that minimum standards of safety and security, professionalism, service, and so on, have been achieved. When the CUES project began, no co-ops met those minimum standards. Today, three of the 12 Batch 1 co-ops have reached brand-level status. They are NICO CU in Nabunturan, USPD CU in Digos, and Silangan CU in Davao City.

In the Philippines, the brand is called FOCCUS (Financial Organizations Achieving Certified CU Standards). It has three levels: silver (FOCCUS CU), gold (Quality CU) and platinum (Model CU). The three credit unions that have brand status are at the silver level, although several have business plans that will jump them into platinum in 2001.

Once a credit union reaches branding status, CUES steps in to upgrade facilities and signage. It replaces cement floors with tile. It adds or upgrades teller windows and other furniture. It paints buildings, both inside and out, in FOCCUS colors. And it installs signage with FOCCUS graphic standards.

A new ad campaign about FOCCUS credit co-ops has begun running in Davao City, so the population is becoming aware of the brand. That adds an incentive for participating credit unions to reach FOCCUS status. Also, the banks are beginning to take notice.

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