December 1, 2000

On-the-road from the Philippines

Friday, Nov. 17: A project leader's view of the Philippines

For my last report on the CUES (CU Empowerment and Strengthening) project in the Philippines, I asked Lois Kitsch, the World Council of CUs Inc.'s (WOCCU's) project director there, to answer a few questions.

Lois Kitsch: The goals were to create safe and strong savings and credit cooperatives (at least 10 institutions), and achieve strict prudential standards and financial disciplines in those co-ops. We were to grow the membership by thousands and more than double their assets. It sounds easier to do than it has been. The cooperatives have 30 years of history that had to be carefully addressed, recognizing past achievements while simultaneously introducing changes...a big task.

LK: All I had was a plan of action. No one was here to meet me. I was on my own in a country 12,000 miles from home. This forced me to learn—quickly—and adapt to change. I learned a lot about working with a different culture. I am a better person as a result—certainly stronger than I thought.

LK: The cooperative movement here was started more than 30 years ago by Catholic priests; it has had a strong social orientation. While social values are important, they often are used as an excuse for poor business management. Also, there's virtually no regulation. Credit cooperatives can be started with as little as $35 and 15 members. This results in a large percentage of cooperative failure. Lack of prudential standards resulted in high delinquency, low capital accumulation, little or no savings mobilization, and high external dependency. All this, plus the social orientation, contributed to high cooperative failure.

LK: We started with 12 partner co-ops, and developing trust of the partner cooperative leadership took time. The project was a paradigm shift for them—we initially spent most of our training time with the cooperative managers. However, while the managers became very knowledgeable on new topics, often the new information did not reach board, committees, and management staff. This brings about resistance to change. So we took a more holistic approach: Everyone in the cooperatives—from the guard at the front door to the board chairman—is trained in the benefits and responsibilities of a Model CU.

The cooperatives believed members' requests should always be honored. They did not fully understand how honoring many requests affect the cooperative and the membership as a whole. Over time, they realized their responsibilities and focused on improving the cooperatives for all the membership instead of the individual. Now our cooperatives are business institutions. This approach provides the necessary resources to provide high quality service to their members.

Once the partner cooperatives understood and changed their operations, they faced many challenges including: consolidated delinquency of 77% (today it's 16%); little or no focus on savings; low institutional reserves; high non-earning assets; no provisions for loan losses; loan rationing due to lack of liquidity; slow growth in all areas; and poor public image in their respective communities.

LK: A systematic approach to change worked. An idea was introduced. If the cooperative leadership rejected it, we made a simple, short explanation and went on to other topics. At the next meeting, we introduced the subject again with a longer explanation, then moved on. Over time, the leadership came to agree with the new ideas. Change takes time and consistency—the same message every time by every member of staff.

LK: CUES Philippines has 16 staff members, including three senior management people (financial, marketing and credit analysts), three junior management people, two Savings and Credit With Education (SCWE) specialists, five admin staff, one driver, a cleaning person, and me. The team is committed to this project's success and is willing to work nonstop. The office's atmosphere ranges from laughter and fun to high tension, depending on the work at hand.

A typical workday begins about 6:30 a.m. when I leave home. On a good day I head back home between 7 p.m. and 8 p.m. We work six days a week, sometimes seven—more than we should, but there is so much to do.

LK: The leadership of our partner cooperatives is committed and willing to devote hours in transforming their cooperatives and training other groups. They believe their cooperatives are the vehicle to change the country—and they live and breathe the work. Many partners now have cooperatives that would measure up to many U.S. credit unions. This makes them proud.

LK: The first is lowering the delinquency from 77% to a consolidated 16%. Four credit unions have delinquency at 5% or less. Many partners lowered their delinquency by as much as 60%, with a dramatic impact on the cooperatives. They have doubled and even tripled their income, have improved their image in the community, and offer more innovative products and services. Savings increased by about 30% (one cooperative increased its savings by over 1200%). These new savings eliminated the need for external credit.

Second, the SCWE program now serves more than 18,000 women from very poor Filipino families. Eleven cooperatives offer this package of financial and educational services delivered to places where there are no banks or cooperatives. About 150 million pesos in loans have been delivered to these micro businesswomen. They use their loans to expand their small businesses, adding income to the family while empowering them to take a more active community role. And the program has a 100% repayment rate.

And finally, I'm proud of our CU Trainers for Empowerment (CU-TE). These trainers are spreading the message of Model CU Building throughout the Philippines. They've done 50 training sessions, impacting thousands of persons. While we recognize we have no way to monitor the progress of the groups we train, we know the CU-TEs are presenting new ideas to better run cooperatives.

LK: Yes. Our trainers will help participants more readily accept new regulations and prudential standards pushed by federations and friends in Congress; we help them prepare for what is to come for Philippine Savings and Credit Cooperatives.

LK: We recently received a two-year extension from the U.S. Agency for International Development, meaning our work will continue through 2002.

Then, we'll need to find funding, which I'm confident we'll do. If we do not, the CU-TE Foundation will continue monitoring the cooperative brand we've introduced. CU-TEs will continue training others and running their cooperatives, using the prudential standards we introduced.

LK: I have learned many things about myself and about running a credit union: I'm not as patient as I thought—change takes time and sometimes I want to push harder than is appropriate. And there is no room for shyness in this work. To succeed, you cannot be afraid to push for change and advocate it to movement leaders. There are many ways to get the task done—not only the American way.

I would do a better job running a credit union today than five years ago. I have a much clearer understanding of managing an institution, using ratios and would adopt the PEARLS system (WOCCU's rating system, similar to CAMEL). I would push for social programs while recognizing that American credit unions protect the assets of their members—the most social thing credit unions can do. Sometimes American credit unions feel they have lost their social objective. However, after living in an environment where the very savings of members are at risk in thousands of credit unions, I now recognize America as very socially conscious. After all, our primary mission is to provide quality financial services while protecting the membership's assets. No one does it better than U.S. credit unions. Others may do it as well, but not better.

LK: I'd like the entire movement here strengthened—a lofty goal, but the CU-TEs and the program office team believe it can happen. I will push for the country to stop forming new credit cooperatives until prudential standards and financial disciplines are in place. I'd like to formally close those credit unions that have died, take them off the roster of cooperatives, and merge several small ones to make more viable, sustainable institutions.

I'd also like laws passed to regulate cooperatives and a supervisory agency formed to carry this out. Then we can form a deposit guaranty fund and central financial facilities. This could also result in a strong corporate system such as that in the U.S. This is 10 years of work costing millions of dollars; however, with constant pushing it can be done. I hope I'm here to see it.