Thursday, June 20, 2024

Borrowers in SE Asia log lower positive impact versus regional peers

Across all household outcome indicators, microfinance loan customers in the Southeast Asian region are seeing lower improvements in quality of life compared to clients hailing from other regions, mirrored in lower business outcomes with only 3% of respondents reporting an increase in workforce size.

This is according to the Microfinance Index report published by 60 Decibels, which also revealed that 34% of the overall respondents said that their quality of life ‘very much improved’ while 54% are saying that microfinancing only ‘slightly improved’ their personal outcomes.

At home, a localized version of this research revealed that 81% of the surveyed borrowers from fintech firm Tala saw an improvement in their quality of life from the firm’s services, with 55% sharing that they achieved improved access to finance, 31% being able to better afford household expenses, and 17% are prepared for emergency expenses.

From 1997 to 2017, Microfinance Barometer revealed that the total number of microfinance institutions (MFIs) worldwide has increased from 7,000 to 12,000, with growth mainly attributed to the increasing demand for financial services among low-income individuals and small businesses that are underserved by traditional financial institutions.

In terms of the industry’s environment and other factors beyond customer demand, advancements in technology such as mobile banking and digital payments systems, as well as supportive regulatory frameworks that encourage the establishment of microfinance institutions, have contributed to the growth of the microfinance industry by enhancing service delivery to remote and underserved areas.

The concept of microfinance emerged in the ’80s as a result of economist Muhammad Yunus’ provision of small loans to impoverished women in Bangladesh, an effort that eventually led to the establishment of Grameen Bank in 1983, which is widely regarded as the world’s first MFI.

During the 2010s, the microfinance industry experienced growth and development, but also encountered obstacles since it faced scrutiny for its high-interest rates and perceived failure to sufficiently serve the needs of the low-income and underserved population.

This led to numerous MFIs pivoting towards more client-focused approaches and integrating social impact considerations into their business models.

“We’re happy to see that our services have granted our customers confidence where they didn’t before, gave them the ability to better withstand emergencies, and provided them the avenue to pursue their dreams. Tala has definitely made a big impact in the Philippines,” said Missy Santos, marketing manager of Tala.

Although Tala entered the Philippines in 2014, its roots can be traced back to 2011 when Shivani Siroya founded the fintech firm which is headquartered in Santa Monica, California.

The company boasts a proprietary credit scoring system that utilizes alternative data such as mobile phone usage, texts, and other behavioral data to assess the creditworthiness of borrowers who lack traditional credit histories.

Across five countries where it has a presence in (Kenya, Tanzania, the Philippines, Mexico, and India, Tala has provided more than $2 billion in loans to over 6 million customers, guided by the mission to support customers in achieving positive financial health through access to credit. In fact, 45% of the respondents saw an increase in their savings while 69% were able to reduce their financial stress.

“Tala continues to provide a unique microloan service to the underserved market in the Philippines. Many of our kababayans challenges include paying off their bills, having the confidence to avail a loan, and being able to have financial independence,” added Donald Evangelista, general manager of Tala Philippines.

The 60 Decibels report also showed that through enhanced financial access, 70% of female borrowers cite an increase in their influence on household decision-making.

This is supported by a study conducted by the Consultative Group to Assist the Poor (CGAP) where microfinance programs that focused on women had a positive impact on their social status and empowerment.

“The Philippines is a key market for Tala as it provides opportunities for growth. All the figures and statistics we’ve shown today showcase the love, dedication, and care we have for our Filipino customers which, in turn, is returned by them in full. We strive to continue to be a trustworthy, transparent, and life-changing service to all Filipinos,” concluded Kunal Kaul, chief risk and strategy officer of Tala.

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