Overcoming challenges to serve a growing roster of grateful clients

A house can provide shelter from the elements, but it is not enough to shield people from life’s harsh realities.

This lesson was learned the hard way by Katotohanan, Pagkakaisa at Serbisyo-Small Enterprise and Economic Development Microfinance Inc. (KPS-SEED Microfinance, Inc. or KPS-SEED). Nevertheless it managed to turn its fortunes around to be of greater service to disadvantaged communities.

In 1986, right after the EDSA Revolution — the peaceful people’s uprising that toppled the dictatorship of Ferdinand E. Marcos — KPS Association, the precursor of KPS-SEED, organized some 300 poor families who were victims of forcible eviction in General Santos City in South Cotabato. Some had been living in government-designated danger zones, others in lands meant for commercial development, while others were victims of landgrabbing.

In 1992, KPS helped them acquire house-and-lots through a socialized housing assistance program under the then newly-minted Urban Housing and Development Act.

That would have been the end of it. But KPS saw that when the families faced a major financial crisis, their first fallback was to sell their hard-won property, thus defeating the purpose of tenurial security. The families needed not only a house but financial security as well.

Thus in 1997, KPS initiated a savings and loan program. The initial fund of PhP500,000 came from the Philippine Action for Community-led Shelter Initiatives, Inc. (PACSII) through the initiative of the late Fr. Norberto Carcellar.

The KPS management studied several savings and loan models for providing beneficiaries additional capital for their business enterprises as well as access to financial services in times of crisis.

They looked at the model used in Payatas, Quezon City, Metro Manila. In this model, resources were pooled then used to loan out to community members. However, they noted management and bookkeeping flaws in the Payatas system.

They then turned to the Grameen microfinance model of Bangladesh that had been successfully implemented abroad. To ensure repayment, this model used peer pressure and shared responsibility among small groups of borrowers.

Convinced that the Grameen model would work in their case, KPS-SEED was formally established in 2003. The microfinance pilot program ran for a year and began with five mothers, with support from the Peace and Equity Foundation (PEF), Notre Dame Resource Center, and the Mahintana Foundation.

Almost immediately, the unit was beset with problems in payment collection mainly due to poor credit investigation. Facing a low borrower repayment rate, it had problems paying back its own loans.

KPS-SEED then asked for help from CORDAID, with PEF serving as guarantor. While CORDAID assistance was being worked out, PEF provided funding support of PhP2-million. Eventually, in 2005 CORDAID released PhP5 million to KPS-SEED.

Still, collection and management issues continued to seriously plague KPS-SEED. Soured loans at one point accounted for as much as 80 percent of its portfolio.

To prevent more bleeding, KPS-SEED made the difficult decision in 2008 to suspend operations, address its shortcomings and assess its strategy. Drastic measures were made. People were let go to make the organization leaner, branches were merged, recording practices revised, and the Grameen model abandoned in favor of a system that made individual borrowers responsible for their own loans.

“We shifted from the Grameen model to a more market-oriented approach because we realized that the Grameen design was not a viable fit with our partner communities’ way of doing things. Members in good standing refused to be burdened by those that were delinquent in their payments,” explains Rodrigo Olarte Jr., current KPS-SEED Executive Director.

These measures succeeded in bringing KPS-SEED back from the brink of bankruptcy.

The revitalized KPS-SEED has since expanded to 17 branches, reaching as far as Cebu City in the Visayas. It has 170 employees and has serviced some 45,000 regular clients over the years, 18,000 of whom are regular borrowers, while the rest are occasional borrowers or savers.

It has today over a PhP100-million loan portfolio that has supported social enterprises and bankrolled the growth and expansion of its clients’ enterprises. It now also offers microinsurance, which helps cushion its clients from unplanned events or calamities.

Today, KPS-SEED handles several credit lines from partners such as CORDAID, BPI Banko, PCFC, LandBank, SeedFinance, and PEF which never left its side.

Under the Strengthening Off-grid Lighting with Appropriate Renewable Energy Solutions (SOLARES) Project, an electrification and livelihood project by Mahintana Foundation and PEF, with funding assistance from the European Union, KPS-SEED was able to get PhP3-million and PhP10-million loan assistance from PEF in 2019 and 2020, respectively, for its microfinance activities and capacity development interventions to strengthen financial management, compliance reporting, and governance.

In turning its fortunes around, the organization finds fulfillment in seeing its income assured, but even much more, in knowing it is now in a stronger position to change people’s lives for the better.

Noemi Faeldin, 54, a member for over 18 years of the Banwalan Sta. Cruz Small Fishers Association (BANCRUZFA), was able to build her own house and put a child through college while running a small eatery funded through loans from KPS-SEED.

Thelma Millana, 64, a member of BANCRUZFA for 18 years, now has a fishtrading business, a junk shop, and a store.

Arsenia Gonzales, 64, a member of BANCRUZFA for 18 years, also runs a successful fishtrading business, thanks to KPS-SEED loans.

Elizabeth Teofilo, 54, a member of BANCRUZFA for 11 years, runs a flourishing vegetable stand. KPS-SEED loans not only enabled her to put up and expand her business, but she said it also helped fund her daughter’s wedding.

Jose Pagalan, 60, a member of the KPS-SEED Board of Trustees, and chairman of BANCRUZFA, now owns a boat and operates a store, an eatery, and a boarding house, again through loans from KPS-SEED.

KPS-SEED was not spared the adverse effects of the COVID-19 pandemic that hit the Philippines in 2020. The strict government lockdowns forced its operations to a halt. Fortunately, the organization’s strong fiscal position enabled it to hurdle the worst of the crisis and even managed to assist members in the form of rice and basic food assistance.

KPS-SEED has come a long way from its beginnings in 1986. It learned from its mistakes and built on its successes, which have allowed it to continue serving those with less in life. It accomplished this with the help of its members and steadfast partners such as PEF, who are one with KPS-SEED’s mission to free the poor from the bonds of poverty.