Monday, January 24, 2011

Business operations in an EOC enterprise: The Bangko Kabayan experience

The first time we heard the message of Chiara when she launched the EOC in 1991, the point that stood out most was the call to live the culture of giving – to go beyond our individual practice of communion of goods and instead, to view the enterprise we had, as primarily in existence, not for the family but for the common good of a larger society.

Hearing Chiara’s challenge, we understood that it was not enough to be comfortable in our own small world. By growing the business, we could provide more employment, serve a larger public, generate more profits to be shared to the poor. We undertook an expansion and established 8 more banking units all over the province of Batangas. In this effort, we were helped by another entrepreneur  who, as her own response to this challenge, set up a management consultancy to help businesses professionalize and deal with problems brought about by an ever-increasing competitive environment. Together, we prepared the organization to overcome the challenges of growth in a way that would not let us lose track of our vision of serving the community.

This initial experience of transformation to an EOC enterprise, aided by another who had a shared vision, already illustrated reciprocity and unity, not only on personal levels (between Tita and us, for example) but even on the institutional level of between and among enterprises. Today, this continues to happen and in particular context, within the industrial parks present in some parts of the world (Brazil, Italy, Eastern Europe, etc.) where EOC companies locate together to make a further experience of this kind of communion between them.

Another characteristic – the presence of Divine Providence even in the developments of business goals – was also present. My husband and I did not have adequate capital to keep up with the growth that occurred in the first years of BK’s expansion – and our minority partner, instead of taking the opportunity to take-over the enterprise by providing the needed additional capitalization and acquiring more equity, chose to lend us the money we needed, payable in our own terms and with a very reasonable interest rate.

In time, the bank resources grew through the continued patronage of the local population who felt the sincerity of our service and with the help of managers and employees who worked hard, feeling the enterprise to be their own and an extension of their family. We continuously looked for ways to share the benefits with all collaborators – the employees by giving above average wages, health and life insurances, profit-sharing schemes and even stock options in order to concretize the desire to make each one feel he or she was truly a part of the enterprise. We strove to give personalized service to our clients, even to the extent of teaching an illiterate client how to open a checking account to help in his small business, or a small livestock operator through a feasibility study to understand if he should borrow money for additional capital to make his business grow or not. In everything we did, we kept in mind that man was at the center of the enterprise –not profit, not growth – but MAN – whether he was an employee or a client or another stakeholder.


Asian Financial Crisis in 1998

In celebrating our 40th anniversary in 1997, we adopted a new business name – BANGKO KABAYAN (BK) and we were beginning to ready ourselves for expansion outside the province of Batangas and into the other areas of Region 4. The bank had attained phenomenal growth (from P50M resources in 1991 to P1B in 1997), largely due to increased depositor confidence it had courted over the years through focused customer-service and relationship management. However, as the 1998 financial crisis took its toll in business failures, BK was not exempted. A huge amount of its loans went into default. Fortunately, they were at least backed by real estate which the bank had then to foreclose and begin selling, if it were to ride out the crisis as a viable financial institution.

With the situation of reduced volumes of business, it was the stable deposit base, cultivated and nurtured with genuine relationships of reciprocity with clients through the years that saved the day for BK in terms of liquidity. Still, the bank was in dire need of increasing its loans or it would run losses for a good number of years.

The choice of relevant  products and ethical practices

 Some options were examined. A few banks grew in spite of the crisis through salary and consumer loans for teachers. BK applied for accreditation from the Dept. of Education in charge of the program, and was approved. However, some bureaucrats sought for themselves an accommodation fee in addition to the legal amount. This “extra commission” or type of “relationship-building” was a common industry practice to ensure collection. But owing to the earlier commitment to the philosophy of EOC, which, among others, entailed the commitment to transparency and ethical practices, the bank did not pursue the offering of this product and continued the search for something more consistent with its chosen vision and mission as a development catalyst in the countryside.

We heard about microfinance that entailed offering small loans ranging from P2,000 to P150,000, without hard collateral , to the lower income segments of the population.

Within just two years, the amount originally allocated for microfinance (Php 150,000 or $3000) tripled, and customers grew to 500. This situation, encouraged Bangko Kabayan to convert this program into a regular bank product.    

This decision required serious management and institutional commitment to fundamental changes in many areas of its operations: hiring more people; giving more training, especially to account officers whose jobs required long hours in the field; designing new procedures adapted to microfinance’s small but frequent transactions; investing in computer hardware and software to closely track delinquency; most of all, shifting mindsets from the traditional emphasis on collateral – a habit formed by over 30 years of traditional rural bank lending – to recognizing other forms of capital (i.e. social capital built through proximity and constant contact with the clients) and feeling secure with them.

            Again, the EOC philosophy helped us undertake these organizational changes – helped us persevere and keep faith in what we were doing, where we were heading to. The figure of the neighbor in need and the development of the community we were advocating urged us on inspite of the difficulties we encountered.
Reciprocity and social capital

As the bank’s customers changed, they in turn changed the management’s understanding of the business. The rural micro, small and medium entrepreneur became the identified, preferred client of Bangko Kabayan and his needs the basis of studies about what other type of financial services the bank should offer.  It became a stated objective to provide him or her – through the bank’s products and services – the opportunity, the means and the tools to become productive, self-sustaining and ultimately, financially independent.

Our experience confirmed the intuition that when a business is transformed into a means to serve man, the business sets in motion the process that creates not only an incalculable amount of good, but also the very mechanism that ultimately ensures the business’s own survival, growth and prosperity.

When the local rural banking sector experienced a weakening of public confidence brought about by the closure of two rural banks in the same province who engaged in fraudulent practices, it was with the help of the bank’s microfinance clients who are present in the communities where the panic was catching fire, that helped counter the false stories that all rural banks, Bangko Kabayan included, were going to close. Born of this reciprocal relationship, this ‘return on social capital’ accounted for BK’s ability to ride out the crisis with full confidence.

Going beyond borders: Reaching out to the Overseas Filipino Workers

Another sector that Bangko Kabayan chose to address is the growing number of Filipino migrants abroad, better known as Overseas Filipino Workers (OFWs). We realized that though many financial institutions offer services scramble to attract this market, they are products that simply make sending remittances to their families back home either faster or cheaper. Instead, we feel that banks should seek to respond to a more urgent need of every OFW: a chance to build himself financial stability in order to come home and provide a better future for his family. 

I would like to tell you about my own personal journey on choosing the EOC.

I came to Italy with a specific plan in mind of specializing in fashion to eventually promote Philippine creativity in Italy. I arrived in January 2005 and I took up my masters in Fashion Merchandising and Marketing in Florence.

I was fortunate to have found an internship right after. One of the most important brands in the global textile industry offered me this opportunity. In spite of all the difficulties and bureaucracy involved in hiring a non-EU citizen, that internship was soon transformed into a job. No less than the owner himself, Mr. Nino Cerruti, who trusted me from the start, saw to it that my documents were processed.

I showed my gratitude committing myself 100% to work and being open to the different challenges that the workplace presented.Through the years my efforts were appreciated.  In the same year that the company applied the Cassa Integrazione (reduced working hours to cope with the financial crisis), they gave me a permanent contract.

Although I had attained this stability, I felt a certain awkwardness each time I ran into fellow Filipinos, who lived an altogether different reality than mine. I had gotten to know other Filipinos in our community, most of whom work as domestic helpers. I came to know of their stories and their struggles and I realized I could not remain indifferent.

Each time I came home to the Philippines for vacation, I would talk to my family about the tragic plight of the OFWs. We started exploring the idea of reaching out to them by creating innovative services for them. Among the biggest challenges immediately evident was the fact that rural banks, by Philippine law, are not allowed to expand outside the country. Still, this did not stop us from pursuing the project.

Upon my return to Italy, I shared this idea with Alberto Frassinetti, who has a consultancy firm called GMP, which also forms part of the EOC. We started to draft a Business Plan to define the project. Once we were ready, we approached Banca Etica to see if they would be interested to take part in the initiative.

The choice of Banca Etica was deliberate. This is not a project of “traditional banking” but an attempt to respond to the needs of the immigrants and therefore a project of assistance and solidarity.

About 10% of the Philippine population works abroad. In Italy we number about 120,000. Just like the other immigrants, OFWs come with the hopes of earning more to provide a better future for their families. Unfortunately, their families at home are not aware of their difficulties and the struggles they overcome to earn the money sent home. We learned that those who remain home eventually become dependent on the remittances that they receive monthly. To emphasize how significant remittances are for the Philippines, they represent about 10% of our GNP. In the end, the OFWs who spend 10-15 years of their productive lives abroad, have difficulty in returning home because they have no savings neither here in Italy, and sometimes they have even become indebted, and neither have their families saved for them.

Bangko Kabayan would like to recognize and respect the desire of OFWs to work abroad for a definite period of time and to eventually return home with the prospective of a better future.  But this would only be possible with a better education (re-education) on the value of money, the discipline of saving and breaking the cycle of dependence on the remittances. This meant that a major part of the solution would entail engaging them first of all, in financial literacy.

We would like to help them save for their retirement and to encourage them to make small investments in the Philippines , for example, with microcredit, which allows them to actively participate in the development of the province they belong to.

After one year from our meeting with Banca Etica, I decided to resign from my job to concentrate on this project full-time. I have taken concrete steps to be more involved with various communities, gotten to know the leaders, undergone training as a financial literacy counselor and I now conduct seminars to help OFWs understand the importance of planning for their future.

To be quite honest, this is a daily challenge for me. It is absolutely not easy to try and do business, especially in a foreign country. When I wake up each morning, I no longer have that fixed routine of an 8-5 job and neither do I have the certainty of an income by month-end.  It is a choice that needs to be constantly affirmed and requires an absolute commitment. While the direct benefits for BK will not be immediately apparent, some OFWs now turn to me for major life decisions like whether or not they should uproot their children to join them in Italy. And as someone said so yesterday, we will continue to plant sowing the seeds of a better future even if we might not be there for the harvest.

The culture of Giving , the culture of “feast”

We are particularly aware that as an enterprise, we have adopted the vision of transforming and evolving into a value-driven organization. It is not enough that the owners or the top management acquire the practice of sharing and giving – but that we are able to share with the rest of the organization how the EOC works and how Divine Providence accompanies us in various moments of our enterprise life.

We hold general assemblies at least three times a year – as it affords us the opportunity to reiterate our Vision, Mission and Objectives (VMO) to everyone, especially the younger members of the enterprise that keeps growing. We try to integrate activities such as tree-planting in the watershed, or clean-up of rivers and waterways – in these occasions of getting together, to increase awareness and participation in the effort to take care of our environment.  We let everyone know that in choosing to have a simpler Christmas celebration for ourselves, we were able to have enough to feed 1000 children who had never seen hamburger in their lives. And we don’t donate the money. We undertake the activity ourselves. It is the proximity that allows the transformation to take place in each one.

After years of these type of activities, we have slowly been able to inculcate the culture of giving amongst our managers and employees. In turn, they have surprised us by carrying it several steps further. When one business unit fails to make its performance targets and is excluded from the profit-sharing bonus, we have seen the practice of others deciding to share their own unit’s incentives with those who did not receive anything. Or of branches who divide the branch cash awards to include service personnel who are not part of their plantilla.  A young girl who works as a microfinance account officer and whose pay includes an incentive portion (based on the achievement of her targets) voluntarily shares this incentive with the teller and bookkeeper, acknowledging that they too are a part of the service delivery her clients enjoy.

Divine Providence in an enterprise

Though we had personally experienced the providence of God in our personal lives, it was a different moment to recognize Him in a business environment – and help our colleagues likewise recognize His presence and intervention in our enterprise life. But maybe because we have had to undergo several crisis – bank runs, panic withdrawals, even downsizing at a certain point – and we‘ve made it a point to try and resolve these collectively, sharing our thoughts, our turning to prayer before beginning and when all else fails – with our closest managers who in turn, pass down the stories to everyone – this type of open communications enables everyone to participate in our collective ups and downs, enterprise failures and triumphs – just as one family.

One final example: two years ago when we faced that panic withdrawal which saw us lose some P100M in deposits within a month’s time,  we banded together with all the rural banks in the area and presented ourselves to the public via a local government hearing. There we assured them that all other rural banks in the province were stable and should not be suspect. A senior official of our central bank even went with us and confirmed this fact. In other words, we assured the public that no other rural bank was going to close anymore – to put a stop to the rumors that were going around that rural banks were unstable.

Unknown to us, there was in fact, another rural bank, the next biggest one after us – owned by a prominent and respected family in the province – which had not been able to withstand the withdrawals and was, in fact, in danger of being shut down as well. We had done everything we could to prepare for contingencies.  But over-all, we realized how much our credibility would be damaged – as a whole sector –and how much we had risked by going all together in front of the public, to stand for each other. If one of us would fall, all the rest would be dragged down as well.

Very early the next morning, Francis again received a call from the other bank’s owner. He said that in a midnight deal, they were able to sell their bank to a commercial bank and would come out with an announcement that would end all speculations and establish the stability of their bank. As we went to office that morning and shared the good news with our other managers, one of them remarked “That’s Divine Providence, isn’t it?” 

This recognition, this gift of “new eyes” with which to see and understand what happens around us even in the life of an enterprise – as fruits of relationships, human and Divine – spreading throughout the organization, this too, we recognize, as a fruit of the presence of the Divine in Bangko Kabayan.

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