PE, MFIs back Philippines rural lending initiative
When examining the driving forces of rural development, one fact continually rings true: the higher the proportion of people in possession of a bank account, the higher a country's GDP per capita. In Asia, two countries fall well below the trend line in this respect - Pakistan and the Philippines. "For obvious reasons, we decided to focus on the Philippines first," says Paul Kocourek, who recently won funding for Bridge, a financial services start-up dedicated to improving rural banking. "We are focusing on areas where the financial system is most broken and serving as an obstacle to job creation and development in rural areas."
There is no shortage of supplementary statistics that express the Philippines' need in this regard: 66% households are not customers of banks of microfinance institutions, rising to 82% in provincial areas; only 6% of small- and medium-sized enterprises (SMEs) rely on bank funding for capital formation, trailing Thailand (50%) and Malaysia (36%) by a considerable margin.
Bridge estimates that lifting the externally funded capital in SMEs to 50% would create about four million new jobs. Its role in this process is to support the development of 15-20 regional or national champions in the Philippines banking sector over the next 10 years. It will invest in 3-4 banks initially and at least eight in total, seeking to transform rural lenders into institutions with $50-100 million in assets, 20-40 branches and properly trained staff.
To this end, the start-up has received $24 million in funding from PE firm Bamboo Finance, non-profit microfinance pioneer Accion and two development finance institutions, Germany's DEG and Netherlands' FMO. Accion and FMO led the round, with Bamboo Finance, DEG and Kocourek putting in $3 million, $4 million and $3 million, respectively. "We are targeting an aggregate opportunity to invest in several banks. The overall amount that we are investing in the Philippines is much larger than we would do for individual banks.
It's cost-effective," says Sarah Djari, senior investment manager at Bamboo Finance. "We have managerial change taking place on the ground [through Bridge essentially acting as an intermediary] that is going to be the key point for investing to create value."
This is the last investment from Bamboo Finance's current fund, which has a corpus of $195 million. Given the vehicle is approaching the end of its life, while the other backers have committed to Bridge for seven years, Bamboo Finance is only locked in for five years. However, Kocourek has his eye on creating a platform that is much longer lasting.
"We want to do an IPO where we leave investments and expertise in place for the duration," he says. "Once we provide this model for the Philippines we want to take it to other markets where the rural population is underserved."
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