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SLOWLY but surely, the Credit Surety Fund or CSF is proving to be an effective alternative credit facility that helps the “unbanked” and “underbanked” gain access to traditional credit and other banking services.

The Bangko Sentral ng Pilipinas has reported that 14 CSF Programs have been established all over the country as of the end of 2010.

Earlier this month, it launched another CSF in Pangasinan and plans to set up another in South Cotabato soon.

The CSF program, launched by the BSP in August 2008, aims to accelerate economic development by stimulating entrepreneurial activities in the countryside.

It works by helping micro, small and medium entrepreneurs (MSMEs) gain access to bank credit even without collateral.

Through the program, bank loans are made more accessible to small-time businessmen.

Before the CSF was conceived, financially challenged entrepreneurs sourced their funds from informal lenders at excessive interest rates.

Instead of the usual and traditional collateral, a pool of funds guarantees payment of the loan to a bank. Both private and public institutions contribute to this “pooled” surety fund.

Private entities that support the CSF program consist of Cooperatives (Coops) and other Non-Government Organizations (NGOs).

Public institutions, on the other hand, include Local Government Units (LGUs) wherein the CSF is to be established, the Development Bank of the Philippines (DBP), Land Bank of the Philippines (LBP), and Industrial Guarantee and Loan Fund (IGLF).

The program ensures that in case of borrower default, the lending banks can draw from the fund within 14 calendar days after submission of the required documents.

As of Dec. 31, 2010, the CSF has been launched in 11 provinces and three cities: Cavite, Aurora Province, Bohol, Negros Oriental, Davao del Norte, Compostela Valley, Iloilo City, Negros Occidental, North Cotabato, Davao Oriental, Metro Cebu, Albay, Dipolog and Occidental Mindoro.

Of all these CSF programs, 10 were established in 2009.

The very first CSF was launched in Cavite in August 2008, while the CSFs in Albay, Dipolog and Occidental Mindoro were set up in the second half of 2010.

The contribution pledges of both private and public institutions have registered an amount of P214.671 million as of the end of last year, representing an increase of 30 percent from the previous year’s balance of P165.499 million.

Loans targeted for 2010 was set at P100 million.

According to the BSP’s Department of Loans and Credit (DLC), banks have approved total loans of P134.4 million (of which P82.15 million has been released to the borrowers).

Total loan approvals increased by P88.5 million as compared with 2009’s figure of P45.9 million.

The DLC, headed by Director Rosalinda Dumaliang, explained that the increase was still short of the P100-million target due to the relatively slow processing of loan applications during the first half of 2010.

Branch personnel of participating lending banks were still adjusting to the cash flow lending process and, in most cases, applied traditional lending guidelines.

The DLC aims to solve this challenge and further improve the program by conducting continuous training of participating cooperatives, encouraging more banks to participate as lenders under the CSF, and holding regular dialogues with program partners (such as participating banks).

The BSP, through the DLC, plans to establish five new surety funds and record an accumulated CSF loan approval of P200 million in 2011.

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