Re-framing Access to Credit

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Hernando de Sotto-Soler said that it’s easier for people who have titles to their lands to access credit from banks. This is a better choice than getting credit from informal sources. Banks can give a higher amount, at lesser interest, for a longer repayment period - if the loan is secured by a title. And when people with titles got loans, they would increase the amount of local economic activity - for example, when they use the loan proceeds to open or expand a business, or improve their homes.

In a previous project we had been helping people get titles to their lands. So we wondered, are they using their titles to get loans? A rapid check with the LGU Land Information Offices, which were directly involved in the titling process, yielded a negative answer. It turns out people were not using their titles to get loans because, among other things, they didn’t know they could.

So we crafted a little theory: if people got more information about how they can use their titles to get loans, they would apply for loans. We convinced a partner LGU to invite beneficiaries of their titling program to an “Access to Credit” workshop.  In that event we asked a local bank (also a partner to our project) to explain the benefits of getting loans from banks, the terms that a loan applicant should consider, and their loan products. Unexpectedly, we received adverse reactions. People said they got their titles because they wanted security of tenure. They might not be able to repay their loans and thus lose their land. That’s contrary to their whole purpose for titling.

Of course there were exceptions. Some asked about terms, whether they could get a loan for this or for that, etc. But they were exceptions.

Back at the drawing board, we decided our theory was busted: simply providing information about how titles can be used to access credit does not encourage loan availment. After some discussion we came up with another theory. It seems we’ve been promoting credit as an end to itself - an end which people considered as contradictory to another end (security). Perhaps we would get better results if we presented credit as a means to another desirable end - such as starting or expanding a business.

In a few weeks we had a second Access to Credit workshop, this time in another Municipality. We started off by talking about business opportunities. One participant said he wants to expand a successful sari-sari store business into another barangay. A jeepney fleet operator said he wants to retrofit some units to make them more efficient. Another wanted to open a new store. And so on.

By the time we got to talking about credit more people were interested. Now the questions were not about why they should get loans; the questions were about how. And after the workshop, more people approached the Head of the Land Information Office to ask about loan requirements.

Seems like our second theory was proven right. When credit is presented as a means to a desired end, it gets a better reception.

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