FAQ-Frequently Asked Questions

Your financial contributions make NeoFin Foundation’s work possible

What distinguishes the NeoFin Foundation from other micro credit Foundations? >>

Why choose NeoFin? >>

Who can contribute financially to NeoFin? >>

Why have I not heard about NeoFin earlier? >>

How is my financial contribution used? >>

Why do investors and loaners-lenders not receive any interest? >>

How can I be sure that NeoFin invests wisely? >>

Why give credit instead of charity? Why should the poor be required to pay back? >>

Understanding how NeoFin’s risk management works >>

How do MFIs generally calculate their interest rates? >>

Why is the media scrutinising the micro finance sector? >>

What distinguishes the NeoFin Foundation from other micro credit Foundations?

NeoFin is an innovative organisation that not only applies the proven method of micro financing; it follows to the current ways of monitoring the social impact of its investments.

NeoFin further distinguishes itself, as it believes that finances should be directed more meticulously. Our micro loans used by low-income people are monitored on a case by case basis, and in this way they can structurally build and improve on the quality of their lives, and at the same time their local economy.

NeoFin does not only finance well-established and highly successful MFIs-Micro Finance Institutions, Cooperatives and Rural Banks, but also riskier ones. This includes NGOs in both urban and (riskier) rural areas.

Why choose NeoFin?

Unlike some larger organisations, the capital NeoFin raises flows speedily to the poor people needing. NeoFin chose to operate in the Philippines because it is particularly well developed in the micro loan field, it has a reputable stability, and the reliability related to the repayment of loans by the marginalised is good. NeoFin raises capital, from amongst others, private individuals, investors, non-profit institutions, financial institutions, companies, religious organisations and government bodies. Combining micro credit with the Internet creates a global community of socially orientated people connected through participating financially.

Who can contribute financially to NeoFin?

There are no limitations to who may donate to NeoFin for its good work; amongst others, private individuals, firms, companies/corporations, religious institution and government bodies can contribute.

Why have I not heard about NeoFin earlier?

The NeoFin Foundation is a young organisation set up by professional business people who wished to start up and manage a purposeful Foundation that can contribute to helping marginalised people who wish to become entrepreneurs. Thus enabling them to become financially self-supporting and help their families out of poverty. Since then NeoFin’s network of investors and advisors has grown to include a wide range of individuals and organisations who share its belief in using entrepreneurial approaches by contributing to solve part of the problems of poverty in the Philippines.

If you have not heard about the NeoFin Foundation before, or you would like to give it some suggestions about how it could increase its visibility and become better known, NeoFin would be happy to hear from you. Alternatively, if you would like to make a link please contact NeoFin; in both cases, kindly contact marketing@neofinfoundation.org.

How is my financial contribution used?

Every project NeoFin accepts to finance requires a certain amount of money – be it a small or a large project. If the total amount of money needed is not readily available, then your donation will be put towards accruing the necessary amount. Once the required amount is accrued, your highly appreciated contribution will be transferred to the organisation that awaits NeoFin’s loan. All contributors to NeoFin’s activities receive a regular bulletin informing them about the progress and results of the project(s) their funds are supporting.

Why do investors and loaners-lenders not receive any interest?

NeoFin does not pay any interest on the money you invest or loan-lend it. By operating this way, NeoFin is able to charge reasonable interest rates on the loans it provides. It will not need to levy any extra fees and commissions, plus it is able to extend credit to partners/borrowers with a higher than average risk profile.

How can I be sure that NeoFin invests wisely?

The donations NeoFin receives are utilised as fast as possible to help the marginalised people who are dynamic and wish to improve the quality of their lives by starting their own small self-sustaining businesses. NeoFin’s capital is used to finance loans required by reputable and financially stable MFIs, Cooperatives and Rural Banks. NeoFin strives to deliver financial services to those who do not have access to regular banks. It prioritises investments in small, often rural based organisations with a proven social impact and as a result, more than 90% of our portfolio is in small to medium-sized micro finance institutions. Read more >>

Why give credit instead of charity? Why should the poor be required to pay back?

Experience proves that loans are a more appropriate instrument than grants to achieve economic productivity and self-reliance. If a project is financially viable, loans will stimulate sustainability. Also, in a loan relationship, both parties are business partners. We rely on each other with mutual respect.

Understanding how NeoFin’s risk management works

The average historical default rate in the Philippines is only 5% of funds disbursed having to be written off, but NeoFin knows the past does not necessarily indicate the future. This percentage loss is calculated into NeoFin’s loan costing’s. A World Bank study found that the average annual return on investments by micro businesses ranged from 117% to 847%.

NeoFin screens prospective Borrowers and, based on risk analysis, advances loans to those approved by the process. The assessment assigns approved Borrowers to a Market, or rejects the Borrower as being too risky.
  • Once a loan has been made:
  • NeoFin monitors the Borrowers for the earliest signs of possible default on the loan and subsequent bad debt. This is normally indicated when a Borrower does not make a payment on time (i.e. a Borrower falls into arrears).
  • When a Borrower misses a payment, NeoFin begins account management activity to bring the account back up-to-date as soon as possible. This process is effective in bringing many customers back up-to-date.
  • If arrears persist NeoFin begins collections activity using the expertise of a collections agency, looking to get the Borrower to pay as much as possible. However, at this stage NeoFin expects that a proportion of the outstanding capital and interest will not be recovered, or that repayment will be later than agreed to.
  • If a Borrower in arrears does not make or honour an alternative arrangement to repay the arrears, NeoFin will issue a Notice of Default. The borrower has 14 days to respond to this letter, during which no further collections activity can take place.
  • At the end of this 14 day period, if no repayment of the arrears or formal arrangement to repay has been made, the borrower is said to have fallen in to default.
  • Once a Borrower falls in to default, collections activities do continue, court proceedings can be started, but the probability of collections is relatively low.

Initially, NeoFin's Borrower approval criteria were oriented towards virtually no arrears or defaults. Over time, NeoFin has modified the approval criteria to allow a more active market that includes the expectation of arrears and defaults, while continuing to provide a range of acceptable refunds to Investors and Loaners-Lenders. Even with this change, NeoFin has historically had a low level of arrears and defaults.

How do MFIs generally calculate their interest rates?

A key factor often overlooked when judging interest rates is the local context in the country concerned. In general, banking interest rates in the Philippines are much higher than in Europe or North America. The local commercial market is the first factor considered - personal banking loans (approx. 26% - June 2012). Loans from local moneylenders, often the only option for poor entrepreneurs, vary between an annual rate of 60%-800%.

A poor entrepreneur can generate greater benefits from additional units of capital than can a highly capitalised business, because she or he begins with so little.
Additional factors such as cost of funds, administration, the size of the loan (it costs more to disburse several small loans than one large one), the risk, the level of support end-client needs (financial education, group support, collections), access to technology, rural or urban location (transportation, time for loan officers).

The cost of making a micro loan in the Philippines is higher versus larger loans in Europe or North America. Entrepreneurs commonly have no credit history, no collateral, are frequently illiterate, and often live in remote areas need to be screened. To responsibly assess the credit worthiness of each entrepreneur, the cost is higher than in Europe or North America where almost everyone has a credit score and screening / loan application can be done electronically. Cost of in person collections - MFI staff typically travel to each entrepreneur on a weekly basis to make collections.

Compared to Europe or North America, where mail and Internet repayments are standard, the costs in the Philippines are higher. MFIs need to charge an interest rate that allows them to pursue their social impact agenda sustainably. In order for MFIs to reach more of the poor with relatively low interest loans (vs. local money lender), they need to cover their costs. Given the higher costs of micro loans hereby discussed, MFIs need to charge a sufficient interest rate.

Sometimes high transaction costs translate to high interest rates. It's essential these rates are fair, and the reasoning behind them is transparent.

While NeoFin's focus is on the reduction of poverty, NeoFin is not a charity and it needs to be self-supporting. As such, it acknowledges the need for an MFI, Cooperative or Rural Bank's own stable financial results to ensure the sustainability of its operations. However, there are essential differences between profit making and profit maximisation.

Why is the media scrutinising the micro finance sector?

In various countries the media reported that some Foundations, particularly the larger ones, maintain excessively large financial reserves. The impression was given that unnecessarily large reserves were being held, and that the donated money was not reaching the people who need it fast enough. This could mislead the public into believing that it is not wise to donate or loan-lend money to Foundations. Due to the global financial crisis, it is even more important that the people NeoFin helps are not deprived even more. NeoFin’s objective is to assist people in need as fast as we can justifiably do, and not to withhold unnecessarily large financial reserves.

The main concerns that arise in the media regarding micro finance are over-indebtedness, interest rates, a lack of transparency, reaching the poor, and the creation of jobs. The media and the public justifiably wish to know that the lives of people taking out micro loans really improve. Of course NeoFin has operational and staff costs, but it keeps these as low as possible so it can use as much of its finances as possible to help the poor.
It is not always the case that access to financial services has a positive impact on the lives of poor people, thus NeoFin welcomes well researched analyses. Assessment and evaluation keep operations in check, and it works to maintain the integrity of the sector. All supporters of NeoFin’s activities receive a regular bulletin informing them about the progress and results of the project(s) their funds are supporting.