Long-term service contracts for the mobilization of private financing for the reform of the informal public transport sector in the Philippines

Considered the most ambitious program in the Philippines, the Public Utility Vehicle Modernization Program (PUVMP) requires transport cooperatives to replace their old jeepney with modern units. This however requires massive financing, and the government only provides very limited equity subsidies. This paper examines the impact of service contracts (SC) on the financial capacity of transport cooperatives to replace their fleet of old jeepney units. Using qualitative data drawn from interviews with 12 transport cooperatives, we investigate the effect of service contracting on the ability of transport cooperatives to access financing in terms of loans from banks. We find that long-term service contracts can enhance the level of confidence of transport cooperatives to service debt. Our work presents a novel mechanism to mobilize financing from private banks for the reform of the informal transport sector.