Alleviating Poverty: Is Microfinance the Solution?


In her 2001 State of the Nation Address, President Arroyo mentioned microfinance as the cornerstone strategy of the government’s fight against poverty. The year 2005 was also declared as the Year of Microfinance in the Philippines. But who benefits from microfinancing and what impact does it create in the quality of life of the poor?

President Gloria Macapagal-Arroyo, through Proclamation No. 719 declared 2005 as the Year of Microfinance in the Philippines. This is in observance of the United Nations General Assembly Resolution 53/ 197 of December 15, 1998 proclaiming 2005 as the International Year of Microcredit and requesting all governments, bilateral and multilateral organizations, the UN system and other stakeholders to promote microfinance programs in all countries, particularly developing countries.

In her 2001 State of the Nation Address, President Arroyo mentioned microfinance as the cornerstone strategy of the government’s fight against poverty. She said the target is to reach 1 million women as beneficiaries of microfinance, to be broken down into annual outreach of 300,000 new women borrowers. The target number increased to 500,000 clients by the year 2004 to 2005, a 66 percent increase from the original. To date, there are already 2 million beneficiaries of microfinancing from government financial institutions alone with P24 billion ($464,306,442 at $1:P51.69) released for small loans.

The concept of microfinance being implemented by government is patterned after the Grameen Bank of Bangladesh in 1976. Its original concept is to have a center formation, composed of 5-8 persons comprising a cluster or cell, which is responsible for screening the borrowers and ensuring the repayment of loans granted to a member or cell. Instead of requiring a piece of property or bank account as physical collateral, the Grameen Bank relies on social collateral, third party guarantees, peer pressure and moral suasion, to ensure repayment of loans. Other features include the joint liability of members in the group and use of strict discipline by the funding agency. Over time, the microfinancing scheme may include credit, savings, and insurance.

In the Philippines, the National Anti-Poverty Commission, established in June 1998, is tasked to oversee the implementation of microfinance as the country’s national strategy for delivering financial services to the poor. The funding for microfinance was handled by the Presidential Task Force chaired by the Presidential Commission to Fight Poverty. A wholesale funding mechanism, the People’s Credit and Finance Corporation (PCFC), was established. The Land Bank of the Philippines allotted P100 million ($1,934,610) from the National Livelihood Support Fund as equity for PCFC. In 1996, the Asia Development Bank provided a loan of $34.7 million for the lending operations of PCFC to supplement its limited capitalization. Other financial institutions that provided loans to PCFC include the United Coconut Planters Bank- Coconut Industry Investment Fund and Small Business Guarantee and Finance Corporation.

Task Force Sikap Buhay (Strive for Life)

In Quezon City, the Task Force Sikap Buhay (Strive for Life) under the Office of the Mayor is one of the organizations that handle microfinance projects for communities in the area. They have several conduits to help in providing loans to beneficiaries. These include the Cooperative Rural Bank of Bulacan, Inc. (CRBBI), Novaliches Development Cooperative (NOVADECI), Eurocredit, and the ASA Foundation.

The Task Force Sikap Buhay acts as the mediator between the beneficiaries and the conduits. Their primary task is to organize orientation seminars that will explain microfinance to the communities. Mr. Noel Alcantara, the Microfinance Supervisor, clarified that their task is to ensure the operations of the project and that it is their conduits that provide the loans to the beneficiaries. Even though they are under the Office of the Mayor, they do not receive a budget for the loans, thus the need for partnerships with banks or cooperatives.

The Cooperative Rural Bank of Bulacan, Inc. started working with Task Force Sikap Buhay in 2002 through a Memorandum of Agreement with the city government. Their target beneficiaries are the entrepreneurial poor which already have small businesses in Districts 1-4 of Quezon City. They have been involved in microfinancing for 5 years even before the tie-up with Task Force Sikap Buhay. Their funds are taken from the National Livelihood Support Fund (NLSF). The cooperative bank sources the funds for lending from the NLSF or from its roll-over fund. To date, they have 10,000 beneficiaries with 4, 329 still active in the project.

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