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?

BY ZOFIA LEAL
Bulatlat

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. 

Eurocredit also entered into a Memorandum of Agreement with Task Force Sikap Buhay during the latter part of 2001.  Their target beneficiaries are also the entrepreneurial poor in the Quezon City area, although they make exceptions for applicants who live near Quezon City and have the endorsement of their barangay (village).  The National Livelihood Support Fund also provides them with the funds for lending through a draw line list renewed annually. If they used up the budget for the past year, their budget for the incoming year may increase.  Unlike CRBBI, Eurocredit focuses on individual loans, which may explain their smaller membership base of 800-900.  Their members start from accessing loans in groups and eventually shift to individual loans.

Not for the poorest of the poor

The beneficiaries of microfinance are the micro entrepreneurs involved in retail and agricultural businesses, and home-based industries.  They own businesses operating at micro level with capitalization of no more than P250, 000 ($4,836) per annum. 

Aling Yolly and Aling Sabina are both microfinance beneficiaries under Task Force Sikap Buhay.  Aling Yolly started in October 2004 and is a member of Group A at Barangay Botocan.  She is 49 years old and explains that she became a member through a City Councilor roaming their area looking for potential beneficiaries.  Since she already has a sari-sari store (small store of consumer goods), she was asked to join.  She then attended a series of orientation seminars and was grouped with other women from her barangay. 

During their first cycle in which they were given a P5, 000 ($96.73) loan, one of their group member’s husband died and was not able to pay the loan.  The other group members had to shoulder the amount so that they can continue with the program.  She and her group mates are now on their fifth cycle, which entitled them to a P10, 000 ($193.46) loan. 

Aling Sabina joined only in December 2005 and is a member of Group B, also in Barangay Botocan.  She is also 49 years old and was asked to join by her friend who is already a member.  Like Aling Yolly, she already has a sari-sari store business before joining the group.  Her group is still in the first cycle, thus, they were given a loan of P5, 000 ($96.73). 

Aling Sabina used to earn P2, 000 ($38.69) a day, but nowadays, it does not even reach P1, 000 ($19.35).  Aling Yolly’s earnings from her business also decreased through the years.

Aling Yolly said that she used the loan for added capital and for her family’s other expenses.  Aling Sabina also used the loan to supplement her capital and for emergency cases. She and her group mates also use it for their paluwagan (mutual savings and loan scheme). They strictly follow the Tuesday schedule of payment for their paluwagan because they do not want to lose their loans as they can also use it for their daily needs.     

Microfinance is supposedly being implemented to help alleviate poverty in the country.  However, it is only the entrepreneurial poor that are being served by the program.  The poorer and marginal sectors are not even reached. 

Allan James Navarro of CRBBI explains that microfinance helps the beneficiaries by enabling them to earn more. He said there are success stories illustrating how it helps improve the quality of life of the beneficiaries.  Paul Ryan Santos of Eurocredit agrees with him.  Santos explains that through microfinancing, the member is provided with employment and business opportunities.  Eurocredit also helps in training of its members. 

However, Eurocredit does not provide loans to applicants who are just starting a business.  Their Memorandum of Agreement with Task Force Sikap Buhay provides that they will only assist in adding capital to already existing businesses.

Government statistics show that 24.7 percent of Filipinos live below poverty line in 2003.  Non-government organizations cite higher figures and a recent survey of the Social Weather Station revealed that 57 percent of Filipinos rate themselves as poor. But microfinancing schemes do not accommodate the poorest of the poor. It does not provide gainful employment or sufficient income.  It benefits only the lower segments of the middle class with existing small businesses. Added to this, small to medium enterprises in the Philippines are standing on unstable grounds.  The sari sari stores of Aling Yolly and Sabina are cases in point.

Microfinancing may have been able to help a segment of the poor improve their quality of life, albeit temporarily. But with declining incomes and increasing costs, it will only be a matter of time before small businesses fold up and beneficiaries of microfinance projects decreases. Bulatlat

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