Thursday, February 5, 2009

Microfinance in these hard times

To whom will the poor go as the world faces a global financial crisis, an economic slow-down and lately, here in the Philippines, with mismanaged small banks closing down? To whom will they turn for cash and small capital for their small livelihood enterprises so that these could be sustained? Should the small enterprising citizens switch off the lights and close shop too?

Last week the Philippine-Australian Community Assistance Program (Pacap) held a two-day microfinance development forum with the theme “Microfinance Amidst the Global Financial Crisis.” I should not miss this one, I said to myself. I had written articles on microfinance in the past but now, with the current context of a dark scenario, I thought I should listen again to what the “micro” people have to say.

Even as so-called finance wizards are shaking their heads and talking about trillions that vanished in the air because of unmonitored greed, there is a need to immediately address various needs especially in the grassroots where every small cent counts. “Micro” could spell the difference in the lives of the poor these days and those who have been involved in it and made it accessible to small and medium enterprises are indeed heroes in these trying times.

Do you know that in 2000 the Bangko Central ng Pilipinas declared microfinance as the flagship project for poverty alleviation?

There are three sectors engaged in microcredit. These are the rural banks, the cooperatives and the nongovernmental organizations (NGOs). According to a report, in 2004 there were 500 NGOs, 195 banks and 4,579 savings and credit cooperatives engaged in microfinance. There should be more now.

The National Credit Council (NCC) under the Department of Finance was the agency that approved the Regulatory Framework for Microfinance Institutions in 2002. The NCC, in coordination with stakeholders, is supposed to develop a uniform set of performance standards that will cut across all types of institutions involved in microfinance.

NCC defines microfinance as “the viable and sustainable provision of a broad range of financial services (savings and credit) by the private sector to poor and low-income households engaged in livelihood and microenterprise activities using non-traditional and innovative methodologies and approaches (e.g., non-collateralized cash-flow based lending).” The maximum individual loan amount is P150,000.

What are the general features of microfinance according to NCC? Clients come from the low-income sector, they lack assets for collateral, they are usually self-employed in the informal sector, and are engaged in some economic livelihood activities. The grant of loans is based on the borrower’s household net cash flow. Non-traditional forms of security are acceptable.

Documentation requirements are simple. Loan processing is fast and loan release is timely. Lending schemes may be on a group or individual basis. Loan sizes are typically small, not exceeding P150,000. Loans are short-term and amortizations are either on a daily, weekly, semi-monthly or monthly basis.

The interesting trend is that big banks that used to be engaged only in big transactions and did not have small borrowers on their list are now, in fact, offering their money to microfinance institutions (MFI). Why? Because there’s a lot to be earned from small borrowers who have a good record of payment. Women entrepreneurs especially. But that is now known all over the world.

Trust the women during hard times. Trust them to make things work, innovate and pay on time and in full.

So, during these times when food security should be everyone’s concern, small food producers in the countryside should have first crack at credit. With climate change and all, who will insure their crops? And now disaster in the rural banking community has struck. Who is to blame for the indiscretions?

One of the speakers at the forum was Dr. Jaime Aristotle B. Alip, managing director of the Center for Agriculture and Rural Development-Mutually Reinforcing Institutions (CARD-MRI), 2008 institutional RM Awardee for Public Service.

CARD-MRI which started with a few hundred pesos and a small typewriter 11 years ago in Sept. 1997 is now worth P5 billion. Thousands upon thousands of Filipinos have benefited from it.

CARD-MRI’s interest rate which used to be like 3 percent per annum is now down to 1.8 percent. Who needs the Bombay whose “five-six” scheme charges 182 percent (20 percent for 40 days)?

MFI practitioners like Alip cannot help but notice exciting trends. NGOs are transforming into banks and financial institutions (FI). Banks and FIs are putting up NGOs and MFIs. Banks and FIs are establishing MFI units. And there’s the mutually reinforcing approach where the NGOs, banks, business schools and training institutions.

The challenge for MFIs, Alip pointed out, are the three Cs: lack of capital, lack of capacity and the high cost of delivering microfinance. But the last one could be addressed with technology, that is, by computers, ATMs, even mobile phones.

Indeed, there is a world out there waiting to avail of MF. If only there were more daring individuals like Alip. During the forum I met individuals from grassroots NGOs, cooperatives and rural banks that are into in MF. I listened to their stories and indeed they are unsung heroes.

Those who want to learn more about microfinance could contact Pacap ( for the Microfinance Technokit.