Microfinance’s greater rewards
It is so easy to go into microfinance. With a small amount of capital, minimum policies set on the loanable amount that can be as low as P3,000 per client, interest rate, period of payment, mode of regular repayments, loan security which need not be hard collateral, savings or capital build-up, and a lean, efficient staff complement to run the credit and savings operations, one can already embark on the “business” of microfinance.
Microfinance became a popular tool for poverty alleviation in the Philippines in the late 1980s. Non-government organizations such as Negros Women for Tomorrow Foundation Inc. (NWTF), Tulay sa Pag-unlad Inc. and Ahon sa Hirap Inc. pioneered in this field by replicating the Grameen Bank scheme of Professor Muhammad Yunus, Nobel Peace Prize winner in 2006. Today, microfinance institutions continue to touch the lives of their poor clients, mostly women, with various financial and non-financial services.
In the mid-1990s, the Philippine government engaged in microfinance. Three crucial moves would attest to this. First, it created the National Credit Council in 1993 to formulate a policy framework that would expedite the delivery of financial services to the marginalized sectors. Second, it came up with the National Strategy for Microfinance, which was presented in the First Microfinance Summit in Washington, DC in 1997. The strategy espoused key policy principles of market-oriented financial and credit systems and the greater role of the private sector in the provision of financial services. The issuance of Executive Order 138 in 1999 demonstrated the government’s thrust of promoting private sector participation and restricted the government from delivering credit services in favor of becoming an enabler to the market.
The Bangko Sentral ng Pilipinas joined in the fray. The General Banking Law of 2000 acknowledged microfinance institutions to be engaging in legitimate banking activity. While bank branching was put to a halt, the BSP allowed the establishment of new banks which were microfinance-oriented, and opened a rediscounting window for microfinance.
No less than the late President Cory Aquino decided to get involved in microfinance. Twenty years after the people power revolution of 1986, she began her next “revolution.” Reportedly, she was inspired by a group of women in Tatalon, Quezon City, whom she visited one day, attending a seminar on microfinance and whose simple concern was how they could help augment their families’ income. The former President wasted no time after that day, and rallied known microfinance practitioners behind her goal of reaching 5 million clients in five years with P5 billion. To guarantee the funds, she also called on business leaders like Washington Sycip, Vitaliano Nañagas II and Ramon del Rosario who willingly threw in their support, having realized the potential of microfinance and microenterprise development as ways to address poverty in the country.
Innovations in the Philippine microfinance industry continue today. Take microfinance for agriculture, for instance. If providing small loans in the urban areas had been useful in increasing the poor’s access to capital and credit, why can’t it be done in the rural areas where 70 percent of the country’s poor reside and are likewise in need of small working capital loans for their production or livelihood activities?
Such was the premise of NWTF which realized that in its 20 years of existence, it had not essentially reached out to the small sugar farmers who made up the poor sector in the province. NWTF thus bravely and boldly offered a microfinance product called the micro-crop loan in 2005 to provide working capital for sugar production. Loans between P15,000 and P45,000 were granted at 3 percent per month. It covered the labor costs of the farmer on his own farm, who had no cash to spend during the period of land preparation and maintenance of sugar farms. Loans were paid in lump sum at the nearest branch office at harvest time or in 10 to 12 months. No hard collateral was required; instead, borrowers were organized into a center of 15 members to act as co-guarantors.
Offering the micro-crop loan though has not always been that encouraging. Some areas were remote and hard to reach. Thus, it was more difficult to deliver the credit and monitor the accounts. There were clients with low production due to the poor quality of the soil. While these situations already posed repayment problems, NWTF still had to contend with some farmers who had been dishonest in their dealings. There were also factors beyond its control such as typhoons and dry spells, pests and diseases amid weather changes, which contributed to the low yield and consequent delinquency in loan repayment. NWTF nonetheless managed to tackle every issue it encountered. For instance, it covered areas which were less distant but still populated with sugar farmers needing working capital. It put up necessary systems and control measures, and intensified its monitoring activities with the help of the centers it organized.
I take it back. Engaging in microfinance, especially for agriculture, is not that easy. There are many reasons that can discourage microfinance institutions from expanding its services to the agricultural sector. But the reward is great. The much-needed working capital, no matter how small, is provided to the small farmer at market rates and other convenient terms. After four crop cycles, an outstanding client of NWTF from Murcia, Negros Occidental has reportedly leased other farms to expand his production and offered trucking services to his fellow farmers at the same time. The increased income derived from the farms allowed family members to engage in other income-generating activities such as tending a sari-sari store or backyard livestock, and to address more easily the school and health needs of the family. All things considered, it can still be said that doing microfinance, even for agriculture, is well worth the effort and the risk.
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