Microfinance and Poverty Reduction

  Poverty is a reality that cuts across class and gender and race, and we must be ready to stand up and face that reality. In the Philippines, 2.2 million are unemployed while 6.1 million are underemployed, according to the latest survey. Two out of ten Filipinos suffer from hunger, and some say that three out of ten children suffer from malnutrition. It seems that it would take a massive restructuring of government programs and policies to arrest said conditions. And perhaps, one of the solutions to that massive poverty is to look into income generating project that offers microfinance setup geared toward the masses.

Microfinance offers an alternative to improve the lives of the poor, specially those of women and children who comprise an estimated 70 per cent of world’s poorest poor. Microfinance encourages women to use their collective savings, and pour that savings into reliable community-based income generating projects that earn enough resources needed by each family. Microfinance adopts a kind of system where cash flows around the community, and invests in a collective people’s work, trust, and ingenuity.

In some way, microfinance broadens the savings mobilization unlike in the traditional banking system, and encourages more capital investment to generate more income. The key here is to inculcate to the members the importance of saving money and using that money to encourage the poorest of the poor to make wise investments in their respective small to medium scale businesses. Microfinance exemplifies the belief that anybody, specially the poor, has that capacity to save resources and work hard, and does not rely merely on loans and dole-outs. It also shows that the savings needed by women can be both safe and liquid and always ready for emergency purposes.

Microfinance setup
If other PHILSSA members wish to venture into microfinance, they have to consider the following:
1. Establish a system. Procedures and policies for loans and savings transactions should be in place prior to the implementation of the project. You cannot just lend anybody money. You have to make sure that the process of lending, collecting, and other details is clear to both parties. For instance, the amount of loans, terms of payment, interest on deposits, and penalties are specified so that the lender will not be at a loss on what to do. A nongovernment organization that has resources like computers, printers, and software may help in the initial setup so that microfinance will not have to start from scratch.
2.    Delineate powers and responsibilities. A microfinance project should be separated from the social services offered by the NGO, including the staff. It has to establish its own identity and autonomy in order to avoid the misconception of the community that the microfinance is run through grants. The members may think that they don’t have to repay their loans they got, if they discover that the money came from NGO grants.
3.    A microfinance office should look like a bank, though it veers away from the traditional banking system. Its transactions must look like a bank to emphasize to the members that the institution is serious in running its business.
4.    Institute excellent customer service among microfinance staffers. Every client must be treated with outmost care and respect. There must be no discrimination and bias in terms of gender and class. Encourage the staffers to smile and be open with the clients. If the clients notice that the institution serves them right, they will return and patronize the institution and spread the good news to other people.
5.    Program or project partners should be required to patronize savings services by opening a savings deposit or account. For example, in the then Early Childhood Care and Development Project (ECCD), both children and parents are required to open a savings deposit before they can be accepted as partners. These children can deposit as small as five pesos a week. At the end of the year, they can withdraw their savings deposit and use those savings to meet their needs. In other words, savings mobilization is one of the components of microfinance.

Pensions and microfinance
At present, there is a phenomenon that is taking place across urban poor communities. And that is, the pensioners are forced to mortgage their pension to loan sharks that charge from six to 20 per cent per month. This is happening because the amount of pension these poor folks are getting from the government is very small which cannot cover their daily expenses because of rising inflation. Their pension is not enough to pay for their medicines, food, water and electricity bills, and sometimes school expenses of their grandchildren who depend on them.
To remedy these, our microfinance institution opens its door to help these pensioners. We offer a minimal amount compared to those offered by other money lenders. The response we got so far is very encouraging. The collection rate is 100 per cent, and that is because the pensioner has to surrender his ATM card to our office, and our organization will be the one to withdraw the pension in due time. When the pensioner has fully paid his loan, the ATM card is returned to the client. In this way, the organization has minimized its operating expenses while at the same time helping the pensioner to cope with his daily needs.