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MICROFINANCE: A WAY OUT OF POVERTY

2 Comments 22 June 2010

MICROFINANCE: A WAY OUT OF POVERTY

By Pepper Marcelo

Microfinance is considered one of the most viable solutions to licking poverty. Locally, it has been implemented and sustained by strong-willed individuals, including the late former President Cory Aquino.

In essence, microfinance provides much-needed funds for the poor who lack access to formal sources of funding like banks and are too poor to qualify for bank loans, to jump-start small businesses.

The key to its success is a strong repayment rate, which in turn, goes back to the members to further grow and develop their enterprises. Forbes magazine stated that microfinance has “raised the provocative notion that even philanthropy aimed at alleviating poverty can be profitable to institutional and individual investors.”

It was through the efforts of Muhammad Yunus of Bangladesh that microfinance earned worldwide recognition and attention. Yunus set up the Grameen Bank in his home country, which provided loans and credit to the poor, eventually winning the Nobel Peace Prize for his visionary work.

The idea was adopted locally by Dr. Jaime Alip, who founded the Center for Agriculture and Rural Development (CARD) Bank in San Pablo, Laguna, to build sustainable capital for poor and unemployed women from the rural countryside. Initially mocked for his idea, Alip persevered and in no time CARD eventually became a success, earning a total of more than $100 million in assets, at a 98% repayment rate, and helping approximately 1.2 million women.

In 2008, Alip and CARD received the Ramon Magsaysay Award for public service for “its successful adaptation of microfinance” in the Philippines. In the wake of CARD’s achievement, other non-government organizations (NGOs) have sprouted to emulate its business model and to help their own communities.

Not surprisingly, one of the biggest problems that CARD faced was securing financial backing. This is where the late beloved President Aquino came in.

Mrs. Aquino was so impressed with the story of Alip and microfinance in general, that she invited the doctor-banker to speak to her and a group of the country’s most prominent businessmen and entrepreneurs. Those in attendance included business magnates Washington Sycip, Jaime Augusto Zobel de Ayala and Manuel Pangilinan, former Finance Secretary Ramon del Rosario, former Ambassador Howard Dee, former Negros Occidental Governor Daniel Lacson and Vicky Garchitorena of Ayala Foundation.

In his talk, Alip narrated how he and his group developed their microfinance venture, as well as the concepts and processes of microfinance and microcredit. Afterward, Mrs. Aquino implored the businessmen to contribute funds to a foundation that could assist start-up microfinance institutions. She gently reminded them that 30% of the 90 million Filipinos were living below the poverty line.

Sycip and Pangilinan offered Php5 million each, Meralco’s Oscar Lopez gave Php2 million, and Zobel donated Php1 million. In total, Mrs. Aquino was able to raise Php20 million, paving the way for the establishment of both the PinoyME (which stands for “Filipino microenterprise”) Foundation and the PinoyME Consortium in February, 2006 during the 23rd anniversary of Edsa I.

The Foundation acts as a social investment banker for microfinance institutions (MFIs) and microentrepreneurs, while the Consortium is focused on strengthening the microfinance industry. With Mrs. Aquino’s goal of “turning around” the lives of five million families by 2011, Pinoy ME’s mission is “to contribute to nation-building by making the entrepreneurial poor self-reliant and self-sufficient.”

Mrs. Quino convinced former Land Bank President Deogracias Vistan to be Chairman, and former National Coordinator of CODE-NGO and Development Bank of the Philippines Director Danilo Songco to be President and CEO.

“PinoyME sees itself as a primary risk-taker in an area where none of the traditional financial institutions wish to invest,” Vistan said in a presentation before the Makati Business Club and the Management Association of the Philippines.

In an interview with Planet Philippines, Songco states that the former president saw microfinance as the rare model of empowering the poor to lift themselves out of poverty through their own efforts.

“She was amazed at how providing them with much needed capital, usually very small amounts, enables them to engage in livelihood activities that increase their income and helps them contribute in their small way to the economy.”

The original intention of PinoyME was to help MFIs reach five million poor people and to tap Php5 billion in new capital for MFIs in five years.

Five years later, the government reports that microfinance organizations are now serving approximately seven million families, with more than Php12 billion in combined portfolio.

According to PinoyME, microfinance is still very much an urban and retail/trading business phenomenon. Songco says it needs to reach rural areas where 70% of the poor in our country reside and where rural finance is still very much wanting. Among the areas needing microfinance services are the upland communities of Mindanao and Bicol, as well as remote places in Eastern Visayas.

“Thus, our next goal is to help MFIs reach more of the rural poor with microfinance and microenterprise development services. We would like to help MFIs become more conscious about reducing the poverty of their clients while also being more profitable,” says Songco.

Currently, PinoyME Foundation has a loan portfolio of P65 million. “We intend to grow that to P100 million in the coming years but we also hope to provide financial advisory services to MFIs to enable them to tap non-traditional funds for microfinance from the capital market,” adds Songco.

Besides going through conventional channels for funding, Songco would like Filipinos overseas to make a contribution to alleviating poverty in their home provinces. PinoyME has a social investment fund to which OFWs can donate and, in turn, it will be lent to microentrepreneurs in their home province and municipality.

The funds donated will be collected back and revolved to other poor microentrepreneurs in these areas. In addition, PinoyME is also prepared to help microentrepreneurs find markets for their products.

Songco wants to insure that Mrs. Aquino’s legacy continues with PinoyME. “Though she passed away, the leaders of PinoyME are committed to pursuing her goal of making microfinance reach the poorest families in our country. Her life and her advocacy will continue to inspire us in making her dream a reality.”

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2 Comments so far

  1. MICROFINANCE;A WAY OUT OF POVERTY

    This is base on true event and is real. The idea of the project is good but in its application 90% failure and 10% might have succeed since the money borrowed is use in tong -its, buy for food etc, but not on the general purpose to create business and create jobs. Our country will never go forward and hope that our leaders must not make false hope for our fellow country men since 35 (not 3.5 million )millions are out of jobs and millions more are under employed( 95% of Philippine Industry halt operation due to high cost of fuel and the emergence of Chinas economy, all made in China) Our country could go forward if it can create jobs for every Filipino and zero dependence on imported energy. Just follow links to J P I Fuel Enterprise an energy company of the Philippines and that is the solution.

  2. wowie says:

    I’ve a been program management officer of a certain foundation for almost 3 years now and I manage the Micro-Finance Kabuhayan Loan, as of my experience upon managing this program the success of a certain enterprise depends not only to the sole borrower alone or to who manage the enterprise, it is merely depends to the whole family even how eager, disciplined or hard working person you are if one of your family is not participating well or showing contrary to what all of the family is doing things will not work accordingly it will just give them temporary or a taste of success but will not last for their lifetime, We can attribute all of this on how well each and everyone of the family manage their finances, to their vices and on how they are committed to achieved their plans and goals and most importantly their full dedication, perseverance and determination to achieved their lifetime success


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