India Development Solutions

By Felix Tonog

Many good things have been written and said about the late President Corazon “Cory” Aquino, and much more will be said and written about her. One of the legacies of President Cory is that she always had the plight of the poor in mind. She fought not only for freedom from tyranny and dictatorship but also freedom from poverty.

In 2006, on the eve of the 20th Anniversary of the 1986 People Power Revolution, she founded the PinoyME Foundation, a consortium of businesses, civil society organizations, microfinance institutions (MFIs), academe, and government agencies that seeks to provide P5 billion to five million poor Filipinos within five years (5-5-5) through microfinance. Philippine Business for Social Progress, through its Chairman Manuel Pangilinan, is one of its founding members.
A partnership between PBSP and PinoyME was sealed paving the way for PBSP’s foray into microfinance. With this agreement, PBSP through its Small and Medium Enterprise Credit (SMEC) program, extended a credit line of up to P250 million to PinoyME. In turn, PinoyME lends the money to its partner MFIs that need additional capital to reach more poor households. To date, PBSP-SMEC has disbursed P28 million to PinoyME, which is expected to benefit 2,866 poor households that are engaged in livelihood or income-generating activities.

Not a panacea

Indeed, microfinance is not a panacea for the poor. But one thing is certain: that microfinance was developed primarily for the benefit of the poor—“the very low income households who would normally be excluded by conventional financial institutions.” These are the poor families that are in need of credit either to start a livelihood to augment family income, or those that are already engaged in some form of micro-enterprise but need additional capital to sustain or expand the business. By giving them access to credit, the poor has the opportunity to become productive and help themselves move out of poverty.

Assessing impact

Is microfinance really serving the very poor? Is it really an effective strategy in pulling poor households out of poverty? There are limited studies on the impact of microfinance programs to give us conclusive answers to these questions.
According to studies of the Asian Development Bank, only about 10 percent of the micro-credit borrowers are considered “poor” (or those households that fall below the national poverty threshold) and about 4 percent are “subsistence poor” (those below the food threshold). Apparently, MFIs are not reaching their intended beneficiaries.

It should not be taken to mean, though, that MFIs are not really serving the poor, or are deliberately excluding them from their target beneficiaries. Understandably, there are reasons behind this: “poor infrastructure coupled with spatial dispersion of poor families in rural areas, and the limited financial and human resources of MFIs make it difficult and costly to reach the intended beneficiaries. Moreover, most providers of microfinance cater largely to non-farm enterprises, and poor agricultural households generally do not have access to microfinance services,” the ADB report says.
The same study reveals that those poor households that availed themselves of micro loans from MFIs have either increased their income, increased per capita expenditure on food, or increased personal savings. Furthermore, microfi-nance program has had a very positive impact in terms of creating livelihood as well as generating employment in these micro-enterprises.

Reducing poverty

As mentioned earlier, these studies are not conclusive. But somehow, given these findings, there is a need to re-examine the targeting approach of microfinance implementers to ensure that the poor really benefit from the program. This may entail procedural sophistication but will nonetheless justify the very reason for MFIs’ existence. The positive impact on the poor borrowers is enough reason for microfinance to be pursued. Its potential to alleviate poverty in the short term and pull the poor out of poverty in the long run has drawn development organizations to supporting microfinance.
Poverty reduction has always been the goal of PBSP’s members. Its venture into microfinance with PinoyME is an indication of PBSP’s belief in its potential. It is an expression of solidarity with groups that support the poor. Strengthening our microfinance program is, so to speak, our small way of expressing commitment to uphold the legacy that President Cory has entrusted to PinoyME and PBSP.  

Felix Tonog is a manager at Enterprise Development Group at PBSP Philippines. This article was first published in Manila Times, August 16, 2009. It is republished here with the permission from PBSP and the author.