Microfinance, an essential tool for the poor’s recovery
Dr. Jaime Aristotle B. Alip
CARD MRI Founder and Chairman Emeritus
In the mid-1980’s, at a time when the poor is clamoring for change and transformation, microfinance institutions (MFIs) started offering microcredit for capital with low interest rates, flexible loan terms, and no collateral. This provided the low-income sector with opportunities to establish microenterprises to augment their family’s income towards a more sustainable future.
While many has doubted the capacity of the poor to pay back their loans, MFIs went full swing in giving them their trust. Credit is paired with education, which then resulted to a firm credit discipline among its clients. As an effect, mutual trust between the MFIs and their clients is cemented. The repayment rate of these microfinance clients has been commendable ever since.
Now, another challenge for the low-income sector unfolded before our eyes. MFI clients, most of whom belong to the fringes of the society, felt the disquieting effect of the community quarantine to their livelihoods and sources of living due to the restricted movements in order to contain the spread of the virus. As municipalities and cities move towards general community quarantine with more relaxed restrictions this June 2020, MSMEs can start their businesses again.
This 2020, we again became witness to how the poor is clamoring for change.
An unexpected outcome
In compliance to the Bayanihan to Heal as One Act, MFIs across the country implemented a 30-day grace period for all loan payments. However, something unexpected happened.
CARD Mutually Reinforcing Institutions (CARD MRI), a group of organizations that provides microfinance, microinsurance and other community development services, opened majority of its branches and units nationwide upon the recognition of microfinance as an essential service under the Omnibus Guidelines in the Implementation of Community Quarantine. Our branches re-opened in GCQ and MECQ areas particularly to provide what we anticipated to be essential to them during this time: savings withdrawals, deposits and remittance.
Because we understand that our MSME clients faced tight liquidity due to the enormous impact of COVID-19, the least of our expectation is for them to prioritize payment of their loans. As our banks opened, clients started to inquire if they could settle the remaining balance of their loans. In response, we gave them the discretion to accelerate settlement of their loans without obliging those without capacity to pay yet. The outcome is overwhelming.
Take the case of Lalaine Cabusas, a member of CARD Bank Pasay since 2015. She has been selling different banana varieties in a cart. As her business grew, she was able to build a stall in front of her rented house, at the same time selling the bananas on consignment through three magkakariton, including her husband, while she tended the store and took care of their young son. The ECQ did not deter them from continuing the business, as demand continued to be strong. Not aware that she can pay her loan amortization even on ECQ, she nevertheless went to CARD Bank every week to deposit her profits. Thus, when she later learned she could pay back her loan balance in full, she did so voluntarily in the expectation of a bigger next loan. Though she already has a second-hand Kia Vista Van to pick up
shipment of banana from the Manila port, she and her husband are eyeing another van. They plan to expand their market through wholesale delivery to Laguna and Cavite. Like many migrants to the city (Lalaine is from Sultan Kudarat while her husband is from Agusan), they both maintain that despite the congestion and the pollution, it is where they found their pot of gold.
On the first week of May, when we started resuming our operations, more than 300,000 clients volunteered to pay their weekly dues which amounted to a total of P169M. This further went up on our second week of operations on May 11-15 as our weekly loan payments increased to P425.8M from 715,209 clients. On May 18-22, our loan payments totaled to PhP739.2M from more than 1.3 million clients. By the end of the month, more than 1.67 million clients, which is 25% of our total clients nationwide, voluntarily paid their loans amounting to a total of PHP765M. The increasing number of volunteer payments continued to increase in June as we recorded PhP1.03 Billion loan payments from 2.27 million clients on the first week. By June 8-11, we have gathered P1.06B voluntary loan payments from 2.3M clients.
One of the critical factors affecting our clients’ behavior towards their loan is because CARD MRI successfully maintained its strong credit culture. Before lockdowns happened in March, we maintained a healthy repayment rate of 99.01%.
Since inception, CARD MRI built a good company culture and credit discipline among its staff and clients. We provide imperative trainings about value formation, project management, savings and credit management, and other socio-economic topics through our weekly Credit with Education (CwE) service conducted during center meetings. With their willingness to repay their weekly obligation even facing a crisis, this proved that our decades of financial literacy have been effective as our clients’ credit discipline are strong and evident.
Stories of Recovery
While the moratorium and loan payments on a voluntary basis has been helpful to microentrepreneurs during the lockdowns, access to capital to fuel the recovery of their businesses is essentially needed as we move towards GCQ. In an article by Dumlao-Abadilla from Inquirer.net, MFIs are described to be “critical in post-crisis rehabilitation process”. In response to this, CARD MRI started to provide loans to its targeted clients so that they will have the means to restart their income generating-activities. Those in the agri-related businesses, health-related ventures, sari-sari store and other small entrepreneurs are the top priorities.
The resumption of the operations of MFIs sparked hope for many microentrepreneurs. For Florenda Tamayo, a CARD SME Bank client, resuming the releases of loans is a welcome development for her family. They have been ambulant vendors of fish, seafoods, chicken and meats for 20 years now. Now that tricycles cannot take a backrider, her husband do the rounds of their suki by himself. He is able to sell 80-100kg of fish and seafoods a day, as more people tend to wait a home for vendors rather than beat the intense heat and long queue in the market. Their sarisari store has been doing well also, as other stores are located far from the center of their community. They are sharing their good fortune with family, even as Nanay Flor said, “hindi naman kami makatiis na kumakain ng husto at masarap, samantalang ang ibang kamaganak ay wala ng makain.” Even the pandemic cannot kill the Filipino’s entrepreneurship, hard work and family spirit.
The same is true for Mildred Diniega. Her family has been farming since she can remember. Her mother joined CARD, Inc. (A Microfinance NGO) and was able to send a daughter through college, the only one among her siblings to get a diploma. An agricultural engineer, she is employed by the Department of Agriculture in Bacarra. She is a source of pride and financial support for her family.
Before the lockdown, Mildred was raising 4 fatteners. They were able to harvest their rice crop but opted to keep them for consumption. The PhP 48,000 from the sale of the hogs, the milled rice, her sister’s salary, the 400 pesos a day income from the kuliglig and LGU ayuda saw their family of 10 through the most difficult times during ECQ. They were even able to extend help to relatives who did not have anything to eat.
But as the lockdown continues, and her only source of cheap loan, CARD, Inc., remains closed, she began to worry how they can buy the inputs for their rice crop. She did not want to borrow from moneylenders, the most common source of funds for farmers like her. She knows that the exorbitant interest charged will cut deeply into her earnings. Thus, when CARD, Inc. reopened in May and she was able to secure PhP 33,000 loan, she heaved a sigh of relief. Immediately, she bought fertilizers and chemicals needed in the farm. Her daughter, with God’s help, will be able to continue her studies at the Mariano Marcos State University. CARD Microfinance NGO rekindled her hope that despite the pandemic, soon, her daughter will become a teacher.
For CARD MRI stakeholders, especially the clients, the resumption of CARD MRI’s operations is considered the refreshing first drops of rain (Agua de Mayo) after a prolonged lockdown. We disbursed loans amounting to more than PHP1.68B to 139,427 clients for the period of May 4 to June 11, 2020.
These clients have also been reported to be voluntarily and diligently paying their loans weekly.
Call for Government’s Support
Terrie Rose Munar, a client of CARD Bank in Tarlac, owns a computer shop (Pisonet) and sari-sari store. To restock their shop during the community quarantine, her husband had to cross a river, by foot, to get supplies in the población. Still, they plodded on and as a result, their business thrived despite the pandemic.
Her business did well, being the only store open in her community. To help her married sister, she pays her brother-in-law to tend the store/ computer shop at night, thus her microenterprises serve the community 24/7. She has 14 computers in her shop, operated by customers themselves by just putting in coins. Her customers come for entertainment or to fulfill requirements for work or school. As the lockdown relaxes, she intends to restart the other Pisonet shops she put up in different barangays under a 60/40 arrangement with store owners like her. Restocking her store is less difficult now as tricycles can take one passenger to bring her to the big market.
It is because of the Philippine’s conducive environment for microfinance that microentrepreneurs like Terrie Rose is able to carry on despite the challenges we are facing. Over the years, MFIs have grown and expanded its reach and impact, implementing holistic approaches to development through financial and non-financial services. Recognized as an effective tool for development, it has served more than 9 million families. This success can be attributed to several complementing factors, including the support from the government.
The contributions of the microfinance industry to poverty eradication was highlighted when Republic Act of 10693 or the Microfinance NGOs Act was signed into law in 2015. This gives Microfinance NGOs a 2% preferential tax that enables us to expand financial and community development programs.
However, the impact of microfinance would be threatened should a tax reform program repealing Section 20 of RA 10693 become implemented. As microfinance proves to be critical in the development of the low-income sector, the industry seeks for the government to continue strengthening the environment for microfinance operations.
With the immense programs and services of MFIs to move the Filipinos out of poverty, we hope that the government can consider allocating concessional funds to refinance the MFIs, especially the smaller ones. With liquidity problems bringing their operations to the brink of collapse, these smaller MFIs may have difficulty continuing to support their clients. When this becomes articulated in the economic stimulus fund, MFIs will be able to refinance the businesses of microentrepreneurs.
Microfinance and microinsurance always go together. We learned as an industry that the poor needs assurance whenever uncertain events happen. Microinsurance-Mutual Benefit Associations (Mi-MBAs) provide protection for more than 27 million poor and low-income individuals in the country. Meanwhile, non-life insurances provide coverage for calamities, business recovery, and health protection. A more enabling environment for microfinance institutions is one that would also support these Mi-MBAs and non-life microinsurance companies. As such, we also urge the government to uphold the tax exemption for Mi-MBAs and a lower tax rate for insurance premiums for non-life insurance companies. Everyday, even while the pandemic is raging, these institutions pay millions of pesos in terms of insurance claims of poor Filipinos, assisting the government in its goals for development.
MFIs are frontliners in terms of the economic frontier, serving as the bridge between banks and the financially excluded and vulnerable. They are also the last mile financing conduits to the hard-to-reach communities like island towns and ethnic minorities. We hope that the government will continue considering MFIs as partners for development by strengthening policies and reforms that truly support our mutual goals.
Hope for the marginalized
The Filipinos are ever resilient. No matter how big the challenges are, we manage to bounce forward. The new normal may demand new ways for us to respond to the needs of the low-income sector, but we are positive that we will cope with these new changes with the support of the government and the capacity of our microentrepreneurs. The COVID-19 pandemic may be the greatest threat in recent history, but this will not stop us from pursuing our goal of poverty eradication. Instead, the crisis led us to think of innovative ways to respond to the changing needs of our fellow Filipinos amidst the new economy. As Bangko Sentral ng Pilipinas Governor Benjamin Diokno succinctly put it during a FinTechAlliance.ph Forum: “With our collective efforts, may we be able to look back at this crisis with no
regrets for wasted opportunity.”
About the Author
Dr. Jaime Aristotle B. Alip is the founder and chairman emeritus of CARD Mutually Reinforcing Institutions, a group of 23 institutions that envisions to eradicate poverty in the Philippines. He is the recipient of the 2019 Ramon V. del Rosario Award for Nation Building.