Microfinance

The Journalist

This week Negros Women for Tomorrow published it’s first newsletter in several years.  I know the girl putting it together, so she gave me 250 words (shortened first to 150, then 100).  Here it is: Over the past year, Kiva has partnered with MFIs like NWTF across the Philippines to Read more…

Development Economics

Working Toward a Common Goal

A microfinance institution is a business.  Like any business, MFIs are competitive with one another.  While MFIs currently serve only a portion of the poverty pie, they compete for existing clients.  It is important to create a product that appeals to the client and offer high levels of service in order to keep your clients.  This is particularly true in the Philippines, where things are relationship-driven and the people are emotional.  For example, NWTF has an issue with client attrition because it sometimes has difficulty distributing new loans immediately after the old one has termed out.  The women feel hurt and slighted when this happens, and drop out of the program as a result.  In turn, they will join another MFI.  That was a tangential anecdote to emphasize the competitive nature of this business.  Yet this past week I attended a conference in Manila on “Operationalizing Social Performance Monitoring,” which highlighted the cooperative nature of microfinance institutions.  It was hosted by the Microfinance Council of the Philippines and attended by MFIs from all across the country. (more…)

Development Economics

SMEs in the Philippines

This is the second post in a three-part series on SMEs. In an earlier post, I discussed another area of development – SMEs – that is both important for creating sustained growth, and has recently attracted interest from investors.  The Philippines is also placing a lot of emphasis on this area of development. The Philippines is actually in good shape regarding SMEs, as it has an abundant labor pool.  The country has 800,000 registered businesses, of which ~7% are classified as either small (10-99 employees, $60K to $300K in assets) or medium (100-199 employees, $300K to $2M in assets).  Only 0.4% of the business earn above the $2M mark.  The remaining 92% are microenterprises, which have between 1 and 9 employees and earn less than $60K in assets.  These MSMEs (including microenterprises) account for 70% of the labor force and 30% of the output of the country. (more…)

Travel and Culture

Beard Update

[caption id="attachment_527" align="aligncenter" width="300" caption="This picture is on Facebook, with the caption: "Talibans drinking beer""][/caption] It's been over a month since my last update about the beard.  Unfortunately, I wish I could say that no news is good news, because the news is all bad.  The pattern highlighted in my previous post has shown itself to be permanent - disappointing to say the least.  This is Asia and few people can grow beards here.  I went on a trip with one of my coworkers and his friends to Dumaguete, a beach town down south that is also the capital city of Negros Oriental.  In this picture, I am shown with the only Filipino in the entire island of Negros that is capable of growing a beard.  The entire week we were referred to as the terrorists.  Because the market for the products doesn't exist, I don't have access to the proper grooming tools, so I've been using a mustache trimmer to keep the beast in check.  It has worked reasonably well, apart from the errant bare patch.  But first, the developments. (more…)

Development Economics

Helping Haiti: Microfinance and Natural Disasters

What is the role of microfinance in the immediate aftermath of a natural disaster?   The short answer is that, under the circumstances, microcredit is less effective.  A prerequisite for microcredit is a functioning economy.  Goods and services need to be worth money for capital infusions to make a difference.  For example, an MFI lends money to a woman for the purpose of opening a general store.  The woman uses the loan to buy soap from one retailer and soft drinks from another.  She hires a local contractor to build the addition on her home, or at least purchases the materials.  The money flows around community, and everyone becomes wealthier.  But in the immediate aftermath of a natural disaster, the communities served by microfinance are so devastated that the system doesn't work.  There is no electricity, no fuel, no food, no water, and no shelter.  Homes have been destroyed and people are starving.  A sack of rice becomes invaluable – to a starving person, no amount of money would lead them to part with food.    So it becomes a barter economy, if there is anything to barter at all.  As with everything, these points are best illuminated by example.  The most obvious is the recent earthquake in Haiti.  In reality, Haiti needs aid money, and it needs aid workers to deliver services.  Microfinance - microcredit, in particular - cannot immediately help during the relief period because there is no economy to stimulate. (more…)

Development Economics

Life on the Farm: Micro-Crop Loans

This post appeared on the Kiva Fellows blog.  Read the original here. Last week I went to a town called La Castellana about an hour south of Bacolod to visit the NWTF branch there.  I was there to meet a handful of Kiva borrowers and interview them about the progress of their loan.  Over the course of two days, I met six women that currently have a loan with Kiva, and another four that I am going to post to the site this week.  La Castellana is a town in the mountains that is largely supported by agriculture.   It is also one of the major areas impacted by agrarian reform and home to some of NWTF's poorest clients. The Philippines is a country of ~90 million people, half of whom live in rural areas.  Eighty percent (80%) of Filipinos living below the poverty line are in rural communities, supported primarily by agriculture.  Over the past three decades, agricultural land ownership in the Philippines underwent a transformation via a series of legislation known as Comprehensive Agrarian Reform Program (CARP) passed in 1988.  Designed to provide landless farm workers a piece of land, the program has redistributed farmland in 1.1-hectare units.   It is a controversial topic, and its effectiveness at combating poverty is debatable.  Regardless of whether or not CARP has worked, the ARBs (Agrarian Reform Beneficiaries) – the recipients of the farmland – are the poorest of the poor.  In Negros alone, there are 112,000 ARBs working 170,00 hectares.  There are no economies of scale on a one-hectare farm.  Fertilizer, farming equipment and labor are expensive, and they don’t have the capital.  The average land tract size for ARBs in Negros is 1.25 hectares, with input costs of 35,000 pesos (~$800 USD) per hectare.  The government gave them land but failed to provide adequate funding, agricultural training, or meaningful support.  In many ways, the cards are stacked against them.  So, unable to make ends meet, many just rent or sell their land back to the owner.  It is a vicious cycle, but microfinance can offer a solution. (more…)

Microfinance

Two Days in La Castellana

Last week, I spent two days in the town of La Castellana, visiting the NWTF branch here.  I went to speak with existing Kiva clients about their business to send an update to the lenders, and also interview new clients to post up on the site.  You can always tell the profiles and updates I’ve written because I try to employ the same literary techniques that make this blog so readable (or unreadable, depending on your perspective).  Of the six weeks I have been working here, I’ve spent two and a half in the field.  This is where I get to see microfinance implemented on the ground.  I get to see the how it is executed and talk to the loan officers and the clients - the people in the proverbial shit.  It is the part of the job I enjoy the most. The day begins early.  I’m told I need to be ready to go by 5:45, so I set my alarm for 5:00.  At 5:30, I get a knock on the door.  It is Albert, one of the janitors, who is supposed to take me to the bus stop a kilometer away.  Fresh out of the shower, I asked for 5 minutes to gather my things before we left.  When we get to departure point for the van, the gate is closed.  Albert yells to the driver, who is sleeping in the rundown ticket office.  He rubs his eyes, gets up and walks over to the van (inside the gate).  He says something to Albert in Ilonggo, climbs into the backseat of the van and falls asleep on the seat.  “The van doesn’t leave until 6:15,” Albert tells me.  I told him to go ahead, and that I can wait on my own. (more…)

Microfinance

Scouting New Territory II

The other day I talked about how an MFI figures out the potential market for their services in an area.  A simple calculation using statistics provided by the government offers a high-level estimate of the number of women in the target profile.  But it is also important to understand the situation on the ground – who is there already and what are they doing?  On a recent market research trip with some NWTF staff, I learned how to get the answers to those questions.  The team included the director of the research department, a research officer, the regional manager of the NWTF branches in Cebu, and four prospective loan officers from Kalibo (henceforth referred to as “the girls”). To get the answers to these questions, we employed two strategies – individual interviews and focus groups – and split up. [caption id="attachment_474" align="alignright" width="240" caption="The director and the girls look for women to interview."][/caption] The girls were responsible for walking around the villages we’d visit and interviewing women about their businesses.  Using a PPI form to screen for women below the poverty line and a questionnaire, the girls gathered statistics that later would be aggregated and analyzed back at the office.  The questionnaire asks their household income, whether it is regular or seasonal/contractual, whether or not they own a business.  The girls ask the interviewees to estimate the amount of capital needed for their business, and, if given a loan, what they would purchase (with a corresponding cost estimate).  Lastly, they ask what they would do with 5,000 pesos – the minimum loan for a first-time client – how much amortization they can afford, and what mode of payment would be suitable (daily, weekly, monthly, etc.). (more…)

Microfinance

Scouting New Territory I

[caption id="attachment_461" align="alignleft" width="500" caption="The van."][/caption] One misconception about microfinance institutions is that, because they are NGOs with a core social mission, they do not compete in the same way as traditional for-profit companies.  This is, of course, not the case.  Just like any other business, MFIs must strive to offer the best product, best service, and, ideally, serve communities with a sizable demand for microfinance.  This gives you a competitive edge over other MFIs in the area.  When considering expansion, an MFI needs to consider the conditions of the region and understand the economic profile of the people in the community. I just got back from spending four days on another island, tagging along on a market research trip to evaluate and assess the potential for expansion in the province.  First, how big is the market? (more…)