Category Archives: Microfinance

Posts about the practice of microfinance

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. Continue reading →

Life on the Farm: Micro-Crop Loans

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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. Continue reading →

Two Days in La Castellana

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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, with haunting blue lenses contacts, 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. Continue reading →

Scouting New Territory II

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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.

The director and the girls look for women to interview.

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.). Continue reading →

Scouting New Territory I

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The van.

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? Continue reading →

Mass Weddings for the Poor

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The following was written for the Kiva Fellows blog. Read the original here.

This job is unique, in that it offers an endless supply of intellectual satisfaction. Every day, I learn something new about something interesting. For the time being, what interests me most is microfinance. My knowledge of microfinance prior to Kiva could be described as purely academic. Experiencing it firsthand has been rewarding. In particular, I like understanding the details of execution, the challenges faced by the institution, and generally how a microfinance institution works. The amount of information to digest is enormous, so I try to focus on understanding a few NWTF (Negros Women for Tomorrow) programs that I think are in my wheelhouse. The downside is that I end up overlooking many fascinating and unambiguously positive programs. The other day my coworkers were telling me about the upcoming Foundation day at one of the branches. Every year, each branch that meets a certain threshold of repayment and performance can have a Foundation Day party with upwards of 2,000 attendees. I was supposed to go to one in Cauyaun on Saturday, but I got food poisoning the day before and was bedridden. At some of the Foundation Day celebrations, NWTF holds a mass wedding. This is one of those programs that I find really interesting for different reasons. Let me explain why. Continue reading →

Hapinoy

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Here in the Philippines, the most common use for a microloan is a sari-sari store – otherwise known as a general or convenience store. There are an estimated 700,000 of them here, and you can find one on just about every block in the country. In 2007, an organization called Microventures Incorporated introduced its Hapinoy program, which is a coop of sari sari stores across the country. By joining together, these stores can get leverage economies of scale to get volume discounts, competitive pricing, and more favorable terms for microloans. The organization purchases products in bulk from Procter & Gamble and other large manufacturers, and distributes them to each Hapinoy store via a community store. It is a hub-and-spoke model with a wholesale store serving different regions. Here is a program that operates within the existing framework of the country, improving what exists, rather than trying to change it altogether. Continue reading →

Community Loans: Part II

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The following was written for the Kiva Fellows blog. See the original here.

I spent all last week touring a province in the Philippines with a 7-person team in an effort to gather market intelligence about the region. The purpose is to determine whether or not NWTF should open a branch here. Much of our day is spent driving around a town (one in the morning and one in the afternoon) looking for the poorest neighborhoods. The Dilapidated Housing Index is a means of making a snap judgment about whether a community is sufficiently poor for microfinance to be beneficial. If most of the houses on the street are made of bamboo, corrugated aluminum, and bamboo leaves, we know we are looking in the right place.

A fishing village in the Philippines

On Thursday morning, we were driving through a coastal town when the paved road turned to dirt. According to the driver and director of the research department at NWTF, when the road turns to dirt, you know you are headed in the right direction. Sure enough, within a few minutes we reached a squatter community bustling with people. (In the Philippines, the government protects squatters, and large communities spring up on other peoples’ lands.) The road was just wide enough to fit the van and lined with nipa huts and sari sari stores. We passed by two makeshift basketball courts before coming to the end of the road. We parked the van and split up to walk around and talk to the people. Unfortunately, the interviews are all in Illonggo, so I chose to follow the director down to the shore. He began talking to a group of women on the beach holding their infant children. If they could have a loan to spend on anything in their community, what would it be? Their response: diesel fuel or an icemaker. I’ll explain why this is important, but first some background. Continue reading →

Community Loans: Part I

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Microfinance is a term to describe the broad umbrella of financial services to people without access to a traditional banking system. Microfinance institutions (MFIs) provide these types of services, which include microcredit, insurance (health, life, crop), savings accounts, remittances, and others. Most MFIs rely on social collateral for repayment, which, in turn, is dependent on the strength of the community. The community is at the center of the mission of microfinance, and some of the most interesting services offered by MFIs are aimed at making the community better as a whole.

Villages served by NWTF frequently support a single industry. A community on the water might derive its livelihood from fishing or oyster farming. Similarly, a community in the middle of a rice field s likely to revolve around rice farming. The NWTF members in the community either have businesses in the industry (i.e. operating a fishing boat or renting crab nets) or supporting the industry (sari-sari store, buy-and-sell, used clothing). In these cases, the health of the community is directly tied to the strength of the industry. This is where community-based loans are useful. Continue reading →

Primer on Mobile Banking

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The Philippines is called the “texting capitol of the world.” Everyone has a phone, mostly because they are a) inexpensive (starting at $20 USD), b) offer flexible plans (everything is prepaid), and c) texting makes life easier. SMS messaging is the predominant mode of communication not only here, but in other parts of Southeast Asia. Even business inquiries and scheduling a meeting might be done via text. The mobile infrastructure of the Philippines is far more robust and pervasive than landlines or Internet. In the context of development, the mobile landscape offers great opportunities. Like anything, it is better to improve and leverage the existing system than to try to create a new one altogether. The question becomes, how do you harness this existing infrastructure to improve delivery of microfinance services? The answer is mobile banking. Continue reading →