This is the third post of a three–part series on small- and medium enterprises. It is a two-part post.
A month ago, I attended a conference in Manila sponsored by the Microfinance Council of the Philippine Islands. I wrote briefly about the level of cooperation among the participants, but have yet to share what I learned. The conference – titled “Operationalizing Social Performance Monitoring (SPM)” – brought together a dozen microfinance institutions (MFIs) and lenders from across the country to discuss best practices for focusing on the social mission. In the microfinance world, theoretical solutions to problems, like how to focus on the poor and remain financially sustainable, are often incompatible with the nuanced realities on the ground. This gathering offered a chance for MFIs to share what has worked and what has not, so that the microfinance community at large can be more effective at addressing poverty alleviation in the Philippines.
The keynote speaker, Prof. Ron Chua, functioned more as a facilitator and moderator than a lecturer. He asked the MFIs to present a specific social goal and discuss the measures each would take to achieve it. One nameless participant set an organizational goal of transitioning 30% of existing clients from micro-enterprises to SME (small- to medium enterprise) within five years. They presented a laundry list of programs designed to aid in this process. The underlying assumption behind each of these measures is that financial services (microcredit) must be complemented by the provision of non-financial services, including business development and support services and integrated community development. Provision of financial services alone is not enough to bring people out of poverty. This exhaustive list addresses all of the key issues in moving a client out of poverty. I will present the first six here, and the remained six in the next post.
1. Conduct trainings on personality and spiritual development
The Philippines is a religious country. The U.S. may call itself a Christian nation, but the Philippines walks the walk. Microfinance institutions serving the poor often have a basis in Christianity, though not all explicitly use the forum for evangelization. But giving women faith in God and building confidence in their abilities is important for success in their businesses.
2. Linkage of clients to DTI for product development, packaging, labeling
While most micro-businesses in the Philippines are sari-sari stores, many women still make food (native delicacies, candies, etc.) and manufacture crafts for sale in the local markets. Providing these clients with access to affordable packaging and labeling solutions allows them to improve the design of the product. In turn, the client can more easily introduce her products to the larger markets – a necessity for becoming an SME.
3. Exposure of clients’ products to local and international markets
In rural areas, much of the commerce remains within the community. Products are bought and sold between businesses and food might be sold door-to-door. But the most successful businesses are those with contract buyers in local markets that take product on delivery. Facilitating access to domestic buyers across the country removes the demand ceiling for these products. Holding trade fairs and collecting your clients with buyers on other islands and abroad opens up a whole new market. So, instead of selling your candies or banana chips outside the local university, now you can package and ship them to Manila.
4. Creating of a marketing cooperative which serves as a market link between entrepreneurial communities and potential markets
Micro-businesses are, by nature, small in scale. Without the adequate size, these women have little or no leverage in buying materials and negotiating on prices for goods. A marketing cooperative uses the combined purchasing power of the collective to get better prices for their products and cheaper input costs.
5. Livelihood skills development
Instead of just giving clients money to start a business, why not teach them a trade? Giving them the requisite skills needed to start a unique business – commercial cooking, welding, cosmetology, and massage, to name a few – gives clients a competitive advantage over their competitors. In addition, businesses requiring vocational training have a higher barrier to entry than the more traditional microfinance businesses, like a sari sari store or fish vending. The opportunities for success increase when fewer people are doing the same thing as you.
6. Financial education
Most microfinance clients have, at best, a high school education. Attending school is expensive and too often cost-prohibitive. Even if the women have been running a business for years, few have any formal training. By giving clients a basic education in debt management, savings, budgeting, and sourcing of funds, the MFI can improve its repayment rate and also help these businesses to grow. “Grassroots Entrepreneurship & Management,” or GEM, is a specific program used by this MFI to give its clients the basic business skills needed to grow their business into an SME.
The following clip highlights an eight-week program that, by offering a marketable skill in a short timeframe, generates opportunities for participants. In addition, the program promotes discipline, self-respect, and the “buddy system,” all crucial elements of microfinance:
Tomorrow I will address the remaining six programs for achieving these goals.
Your discussion on micro-finance seems to take an eehtir/or position, enforcing the assumption that it has to be eehtir the financial or the health needs of the poor that one focuses on. Isn’t our thought process and our desire to help expansive enough to encompass both of those areas of need? Why should a choice ever be considered? And from what value system do the criteria come for deciding if a micro-finance program is helpful or successful? If a hypothetical program only helps 10 out of a hundred individuals/families get out of debt and improve their well-being during a program cycle, is that a failure in the eyes of the individuals who have been removed from the devastation that poverty brings to the human spirit? And would the other 90 individuals complain that their lives had been temporarily or marginally benefitted? Would they be willing to try again, and perhaps join 20 out of a hundred in the next round? The question I am raising is about the value system underlying the studies that claim that unless a certain percentage of poor individual’s lives are improved in a certain measurable way, that a program failure has occurred. What about the internal, personal egoic, spiritual benefit someone has gained from the very fact that someone else reached out to help them? How is that benefit measured, and is it any less important than a measurable exoteric result? I also wonder if the work of Grameen Bank was considered in your analyses? I’ve read Stuart Rutherford’s book, The Poor and Their Money, and the recent follow up to that work (Portfolios of the Poor), and both of these respected resources say that the Grameen Bank’s work has been beneficial. And even Dr. Yunas states that Grameen continually examines past results and seeks greater success. My suggestion is that we focus on best results in all fields of poverty alleviation and health improvement, rather than comparing one method of assistance against another (Your comment: We feel that global health is a better area for a donor overall . . . ) and encourage people to give more and to get more of their network involved in helping – locally and globally.