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.
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.
In this community, there are approximately 1,000 homes. Most families derive their income from diwal fishing. Diwal are large oysters that are popular here in the Philippines. They are shipped to Manila and other parts of the country to be served in restaurants. Everything revolves around the fishing industry here. Crab traps are stacked next to a house on the beach. There are pails of small fish everywhere, waiting to be distributed to the fish markets in the provincial capitol or sun-dried on long racks to be sold as dried fish – a common business among NWTF clients in fishing communities. We ask whether 5,000 pesos ($100 USD) would be sufficient for a microloan. For some people, they respond, 5,000 would be enough. But many families would require a loan of 15-20K to purchase a new motor for their pump boat. For a new branch, this isn’t possible. New clients start at 5,000 pesos, and work their way up to 20K over the course of 5 or 10 loan cycles. So, for the time being, if a branch does open here, these potential clients will have to start small. A community loan, on the other hand, could potentially enhance the earning-potential of everyone in the village.
On the beach where we are standing, there are probably 40 pump boats. Some are on the beach for repair, while others anchored just off the shoreline. Each is outfitted with an outboard motor that runs on diesel fuel. If this community could install a storage tank and buy diesel fuel in bulk, they could collectively reduce the input costs for running their fishing businesses, resulting in higher profits for everyone. Similarly, if they had an icemaker, the fishermen could store their catch on ice. This would allow the community to function as a co-op, selling enough volume to perhaps eliminate middlemen and get better prices for their catch. These are the direct benefits of a community loans. As with anything in microfinance, there is a ripple effect, producing many indirect benefits as well.
In a small and very poor barangay such as this one, money tends to stay within the community. People buy their clothes, detergents, and other necessities at the sari sari stores and eat locally prepared food. Therefore, additional income at the primary producer level (the fishermen), which comes from the surrounding towns, is recycled within the barangay. The local businesses make more money as a result, which they can invest in their childrens’ education or putting an addition on their home. In a squatter community, a family could even potentially earn enough to buy the title to their land. In other words, when the primary industry becomes more efficient and profitable, the community at-large inevitably becomes the beneficiary.
Community loans are not widely used here in the Philippines, and I am not sure about the rest of the world. However, they have revolutionary potential because of the broad and sustainable impact they can have on a community.
Interesting. In the US, community loans are given all the time to rich and poor communities as well as small and large communities-they are just called bond placements and are administered by the “dreaded investment banks” (one of the parts of investment banking that actually does do good for society as opposed to manipulating markets which is the way they make much of their money). If a community needs a sewage treatment plant, school or something for the infrastructure, they just vote and take out a bond (no different than a community loan) and pay it back over 10-30 years.