Microfinance means providing poor families with a broad range of services including savings, loans and micro-insurance to help them engage in productive activities or grow their small businesses. The government has declared microfinance as a cornerstone in the fight against poverty.

However, millions of poor households in the Philippines still do not have access to microfinance services, and rely on self-finance or informal sources of finance, limiting their ability to participate in and benefit from development opportunities and income-generating activities. Of the 4.2 million poor households in the Philippines, only 2.5 million have access to microfinance services. Access to microfinance services can help the poor build viable businesses, pursue economic opportunities and reduce vulnerability to external shocks.

Limited institutional capacity of microfinance institutions (MFIs) is another recognized constraint to growth and sustainability of microfinance outreach. Many MFIs lack basic skills for sustainable, effective and efficient delivery of microfinance services to the poor. Inefficiencies in operations can result in higher operating costs that translate into unnecessarily high interest rates for the poor. Increasing institutional capacity of microfinance services providers could enable MFIs to better manage their costs and improve inefficiencies, potentially lowering interest rates for the poor and ensuring continuous and sustainable microfinance operations.

The National Anti-Poverty Commission (NAPC) ensures the development and strengthening of the country’s microfinance sector. A vital ingredient to this is the capacity building of MFIs, and education and awareness of microfinance clients. Under a technical assistance grant by the Asian Development Bank (ADB), NAPC implements “Enhancing Access of the Poor to Microfinance Services in Frontier Areas.” The technical assistance will provide (a) capacity building to MFIs in frontier areas to increase skills and adopt best practices for sustainable microfinance, and (b) education for poor and low-income groups on microfinance services. The ultimate objective is to expand the outreach of sustainable microfinance services to the poor in frontier areas—areas with high poverty incidence and low microfinance saturation rate, where microfinance services for the poor are most needed.

Nationwide Microfinance Survey

A nationwide field survey of microfinance institutions was conducted to collect information on institutional capacity and operations of MFIs in frontier areas. The survey covered 53 MFIs in 22 provinces. Four hundred twenty-four clients of these MFIs were also interviewed to identify concerns and issues of poor households in accessing microfinance services. Microfinance unit (MFU) staff also organized and facilitated focused group discussions (FGDs) involving 39 non-microfinance clients from the NAPC Basic Sectors to discuss non-clients’ understanding of microfinance and identify problems experienced in accessing microfinance services.

The said activities establish much-needed databases on microfinance that are crucial in designing interventions for microfinance development especially in frontier areas. The said data will also be very useful to agencies such as NAPC in policy formulation and other development-related interventions. Analysis of survey results also became the bases for designing and implementing training programs for capacity building of MFIs and their clientele.

MFI Training on the PESO Standards and On-site Mentoring

A total of 15 MFIs, including branches were selected for on-site mentoring and training. The overall purpose is to provide hands-on technical support to MFIs, with outreach potential in frontier areas, in their institutional capacity building efforts. Consultants for the project compiled and developed specific training materials on the PESO Standards—PESO stands for Portfolio Quality, Efficiency, Sustainability and Outreach—a set of microfinance standards developed for all types of microfinance institutions. This technical assistance is the first to pilot-test the PESO standards which promotes greater transparency in MFI operations and facilitates the evaluation of an MFI’s financial performance with that of other MFIs, regardless of whether it is a rural bank, a cooperative or NGO.

Microfinance Seminar for the Poor

Part of the implementation includes the conduct of microfinance seminars for the poor and low-income groups. Twenty educational seminars will be conducted in identified frontier areas to increase the awareness of 3,000 existing and potential MFI clients regarding the microfinance industry, their rights and obligations, their responsibilities and the importance of protecting their continuous access to microfinance services.

It is hoped that by enhancing their understanding and making them aware of their responsibilities, they will be equipped to perform better in accessing the services of MFIs. Through the seminar, they will be able to communicate effectively their needs and requirements for the MFIs to develop appropriate arrangements and products to respond to the changing needs of the poor.

Sources:

ADB. 2004. TA 4544: Enhancing Access of the Poor to Microfinance Services in Frontier Areas Project Document.

Gilberto Llanto, Joseph Alaban and Ed de Castro. 2006. TA 4544: Enhancing Access of the Poor to Microfinance Services in Frontier Areas Inception Report.

Gilberto Llanto, Joseph Alaban and Ed de Castro. 2006. TA 4544: Enhancing Access of the Poor to Microfinance Services in Frontier Areas Interim Report.

NAPC. 2006. Monitoring Report of the SONA Commitment on Microfinance as of November 2005.

NAPC. 2005. Factsheet on 2000 and 2003 Poverty Figures.