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Business Credit Within Reach of Poor
Posted on August 21, 2004 - 4:17pm :: ISD-Philippines | Economics
by Marco Garrido
Aug 17, 2004 | IPS
TF! Editorial Comment: Microfinance is catching on. Around the world, millions of women, in particular, are participating in micro-finance programs to support their livelihood activities. While many caution that micro-finance is not a panacea for poverty eradication, it is enabling millions of economically active poor to sustain their entrepreneurial efforts. As the article below discusses, microfinance initiatives are not only empowering many poor women to mobilize their entrepreneurial talents but also creating a culture of saving among the poor.
CALOOCAN CITY - A non-governmental organisation is extending the outreach of business credit to hundreds of poor Filipinos who find it difficult to qualify for normal bank loans.
For people like Mitch, microfinance seems to be God-sent.
With the help of a small loan worth 3000 pesos (54 U.S. dollars), she was able to open her blood bar.
The young mother stores pig's blood, collected from the city's slaughterhouses, in dingy vats beside her cinderblock house.
Mitch heats the blood and stirs it until it curdles. When it cools, the blood will have become gelatinous. She will divide the blood gelatin into manageable cubes and have them delivered to vendors of the shanty delicacy "Betamax" or barbequed blood cubes.
Mitch owes her 'Betamax' business to the French-funded micro credit non-governmental organisation UPLIFT, officially the Urban Program for Livelihood and Finance Training.
She turned to UPLIFT despite her husband's objections. After repaying her first loan, she managed to procure loans of 5,000 pesos (90 dollars), 10,000 pesos (180 dollars) and, most recently, 13,000 pesos (234 dollars).
Now she and her husband live in a cinderblock house, a distinction among the wood and corrugated tin shanties of the Catmon squatter district in Caloocan.
With her UPLIFT passbook showing savings of 4,600 pesos (84 dollars), Mitch feels entitled to her ambition. "Next I want to buy a tricycle (a motorcycle and carriage)," she tells IPS, "so I can deliver the blood myself."
Like Mitch, Vergie began with nothing. Well, almost nothing -- she could make her own fish sauce.
A neighbour told her about UPLIFT and now after a year as a client, she runs her own 'sari-sari' store, a grocery offering everything from Coke in plastic bags to satchels of laundry detergent - and, of course, Vergie's homemade fish sauce.
Access to credit, through microfinance institutions like UPLIFT has allowed women as well as men in the Philippines to meet survival goals and put their livelihoods on a more secure basis, without compromising their dignity and sense of self worth.
This has also been helped by the Philippine government that has explicitly incorporated microfinance into its poverty alleviation strategies and encouraged NGOs to develop sustainable microfinance programs. It is also beginning to promote the transformation of successful microfinance NGOs into regulated financial institutions.
People like Mitch and Vergie - "the poorest of the poor" ordinarily wouldn't have access to credit. Commercial banks won't entertain them; they lack that minimum of capital or collateral, and, in many cases, even a permanent address.
They would have to go to the local usurer, the "Bombay" as they are known, after the turbaned, motorcycle-riding Indians that appear to have cornered the market for usury. While Bombay interest rates are properly usurious - usually 20 percent a month - they thrive because they provide the poor a service no one else will.
Enter organisations like UPLIFT. UPLIFT was founded by the French organisation Inter Aide in 1993 with a mandate that clearly took its inspiration from the pioneering Grameen Bank.
Like the Grameen Bank, UPLIFT operates under the assumption that if you provide the poor access to credit, they will make use of the money to improve their lot - and they will pay the money back. This assumption had borne out.
UPLIFT gave out 90 million pesos (1.61 million dollars) in loans in 1999.
Ninety-five percent of these loans were repaid after three months and 93 percent in one month. All told, 98 percent of all loans were ultimately collected and only two percent written off.
Potential borrowers are, of course, screened - a credit inquiry is conducted, their homes are visited and their neighbours questioned. Upon maturity (usually a week after their release) loans are scrupulously collected on a weekly, sometimes daily basis.
But perhaps the biggest reason for the normally high repayment rates is that the borrowers themselves dictate the terms of their repayment. They decide how much to pay and when.
UPLIFT does mandate one thing -- that its borrowers save. They must set aside 25 to 100 percent of the value of their principal loan as savings. Loan repayments factor in this extra amount. These savings are then transferred to a passbook, which the loan beneficiary can use to withdraw funds in cases of emergency or for purposes like paying their children's school bills.
Danny Ocampo, UPLIFT's chief financial officer, is a believer in the power of savings.
"Savings is not only a mechanism of social security for poor households; it becomes bank equity," he told IPS.
To date the beneficiaries have saved over 21 million pesos or 376,884 dollars.
But Mirai Chatterjee from the Self Employed Women's Association in Ahmedabad, India, warned that microfinance should not be seen as a "miracle cure" for poverty.
"It is an important tool in women's efforts to strengthen themselves economically. But it is not the panacea for poverty," said Chatterjee.
She stressed the importance of capacity building inputs.
"With continuous capacity building efforts, including training in financial management, accounts, book-keeping and even managing a small group, women can become effective financial managers, and slowly their community or villages' leaders," she said.
For Ocampo the long-term viability of UPLIFT is when it is able to operate entirely on the savings of its members and the interest it collects. Currently, only 60 percent of the NGO's funding comes from its income and 40 percent is granted by Inter Aide.
Source: Link to Article
Aug 17, 2004 | IPS
TF! Editorial Comment: Microfinance is catching on. Around the world, millions of women, in particular, are participating in micro-finance programs to support their livelihood activities. While many caution that micro-finance is not a panacea for poverty eradication, it is enabling millions of economically active poor to sustain their entrepreneurial efforts. As the article below discusses, microfinance initiatives are not only empowering many poor women to mobilize their entrepreneurial talents but also creating a culture of saving among the poor.
CALOOCAN CITY - A non-governmental organisation is extending the outreach of business credit to hundreds of poor Filipinos who find it difficult to qualify for normal bank loans.
For people like Mitch, microfinance seems to be God-sent.
With the help of a small loan worth 3000 pesos (54 U.S. dollars), she was able to open her blood bar.
The young mother stores pig's blood, collected from the city's slaughterhouses, in dingy vats beside her cinderblock house.
Mitch heats the blood and stirs it until it curdles. When it cools, the blood will have become gelatinous. She will divide the blood gelatin into manageable cubes and have them delivered to vendors of the shanty delicacy "Betamax" or barbequed blood cubes.
Mitch owes her 'Betamax' business to the French-funded micro credit non-governmental organisation UPLIFT, officially the Urban Program for Livelihood and Finance Training.
She turned to UPLIFT despite her husband's objections. After repaying her first loan, she managed to procure loans of 5,000 pesos (90 dollars), 10,000 pesos (180 dollars) and, most recently, 13,000 pesos (234 dollars).
Now she and her husband live in a cinderblock house, a distinction among the wood and corrugated tin shanties of the Catmon squatter district in Caloocan.
With her UPLIFT passbook showing savings of 4,600 pesos (84 dollars), Mitch feels entitled to her ambition. "Next I want to buy a tricycle (a motorcycle and carriage)," she tells IPS, "so I can deliver the blood myself."
Like Mitch, Vergie began with nothing. Well, almost nothing -- she could make her own fish sauce.
A neighbour told her about UPLIFT and now after a year as a client, she runs her own 'sari-sari' store, a grocery offering everything from Coke in plastic bags to satchels of laundry detergent - and, of course, Vergie's homemade fish sauce.
Access to credit, through microfinance institutions like UPLIFT has allowed women as well as men in the Philippines to meet survival goals and put their livelihoods on a more secure basis, without compromising their dignity and sense of self worth.
This has also been helped by the Philippine government that has explicitly incorporated microfinance into its poverty alleviation strategies and encouraged NGOs to develop sustainable microfinance programs. It is also beginning to promote the transformation of successful microfinance NGOs into regulated financial institutions.
People like Mitch and Vergie - "the poorest of the poor" ordinarily wouldn't have access to credit. Commercial banks won't entertain them; they lack that minimum of capital or collateral, and, in many cases, even a permanent address.
They would have to go to the local usurer, the "Bombay" as they are known, after the turbaned, motorcycle-riding Indians that appear to have cornered the market for usury. While Bombay interest rates are properly usurious - usually 20 percent a month - they thrive because they provide the poor a service no one else will.
Enter organisations like UPLIFT. UPLIFT was founded by the French organisation Inter Aide in 1993 with a mandate that clearly took its inspiration from the pioneering Grameen Bank.
Like the Grameen Bank, UPLIFT operates under the assumption that if you provide the poor access to credit, they will make use of the money to improve their lot - and they will pay the money back. This assumption had borne out.
UPLIFT gave out 90 million pesos (1.61 million dollars) in loans in 1999.
Ninety-five percent of these loans were repaid after three months and 93 percent in one month. All told, 98 percent of all loans were ultimately collected and only two percent written off.
Potential borrowers are, of course, screened - a credit inquiry is conducted, their homes are visited and their neighbours questioned. Upon maturity (usually a week after their release) loans are scrupulously collected on a weekly, sometimes daily basis.
But perhaps the biggest reason for the normally high repayment rates is that the borrowers themselves dictate the terms of their repayment. They decide how much to pay and when.
UPLIFT does mandate one thing -- that its borrowers save. They must set aside 25 to 100 percent of the value of their principal loan as savings. Loan repayments factor in this extra amount. These savings are then transferred to a passbook, which the loan beneficiary can use to withdraw funds in cases of emergency or for purposes like paying their children's school bills.
Danny Ocampo, UPLIFT's chief financial officer, is a believer in the power of savings.
"Savings is not only a mechanism of social security for poor households; it becomes bank equity," he told IPS.
To date the beneficiaries have saved over 21 million pesos or 376,884 dollars.
But Mirai Chatterjee from the Self Employed Women's Association in Ahmedabad, India, warned that microfinance should not be seen as a "miracle cure" for poverty.
"It is an important tool in women's efforts to strengthen themselves economically. But it is not the panacea for poverty," said Chatterjee.
She stressed the importance of capacity building inputs.
"With continuous capacity building efforts, including training in financial management, accounts, book-keeping and even managing a small group, women can become effective financial managers, and slowly their community or villages' leaders," she said.
For Ocampo the long-term viability of UPLIFT is when it is able to operate entirely on the savings of its members and the interest it collects. Currently, only 60 percent of the NGO's funding comes from its income and 40 percent is granted by Inter Aide.
Source: Link to Article
