Presentation by:
Maria Kristina S. Galvez
Project Manager – Social Enterprise Unit
Punla sa Tao Foundation
Where Did It All Began: The Grameen Bank
The Philippine Financial System
Philippine Microfinance Profile
Process and Procedure: How Does Microfinance
Work?
Impact Assessment: Does Microfinance Really
Work?
Microfinance and the Financial Crisis
Why the poor cannot borrow from other
formal financial institutions?
Can the poor really pay or save?
Dr. Mohammad Yunus
Founder, Grameen Bank
Noble Peace Prize Winner, 2006
Grameen means “village” – thus, Village
Banking
Envisioned as the “biggest development
wonder”
Extended banking facilities to poor men and
women
Aimed to create opportunities for selfemployment in rural Bangladesh
From “low income, low saving & low
investment“ into "low income, injection of
credit, investment, more income, more
savings, more investment, more income".
Defined as provision of financial services, savings
and credit to the poor on a sustainable basis.
Credit
Savings
Other Financial Services (ex. Insurance)
Serve the poor or reduce poverty
while at the same time
Pursue the business to maximize return on
investments
NGOs – 500
Rural Banks – 195
Savings and Credit Cooperatives – 4,579
Source: GTZ-PhilHealth Orientation for Microfinance
Near Poor
Entrepreneurial Poor
or “e-poor”
E-Poor
Laboring
UltraPoor
17 million people still do not have
access to financing services
Source: National Anti-Poverty Commission, 2005
Process, Approach and Methodologies
Group Lending
• Around 5-30 members per group
• Members guarantee each other’s loan
Example: Grameen methodology
Individual Lending
• Loans are given based on the capacity to pay
(Household or Business Cash Flow)
• With collateral or co-maker
• Clients are screened for credit checks or
character references
• Loan size are tailored to business needs.
Clients
Women
Mixed gender
Characteristics
5- unrelated
Persons
Business with
employees
Loan size
2,500
10,000
Payment Schedule
Weekly
Weekly/Daily
Guarantees
No collateral
With collateral
Term
3-6 mos.
3-12mos.
Credit
Savings
Compulsory Savings
Voluntary Savings
Insurance
Death Insurance
Health Insurance
Payment Services
Agricultural Microfinance
Client Orientation
Collection
Credit/Background
Investigation 1
Disbursement
Loan
Documentation
Processing
Loan Review and
Approval
Small loans granted to borrowers based on cash
flow
Given to increase income levels, for small
enterprises
Amount starts from Php 2,000 to Php 5,000 and
maximum principal amount pegged at
Php150,000
Equivalent to the maximum capitalization of a
microenterprise (under RA 8425)
Source: Bangko Sentral ng Pilipinas
Direct Costs
1. Costs of Funds for
lending
2. Cost of Risk (Loan Loss)
3. Administrative Costs
4. Expand Capital Base
Indirect Costs
1. Staff Salaries
2. Other Operating
expenses
Old Approach – subsidized interest rates
New Approach – market-based interest rates
The new approach permits the microfinance
institution to cover the costs in lending a loan,
thus making it sustainable.
Interests at MFIs are currently at
2% - 3% per month
Commercial banks deal with large loans
therefore their transaction costs are lower.
Government-owned MFIs are also lower
because of political considerations.
Some MFIs charge very low rates (ex. 20% per
annum), but incur losses. Losses are recovered
through subsidies.
A “win-win” proposition: more microcredit lent
and gross returns to lenders.
Government should continually seek consultation
with MFIs to understand better the
infrastructure bottlenecks they face.
The government should not lend, rather make an
enabling environment for lending.
Studies and Evidences
Majority of existing clients and new clients are
not poor according to the official definition.
No significant impact on household assets and
human capital investments.
For microfinance to be an effective povertyalleviation tool, beneficiaries must be identified
correctly.
Source: Kondo, Toshio (2007) Impact of Microfinance on Rural
Household in the Philippines, ADB
Asian Financial Crisis : Banking and currency
crises had little relevance to subsistence-based
economies in closed ecosystem markets
Money will become more scarce, more
conservative, and more costly.
Financial pressures on families may lead to less
savings and more withdrawals.
Risk Management, Good
Governance and Shift to
More Enterprising
Environment for Clients!
Maybe necessary, but not sufficient as a
poverty-alleviation tool.
Microfinance should pay for itself to reach more
poor people.
The role of the government is to enable
financial services, not to provide them.