More on Microfinance

 Here is an input from Johannes Seian Manzanilla, based in Switzerland, as response to Microfinance Blues:

I read your Blog Entry about Microfinance and the people who do not pay back. And it made me think and wonder. This must be a very difficult situation for you and the foundation. What are your strategies to deal with this?

It saddens and disappoints me that those people you were trying to help, now refuse to pay back. But then can we really blame them? As you noted, is it a shift in our social values and culture? As I made my short research I see there are indeed organizations who successfully provide micro financing and I wonder how they do it.

In a forum I  found an interesting comment on the Grameen bank System:

"I've read Yunus book about the Grameen bank, and he explains the system (I don't know how Kiva and other companies follow that principle, but I assume they use similar because it was sucessful).
First, the bank doesn't come to the people, the people come to the bank: they see that a bank circle in the neighbouring village has made people more sucessful, or their relatives tell them about it. So the curious go and talk to an established circle of members, and learn the requirements: go out and get 5 interested members and form your own circle.

Then you contact the bank, and an employee comes along to your circle, explains all the rules (Grameen requires courses for health, contraception, no bride price, literacy etc.). Once everybody agrees to the rules and signs the contract, the classes start and bookkeeping.
The first credit will not be 500$, more like 5$ *. The circle decides on who needs it most and what to to with it - so a business idea must exist, and it must look reasonable.

The circle meets every week for strategy, classes, bookkeeping and also savings and repayments. (The bank can put in a clause that the members have to save up a certain amount first before gettin a loan to show dedication and financial responsibility).

If you look at it negatively, it's peer pressure; positively, it's feedback and social networking.

Also, most members of a circle are women; many experiences in 3rd world countries show that women think of their hungry children at home and save the money, where men tend to give in to despair and spend the money on alcohol or drugs or gambling. So this also contributes to higher rates of payback and savings.
Another point is that in these villages, everyones survival depends on the community. If you are outcast because you default and damage the society, you have no chance, except leaving the village, which is in itself a drastic step.

The people don't think of defaulting because usually Grameen gives them the chance to become productive and self-sustaining, with a steady business income or improved future for their children. They know they will never get a chance like this again elsewhere.

And the above mentioned entrance barriers - that people have to form the circle first, and agree to a contract, instead of the bank going around handing out loans to anybody vertical and breathing - means that the few poor people who don't have the motivation or power to run a business don't apply.

It's not true that most poor people are lazy or bad with money; most poor people are kept down through a combination of circumstances outside their power to change. The few people who conform to the stereotype of lazy or wastes money on frivioulous stuff just get all the headlines to confirm the clichees and for reasons of political agenda.

And the reason for the high default rates in the West is greed of the banks, not the creditors. Banks can do very thorough background checks for credits, or give a loan to anybody upright and breathing ...

Oh, and yes, the Grameen bank has very high costs because the employees have to visit all these villages every week to collect payments, do the bookkeeping until the women have caught up with their literacy classes, etc. It requires more effort than sitting in a AC controlled office waiting for your customers to come to you; but Yunus only hires people who are willing to go to their customers. Still, the rates are about 20 to 30 %, which would otherwise be cut-throat, but covers the services provided. Since these loans are investments in the future, and not new car type of loans, they are still a better choice than the usual cutthroat credit of 100% and more, and one default, and the only cow is gone, destroying all income.

(Some microfinance is run by Churches, like Brot für die Welt, which do the service stuff for free to help; an existing group structure makes things easier.)

Microfinance is so sucessful that scammers are starting to take advantage of this, pressing loans to people without the preparation and thus ruining them. So Grameen warns people to only use serious groups.
* 5$ may not sound much, but the example that started Yunus on his ideas was that of a woman weaving baskets or hats and renting the tools and buying the material each morning from the supplier, and getting the difference at the rest of the day was far too low despite working all day. When Yunus asked her how much she would need to break this cycle, she replied "5$" to buy the tools once and for all, and buy a small supply of material as start.

That got Yunus thinking, on how many more people he could help with small loans. " ###

Here is my reply:  

Much thanks for your input and the research. We must really go to the basics. I think along the way we were misled or were not too strict about the process to be followed. Client selection is important. We were too kind and charitable and failed to do proper character investigation. Also there are factors we cannot control. For instance, those affecting the enterprises that the people put up are subject to risks from the climate, competition from others, lack of marketing connection, etc. Anyway, we will get out of this messy situation. learn our lessons as an NGO and move on. 

Hannes, much thanks for the concern.

Advice from Levi Verora, Microfinance Expert

 On Microfinance Blues

Within minutes after posting Microfinance Blues, our friend and microfinance expert, Levi Verora, posted a response. Let me share this with you. Levi, much thanks.

 I would like to share with our FB friends, particularly those involved in microfinance, the following advice from Levi P. Verora, a microfinance expert, in response to my previous blog, Microfinance Blues:


hi nes. levi here. some points on microfinance of bohol foundation. microfinancing is supposed to bring hope to poor borrowers to rise above their situation. that has been the intention when Grameen Bank, Comilla Proshika, Proshika Comilla, and other MFIs were formed in Bangladesh. but a mindsetting (paradigm shift, they would say) had to take place among the all-women borrowers themselves till they formed part of a movement, a crusade to fight poverty.

now back to Bohol. microfinancing must be articulated fully well with the foundation's borrowers. they must have a mindset like that of the all-women, poor Bangladeshi borrowers. if that is not taken or made to ripe, the borrowers will not feel obliged to repay their loans and honor other obligations. second, there must be a way to spot and screen loan applicants. begin with an assessment of their character, then capacity to pay, then collateral (if any), then capitalization (equity or savings of their own), and finally capability to manage the loan amounts and grow out their businesses. third, there is no sense if they remain borrowers operating various livelihood endeavors.

there must be stinging ways to graduate them into micro and even small entrepreneurs, with growing businesses and networth. here, business advising and coaching will matter a lot, alongside compliant monitoring and evaluation. there are more points I wish to share, but the space is limited.  when I get to visit you one day, we'll talk about them. cheers.

Microfinance Blues

The other day I met with the finance committee of the Foundation composed of Dr. Pomie Buot, Myrna Angalot-Lu, Joy Arac and Joal Velas. They were worried that BLDF might not be able to pay back the loan amounting to the creditor by the end of this year. It was the same story as last year. Same problem - those who took out micro-loans, ranging from Php 5,000 to Php 15,000, have not been paying. Same faces. And, probably, same solution, I was telling myself as I listened to their woes.

Same reasons were given for the non-payment of the loans: the cooperatives could not sell their produce; there was no fish caught or no farm produce because of bad weather; the money was spent for tuition fees, medicines and other emergencies; they just could not pay, period.

The community organizer who serves also as collector of payments said the clients were getting harder to deal with. Some dared him to call the police and arrest them, knowing that this was against the law; others were just plain non-committal and would not give any pledge when they would pay; majority of them would give dates when they would pay the loans but from their past behavior you know they would not honor their word.

And so what to do? A number of options were again listed down, the same that were in those lists in countless meetings before, none of them worked: let them sign promissory notes; charge them in small grants court; get them to pay in kind, e.g. getting part of their harvest of rice, tomatoes, fruits, etc. None of these worked in the past; hence, how could these strategies work now?

We seemed to be running of options. Same analysis of previous lapses: we did not apply due diligence in the the choice of debtors; we listened  more to our partners about the selection of project sites which made us operate in places too far and expensive to reach; some of those who took our loans were approved by former employees, who are no longer around. 

Meanwhile, we have to maintain the collector in terms of monthly salary, fuel allowance for the motorbikes, food.

Most likely, we will again look for sources, other than the debtors, to pay back the loan. Same solution as last year. It is an expensive to pay for the lapses. We did not anticipate this kind of misbehavior, some of them we know have the capability to pay. Could it be that social values are shifting, people no longer honor their word? When they came, they were really quite dramatic in their depiction of their hapless situation. When it was to collect, they either disappeared or they pretended it was the first time they were meeting the collector.

The sad part is that there is no resource institution or agency we could turn to and tell our story. Success stories are what they tell each other during workshops which sound like fairy tales to us. How did the other NGOs manage their microfinance facility? What have been the lessons learned? This non-payment of loans, is this a common experience? Nobody seems to care and we are left on our own to solve this puzzle.

Chances are, the finance committee will again borrow money from their respective families and other sources of credit. Yes, we will end up poorer than the farmers and fisherfolk we have been trying to help.

Sad but true.

Discussion with the Academe on Poverty

Last 09 April, we had a three-hour session with some 19 representatives from several colleges and universities from different regions of the country. They were participants/resource persons of  the Philippine Transformative Approaches to Innovative Leadership (TRAIL) Summer Youth Camp organized by the Youth Leadership Excellence for Active Development (YouthLEAD) Philippines, in partnership with the Philippine Society of Young Good Citizens and the Bohol Alliance of Student Councils.

I was invited to serve as Topic Speaker on the subject, "Developing Social Impact in Student Governance."

We started the session by the participants citing what they considered as priority problems in their respective municipalities or where their academic institutions were located. As expected, all of them cited common problems such as: unemployment; lack of housing; inadequate health facilities; malnutrition; overpopulation; low agricultural productivity; poor garbage collection; logging; traffic congestion, etc. The other problems cited were "sex scandals" involving students; poor governance or political interference in development; drug addiction; vote buying; and lack of family values.

It was pointed out towards the end of this initial one-hour session that most of these problems could be traced to poverty while some problems were environment-related.

To provide a basis for the discussion on what to do with these problems, particularly at local level, e.g. college or community, I presented two tools which have been used in Bohol in efforts to address problems related to poverty and how interventions could be made using initially local resources.

I showed the key features of the Poverty Database Monitoring System (PDMS) software and used it to process the household poverty database of the municipality of Baclayon based on its resurvey last 2009.
For the new approach to providing interventions, I cited the content of the current 5-year Community-Based Eco-Cultural Plan of Baclayon, which is Bohol's first comprehensive application of the ABCD approach to local-level planning.

In their response to the presentations, the participants were cited the following:

• The solutions to poverty need not be generated from outside, but local resources could be identified to address poverty-related problems. 
• Projects with long gestation period may not be suitable for student groups to undertake on account of their temporary stay on the campus. 
• Advisers need to provide examples and guide student groups to link their plans and projects to problems related to poverty and the environment. 
• The school, the community and the family must work together to address poverty and that student activities must support initiatives along this line. 

There was limited time to explore further what specific ideas the advisers could explore with student groups in their respective colleges. The session was more of building awareness about a pro-poor targeting tool that could help ensure that households more disadvantaged than others could be identified and given immediate assistance by the local government and its partners. 

Post-Meeting Reflection 

Hours after the discussion with the advisers I was preoccupied on what could really be done by student groups given their limited time and academic load and still link their extra-curricular activities meaningfully to the global agenda on poverty reduction and sustainable development. 

Here are some ideas: 

-Collecting bottles and using them to reinforce rocks or other materials used in slopes to check soil erosion. 

Bottles of wines and liquor are not returned to the seller or supplier and they usually end up in activity areas in a town or in the garbage dump. In both places, they run the risk of being broken and pose a threat to the safety of persons or children. They cannot be sold; hence, they have no commercial value as far as the people are concerned. In Baclayon, efforts have been done to collect them and volunteers are trained at Balay Kahayag on how to use them to reinforce contouring in sloping areas. 

Just to find out how many bottles could be collected from a public area, such as the town's baluarte or pier, we collected bottles and counted them on 01 Apr and 05 Apr. We were a able to collect a total of 153 bottles in those two days, broken down as follows: Emperador Light, 116 (75%); assorted wine, 24 (16%); and Tanduay rhum, 13 (9%). The average number of bottles collected per day is 75. 

This involves only 1 collector with the help of two or three utility persons assigned to clean the baluarte area. 

Imagine if the advisers could mobilize student groups to collect such bottles all over a city or municipality where they are located and use them for other purposes, such as for saving the soil, etc. The impact will be quite great in terms of checking soil erosion. Perhaps some enterprising students will find some other uses for the discarded bottles and engage local communities in activities in livelihood projects using these bottles. 

-Conducting a survey on what exactly the families are doing in terms of livelihood and finding out their actual needs to scale up the livelihood activities in terms of better marketing, use of technology, improved design. Teams of students can be mobilized during their spare time to just walk around and do a survey with priority in more disadvantaged communities. The findings can help them formulate more relevant projects and at the same time, make them aware of the actual situation in their local communities, their problems and potential. 

I am sure there are many ways the advisers and the student groups can think of to relate their plans and projects to poverty and the environment. Our hope is that they will focus on identifying those who are most in need and identifying simple projects that could directly benefit them. 

Thoughts About Our Faith

The influence of the Catholic Church on the way we conduct our lives is quite strong and pervasive. As a boy growing up in a village in Quezon Province, I experienced it practically in all aspects of our lives, from baptism and confirmation to the fiestas; May-time processions of flowers and candles; weddings; and, of course, during wakes.

The priest is always there presiding over rituals and ceremonies, giving sermons and spiritual advice on occasions during our growing -up period and even in old age when one needs counsel to endure pain and accept the inevitability of death. During the years when I refused to go to Mass and participate in Church activities, I would steal some moments to go inside the Church or chapel when it was empty and find solace in just looking at the altar, stained windows and hearing in my heart the silence of the universe, as it were.

In college, when I learned in our sociology class that there is no universal standard of religion, I started to read a lot about other religions, Protestantism, Buddhism, Hinduism and the Muslim faith in a quest for something to believe in. There was intellectual ferment on the campus in those days. The writings and pronouncements of  a group called freethinkers challenged from day to day the beliefs instilled to us by our Catholic faith.

Aside from this interest in other religions, I experienced during those years in the Sixties stimulating conversations not only about whether God existed or not, but the various philosophies being taught in courses or by reading them in the campus library and being talked about in the coffee shops and bar joints: existentialism; transcendatlism; logical positivism; and, finally, Marxism. It was a period of ferment, of looking for certainties, and enduring truths about life but in the end, we all ended up, like a procession, by the door of the church whose rituals we had abandoned.

The jolly Pope John XXIII, who walked down streets in sandals, briefly captured our fancy and most of those who had left the Church came back attracted by his populist and pro-poor rhetorics. When he died, a little bit of us also died with him. This was how influential the Catholic Church is in our lives.

It was only in 1987 when I returned to the practice of the Catholic faith, going to Mass, taking communion and all that stuff. Several personal tragedies struck, such as the passing away of my Mother the year before, and my Lola's demise on this year, just after my girl friend left me. My close friends brought me to the Jesuit Retreat House in Banawa Hills, Cebu City, where I came under the tutelage and care of a 42-year old activist priest, Fr. Bliss Cavan. For two weeks, he patiently mentored me on the faith, just the two of us, until I could walk again confident in the knowledge I do not really walk alone.

My decision to leave in Bohol, bringing here the remains of my mother, lola, and sister, including those of a half-sister, was pivotal in so many decisions I would make later about how to spend the remainder of my life. Most importantly, I was able to endure pangs of conscience and guilt feelings about my inability to get my mother, grandmother and my sisters out of poverty. It took me years to overcome these guilt feelings and again, it was the Church I turned to for guidance.

Like other Catholics, I have followed the sex scandals and some other unsavory incidents involving the Church but by and large, we remain loyal to what it says regarding the values to guide one's life. Given its 1.2 billion members, of varying degrees of loyalty to its beliefs, the transformation of the Church will be one of the wonders of the century. More than the washing of feet and the walking down urban streets, the Church has to be an institution genuinely committed to the world's poor.

It will be a great thing, a miracle even, if it happens in our lifetime.