FINANCIAL SERVICES FOR THE POOR

MicroFinance
& Social
Development
REPORTER NO. 9
HONEYLEEN F. MONTANO - MABAET
microfinance & social development

Table Of Contents
Definition & Concepts
What is Microfinance and its
relation to Social
Development
Trends
Is microfinance effective
towards social development?

The Microfinance Services Conclusion

Savings
Insurance
Credits
Loans
CASH TRANSFERS
 01
DEFINITION & CONCEPTS
microfinance & social development
CONCEPT
THE RICH

S
CE
* Owns BIG Businesses
* Savings and Financial Security

I
* Insurance

RV
* Loans and Credit

DE
* INVESTMENTS - ASSETS

SE
* Contributes to Economic Growth

SO L O
VE
* Service Providers
EXPERTS IN FINANCIAL MANAGEMENT
L

C I PM
IA

MICROFINANCE

A L EN
NC
NA

THE POOR
FI

T
* Unemployed or Underemployed, Skilled Workers, Marginalized,Victims of Disasters
* No Savings, Cannot Avail Loans/Credit, No Insurance
* INVESTMENTS - LIABILITIES
* Limited Contribution to Economic Growth
* Hard Labor and Consumer
POOR FINANCIAL MANAGEMENT
 EVOLUTION OF PROVIDING ACCESS FOR
THE POOR AND MARGINALIZED
• 19th century there was in Germany - Village LESSONS FROM THE PAST:
1. Rich and poor alike want good ways to save, borrow, and insure.
Banking : ancestral to all the modern forms of They find ways to meet the need, however rudimentary, through
microcredit cooperation, charity, or commercial firms
• John Hatch - unwittingly recycled the old name 2. The demands of the poor often can be met on a large scale only with
limited and low-quality services
• Around 1800, the Englishwoman Priscilla Wakefield 3. If the need for services is a constant, the ascribed purpose is not:
inaugurated the savings bank movement with a tiny • Swift wanted his loans invested in productive uses. Wakefield wanted to
teach savers thrift, so they would not dissipate their incomes in gin.
institution catering first to poor children, then their • Schultz-Delitzsch was galled by famine.
parents. Her idea leaped oceans almost as fast as • Raiffeisen’s vision was imbued with a dose of Christian fellowship.
• Gourlay saw the chief problem as helping people surmount major
microcredit did by books on boats expenditures without falling into slavery to moneylending landowners.
• In the 1720s, Jonathan Swift began making small • In medieval Italy, Carcano interpreted usury through anti-Semitism.
Most of these figures saw some part of the truth and perhaps none saw
loans to “industrious tradesmen,” who bound all of it….
themselves to repay by offering cosigners rather THE LESSON, then, is about the danger of ideology when it comes to
than collateral. understanding how those served use the services. If people across the
• The 1841 Sketch of the Loan Fund System in Ireland ages have been that muddled about why they are banking the poor, we
should be skeptical of the storylines currently in fashion.”
excerpts this account of a Fund by one Rev. Thomas
Hincks

Roodman, David. 15 February 2015, Blog: The Lessons of Microfinance History https://www.cgap.org/blog/lessons-microfinance-history CGAP
 Muhammad Yunus Known as the “Father of microfinance,” Yunus won the Nobel Peace Prize in 2006 after
fusing capitalism with social responsibility through Grameen Bank

SOC
I AL R
E SPO
N SIBI
ARTISANS
MARGINALIZE
•
•
Savings
Credit
L ITY
• Leasing
DVICTIMS OF • Insurance
DISASTER • Cash Transfers

CE S S
AC
FINANCIAL SOCIAL
• Savings INCLUSION DEVELOPMENT
CORPORATIONS • Credit
• Leasing
BUSINESS • Insurance

CA SECTORS • Cash Transfers

PIT
AL
ISM
WHAT IS MICROFINANCE?

• Microfinance is a term for

financial services that are offered
to individuals of lower RAISE INCOME
LEVELS AND
socioeconomic backgrounds or IMPROVE LIVING
those who lack access to STANDARDS
traditional financial services.
• Microfinance originally started with microcredit, which is the practice of providing extremely small loans to those who do not have a steady
source of income, collateral, or any credit history. It also aims to support and kickstart entrepreneurs who do not have the financial backing
to begin a small business or capitalize on an idea.
• The objective of microfinance is similar to that of microcredit; its goal is to provide financial services to help encourage entrepreneurs in
impoverished nations to act on their ideas and obtain the financial tools available to do so and to eventually become self-sustainable. A few
more of its overarching goals include to promote economic development, decrease unemployment, and boost small businesses.
• Additionally, some microfinance institutions provide financial and business education in order to best position their clients for starting up a
small business or to act efficiently as an entrepreneur.

Microfinance Models Microfinance’s aspect of a savings account can also

Two models outline how microfinance is operated:
1. Banking for individual entrepreneurs and
small businesses revolved around relationship-
based banking.
2. Services for a group, where multiple
individuals come together to form a group to
collectively apply for a loan.
tie into microcredit; creditors may choose to include
a loan covenant. The loan covenant states that the
borrower must set aside a portion of profits in a
savings account with the financial institution to be
held as collateral until the loan is paid. Thus, it
provides some protection for creditors, and if the
loan is repaid, the borrower would’ve earned savings
interest on the money that was deposited in the
savings account.
 02
MICROFINANCE SERVICES
microfinance products
 What are the services offered
by microfinance?

• Savings
• Credit
• Leasing
• Insurance
• Cash Transfers
These services are provided by
MICROFINANCE INSTITUTIONS (MFI)
• Banks
• NGOs
• Credit and Savings cooperatives and associations
• Non-financial and informal sources
• GOVERNMENT

3. Sources of microfinancefor forest-based enterprises https://www.fao.org/3/a0226e/a0226e07.htm

MICROSAVINGS DIFFERENT FINANCIAL
(Capital Build-Up)
SERVICES FOCUSED ON/
• As worldwide microfinance experience has shown, access to safe and flexible savings
services can play a critical role in poor people's strategies for minimizing risks, mitigating PROMOTES “SAVINGS”
income fluctuations, facing unexpected expenditures and emergencies, and building a
small asset base over time. In particular, the very poor living in rural areas, who may lack
investment opportunities and safe ways of keeping their savings, greatly value access to * LANDBANK MOBILE SAVERS
safe savings services.
* COOPERATIVES
• Most poor families do save and often in a non-financial form, for example, small gold * SEA - K
items or stockpiling goods, because they frequently lack access to good formal savings
facilities. In-kind savings are suboptimal options, because they are subject to fluctuations
* MOBILE/ONLINE BANKING
in commodity prices, and destruction by pests, fire and theft. * GCASH
• Better availability of safe savings facilities increases self-financing capacity and thus
* PAY MAYA
reduces the need to borrow, with its inherent risks. When a poor household needs a * PREPAID ATMS
relatively large amount of money for an investment purpose, saving is a less risky way to * LOW MAINTAINING BALANCE
obtain it than taking on a debt with a fixed repayment obligation.
* PAG-IBIG MP2
• Traditionally, microfinance mobilization of savings has taken place in the form of * SSS WORKERS INVESTMENT &
compulsory savings under group or individual lending methodologies. Often a percentage
of the loan amount is required as mandatory savings and is meant to guarantee group loan
SAVINGS PROGRAM
repayment. Compulsory savings were also seen as a way to instil savings habits in poorer * COMSCA - Community-managed
households. Savings and Credit Association
 DIFFERENT FINANCIAL
MICRO-CREDIT SERVICES FOCUSED ON/
•
•
Microcredit consists of small loans provided to poor households or micro-enterprises.
Microcredit is normally characterized by standardized loan products with short PROMOTES “MICRO-
•
maturities, limited amounts, fixed repayment schedules and high interest rates.
Most microfinance institutions require potential borrowers to save before applying for a CREDIT”
loan in order to demonstrate their intention to develop a long-term banking relationship.
When the amount saved reaches a specific level, the lender will consider granting a
certain amount as a loan. Although forced savings might be effective in helping to control * COOPERATIVES
moral hazard risks, they increase the effective interest rate and restrict potential
borrowing. * SEA - K
• One of the most characteristic microcredit innovations is the use of group lending * GCREDIT/GGIVES
techniques
* SPAYLATER
CONS * ONLINE CREDIT
Even the simple expansion of microfinance institution outreach, where possible, may not be * COMSCA - Community-managed
sufficient to ensure that rural and especially poorer households can take advantage of the
available microfinance services and in particular access microcredit. Small-scale enterprises Savings and Credit Association
often lack financial management and business planning skills, and this hinders their * CAPITAL ASSISTANCE PROGRAM
development into bankable customers of microfinance services. The availability of non-
financial government support services such as input and equipment supply, output marketing, * Directed Credit Program -
extension and business development can play a major role in facilitating their access to Farmers/Fisherfolks
longer-term finance, because they reduce the high risks and transaction costs, and increase the
profitability of the investments.
 DIFFERENT FINANCIAL
LEASING SERVICES FOCUSED ON/
• A lease is a transaction in which an owner (the lessor) of a productive asset allows
another party (the lessee) to use an asset for a predefined period against a rent (lease PROMOTES “LEASING”
payment). The lease payment is calculated to cover all costs incurred by the lessor,
including depreciation interest on capital invested, insurance, administrative costs and
profit margin. During the lease period, the lessee is responsible for all operational costs * FARMS/LANDS
including the maintenance and repairs of the asset. The leased asset is assumed to
generate the main source of income for the lease payment. * EQUIPMENTS
* RENT-TO-OWN PROGRAMS
• The main types of leasing are:
- Financial or full payment lease. Payments are spread over a longer period and often
(HOUSING/CAR)
represent the asset's full value.
- Hire-purchase lease. The lessee assumes increasing ownership of the asset with each
payment made and at the end of the lease period the ownership of the asset is
automatically transferred to the lessee.
- Operational lease. The ownership of the asset is not transferred and is therefore more
like a type of rental.
- Leaseback or retro lease. This is a type of pawning. The client liquefies an asset by
selling it to the financial institution for an amount agreed on in the leaseback contract.
The leaseback contract specifies leasing rates and the date when a client has the option
to buy back the item.
 DIFFERENT FINANCIAL
MICROFINANCE LOANS SERVICES FOCUSED ON/
• Microfinance Loans are small loans granted to basic sectors, as defined in Republic
Act No.8425, otherwise known as the “Social Reform and Poverty Alleviation Act,”
PROMOTES “LOANS”
and other loans, as defined by the government as to their amount, scope, and
coverage that are granted to the poor and low-income individuals for their
taga-LOANDON ka ba?
microenterprises and small businesses so as to enable them to raise their income
levels and improve their living standards. Microfinance loans are granted on the
basis of the borrower’s cash flow and are typically unsecured. * LANDBANK MOBILE SAVERS
(Section 3(g) of the Microfinance NGOs Act] * COOPERATIVES
• MICROFINANCE LOANS as per BSP Guidelines
* MULTI-PURPOSE LOAN PROGRAM
- Loans are P150,000 or smaller - GSIS
- Clients after 2 years can be given up to 300,000 loans
- Terms of not more than 1 year, except products of housing loan
- SSS
- Loans to microenterprises and low income groups * CONSOLIDATED LOAN
- Loans to basic sectors such as agriculture, fishery * STUDY LOAN
• Present Definition of Loans whose payments are deducted from the source, such as
Salary Loans, Pension Loans, LGU/Bgy Loan products
 DIFFERENT FINANCIAL
MICROINSURANCE SERVICES FOCUSED ON/
• Microinsurance, as defined under Section 187 of the Insurance Code, as amended,
refers to a financial product or service that meets the risk protection needs of the
PROMOTES
poor where: “MICROINSURANCE”
a. The amount of contributions, premiums, fees or charges, computed on a daily
basis, does not exceed seven and a half percent (7.5%) of the current daily
minimum wagerate for non-agricultural workers in Metro Manila; and * Philhealth
* Medicare
b. The maximum sum of guaranteed benefits is not more than one thousand
(1,000)times the current daily minimum wage rate for non-agricultural workers in
* MEDICARE SAVINGS PROGRAM
MetroManila. * SSS
[Rule 2(u) of the Implementing Rules and Regulations of the Microfinance NGOs Act]
* Crop insurance
* Disability insurance
* Natural disaster insurance
* Livestock insurance
* Credit-life insurance
* Burial insurance
 DIFFERENT FINANCIAL
CASH TRANSFER SERVICES FOCUSED ON/
• Two types of programmes that are similar to microfinance in terms of directly giving
money to poor people, but different in that they do not demand money (and interest)
PROMOTES
back, have risen to the fore: conditional cash transfers (CCTs) and unconditional
cash transfers (UCTs).
“MICROINSURANCE”
• Although research analysing the efficacy of these programmes has broadly found
them to be effective – for example, UCTs can improve food security and overall * CCT
psychological wellbeing (PDF), while CCTs seem to work better at promoting * UCT
investment in human capital (PDF) such as higher school attendance rates
* Social Pension
* Social Amelioration
* Educational Assistance
* Financial Assistance
* Cash For Work

Institute of Development Studies Three lessons for cash transfer programmes from microfinance
by Michael Wasserman Published on 2 October 2018
https://www.ids.ac.uk/opinions/three-lessons-for-cash-transfer-programmes-from-microfinance/
#:~:text=Meanwhile%2C%20two%20types%20of%20programmes,unconditional%20cash
%20transfers%20(UCTs).
 03
TRENDS & CHALLENGES
Covid ka lang…. SAKALAM Kami!!!
1. Microfinance is Helping Poor Households and Businesses
Survive and Thrive: 6 Things to Know
ASIAN DEVELOPMENT BANK Article | 27 August 2020

Here are six ways ADB is using the power of microfinance

to level the financial playing field for poor communities

Supporting microfinance institutions to ensure funds

for low-income borrowers.
ADB’s Microfinance Risk Participation and Guarantee Program

Empowering women by financing micro, small and

medium-sized enterprises.
Many micro, small, and medium-sized enterprises (MSMEs) are women-
led and owned, so providing them with better financial options will
improve women’s livelihoods and incomes.

Delivering access to education as well as finance for

rural women.
Microfinance services are helping rural women gain financial
independence and empowering them to make good decisions.
 How Microfinance is Helping Poor Households and
Businesses Survive and Thrive: 6 Things to Know
ASIAN DEVELOPMENT BANK Article | 27 August 2020

Here are six ways ADB is using the power of microfinance

to level the financial playing field for poor communities

Helping to rebuild post-conflict communities and

revive women’s livelihoods.
Women are often the most severely affected when communities are disrupted by armed
conflict and by persistent regional economic disparities
women are getting better access to credit, allowing them to improve their living
conditions and help rebuild their communities

Leveraging microfinance to help businesses and

livelihoods outside capital cities.
Small businesses in regional towns need financing sources to help them
maintain operations, invest in technologies, and grow businesses; small
businesses and agricultural livelihoods can generate jobs and raise incomes

Nurturing small businesses to help diversify

economies.
long-term stable financial support. More financing helps to create growth
opportunities for business and new jobs

https://www.adb.org/news/features/how-microfinance-helping-poor-households-and-businesses-survive-and-thrive-6-things
 CHALLENGE
- ACCESSIBILITY
- FINANCIAL INCLUSION
- COMPETITION & CLIENT OVER INDEBTEDNESS
- REGULATIONS TO SUPPORT MICROFINANCE
- DATA PRIVACY, SCAM, PHISHING, CYBER SAFETY
- READINESS OF THE TARGET GROUP
TREND
- DIGITAL TRANSFORMATION OF MICROFINANCE;
Ms. Kelly Hattel from the Asian Development Bank (ADB) stressed the
importance of digital transformation done responsibly. This means
financial products that are safe for the consumer and financial partners who
understand digital divides (such as overcoming gender, location, language,
sociocultural status and income), and an industry that establishes data
protection guidelines and codes of conducts.
- FINANCIAL EDUCATION
- MICROSAVINGS & ACCESS TO INSURANCES
- REPUBLIC ACT No. 10693 (NOVEMBER 2015)
AN ACT STRENGTHENING NONGOVERNMENT
ORGANIZATIONS (NGOs) ENGAGED IN
MICROFINANCE OPERATIONS FOR THE POOR;  It is
hereby declared the policy of the State to pursue a program of poverty
eradication wherein poor Filipino families shall be encouraged to
undertake entrepreneurial activities to meet their minimum basic
needs including income security
- SOCIAL MEDIA PLATFORMS
- PROGRAM MANAGEMENT TOWARDS SUSTAINABILITY
04
Conclusion
REFLECTION
 ROAD to FINANCIAL INCLUSION

Theory of Sustainable Responsive Policies

CHANGE Program
- More research
Must invest in a long term program to - Review and evaluate policies
Are Filipinos Entrepreneur ensure SUSTAINABILITY
or Workers? - Entrepreneurial KAS included
The concept of Microfinance have Survival in the currculum
started way before the new practices… Subsistence - Role of the LGU in PPP
Should consider the TYPE and Self-Sufficient
Readiness of Beneficiaries to ensure
- How can these policies bring
sustainability SHOULD WE GENERATE MORE change towards financial
JOBS OR DEVELOP
inclusion
ENTREPRENEURS?
POWERPOINT

Thanks
Honeyleen F. Montano – Mabaet