EMPOWERING THE POOR THROUGH MICROFINANCE

1. EMPOWERING THE POOR THROUGH MICROFINANCE

2. The Poverty Situation Poverty estimates by the NSCB in 2000 reveal that about 4.3 million families or 26.5 million Filipinos are considered poor. The poor usually have three options: 1. Gather limited resources from family and friends 2. Borrow from a moneylender at exorbitant rates 3. Borrow from a MicroFinance Institution (MFI) • However: family and friends often cannot generate the necessary excess cash, • the moneylender's rates are too high to be able to pay them back • A loan from an MFI can result in the successful growth of a business that may break the cycle of poverty. • At present, there are an estimated 500 NGOs, 195 thrift and rural banks and 4,579 savings and credit cooperatives providing microfinance services in the Philippines.

3. Microfinance Microfinance isthe provision of financial services (loans, savings, etc.) to poor but economically active people who lack adequate collateral, so that they can set up or expand business, or invest in self-employment activities. Microfinance is suitable for people who are economically active and capable of repaying the loan without any problem. MFIs ensure that only clients that fall into this category receive loans. Microfinance is not suitable for poorer people who are not economically active. For these people, other forms of direct aid and poverty alleviation are more appropriate

4. Microfinance • The Clients are micro-entrepreneurs, many of them women. Often they are self-employed and run small businesses in the informal sector. Most of them are traders, street vendors, small farmers, service providers (hairdressers, pedicab owner-drivers, etc), and small producers (ironworks owners, dressmakers, etc.). • Microfinance loans are designed for the needs of micro-entrepreneurs: • the amount of loan is small • the term of loans is short • repayments are made in a large number of small instalments • group guarantees compensate for the lack of collateral • access to repeat and larger loans, based on repayment performance

5. Poverty Alleviation The reasons for the success of microfinance in alleviating poverty are : 1. By requiring that the money be paid back, it creates a system of empowerment and self-reliance that has a sustainable and contagious impact, and which direct aid has failed to produce time after time. 2. It brings the borrowers into the formal financial sector. No single intervention can defeat poverty. Poor people need employment, schooling, and health care, etc. Access to financial services forms a fundamental basis on which many of the other essential poverty interventions depend.

6. The Economic Benefits Microfinance creates increased wealth for low-income individualsby providing them access to loans and savings services. With increased wealth, it alsocreates new consumers and markets for businesses of all sizes. Microfinance feeds small and medium enterprise development, both propelling the growth of micro-enterprises but also fuelling the expansion of suppliers and of larger businesses.

7. The Social Benefits • The social benefits relates to the improved economic standing, the heightened self-esteem and sense of empowerment, and the creation of a stable financial situation for the borrowers • Because many of the clients are women, microfinance enhanceseconomic equality. • Increased economic power enables women to improve other areas of their – and their children’s – lives including: • improved health and nutrition for all the family members • increased education for the borrower’s children • increased community participation as a result of a heightened level of confidence and overall sense of self-worth

8. Microfinance provides the poor with financial services designed to help them help themselves.

9. “Microfinance is not simply lending, it is an effective poverty alleviation tool.”