People power through microcredit

A few weeks ago, former president Corazon Aquino launched what could probably be the largest single private sector microcredit program in the country’s history. Called PinoyME or Filipino Micro-Enterprise, the program aims to mobilize P5 billion pesos to assist 5 million poor entrepreneurs in depressed communities all over the country. Philippine society should support this program for three major reasons.

First, the program represents a major shift in thinking among the country’s economic elites about the potentials of the poor and marginalized sectors of society as agents of development and progress. For long, managers of banks and financing organizations looked down on the poor as “unbankable.”

The poor usually have nothing to offer as collateral. They don’t have stable jobs, nor do they have good resume. In developing countries like the Philippines, they often derive irregular incomes from economic activities (e.g. farming, peddling) that are considered high-risk and seasonal. They have no credit history that the banks could verify. And yet, Cory and her group are embarking on a program that is certainly risky and yet has the potential of transforming the country’s economy.

Of course, since Mohammed Yunus got a Nobel Prize for the success of the Grameen Bank that he founded in Bangladesh, bankers and financiers have started to realize that there is business in banking with the poor, especially women.

In fact, bankers these days have started to change their phraseology about microfinance: it’s not the poor are “unbankable”; they are simply “pre-bankable” and microcredit—given factors like adequate social preparation like training in entrepreneurship, value formation, and effective community organizing—could be the best way of bringing them into the mainstream of the country’s financial system. Once they are able to build “track record,” the poor are likely to be as reliable a partner of the banks as those who do their business from their posh offices along Ayala Avenue in Makati.

Second, micro-credit programs such as PinoyME are probably the best way to ensure gender equality in the Philippines. Based on the experiences of Yunus’ Grameen Bank as well as other schemes worldwide, microcredit programs are oftentimes focused on women. Why women? It’s because, based on actual experiences, loans extended to women and their projects are likely to benefit the entire family more than when these are extended to men.

And third, economic and social programs such as this one could help ensure broad-based growth in the Philippines. If it succeeds, it has the potential of uplifting the lives of a least 5 million poor families all over the country. Some of them may eventually grow into small and medium enterprises, create more jobs in their localities, and transform a lot more lives in the process. In the last twelve quarters, the Philippine economy has been growing at decent growth rates (5-6 percent gross domestic product growth rates), driven mostly by robust performances of electronics, outsourcing, and consumption-oriented economic activities buttressed by the dollar remittances of overseas Filipino workers. Initiative such as PinoyME therefore is a good way of complimenting these sectors, boosting the economy even more. In fact, if we want to broaden the ranks of the middle class, microcredit is probably one of the best ways to do it.

The expansion of the ranks of the middle class is important because of its role in strengthening the country’s democratic institutions. Former Negro Occidental governor Daniel Lacson sums it well, thus: “By making microfinance more accessible, PinoyME aims to unlock the potential of individual Filipinos, particularly those who have been marginalized and stripped of their dignity by sheer poverty. Over the medium to long term, this will also pave the way for better governance as a critical mass of citizens is empowered to make mature political choices and demands, as well as to aspire to become a new breed of leaders. Our vision is to help create a broad middle class, which is the foundation for an equitable economy and a strong democracy.”