13

Scaling Up in Microfinance - Issues and Challenges

Issues and challenges of microfinance

practice in the Philippines

I

Issues and Challenges in Scaling

n the Philippines, a microenterprise is

Up

legally defined as "any business entity

Organisational Capacity

or enterprise engaged in production,

processing or manufacturing of products

Microfinance providers, that are banks

o r commodities, including agro-

or non-governmental organisations

processing, trading and services, whose

(NGOs), face almost similar challenges in

total assets including those arising from

expanding their operations. The most

loans but exclusive of the land on which

s i g n i f i c a n t issues pertain to the

the particular business entity's office,

development of new products and

plant and equipment are situated, shall

s e r v i c e s ,  training  of  staff  and

not be more than three million pesos1(P3,

enforcement of effective auditing and

000,000 or around US$55,000)." Although

controls mechanisms.

this is the definition now used by the

Development of New Products and

Philippine

government,

most

microenterprises have much smaller asset

Services -  Product  research  and

development generally remains a low

values. Typically, microenterprises in the

Philippines are businesses within, or closely

priority due to lack of competent and

linked to the household. Some examples

knowledgeable personnel who will

are small handicraft makers, ambulant

conduct

such

activities

and

vendors, shopkeepers and the like.

inadequate resources to support such

activities. Most bank personnel do not

Demand

and

Supply

for

have

technical

know-how

in

Microfinance Services and the

conducting research and developing

reason for Scaling Up

new loan products. Moreover, lenders'

Some studies have shown that Filipinos

resources are just enough to meet their

in the bottom 30 per cent of poverty

borrowers' loan requirements, leaving

meagre resources for other areas such as

manage at least two livelihood or

microenterprise activities.2 In addition,

product research and development. As

another study shows there are 4.1 million

a result, the number and type of loan

families belonging to the lowest 40 per

products relatively remain the same

cent income strata who are engaged in

throughout the lenders' operations.

microenterprise activities.

Training of Staff - Another area that needs

Despite  this  large  number  of

to be improved is staff training. Only a

microentrepreneurs in the Philippines, less

few microfinance lenders have in-house

than one million avail of credit.3 This figure

training programmes for their personnel.

was further confirmed by the recent Asian

Most often, trainings which are

conducted during the initial stage of the

Development Bank (ADB) study in the

P h i l i p p i n e s , `Commercialization of

microfinance programmes are provided

by their fund providers as part of the loan

Microfinance', where an estimate of only

600,000 to one million have access to

package. Thus, continuous trainings for

formal financial services.4 Another recent

MFI personnel are often non-existent due

study estimated the potential demand

to lack of competent trainers and bank

for microfinance loans at PhP 26 billion

resources.

while the potential supply is only at PhP

8.8 billion.

Enforcement of Effective Auditing and

Controls - An important aspect in loan

Microentrepreneurs who cannot access

portfolio monitoring is an effective

The development

of sustainable

formal financial institutions have to resort

management information system (MIS)

microfinance

to informal lenders (i.e., friends, relatives,

that could furnish management with

relevant and timely information.

institutions to

'loan sharks', and the like) to augment

provide quality,

the necessary capital needed to

However, only a few microfinance

increase their business activities.

lenders have adequate MIS that gives

sustainable and

timely financial

management an effective tool in their

Therefore,  the  development  of

decision-making. Most MFIs do not have

services is

imperative to be

sustainable microfinance institutions

adequate MIS and are not able to

(MFIs) to provide quality, sustainable

properly monitor and control their loan

able to empower

the poor to have a

a n d  timely  financial  services  is

portfolio. The main cause of this

imperative to be able to empower the

predicament is the prohibitive cost of

stake in the full

benefits of growth

poor to have a stake in the full benefits

most reliable MIS. Although there are MIS

of growth. This need becomes more

developed locally, some financial

urgent in light of the country's poverty

institutions' experience with them is not

incidence where nearly 40 per cent of

encouraging.

almost 80 million Filipinos live below the

poverty line.5