DoF cites cash transfers, microfinance lending role in reducing poverty incidence
GREATER financial inclusion through conditional cash transfers (CCT), and microfinance were cited as key drivers in reducing poverty, alongside infrastructure development, according to a study from the Department of Finance’s (DoF) chief economist.
“Regression analysis confirms that GDP ( gross domestic product) growth, microfinance coverage, CCT coverage and OFW (overseas Filipino worker) remittances are significant variables contributing to poverty reduction,” Finance Undersecretary Gil S. Beltran was quoted in a statement as saying.
Leading the charge in its contribution to reducing poverty incidence is the CCT coverage expansion. In the study, it said that an increase of one million families in the number of households covered by the CCT reduces poverty incidence by 1.47%.
This was followed by microfinancing, where an increase of one million families covered by small loans would reduce poverty incidence by 1.42% to 1.45%.
According to Mr. Beltran, remittances are highly correlated with microfinance coverage at a ratio of 0.64, as the OFW’s family members use the remitted funds in small businesses.
On top of that, the banks — conduits for remitting the funds — get more cash to pool into microlending services.
In the DoF estimates, every 1% increase in the OFW remittance share to gross domestic product would lead to a 0.127% to 0.132% decline in poverty rate.
“Likewise, microfinance coverage is also highly correlated with CCT coverage (0.89 correlation ratio),” Mr. Beltran added. “Both microfinance and CCT are concentrated at the lowest decile of the population.” “Inclusive development programs are most effective if supplemented by higher microfinance coverage and broader and effectively targeted CCT coverage. These two programs, if implemented effectively, can reduce poverty,” the report read.
Moreover, the research paper cautioned that food inflation, particularly in rice, must be kept at manageable levels, as it would undermine the decline of poverty incidence despite positive economic growth.
“The rice sector, which accounts for a significant proportion of the consumer basket of the poor, should be reformed to make it contribute more effectively to poverty reduction. Enhancing food supply through food production and timely importation, if natural disasters destroy the harvest, will go a long way in preserving the gains from good GDP growth and financial inclusion programs,” the report read.
A 1% hike in food inflation would push 0.262% to 0.267% of the country’s families below the poverty index, according to the DoF study.
The Duterte administration plans to lower poverty incidence to 13-15% over the medium term from 21.6% in 2015.
To achieve this, it plans to spend up to P8.4 trillion in public infrastructure until 2022, to make the economy grow by 7-8% starting next year until the next five years.
Having GDP grow by 1 percentage point would reduce poverty incidence by a range of 1.43% to 1.5%.
“At higher levels of GDP growth, the economy becomes more inclusive as more families emerge from poverty and acquire bigger shares in the economic pie,” the report read.