Lessons in microfinance

MICROFINANCE has been a great help to many poor people in this country. Its great propagator was from Bangladesh: Dr. Mohammad Yunus. After Bangladesh, success in microfinance is probably in the Philippines. Here its most successful company is headed by a Bangladeshi: Mr. Kamrul Tarafder of ASA Philippines. I met Mr. Tarafder in Bangladesh the first time in 1999 when ten of us were invited to see what was being done in Bangladesh in microfinance. Mr. Tarafder came to help us establish microfinance in this country and much later he established his own microfinance company with the help of Magsaysay awardee Ambassador Howard Dee. They have probably lent many billions of pesos in ASA Philippines with a default rate of less than two and a half a percent over the eight years they have been in existence. There are other big and successful microfinance enterprises in this country but ASA Philippines is the most successful. They have branches in all provinces of the Philippines. May their tribe increase.

The one problem in microfinance is stealing and it is not with the clients but in the staff. Looking back at my experience, this will be a perennial danger. What is important is to catch malfeasance before it grows too big. In dealing with money, it is always a temptation to squirrel a few pesos here and there. Successful microfinance enterprises have been able to catch them before the problem has grown too big. I had a staff member who was exemplary but ten years later he started to steal. We had to dismiss him. Once a young entrepreneur asked my counsel as he was starting a lending business. Since it was only he and his wife who were in the operation, I assured him there would have very little problem. They have been very successful.

Our poor are afraid of going to the bank where they have to sign papers. Their experience with papers to sign has not been good. There were times when we urged our clients to move to the banks but most of them balked. They preferred to deal with someone they were familiar with rather than deal with the many formalities of the banks. This became a real problem for the microfinance companies. They had clients who were borrowing from them for over a decade with very little improvement since they could not increase their funding. The client could not grow and the microfinance company could not go to others who need their help.

Interest rate on a per annum basis is of minor importance to microfinance clients. Fifty percent per annum is only one percent per week. What is more important is availability of funds. The probable reason for this is that there is a faster turnover at this level. If you can make three sales a day, the interest rate is not too important. There are no government ceilings to interest rate. What they only insist on is that the client is aware of what they are paying.

Saving is a habit that all good microfinance operations insist on. Without saving, it is not possible for the clients to go on their own without microfinance loans. Here microfinance operations make a good contribution. Many of our poor do not realize how important it is to save. Insurance is another benefit that these companies give to their clients. This is a great help in case of death and accidents among the clients. They usually are very grateful for this help.

Microfinance not only helps the clients directly but also introduces them to financials such as savings and insurance. Using capital borrowed from the banks is possible but not advisable because new or unthinking officers of the bank can start squeezing the operation when it gets into some bumps in the operation. It is preferable to have an original fund that is not subject to bank supervision.