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Mustard seeds of microfinance could make a difference in families’ lives
(Article published in the April 10, 2001 issue of TODAY, Business Section)

It could not have come at a more opportune time. Just as its five-year funding from Inter Aide France expired in 1989, Bukas Palad Foundation Inc. received from PCIBank President Rafael B. Buenaventura a Php 500,000 loan that enabled the organization to continue in Tramo, Pasay City what is now known as microfinance.

Microfinance is a process very much akin to the sowing of smallest of seeds that eventually grow into the greatest of shrubs.

The loan was totally incongruent with the rest of PCIBank’s loan portfolio. It was a loan without any collateral. The purpose was not for a project that would bring in the big bucks. The funds were meant to be in turn relent to people to whom PCIBank itself, or any other bank of its class, was not unwilling to lend to. Yet, in the only balance sheet that matters, the loan would most likely be accounted for as among treasures of greatest worth. It gave the poor a small capital to start or sustain their family enterprises. Mothers and young ladies, though staying at home to mind the kids, learned how to supplement the family income. Fathers and young men trained for a trade. Families were encouraged to work together, not compete with one another.

Bukas Palad, one of the Foculare Movement’s social expressions, calls its program "Community Loan Scheme". The operative words are "loan", to signify that the amount given was not a dole out but had to be returned to be used by others, and "community" to stress the thrust towards cooperation among families in the area. The scheme was therefore a common endeavor and its success was a shared responsibility.

Each qualified family could borrow from as low as Php 300 to a maximum of Php Php 20,000 depending on nature of the enterprise and Bukas Palad’s evaluation of the project. Interest is at 9% for six months or 1.5% per month, beating the 5-6 lenders by a mile. The loan must be fully repaid in six months or within a period the project is capable of meeting. Amortizations are made in accordance with the relevant cash flow of the borrower: daily, for those who earn daily; weekly for those who earn by the week.

Debtor responsibility is enhanced by the submission of collateral in the form of household items, such as working television sets, stoves.. Possession of the security for the loan, of course, remains with the borrowing family and is taken over only upon its foreclosure due to non-payment of the loan.

The program has a compulsory savings feature. It requires the borrower to save an amount equivalent to the amortization of the loan. Thus, for a Php 1,000.00 loan at 1.5% monthly interest for six-months, a family paying daily must pay Php 6.00 as amortization and another Php 6.00 as forced savings, for a total of Php 12.00 per day. The idea is that by the end of the loan period of six months, the borrowing family has not only paid for the loan but has saved enough capital to be used in the micro enterprise.

There are other micro finance models that have also been successful elsewhere in the country, but for the 4,000 families that have been reached by Bukas Palad to date, the scheme appears to be working well.

Of course, what may work well for Tramo, Pasay City need not necessarily work as well elsewhere.

Nevertheless, more micro financing, whether of the Bukas Palad mold or otherwise, would occur in the country if banks follow, as they should, the beat of Banko Sentral ng Pilipinas Circular No. 272, dated 30 January 2000. Signed by Buenaventura about a decade after he approved the Bukas Palad loan in 1989, the Circular permits banks, with respect to their micro finance loans, to relax, to a certain extent, the rigorous documentary requirements imposed on regular loans.

Moreover, recognizing that micro finance loans are by definition small, unsecured (in the banking sense), and essentially dependent on cash flow, the Banko Sentral ng Pilipinas is willing to exempt them from its rules and regulations on unsecured loans.

Finally, the Circular considers micro finance loans as compliance with the loans required to be made by R.A. No. 6977 to small and medium enterprises.

To provide the banks with the process of availing themselves of these benefits, the BSP issued on 27 February 2001, Circular No. 273, basically lifting the general moratorium on new thrift and rural banks to allow the entry of microfinance oriented banks.

Necessarily, Circular No. 273 is steep in requirements designed to help the banks avoid the common causes of microfinance failures and enhance the factors that contribute to its sustained success.

God willing and banks doing, these mustard seeds of micro finance will become, for our poor, trees so that the birds of the air can come make nests in their branches.