A Second Look: On Microfinance

While I have had many looks on the subject of Microfinance over these many years, it might be apropos to give it that old college try of laying out all the possible unvarnished results, both pro and con, on the subject. Especially given the wide acclaim and commendable laurels now heaped upon it by the global community, capped recently by the Nobel Peace prize choice of the father of the movement, Mohammad Yunus.

Now since global attention has been riveted to it, promises of billions of dollars more have been generated and gathered for its many ambitious plans. The august United Nations has lent its own somewhat tarnished credibility by posturing a more aggressive stance against the worsening global poverty and promising to promote microfinance activities. In the process, bringing in hardy support from the private sector, ranging from an unlikely ally in the person of a George Soros and from the usual overnight billionaires, the likely benefactors of the tech era; and yes, even internationally-revered banking institutions like Citigroup and Deutsche Bank have joined in . Thus, to date billions of dollars have been marshaled around the globe to fund various microfinance projects from an array of institutions all united under the umbrella of microfinance institutions (MFI).

So, is global poverty on its way to a museum as Mr. Yunus forecasted for Bangladesh?

First, some sobering generalizations before delving into the particulars.

1. Is poverty, whether globally, country-wide, or even community-wide, completely eradicable? The realistic answer would be NO. Even the most prosperous country in the globe, the US, unabashedly declares its own poverty rate at double digits, 10-12% of total population. So imagine how much truly more in countries like China, India, and countries in continental Africa? Did not even our Judeo-Christian master, Jesus Christ, admit that “the poor will always be with you”? Thus, even granting the best of human conditions, poverty will continue to stare mankind in the face in its many ugly manifestations The best that can be done is to “alleviate” it as much as is humanly possible.

2. Microfinance is not the one singular wooden peg that when applied can nail global poverty to its coffin, rather think about it as one of many nails applied to a cage to keep pernicious poverty at bay and not allow it to rampage through entire communities or countries.


3. Somehow like any newly emerging solution Microfinance has to evolve into as many manifestations as may be required by unique sets of circumstances prevailing through the very diverse regions of our geography.

Once our diffused perceptions about Microfinance get grounded on the harsh realities detailed above, then maybe we can view and use it in manners befitting our reasonable expectations of it.

But first, the escalating and stark presence of poverty globally could no longer be ignored in the august chambers of international bodies and even in the ornately-adorned corporate boardrooms. These people knew that some things urgent had to be done to address it, or even the promised equalizing benefits of globalization will fall to naught.

And the microfinance movement was germinated to address that huge chasm that forever alienated the poor from having access to credit and resources that would allow them to alleviate their dire conditions. The movement gathered steam and now was become a world-wide movement, supported and participated by a myriad of organizations most with the clout to gather and generate billions of dollars of resources.

And microfinance, or microcredit, or micro loans, have become household names empowering countless numbers of the poor to get control of their miserable lives and help themselves with the resources now available to them.

But our No. 1 assumption above tutors us that the “poor will always be with us”, we can only alleviate conditions from among their numbers. Thus, we are now shown that by and large microfinance has helped those primarily above the poverty line, rather than those in the lowest rungs. And we can find the easy answer within our very own human nature. Unfortunately, not many of us are born or were designed to be entrepreneurs, to use tools (resources and skills) to catapult ourselves way beyond subsistence levels. Many of us are simply good at being good industrious employees or followers. Enterprising capitalists will have to show us how to optimize our earning capabilities and productivity. And also, with very meager resources, the poor’s capabilities to take risks are severely restricted, inherent business risks in economic activities that could bring better results.

In its earnest efforts to operate microfinance as a “market-based” business, we are finding out that at times interest rates charges are higher than what other more informal sources like moneylenders charge. Thus, in effect those microcredit clients are not getting optimum impact from productive endeavors they are engaged in. Thus, many continue to wallow in the mire of subsistence levels.

Therefore standing alone microfinance cannot hope to tackle the formidable task of property alleviation, regardless of the ardor and/or resources ploughed to it.

A three-pronged approach is recommended, adding big business and the government into the mix.

We have learned that markets alone, however free and equitable, cannot stand the rigid tests required for an effective solution to global poverty. Labor-intensive Big Business with its acquired capabilities to generate good-paying jobs, their being able to avail of economies of large scale, their deep pockets to afford them to use new and leading technologies, and very importantly, their abilities to improve individual workers’ productivity opening the avenue for them to earn more from their labors and thus improve their collective lives, are a good instrument for poverty alleviation. Entrepreneurs should be goaded and/or encouraged to spread their reaches to those areas in dire need. And in an imperfect world of finite resources, many instances may require that elusive capital be devoted to endeavors generating more jobs rather than to nobler endeavors such as microfinance activities

And for their part, governments should undergrid free markets with serious and earnest support, so as to become vibrant and effective participants in bringing about change. For there are certain common-good activities that governments are tasked to perform as primary responsibilities for their very existence, monopolistic public services that should form the basic infrastructure from whose level property alleviation should start from. Such basic services as public water, farm-to-market roads, public power and energy, public waste disposal, and yes, public health care.

Right now situations abound where even if the poor have considerably improved their lot and yet they still are unable to avail of some of the most basic of public services such as good potable water and sanitary waste disposal systems.

Thus, this irony. Where one capital city in South Asia boasts of an astronomical increase in the number of cell phones owned by the residents, and yet, 50% of them defecate in public because they have no toilets.

How sad, indeed.


Related reading.

Illustrating The Indomitable Human Spirit

For many years, Vicky C. toiled tirelessly to keep a family fed and sheltered, doing odd jobs as they were made available to her. Cooking for other families, cleaning houses, and caring for the disabled or the elderly, using skills and expertise borne out of many years of trying to keep pace with the almost-unending needs of a growing family of several children. While the grueling years may show unmistakable signs of wear and tear in Vicky’s physical looks, still it cannot be denied that she has kept her family together and sufficiently cared for.

But the persistent urge to succeed in life and to try to give her still struggling family more in life than it has been used to, Vicky thought and tried of every possible way to bring this uplift about. In the process, she had to have realized that her depleting ability to care for her family, converting essentially manual labor in exchange for resources for her family, would not last for long. So she started focusing on economic endeavors that would generate revenue that would more than keep her family’s soul together. Entrepreneurship that has proved for many to be key to improving one’s lot under a capitalist system.

She had reminisced about the times the family had when they were settled in another city and both husband and wife were employed in a thriving bakery shop. The husband had worked as baker while Vicky tended to cashiering; and they had thought then that the family was on its way to some real progress. But as fate would have it, the bakery burned down and with it, the family’s hopes were also dashed to cinders.

Before long, the family found itself in a another city in Mindanao, in Cagayan de Oro City, with the family trying to parlay what experiences it had collectively acquired to support the family. But as expected when one’s enterprising efforts are bereft of the main lifeblood, capital, Vicky and her penurious family did not garner much headway, consigning Vicky to taking on whatever jobs were available.

Vicky came to our lives as a caregiver for my disabled mom who had spent over a decade in the US with us. Realizing too late the disastrous effects drastic change in climate may have especially on the elderly, one of my mom’s legs had to be amputated due to problems of circulation. Thus, she was back to the old homeland for proper caring. Vicky stayed on with the family till my mom died several years ago, taking on miscellaneous odd jobs. As a cook for which she had special skills, cleaning house, and taking an 8-hour shift caring for my mom who had given up on moving about on her own.

It was then that we learned of Vicky’s commendable plan for her family. While the odd jobs did provide some measure of care for her family, they offered no long term benefit and their ability to provide was inversely proportional to her ability to do tedious physical work.

While compassion and good wishes could ease a bit another person’s lament and problems, nothing beats real concrete assistance to start a needy but motivated person on his way toward resolution. And we know the one direst lack of the needy is the ability to raise capital funds, beyond just to spend to keep family alive. And we also know that mainstream institutions designed to provide assistance for such persons have practically closed their doors, arguing about bad risks and the absence of proper collaterals.

Sensing the noteworthiness of Vicky’s dreams and believing in her integrity and resoluteness, we started helping her out, at the same time that we also did with the two other caregivers who lost jobs when my mom died. And in the ensuing several years, Vicky would prove that she was made of sterner stuff, as the two others simply made themselves rare and never once getting back to us to explain how the “loaned” funds did for their little endeavors. We have come to accept their failures and continue to have compassion and good wishes for them.

Over time, Vicky, her husband, and a couple of her kids, having eventually “borrowed” 70,000 pesos, started crystallizing their bakery business. Humbly starting with a home-made oven with the husband cooking and making deliveries and Vicky helping out in the sales, their entire house has become a beehive of activity. From the funds provided, the business was able to purchase a good-size professionally made oven, construct a little store shed to display bakery products and complemented with a meager selection of her own cooking and some soda products, and even rent the neighboring unoccupied building now in turn leased out to roomers and housing her bakers now numbering six.

Can we consider Vicky’s plight as more than just a turn for the better, like a success?

Well, the acquired high standards of polite society may squirm a bit in judging her strides. After all, their house premises which are also the bakery’s place of business are still dark, dilapidated, hot and humid, and would be considered dirty by most health standards; though improvements are slowly being introduced. Some walls are now hollow-blocked and the floor having being upgraded from simply being made of dirt.

But one must feel in this case that the greater, more enduring and laudable changes and/or manifestations have been inside the persons involved. Documented solely by a signed hand-written piece of paper, the “loan” with no interest is slowly being retired, commencing from the middle of last year. The installments have reduced the total amount to 80%.

Though far from liquidation, there is earnest optimism that eventually the borrowed funds will be completely retired, giving credence to the experience-proved truism that the needy by and large only need to be given the opportunity; and that outright charity or pure dole-out is typically not the answer.