Vol. XXII, No. 23
Wednesday, August 27, 2008 | MANILA, PHILIPPINES
Today’s Headlines
‘Credit alone is not the panacea’
FOR ALL the recognition bestowed on microfinance for being a tool to reduce poverty, a founder of one of the country’s biggest microfinance institutions readily acknowledges that "credit alone is not the panacea."
Jaime B. Alip, founder of microfinance institution CARD MRI which won this year’s Magsaysay Award for public service, gestures during an interview yesterday. —Jonathan L. Cellona
In many ways, Jaime Aristotle B. Alip, managing director of CARD MRI, follows the footsteps of "Banker to the Poor" Mohammad Yunus, founder of Bangladesh’s Grameen Bank.
San Pablo, Laguna-based CARD MRI, which stands for Center for Agriculture and Rural Development Mutually Reinforcing Institutions, is this year’s winner of the prestigious Ramon Magsaysay Award for public service.
Mr. Yunus won the Magsaysay Award in 1984 and went on to win the Nobel Peace Prize in 2006.
When Messrs. Alip and Yunus first met in the 1980s, the former was highly skeptical of the concept of lending to the destitute. But Mr. Alip and 14 others later became believers and went on to found CARD in 1986, aiming to serve landless rural women in the southern Luzon region.
Today, CARD is the largest employer in the local microfi-nance sector with over 2,800 staff members and has served more than 700,000 poor families. The group has grown to more than 600 offices with operations in Cambodia, Vietnam, and Indonesia — a far cry from its beginning of merely P20 in capital and a "magic typewriter" that Mr. Alip used to make proposals.
How CARD MRI is different from Grameen and other traditional microfinance institutions in the country may ultimately spell its continued relevance as a vehicle for social development.
It modified the loan circle concept, in which a group of 30 people would be held responsible if one decides to default, creating moral pressure on all members to meet their own obligations. This would mean blacklisting 29 people for just one person’s delinquency.
In the way CARD MRI works, loans are an individual responsibility. Like other outfits, loans start small, at P5,000 for the first cycle, with affordable repayment terms running from six months to a year. Only women are given loans.
More than P5 billion has so far been disbursed, and the near-perfect repayment rate of more than 99% is the best in the sector.
Mr. Alip is no stranger to criticism regarding the effectiveness of microfinance as a poverty-reduction tool. When Mr. Yunus got the Nobel two years ago, one US commentator wondered whether the award should have been given to the Wal-Mart founder, arguing that the retail behemoth had lifted more people out of poverty by simply sourcing its stocks from the Third World’s cheapest sources.
Still, "Microfinance is the best thing that ever happened to the poor," the Harvard-trained Mr. Alip told BusinessWorld. "You have to give them hope. You have to give them a chance to rise out of poverty."
To prove its point, CARD MRI has set up shop in Sulu and Tawi-Tawi, conflict-ridden places where no other lender or multinational firm would ever open. Repayment rates have also been "near-perfect".
CARD MRI’s internal assessments, done every two years, show that 80% of members have attained a better quality of life, he said.
"Our members are able to have increased incomes and improved business activities. They send their children to school and provide food and housing to their families. At the same time they are able to reinvest in their businesses," Mr. Alip said.
The fact that members are able to send children to college because of increased incomes from entrepreneurial activities attest to the value of microfinance in rural development. "That’s breaking the bond of poverty," Mr. Alip said.
"But there is life after micro-finance," he added. "The challenge is for microenterprises to get to the next level, SMEs (small and medium enterprises)."
"By my experience, it takes three to five years to lift our members out of poverty, and five to eight years to stabilize them," he said. "Our nanays (mothers) are able to employ eight to 15 people and pay them minimum wage."
But the chances of members sliding back to poverty will become "nil" if they are able to transform into SMEs, he said.
This is where other CARD MRI programs come in. CARD MRI now has business development services, geared at integrating microentrepreneurs into the mainstream economy by helping them expand, reduce production costs and making them financially viable.
"We have an integrated approach," Mr. Alip said. "Credit alone is not the panacea. We have to bring in other programs."
In 1997, CARD MRI achieved an ambitious goal of putting up its own bank, CARD Bank, at a time when the Asian financial crisis was beginning to take its toll. It was the first nongovernment microfinance outfit in the country to achieve such as feat.
CARD Bank branches are often filled with people that casual observers may think there’s a bank run. But rural folks patronize the bank for a variety of services like regular, emergency, and housing loans, as well as savings products. Members pledge to save P40 a week, and the money earns market-level interest rates.
More than 2.7 million people have been insured by the CARD Mutual Benefit Association, providing members with a social safety net. The package includes death and funeral benefits, medical subsidies, and pensions.
"With insurance, members can quickly rebuild their asset base [in case of a tragedy]," Mr. Alip said.
When there’s a calamity there’s a moratorium on loan repayments, and CARD MRI personnel go out to provide relief and other assistance. "This, the clients value very much," he said.
Mr. Alip takes pride in the fact that CARD Mutual Benefit Association is owned by members and managed with the help of professionals.
"That’s what empowerment is all about. It’s not just about access to assets, but also control of the assets," he said.
But microfinance still has a long way to go in the Philippines. So far, only two million people has been reached by the entire sector, and the government estimates that 5.6 million need the services of microfinance, Mr. Alip said.
In terms of the number of borrowers, Filipino microfinance groups do not figure prominently in the recent ranking released by the Asian Development Bank which is dominated by the likes of Grameen which has 6.3 million borrowers. CARD MRI and two others made it to the top 50.
CARD MRI wants to expand its reach to one million people in the near term, and over the next decade, strengthen its business development arm.
"CARD will never stop until I give a loan to the last poor family in this country," Mr. Alip said.
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