The Magarao Hilot Association Revolving Fund Project: A Community-Based Microfinancing System as Alt
Global findings - People aspiring for better lives have 15-20 ideas of livelihood or income-generating activities at any given time. This is a global finding in my 24 years of community development work in 14 different countries from South Asia, Caribbean, South Pacific, Africa and in the Philippines in Mindanao. This is especially true for the poor and marginalized sectors in rural and urban villages and communities where social unrest and communal violence persists. 99.9% of these dreams, however, cannot be realized because of absence or lack of access to financial capital.
Attempted solutions - This fact is well known to everybody: the government, the corporate sector and voluntary service and development organizations have been introducing schemes to solve this problem. But the situation persists giving the opportunity for exploitative and usurious systems of microfinancing to proliferate and victimize the poor. Income does not only come from skills or knowledge, or markets or technology or infrastructures or dedication of service providers. Income comes from the presence and utilization of capital which is conventionally available but governed by the formal banking and financing establishment whose main operating principle is “capacity to pay” of borrowers.
The MHA - Magarao Hilot Association or MHA is a group of women and men in Magarao, Camarines Sur engaged in age-old and modern techniques of body massage which their town has been famous for. Out of more than 70 practitioners who have settled elsewhere or abroad to practice, 45 remain in the municipality as active members of the association. The group has been a grantee of a Wellness Center by the LGU and Department of Tourism for their cultural and economic contributions to the community. With the functional workshop the members provide more quality service for at least 10 hours a day manned by a team of service and administrative staff. For their rising popularity the group has been invited in special events in malls in Manila and other places with special events.
Introducing the Microfinancing Scheme - The MHA members are required to contribute to a savings program for the organization. When the NCF-CCSR conducted a needs assessment workshop it was learned that there was almost P150,000 in their bank account – but they did not know how to make use of it. It was then that the idea of community-based microfinance project was introduced to the group – a microfinancing strategy owned, managed and benefitting a small self-help group and using the practical system of revolving fund which was originated in Mindanao and brought to other countries such as Sri Lanka, South Pacific and Liberia in Africa where I worked. An orientation seminar was conducted followed by a series of management trainings and system installation activities.
Project Launching - On October 11, 2018 the MHA Indigenous Community Revolving Fund (ICRF) Project was launched in the Training-cum-Livelihood Center, San Isidro, Magarao, Camarines Sur. It became the first community-based microfinancing project of NCF-CCSR in Bicol. The project had 25 volunteer members contributing P2,000 each for their start-up capital of P50,000.
Main Features of the Indigenous Community Revolving Fund (ICRF) - The following are the main features of community-based microfinancing system defined in the NCF-CCSR ICRF Manual.
ICRF Implementing Guidelines: The project is governed by the following policies and guidelines:
1. Capital is owned, managed and controlled by a Community Group equally not by a bank
2. Designed to support short-term transitional enterprise projects (1day-4 Months)
3. Ceilings of borrowings-maximum amount not more than minimum amount of Banks
4. No Interest but profit margins and sharing from enterprise ventures
5. Profit margin: 20% of each loan amount (10-borrower, 5-CBU, 5-Service Fee)
6. Possible 150% return on investment in 12 months for the community group and its members
7. No Collaterals - The Fund is owned collectively by all the members
8. No voluminous and complicated forms – only three 1-page forms each
9. No Co-makers - all members are considered as co-owners of the Fund
10. Terms of payments - flexible, agreed between the Borrower and the Fund Manager
11. Witnesses - 2 witnesses as representatives of the members of the Fund
12. Provide a transitional period for members to learn practical business management, develop culture of savings, investment and entrepreneurship
13. Ideal number of members is 20-25 – but is not a closed organization, members may opt to sell their share or separate to put up their business
14. Manual authorizes the community group to provide Penalties for enterprise-related offenses agreed by the members
15. Manual provides guidelines for failed enterprise project caused by act of nature, beyond the control of the borrower, and for failed enterprise project thru negligence of the borrower
Project Officers: The project is managed by the following officers:
• President, Vice President, Secretary, Treasurer
• 3-member Assessment, Collection and Audit Committee (ACA Com) appointed for 1 year
• A Fund Manager appointed for a term of six (6) months renewable
Lending Cycle - The lending operation is implemented through 6-months cycles. This is enforced by 6-months appointment of the Fund Manager where s/he is audited and is required to submit an End of Term Report (ETR) together with the Fund Manager Ledger and the Bank Book of the project.
1st Cycle Project Review – The first six months was a trial period for the Project. The officers and Fund Manager were asked to render reports based on the guidelines and using the End of Term Report. The technical component was encouraging with only a few hitches; the profit shares of the borrowers were not automatically retained by the borrowers, so they were included in the financial report of the Fund Manager. In view of this misunderstanding there were still hesitance from the members to borrow.
8th Month Assessment – in July 16 NCF-CCSR and the Municipal Planning and Development Coordinator conducted a follow-up assessment covering an 8 months operation. This was the finding:
• Cash on bank - 2,663.60
• Cash on hand - 750.00
• Accounts receivable - 93,950.00
• Total money on record - 97,363.68
• Return on Investment (net of Borrowers’ share) - 94.7% (from the start-up capital of 50,000)
• Number of loan applications received - 19
• Number of loan applications approved - 17
• Borrowers with repeat loans - 19
Names of projects assisted:
• But and sell of Frozen Foods
• Salon shop
• Buy and sell of dry goods
• Sari-sari store
• Buy and sell of Oring (Charcoal)
Conclusions: The pilot project generates very promising findings and conclusions:
• That there is a more practical way of microfinancing using the indigenous concept which is utilized by corporate banking and finance establishments
• That the poor or marginalized sectors can own and manage their own microfinancing system given a wholistic training on the systems and procedure
• That given a source of financing the poor can diversify their livelihood and earn more family income, reduce poverty and proceed to dream of development
• That livelihood activities can be developed into profit-making enterprises if they are attached to a bigger framework of community development
• That there is an effective way of reducing material and psychological poverty through non-conventional strategies but anchored on the fundamentals of sociology and economics