Community-owned and managed microfinance system works
By Rudy R. Baldemor
Can an informal, non-bank, not-cooperative, not-NGO, but small Community Self-help Group operate and manage microfinance system? How does it work to generate livelihood and incomes for marginalized groups who are victims of usurious and exploitative lending schemes such as the 5-6?
Project launching - In February this year the Naga College Foundation-Center for Corporate Social Responsibility (NCF-CCSR) and the office of Congressman Gabriel Hi. Bordado of the 3rd district of Camarines Sur launched a project called TABANG, or Transforming Affected Barangays and Needy Groups into entrepreneurial citizens as a strategy to fight the economic effects of COVID 19. The project initially targeted eight (8) community groups to be trained and within six (6) months.
Project output - By August 13 the community groups were evaluated. The study revealed that 273 families were involved in the 8 community groups. The groups created 264 livelihood and group enterprise projects. They were able to generate income of P422.449. And since the system is using profit sharing scheme the borrowers were able to get a total of P43,697 from their economic projects.
Major tool - The TABANG Project used the NCF-CCSR’s community-based microfinancing scheme called ICRF, or Indigenous Community Revolving Fund. It is covered by a manual of management tools and guidelines which is the basis for organizing, training and systems installation. ICRF is a non-bank micro lending system with unique and unconventional features and guidelines. They are used to train and build the capacity of the target groups. Some of the new/alien-looking features of the ICRF are the following:
1. Capital is owned, through equal contribution, by a Community Self-Help Group
2. Use profit margins and sharing from enterprise ventures – not interest on the loan capital
3. Profit margin for each enterprise project loan: 20% (10-borrower, 5-CBU, 5-Service Fee)
4. Do not need business plan or feasibility studies – only business and profit forecasts
5. Designed to support short-term transitional enterprise projects (1day-4 Months)
6. Loan amounts is released 100% - no deduction
7. Share in profit by the borrower is withheld upon payment of the loan
8. Share for capital build-up and service fee for operation and maintenance is paid upon payment
9. Terms of payments - flexible, agreed between the Borrower and the Fund Manager
10. Manual authorizes the community group to develop and agree on some internal policies and guidelines
Target groups - The target population of ICRF and TABANG project are hapless borrowers of capital for home-based livelihood or enterprise project. This are the informal business operators, small farmers and fishermen, drivers and community-based sari-sari store owners. They are not qualitied to access and borrow from formal banks and lending institutions. This leads them to resort to loan sharks, corporate lending firms and the usurious 5-6 operators.
Acceptance and sustainability – The evaluation study was done to support and validate the rationale of developing and for possible institutionalization of the ICRF scheme based on the TABANG experience. It is aimed at discovering the acceptability, effectivity, rationality, and possible replicability of the system in more groups or areas. Most importantly it is aimed at discovering the flaws of the system and its possible remedies to achieve popular and legal acceptance for its sustainability through possible government policy and program intervention.
I - On the lending system – The study tried to look at the extent of borrowing of the members, how many times did they borrowed, ant the purpose of borrowing. The respondents gave the following answers:
1. Obtaining loans from their ICRF project
• 66 or 86.8% said they borrowed from their own ICRF project
• 10 or 13.1% said they did not borrow from their own microfinancing project
Result analysis - While the respondents did not give reasons for borrowing from their ICRF project the 86.8 percentage rate is already an encouraging figure of understanding the concept and its acceptability to the target groups.
The 13.1% of the respondents did not give reason why they did not borrow, but it is not an indication of a negative attitude towards the ICRF, the study did not only provide enough time for them to borrow or apply for loans.
2. Frequency of loans obtained
• 12 – three times - 19.6%
• 41 – once only - 67.2
• 2 – 4 times - 3.2%
• 5 – 5 times - 8.1%
• 1 – 6 times% - 1.6%
• 61 - Total loans - 100%
Result analysis - The loans composing the high 67.2% and 19.6% are short-term livelihood projects. While the low percentage rate belongs to long-term loans particularly farming with a gestation period of up to 3-4 months. This shows the importance of short-term project in generating faster capital build-up. Validating the concept of velocity of money generation of the ICRF scheme.
3. Amount and range of borrowings
• P1,000 – 22 borrowers
• P2,000 – 15 borrowers
• P3,000 – 17 borrowers
• P5,000 – 5 borrowers
• P4,000 – 1 borrower
• P1,400 – 1 borrower
• P8,000 – 1 borrower
• P10,000 – 4 borrowers
Result analysis – The data validates the findings in Item No. 2 above, and theory of the ICRF that short-terms loans are better for a community-owned microfinance. The loans of P8,000 and P10,00 were for farmer-members in the farming villages and for group community enterprises.
This finding and experience was discussed as a feedback to the CSG concerned and adjustments on their loan policy are being introduce: project diversification for farmers, and on management tasks assigning or division of labor for the group community enterprises were recommended.
4. Purpose of borrowing – The respondents gave justifying answers: as capital for livelihood or group enterprises, or support to farming activities.
II – On the impact or effect of the ICRF scheme to the community – The study tried to gauge the impact of the project intervention in the community, based on the personal assessment of the respondents in their daily interaction with people in their areas.
1. The study fielded the question on the applicability and workability of the community-owned microfinancing strategy to the poverty sector and their communities
• 75 or 98.8% said yes, applicable
• 1 or 1.2% said no – not applicable
Result analysis – The high rate of assumed applicability and workability of the community-owned microfinance is a manifestation of the peoples’ disappointment on the existing system of microfinancing from the government, interest-based banking and finance sector, and the current usurious and exploitive 5-6 loan sharks and operators.
2. On the concept of community self-help group ownership of microfinance – The study was trying to determine the effectivity of changing mind-set of people towards unconventional, non-bank ownership of microfinancing for the poverty sector
• 36 very advantageous - 47.36%
• 29 advantageous - 38.17%
• 11 not advantageous - 14.47%
• 76 responses - 100% A
Result analysis – The answers were restricted to only one response per respondent. The result of 47.36% very advantageous and 38.17 advantageous might be affected by the fact that the respondents are the direct implementers and beneficiaries of the ICR system – hence they are defending their project. But it cannot be denied that they too are victims of existing systems, hence their responses are also a valid reflection of the general sentiments of their communities.
3. On comparing the ICRF with existing microfinance systems and schemes – The study want to determine the PERSONAL assessment of the ICRF compared with the present schemes especially as they apply for them as borrowers
Result analysis – debates on the answers on whether they are affected by the party conducting the study, or the face-to-face meeting methodology is discussed. The high percentage result, however cannot be a factor to consider in denying their validity, authenticity and admirability. In fact these responses only validate the findings of the background research and development methodology behind the ICRF project strategy.
4. Readiness of the respondents to recommend the system to other stakeholders – The study wants to determine the readiness of the respondents to recommend the ICRF as a community-based microfinance program for LGUs, Corporations, and poverty groups.
Result analysis – With more modification and enhancement, 82.8% rating for endorsement is a strong reason why the ICRF cannot be adopted as a poverty reduction strategy of the government.
The World Economic Forum declared that after COVID 19 there will be a rural economic revolution. What can be more important than empowered communities with the value of self-reliance and imbued with the culture of entrepreneurship. But entrepreneurship cannot be realized without available and accessible capital especially for the poverty groups. Community-based Microfinance is a viable answer.