Sunday, February 17, 2002

SPECIAL REPORT

Aid energy languishing in 
pipeline, awaiting release

By Jose Galang Jr.

(Second of two parts)

KIDAPAWAN, North Cotabato—“There is nothing more exasperating,” Robert Vance Pulley says, “than to see an urgent need—people wanting support and assistance—but to see funds languish while people’s needs rise and eventually their frustration level rises too.”

Pulley was talking about the huge amount of official development assistance (ODA) that the Philippine government could avail of from multilateral financial institutions and from aid agencies of friendly countries. Pulley is the country director of the World Bank, one of the major institutions involved in development financing.

Government data validate that observation. As of the beginning of 2001, total ODA commitments from all sources amounted to $13.3 billion, a recent report by the National Economic and Development Authority said. Of that sum, however, the Philippines has been able to draw down only $4.96 billion, leaving a sizeable $8.4 billion waiting to be tapped.

Availment rate

As the amount of ODA commitments continues to rise, and with the rate of availment still slow at some 62 percent, some of the aid donors are now balking at extending more credits to the Philippines. The availment rate is based only the amounts actually drawn down against the amounts targeted by the government to be released for a specific year, not against the total available for the country.

Last year, the Philippines was able to draw down just $1 billion out of the total outstanding ODA commitments of $8.4 billion at the start of the year. Some of the ODA sources have also had to cancel some of the loans on standby because the money could be used elsewhere—and the Philippines also has to pay a penalty for amounts that lie idle.

The World Bank official says total ODA cancellations last year amounted to around $1.1 billion, which outpaced the amount of drawdowns made by the government for the same period.

If the rate of availment does not improve, Pulley further said, the Philippines would be able to use up the ODA amounts already in the pipeline in more than eight years yet. That’s just the average for the entire amount, and that a longer period of availment is even predicted for ODA credits coming the Asian Development Bank, another leading source of development funds for the country.

Micro-borrowers

Compare these huge amounts to the modest requirements of prospective borrowers in, say, North Cotabato and the frustration level is easily understood. According to Rodilo H. Lebiano, president of a local NGO, Advocates of Cotabato Rural Deve­lopment Inc. (ACORD), loans and grants it gives to small borro­wers in its area amount to a maximum of P10,000 each for first-time borrowers. Repeat loans, he said, can go as much as P30,000—in rare cases up to P50,000.

ACORD is a conduit of microcredits for small enterprises or individuals whose small productive activities now energize many rural areas of North Cotabato. (In yesterday’s installment of this article it was erroneously stated that ACORD is a beneficiary of the World Bank’s Social Fund under the Special Zone of Peace and Development program, or SZOPAD.)

Lebiano said ACORD borrowers have a repayment record of 92 percent on average for the past three years. On an annual basis, however, there has been a decline in the repayment rate—from a high of almost 100 percent in 1999 to 92 percent in 2000 and then to a low of 82 percent last year as the fallout from the global and domestic economic slowdown reached this province.

“We had earlier thought that micro-enterprises would not be affected by the world economic slowdown,” Lebiano said. “They were also affected because their custo­mers, we found out, were also forced to prioritize purchases, resulting in reduced demand (for ACORD-supported micro-enterprises).”

Under a new P41.5 million grant signed this week by the World Bank and Japan’s Social Development Fund, ACORD will set up a revolving fund from which micro-entrepreneurs could borrow money for use in such small ventures as agribusiness.

“We are adopting a ‘modified Grameen type’ of lending program,” Lebiano said, referring to the highly successful no-collateral microcredit scheme that helped poor people in Bangladesh improve their standards of living.

Aside from providing capital, the ACORD program will also extend capacity-building assistance such as technical advice and information exchange. Two credit delivery approaches will be pilot-tested by ACORD to help expand the coverage of microfinance, improve service quality, and enhance sustainability, Lebiano said.

Boosting availment rates

North Cotabato is one of the provinces qualified for another World Bank financing scheme, the Mindanao Rural Development Program (MRDP). There has been talk that the program would be cancelled by the World Bank due to the slowness of project implementation, but Pulley said this week there would be no such cancellation.

Noting that a lack of counterpart local financing for the fo­reign assistance has been a major cause of delay, North Cotabato Governor Emmanuel Pinol marshaled funds for the local projects by rechanneling “mini-pork barrel” allowances for members of the Sangguniang Panlalawigan, or the provincial board.

Piñol laments that the local counterpart financing requirement represents only 10 percent of the project amounts and yet there was difficulty in raising it even if it was obvious that the projects would redound to the benefit of the residents, particularly the poor, in the beneficiary areas.

To break what was proving to be a Gordian knot (the MRDP loan targeting the 24 pro­vinces in Mindanao was approved by the World Bank in 1999), Pinol asked all the 12 members of the provincial board to turn in their annual allowances into the counterpart fund—P1 million each from the board members and P3 million from the board chairman, the provincial vice governor.

The P15 million that was raised from the board was matched by a similar P15 million from the governor’s budget, he said, resulting in a total of P30 million fund that was good enough for P300 million worth of MRDP-financed projects.

Piñol said the congressmen in the province’s two districts have also agreed to contribute P5 million each, which could further raise the fund to P40 million.

“The ‘mini pork barrel’ was mistaken for ‘pocket money’ for the board members,” Pinol said. “I told them that instead of spending this money in small things amounting to P5,000 or P10,000 each that eventually result in projects of no significance, the money could be used as local counterpart for those large projects that will have an impact on people’s lives.”

Consultations

Piñol said that what came out of that initiative was a demonstration that “it is important for local officials to have an appreciation of these projects.”

Very often people from Manila (the national capital where head offices of government agencies are located) come to the provinces “and dump on us plans designed in Manila without even asking the people here what we really need,” Piñol said. “That is why many of those projects (in the past) failed.”

Piñol said consultations with the poor people in his province are now a regular practice. “We now have weekly evaluations of problem projects and these problems have been resolved.”

“It is important that the people are consulted to determine what they really need,” Piñol said. “This will also ensure that there is an appreciation of the projects—and on how these projects will affect their lives—that the government is implementing in their areas.”

In fact, that is also one of the lessons Pulley has learned over the past few years he has been supervising World Bank social development projects. “It is important that we talk to the people,” he said. “We cannot guess what they need. We cannot be arrogant and imagine we know what they need.”

Good credit risks

Pulley also said the procedures followed by the formal banking system “are not really friendly to these (poor) people that need credit. There’s too much trouble. We need to work on the formal banking system, but we better not wait.”

“Providing credit to the poor is a sustainable activity. The poor are more than willing to pay a market rate of interest. In fact, 20 percent a year sounds very good when you’re facing 20 percent a day charged by the ‘five-sixers’ (the informal lenders who collect P6 for every P5 of loans).”

Pulley also said poor people can be “a good credit risk” particularly if they are provided with relatively small amounts of money combined with efficient delivery and collection mechanisms and technical advice.

Among borrowers, women are “particularly diligent and responsible,” Pulley said. “They (the women) use the funds to improve the family living standards. And they repay, particularly if they get guarantees of access to future credit.”

He also cited studies showing that “returns on microcredit can be very high.”

“Small amounts of credit can help families out of poverty. It can be the difference in such practical things as being able to send children to school or having to keep them home to actually provide family income.”