• Simplifying a complex problem

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    Poverty is a constant headache for every administration. It seems that no matter what the government does—whoever is at the helm of Malacañang at a particular time—there will always be poor people and their number will always be overwhelming.

    One typical characteristic of being poor is the lack or utter absence of access to basic banking services. They often have no savings account to speak of, nary any borrowing to finance any budding entrepreneurial venture, nor a microinsurance instrument to fall back on in times of emergencies.

    Thus, can poverty be fully addressed just by enabling the poor have access to financial services? No one truly knows. Poverty is such a complex animal that eliminating it effectively requires a multi-pronged approach covering a long period of time. However, it will certainly go a long way in support of the present administration’s poverty alleviation efforts if the poor will be empowered economically. One such way is through microfinance, an instrument tailor-made to the needs and financial capability of the rural poor and an important mechanism that rural banks wield today.

    As described by Pia Bernadette Roman in her paper titled, “Microfinance in the Banking Sector: Current Environment and Future Directions,” traditional collateral requirements have been replaced with collateral substitutes such as peer-support or peer lending in microfinance. Documentary requirements and processing have also become simpler and faster, while product design is based on character and cash flow analysis, and savings is emphasized as an integral part of the microfinance package. All these add up to not only ease the requirements on the poor, but also enable their entrepreneurial ventures to be self-sustaining.

    Rural banks are also deemed natural fit to engage in microfinance. For one, according to Roman, they have the resources and expertise in the provision of financial services that make them ideal vehicles for microfinance. Banks also have the authority and means to access cheaper sources of funding, particularly by attracting deposits from the public. In addition, the existing network of banks is also an avenue in which to magnify the many benefits of microfinance.

    Rural banks cover around 80 percent of the total municipalities in the Philippines, with more than 600 banks and 2,000 branches nationwide. By reach alone, rural banks can be the most effective purveyor of microfinance, as majority of the country is still composed of the rural poor.

    Microfinance today has morphed into a far more sophisticated tool than just loans for microenterprise. It has since expanded to micro deposits, microinsurance, micro-agri, housing microfinance and microfinance plus for growing enterprises.

    It has been proven over the years that microfinance is an effective poverty alleviation tool. Microfinance empowers those living in poverty to increase their economic activity and income, generate employment and improve the overall quality of their lives.

    Rural banks have acted as effective conduits of microfinance in the countryside, disbursing more than P40 billion to micro-entrepreneurs. Through the provision of microfinance, rural banks have encouraged businesses to be market driven and not relying on subsidies to thrive, as well as encouraged poor individuals to help themselves and not depend on dole-outs or charity.

    Poverty remains an overwhelming problem. Given that, it can still be conquered and we must believe that it can be done. Microfinance, with the help of rural banks, gives us the hope to finally slay that beast once and for all.

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