Microcredit gaining steam in Philippines

Miranda Kennedy Nov 14, 2006

KAI RYSSDAL: It’s amazing what a Nobel prize can do for you. Mohammed Yunus won the Peace Prize last month. He’s the man who basically invented microcredit. Extremely small loans to the poor. Yunus said at a global microcredit meeting in Canada this week it’s a lot easier to get people to meet with him now. Not so long ago microfinance was dismissed as a niche business or straight charity. But big banks and credit rating agencies are beginning to take note. Miranda Kennedy reports from the Philippines where microfinance is going mainstream.

MIRANDA KENNEDY: It’s a big day in Talisay, a town on the island of Negros. Hundreds of women have flocked to this school gym, their kids and husbands in tow. Many of them got here at 6 in the morning to make ready for the day’s festivities — dancing and singing, a raffle draw, and a big lunch.

A dozen women hit the floor for the dance competition, dressed in shell-studded bikinis and hula skirts shimmering with gold paint. So what’s got everyone excited today? It may be hard to believe, but this is actually the one-year anniversary celebration of a bank.

But this is no normal bank. It’s a Filipino microfinance group called Negros Women for Tomorrow, or NWTF, which lends to women who have no savings and no collateral. The loans have allowed many women to become successful entrepreneurs, like Rachel Patrika.

RACHEL PATRIKA [translator]: Before I heard about NWTF, I knew there was no way I could borrow money. No normal bank could ever consider loaning money to me, because I don’t have a land title or anything else. And I was scared to borrow money from the loan sharks — they charge really high interest.

In much of the Philippines, the only way villagers can borrow money is from loan sharks who speed from town to town on motorcycles offering cash from the stacks of bills they carry. They collect from their debtors every day. They’re known as five-sixers because they take six pesos back for every five they lend. That works out to an annual interest rate of over 1,000 percent. Microfinance groups charge high interest, too. Rachel pays 32 percent on hers. NWTF founder Cecilia del Castillo says, given the alternative, that’s a good deal.

CECILIA DEL CASTILLO: You know, it’s so funny. To our clients, the interest does not matter. What matters most is access, and accessing it at a timely manner. You know, when I need it, it’s there.

Microfinance banks lend based not on a client’s capacity to repay, but on her potential capacity. So they require the debtor to put her first loan toward a business. NWTF lost money for more than a decade. But then it hit on a formula that works. Now, some 350 microfinance groups are operating in the Philippines.

CASTILLO: It’s really that it’s empowering people. Before, they used to say, “Are these people worthy?” The banks would say, “Are these people worthy to come inside our bank?” Now people can say, “Are the banks worthy to have our business?”

In a nearby village, women file into NWTF’s banking center — a small, thatched shack — to make their weekly payments. They sit on bamboo benches next to their banking group members — the neighbors and friends who first recommended each other for a loan. If one of the group can’t make her payment, the others try to cover for her. The women recite a pledge that they will work hard and stay committed to the group.

NWTF has found the best way to make the poor repay their loans is to give them a communal sense of responsibility for the money. It’s a notion that’s catching on, even in mainstream banking.

Profit-making microfinance has caught the attention of venture capital funds and big banks. In the last few years Citibank has given over $17 million to groups like NWTF in developing countries.

On Negros Island in the Philippines, I’m Miranda Kennedy for Marketplace.

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