The idea of providing the poor with access to credit through microfinancing has become widely accepted around the world, but questions remain as to how much such projects can contribute to long-term prosperity of underprivileged communities.
While it is important to focus on how to structure each microfinancing project, what ultimately determines its long-term success is whether the loans target the right kind of borrowers, experts say.
The likelihood of success for microfinancing projects will improve if the borrowers are entrepreneurs, according to Frede Moreno, an outside consultant for the International Technology Management Corp., a Philippines-based development management consultancy.
“As a tool for poverty reduction, microcredit is applicable only to the enterprising poor,” Mr. Moreno, a professor at Western Mindanao State University in Zamboanga City, wrote in a working paper published in December by the Alliance for International Education. “The use of microcredit to assist poverty groups is recommended to be based on existing livelihood activities and micro-entrepreneurial skills and capabilities.”
According to the Manila-based Asian Development Bank, microfinancing plays a particularly significant role in the Asian-Pacific region, where more than half of the world’s poor live despite the region’s strong economic growth over the past decade.
Some of the attempts to make microfinancing projects work more effectively are emerging in the Philippines, one of Asia’s poorest nations, where a quarter of the estimated population of 92 million are living in a state of poverty, according to the government’s National Statistics Office.
Former television personality Paolo Benigno Aquino—a cousin of Philippine President Benigno Aquino III—and Mark Ruiz, a former executive of Unilever PLC, got together in 2006 and formed MicroVentures Inc., a social business enterprise that aims to help the poor in the Philippines. In 2007, MicroVentures launched the Hapinoy Store program, a project aimed at helping the owners of small family-run stores across the country. The company is one of 12 finalists in The Wall Street Journal’s Asian Innovation Awards.
There are about 700,000 sari-sari stores—”sari-sari” means “variety” in Tagalog—across the Philippines. They can be found in most towns, and are fixtures in poor neighborhoods where housewives run sari-sari stores to supplement their otherwise meager family incomes.
A recent study by market-research firm Kantar WorldPanel on Philippine households’ spending showed that around 47% of Filipino consumers still buy fast-moving consumer goods from sari-sari stores—usually small nooks carved out of the owners’ houses.
In addition to food, many of them sell a broad range of household products, from toothpaste to cooking gas to credits for mobile phones.
Those stores are flexible in responding to the needs of their communities: They sell candies by the piece, cigarettes by the stick, shampoos in sachets, and vinegar and cooking oil in smaller packets. In some areas, they even provide money-transfer services.
Still, business practices at most sari-sari stores haven’t kept up with the times. Their inventory management and accounting practices remain rudimentary. For many of the owners, traveling to distant wholesale markets to buy goods poses a challenge.
The Hapinoy program—a word combining “happy” and Pinoy (Filipino)—tries to make the lives of sari-sari store owners easier and their ventures profitable. In each town or province, the program organizes local sari-sari stores into a group, and turns one of the stores into a large “Community Store” that doubles as a wholesale market where the owners of other smaller stores in the area can procure the goods they need. The project also helps sari-sari stores gain access to loans, with capital provided by the Center for Agriculture and Rural Development, or CARD, a microfinance institution that has partnered with the Hapinoy program.
In the program, small sari-sari stores benefit from lower procurement costs thanks to the unified sourcing of goods at the Community Store, which serves as a hub for as many as 120 stores in the area.
Mr. Aquino said that CARD, the micro-financing provider modeled after Bangladesh’s Grameen Bank, asked MicroVentures to build a business that identifies and supports borrowers. “So we decided to focus on the sari-sari stores, which are run by micro-entrepreneurs,” Mr. Aquino said.
Because many owners of sari-sari stores are housewives, the Hapinoy program could also provide women with more power and capital to take control of their own businesses.
The program’s focus on women brings it back to the roots of microfinancing. Muhammad Yunus, the Grameen Bank founder who helped to establish the concept of microfinancing, has said that, if the poor, particularly women, can gain access to credit and generate their own income, that could consequently address the problem of poverty.
After five years, Hapinoy says it has helped thousands of sari-sari stores and has extended its reach to 14 provinces in the main island of Luzon. It is now starting pilot projects in the central region of the Visayas and the southern region of Mindanao. Services offered by Hapinoy stores have also evolved, even providing solar-charging stations for communities without access to electricity.
“You get to see the transformation on the ground,” said Mr. Aquino, whose years as head of the country’s National Youth Commission, a policy-making body, have left him frustrated and led him to become a social entrepreneur.
Mr. Aquino said that when they started Hapinoy, MicroVentures had problems getting corporate and funding support for the program. “A lot of companies turned us down,” he said. As the program developed, modules were continuously adjusted and the approach to implementing projects had to be modified to a bottom-up approach from top-to-bottom previously. Mr. Aquino also said that it is a constant struggle to inculcate among Hapinoy participants better working habits and processes.
Mr. Ruiz said their main gauges for measuring the program’s success are store sales and improvement in the lives and self-confidence of shop owners. Mr. Ruiz said that Hapinoy is currently conducting self-assessment surveys with shop owners to determine their level of satisfaction with the program.
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Source: Cris Larano, The Wall Street Journal.
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