What’s so Extraordinary about Microfinance?
I thought by engaging in the banking and loan side I would be entering international development on a level of higher sophistication than of the traditional service and community development projects.
For the last four months I have been a Vittana fellow with a partner organization called the Paglaum Multi Purpose Cooperative, evaluating and growing our student loan program and learning about the microfinance industry as I have gone.
While microfinance is fascinating, it is not for reasons of higher sophistication and higher thinking that initially attracted me to it. The finance side is the same as any other bank. MFIs are unique because of the way they use the intimacy of small communities and trust to attempt to alleviate poverty.
I have worked out of the head office of the cooperative in the rural Philippines and gotten to witness the entire top down spectrum of the MFI structure. I have gotten the chance to participate in the annual report meetings alongside chief staff, center meetings, center chief meetings, loan and technical officer meetings, and have spent days working out of the different loan branches studying the way the cooperatives function at the savings and microfinance level.
Living in a small rural community, Mindanao has been an amazing experience largely because of how close the relationships I have formed are, I guess with no television, internet, and 3G networks, the only thing people have left to do is talk to each other.
People care so much about each other here that when I get a pimple, I get it pointed out 27 times to me, 6 times before I leave the house, because each one of my roommates brings it to my attention. This is both a difficult thing to adjust to because of the newfound attention (both wanted and unwanted) and the high level of comfort people feel intruding into my life. The reason they do it though is because they genuinely care about my life and my well being. Within 2 weeks of my moving in, my roommates accepted me as part of their family and their “Kuyo” or brother.
Microfinance is able to function in tight knit communities because of the trust and care between people. 2 weeks ago I was attending my first center chief meeting, the meeting itself took around 45 minutes, yet after the meeting ended we had been waiting for an hour and a half. I asked the branch manager why.
She explained that one of the women in her group (women join lending groups in clusters of 5) was not able to pay at the meeting. As a result the rest of the women in the cluster stay at the meeting until they find the missing share, in this case they went to a relatives house and her sister in law was able to lend her the money.Loans to the poor were largely written off as unfeasible for a long time, because the poor have no collateral to hold them to their loans.
Maybe this was true in a monetary sense, but what the women in these groups lack in money they more than make up for in family, friends, and social collateral. It’s this social collateral that holds these women to their monetary commitment; the idea of letting down your friends and loved ones is unstandable in a community as tight as these. I get anxiety when I forget to push my chair in at the dinner table here, for fear of hearing about it 6 times at home and countless times on the way to work and at the office
Similarly the role of technical/ loan officers in these communities far exceeds idea of collection agents as their title may suggest. They run lending groups and center chief meetings on more than repayment. They help their borrowers improve their lives, give tips for healthier living, help their members with their personal as well as their financial problems and they have incredible relationships with an outstanding number of people in their communities.
While market share, profit, economic growth and entering emerging markets is at the core of many of the annual meetings and the business model, it’s the trust and the intimacy of the small rural community that holds these programs together.