Page 1
Financing the poor of Laguna: Assessment of Microfinance Operation in the Provincial
Government of Laguna
I. Introduction
Microfinance has been identified by developmental agencies like Asian Development Bank
(ADB) to be the most “robust mechanism in enhancing development in recent years” (ADB
2012 p.4). Through microfinance, ordinary households can avail themselves of the saving and
lending services from microfinance agencies. Accessing basic financial services is most likely to
develop entrepreneurial skills and opportunities amongst the members of the poor. It is also an
effective instrument in helping low-income households to take advantage of economic
opportunities aimed in enhancing their lives (Sundaresan, 2008).
However, while microfinance is originally designed as a mechanism to assist the poor,
economists and social scientists alike have recognized its difficulties in reaching the poor. In
particular, Philippines belong among the countries which have the most outdated implementing
guidelines for microfinance industries, according to ADB’s Finance for the Poor (2005). The
antecedent facts supporting this were as follows (based on Kring’s (2006) Child Labour and
Microfinance in the Philippines):
• There is a limited credit available in microfinancing terms;
• Members of the poor lack special skills so they are often forced to engage in labour
intensive activities with marginal profits rather than to venture in entrepreneurial affairs;
and,
• Microfinance has a rigid “risk aversion” regulation from the fear of the incapability of
poor households to compensate with the money they have borrowed.
In gratitude of the municipality of Laguna, the land which cultivated the researchers' beloved
UPLB, this study shall zoom-in on investigating the current state of affair of the municipality’s
implementation and operation of microfinance. Laguna, despite its recent efforts in developing
Financing the Poor of Laguna | 1
Page 2
the lives of its people, seemed to have taken for granted the wisdom of integrating microfinance
in their poverty-alleviation strategies. Thus, guided by the requisites of the most recent ADB’s
microfinance development strategy framework, this study will attempt to evaluate microfinance
implementation in Laguna against the framework advanced by ADB on “sustainable and
participative” microfinance regulation (ADB, 2012).
Statement of the Problem
Visualizing how a poverty-infested country like the Philippines can emerge as developing nation
is difficult unless the poor can find easy access to essential financial services. Given that this
study is focused on the provincial government of Laguna alone, the researchers deemed it
applicable to other regions as well. It is recognized that in Laguna, there is a lack of appreciation
of microfinance as a potential component of the government's poverty-amelioration schemes.
Hence, this study shall focus on answering the following question:
“In what ways can Laguna government improve their microfinance
policies and implementation in order to extend their services in
assisting low-income households?”
Purpose of the Study
Anchored on the assumption that microfinance is a tool to “combat poverty” (ibid), this study
specifically fulfill the following objectives:
1. determine the current knowledge and perception of members of low-income households
in Laguna on microfinance through administering a focus-group discussion;
2. asses Laguna’s current performance on microfinance through a survey of various
agencies rendering such service as well as the local government’s discretion in utilizing
its resources and authority to encourage microfinance;
3. analyze the extent to which microfinance industry in Laguna can decrease incidence of
poverty through an impact-descriptive comparison of the number of poor household in
Laguna and the amount allocation for microfinance; and,
4. recommend ways on how the government and Laguna-based microfinance agencies can
Financing the Poor of Laguna | 2
Page 3
expand its services to achieve maximum development impact in the municipality.
Scope and Limitation
Albeit there are other existing multilateral development agencies like World Bank Group and
United Nation, this study shall only focus on, and will be anchored with, the microfinance
strategic framework advanced by the Asian Development Bank. In essence, ADB was chosen
given that as a regional development bank, its strategies and frameworks were germane to the
Philippines. Headquartered in Mandaluyong, ADB has forwarded lending policies that were
modeled after the necessities and conditions of the Asian countries that it catered to.
This study discussed the appropriation of ADB's microfinance strategic framework to the
provice of Laguna. It also used a triangulated research tool by qualitatively interpreting
interviews administered from sample concerned as well as the qualitative analysis of the
participative focus group discussion of five members of poor-household in Laguna. Quantitative
analysis were used to assess the capacity of the provincial government to enhance its budget
allotment on microfinance projects.
The small number of subject both in the FGD and interview is primarily due to time constraint.
Review of Related Literature
A. Industry of Microfinance
There is a vast pool of printed and electronic writings devoted to the industry of microfinance,
although they are distributed in various fields such as economics, developments studies, small
enterprises, etc.
Beginning in 1980, the financial industry recognizes the importance of microfinance as an
important component of development, poverty reduction, and economic regeneration strategies.
The attraction to microfinance all started in Bangladesh when Grameen Bank granted
microenterprise loans to alter economic structures (Arum & Hulme, 2009). What Grameen Bank
Financing the Poor of Laguna | 3
Page 4
did was to provide a financial service that enable people to participate in the “modern, market-
based economy” (Arum & Hulme 2009, p.2).
Peachey and Roe (2004, as cited in Arum & Hulme 2009) regarded microfinance as a far better
alternative to the government rural scheme of lending that was not able to reach marginalized
debtor like farmers and fishermen. In microfinance, self-employment is being promoted as a
basic element of economic development and social policy guidelines. Here, the debtors were
given the discretion to start an entrepreneurial enterprise of their choice from the credit entrusted
to them by the agency (Sarkan, 2011).
For Sarkar (2011), microfinance is simply the “financial service of small quantity provided by
financial institutions to the poor” (p.8). She even identified two conditions that have to be
satisfied for a lending transaction be considered a microfinancing effort: (1) the transaction
value has to be small; and (2) the customers have to be poor.
Through years, microfinance has significantly evolved as it has adopted with the changing
economic and social landscapes. Paraphrasing Sundaresan (2008), the major characteristic of the
evolution of microfinance, especially during the advent of the 20th century is the extension of
loan terms even to “poor borrowers who could not post a meaningful collateral” (p.4).
These evolution, according to Sarkar (2011), in her review of microfinance implementation in
India, yields a twofold result. For one, the initiative demonstrated the willingness of poor
borrowers to not only take part on small-scale projects, but also to have an excellent payment
record. Conversely, it similarly posed a greater risk to government and private microfinance
agencies since a bothering number of debtors were not able to pay their credits in time.
Now, the complacency from microfinance providers to include the poor households in their
implementation is attributed to the latter result; that is, lending to the poor is very risky. For
Sarkar (2011), the permissive atmosphere of microfinance industry before has hindered the
chance of repayment, thus compromising the general functioning of the agency. More decisive is
Financing the Poor of Laguna | 4
Page 5
Sen's (2003, as cited in Sarakr 2011) treatise when he traced agencies whose operations faced
entropy upon investment in financing poor households. As expected, the bankers lost interest in
the program and the mechanism was stopped.
In fact, according to the most recent report from World Bank, only seven per cent of the poor
have been covered by institutional credit (as cited in Sarkar, 2011).
B. Microfinance in the Philippines and in Laguna
In the Philippines, microfinance has boomed significantly since the 1990s as borrowers and
amount of loan portfolio increased. As of 2005, almost 2 million households had access to
microfinance services (ADN, n.d.). The bulk of the clients engaged in home-based
entrepreneurship, specifically in the production-related businesses.
During the leadership of the then president Gloria Arroyo, microfinance has been regarded as a
“cornerstone” to fight poverty (Daley 2006, p. 5). The government has invested almost 3 billion-
dollars in funding its operation in the country. Unfortunately, most of the fund has been
concentrated to urban areas alone (Daley, 2006).
Several impact studies were administered to gauge the effectiveness of microfinanace
implementation in the Philippines. One of the well-cited study is that of the George Mason
University by Daley and Sautet (2005). It is important to mention that in the said review, what
was highlighted is not the thriving industry of microfinance in the Philippines, but the
tendencies of debtors to consider the credit that they can avail as a form of a subsidy. Moreover,
Daley and Sautet (2005) pointed that the Philippines, in order to be a successful implementor of
microfinance policies, has to furnish its institutional concerns, namely (pp. 11-14):
(1.)discriminatory laws;
(2.)excessive regulation;
(3.)endemic corruption; and,
(4.)lack of formalized property rights.
Financing the Poor of Laguna | 5
Page 6
Of course, the Philippines has been receptive to the global trend of innovative microfinance
strategies. In The Report: The Philippines 2009 (2010), the high rate of capitalizing of the
Philippines on mobile phone usage has been regarded as the country's initiative in financing
small-scale entrepreneurial.
However, criticisms always gravitate to the negative side of implementing microfinance. Say,
Kondo and Orbeta (2008) maintained that the recipient of the service in the Philippines are not
poor which is in sharp contrast to the objective of microfinance. They also found a slight impact
of microfinance on household assets as well as human capital investments.
C. Asian Development Bank's Microfinance Development Strategy
In 2000, the Asian Development Bank promoted its microfinance development strategy to set
out a framework and guidelines for its microfinance operations. Their policies were designed in
a way that can be adopted by local microfinance providers. Hence, a trend follows were the
lending agencies adopted ADB's framework. Summary of the most recent revision of ADB's
development strategy framework for microfinance was summarized in Appendix 1.
For ADB, the greatest challenge of implementing a sustainable microfinance scheme in its
member countries is to link the gap in access and use of financial provision for the poor.
Interestingly, there is also a debate among the stakeholders of ADB on the degree to which the
microfinance service of ADB reaches the poor.
In summary, the framework of ADB includes the further promotion of microfinance in the Asia
and Pacific region. Reviews reflected positive reception to the developmental strategy of ADB,
citing its relative approaches to the countries within the Asia-Pacific region (Ledgerwoodm &
White, 2006)
Twelve years after the implementation of the said framework, ADB released an assessment of
Financing the Poor of Laguna | 6
Page 7
their operation among its member countries through a report entitled “Microfinance
Development Strategy 2000: Sector Performance and Client Welfare” (ADB, 2012). The said
assessment was led by an independent evaluation department of the bank. In the said report , the
Philippines received a fair rating on the lender's microfinance support. However, it similarly
pointed out that many Filipinos, as of 2010, still do not have the right access to microfinance
loans. While the report commended the Philippine government's effort to tie up with ADB to
achieve the Millenium Development Goals, it also noted that with the current population of the
Philippines which is 94.1 million, only 3 million poor Filipinos had microfinance loans.
The report also revealed a positive implication on the effectiveness of the development strategy
citing that even though there is a low percentage of recipients, the strategy yielded less incidence
of non-paid debts and other term difficulties.
To make ADB's future support for microfinance more poor-friendly, they have made further
suggestions for the effectiveness of microfinance policies. These recommendations served as an
econometric framework which was proposed to be operated in Laguna in this writing. The
following recommendations were as follows:
(1.)extension of accessibility to target the poor using deliberate approaches and close
monitoring of beneficiaries;
(2.)make microfinance term more beneficial for clients;
(3.)strengthen market infrastructure to ensure a strong and sustainable operations;
and,
(4.)grant local government the discretion to refine current development strategy to
reflect the current sector trend.
D. Summary of Related Literature
Interest for microfinance has blossomed during the last twenty years. The mechanism of
microfinance underscores the financial provision to poor household. Yet, a large percentage of
the poor, especially in the Asia-Pacific region has little to no access to microfinance services.
Financing the Poor of Laguna | 7
Page 8
This prompted the Asian Development Bank, the regional development agency of Asia-Pacific
countries, to foster a new framework for implementing microfinance. Twelve years after its
implementation in 2000, ADB released an assessment report and further proposed
recommendations. These recommendations were the inspiration for this study.
Unfamiliar Terms
1. Creditor – a party that has a claim on the services of a second party, often an
organization to whom money is owed
2. Debtor – an entity that owes a debt (financial liability to another entity
3. Financial credit – is the trust which allows one party to provide resources (usually
financial) to another party where that second party does not reimburse the first party
immediately (as in generating a debt)
4. Microfinance – provision of financial services, usually in the form of small-sized
financial transactions, to people who usually fall outside the reach of formal finance
5. Microfinance institutions / agencies – those which provide thrift, credit, and other
financial services and product of very small amounts, mainly to the poor in rural, semi-
urban areas
6. Microfinance Development Strategy 2000 - released in 2000, it is a strategic framework
proposed by the ADB which provide a broad guidance for microfinancing affairs
7. Poor / low-income households– those whose daily income amount to PHP300 to
PHP500, or depending to the number of the members of the household
Financing the Poor of Laguna | 8
Page 9
II. Procedures
This study was conducted in order to know how to improve the microfinance policies and
implementation of Laguna in extending its services to low-income households. The focus of this
study was on appropriating the most recent microfinance policies and strategies advanced by the
ADB (2012).
The study used a triangulated approach between quantitative and qualitative analysis of pertinent
case data. The procedural model for this study was composed of three explanatory phases which
were:
PHASE I- Determining the perception and reception of poor households in microfinance
This methodical phase triangulated quantitative and qualitative tools to determine the perception
of the residents of Laguna on microfinance. A focus group discussion was organized in
Barangay Maitim, Bay, Laguna. From the information gathered from the Office of the
Population of Laguna Provincial Government, it appeared that Bay is a third class municipality
with a population of 60,000 residents. In other words, most of the residents there, if not all,
belong to the low-income threshold.
Five members of a low-income household were randomly selected and asked to respond on a
structured guide-questions which identify their knowledge and receptiveness on microfinance
(refer to Appendix 2 for the character profile of the participants). The researchers intended to
conduct the FGD in a closed door room, but the respondents, who know each other even before
the FGD, requested that the session be held in their place of convenience. Inasmuch as the
researchers tried to make the FGD secluded between the participants and the facilitator, this
facet was barely achieved since there are people who observe during the session.
The FGD is structured on a Labeled Semantic Differential Scale Test (LSDST) with a single
response bipolar adjective which is “agree-disagree”. Four questions were asked all throughout
the FGD and follow-up questions were constructed by the way they respond to the questions.
Financing the Poor of Laguna | 9
Page 10
Following Heise (1970) LSDST is also used since it is an effective method in measuring
perception. Furthermore, this method is simple and uncomplicated to administer.
After asking each part of the structured-questions, the facilitators took the liberty in asking
follow-up questions to clarify or solicit more substantial responses.
Figure 1 shows a sample of the structured FGD that was administered to the group with
questions which guide the session. Note that before the FGD was administered, the researchers
made sure that the participants understand the meaning of microfinance and how it operates.
FIGURE 1. Structured-questions for FGD with LSDST scale
PHASE II – Assessing the current operations of microfinance in Laguna and evaluating
the capacity of the municipality to decrease incidence of poverty
Qualitative tools to gather information on municipality dynamics were used to assess Laguna’s
current performance on microfinance. A survey of various non-government agencies rendering
such service as well as the local government’s discretion in utilizing its resources and authority
to encourage microfinance were examined.
Financing the Poor of Laguna | 10
Do you consider yourself poor? (Ikaw ba ay mahirap?)
DISAGREE 1 2 3 4 5 AGREE
Are you interested to avail of microfinance services?
(Interesado ka bang makinabang sa serbisyo ng microfinance?)
DISAGREE 1 2 3 4 5 AGREE
Do you feel neglected in the government's program on microfinance?
(Ramdam mo ba na ikaw ay hindi kabilang sa proyekto ng gobyerno sa microginance?)
DISAGREE 1 2 3 4 5 AGREE
Are you confident of you ability to pay your debt in case you have availed microfinance services?
(Kampante ka bang mababayaran ang iyong inutang kung sakaling mapapautang ka ng microfinance?)
DISAGREE 1 2 3 4 5 AGREE
Page 11
Data from a total of 3 Laguna-based lending agencies and from 4 offices within the provincial
government of Laguna were gathered. The names of the offices were summarized in the
following table.
TABLE 1. List of interviewed offices
Name of Offices: Address Contact Person:
I. Offices in Provincial Government of Laguna
A. Kaunlaran sa Laguna
(KSL)
Headquarters
Provincial Government of
Laguna
German Hara, Head Inspector
KSL
B. Special Livelihood Office
(SLO)
Provincial Government of
Laguna
Dennis Sibayan, Admin Head
SLO
C. Laguna Treasury Office Provincial Government of
Laguna
Evelyn Alejandro De
Guzman , Provincial Treasurer
Officer
D.Laguna Budget Office Provincial Government of
Laguna
Emmanuel Miranda, Budget
Assistant Officer
II. Laguna-based Private Microfinance Service-Providers
A. Bless Microfinance Corp G4 Teodora Business Center
Brgy. 14027, Calamba City
Armina Antonio
B. Advance Microfinancing
& Community
Development Corp.
4th Flr., Calamba Executive
Center
Brgy. 14027, Calamba City
N/A
C. Quick Lending
Philippines
Rufina & Pablo De Borja’s
Building
Brgy. 14027, Calamba City
Shirley Tarnate
Financing the Poor of Laguna | 11
Page 12
Data gathered from the above sources were quantitatively examined to analyze the extent to
which microfinance industry in Laguna can decrease incidence of poverty through an impact-
descriptive comparison of the number of poor household in Laguna and the amount allocation
for microfinance. They were also used to assess the possible budget allocation modifications of
the province of Laguna in order to give importance to its provision of a sustainable microfinance
service.
PHASE III – Creating an econometric guideline on appropriating ADB's framework to
Laguna's implementation of its microfinace services
Inferences on the findings of the two initial procedural phases were mainly qualitative in order
to come up with a proposal guideline to Laguna government on how they can adopt the
framework of ADB on their implementation of microfinance programs. This procedural part was
fulfilled in the recommendation part of this writing.
III. Findings
PHASE I- Determining the perception and reception of poor households in microfinance
The focus group discussion of five household members, four of which are women, is reflective
of their willingness to participate in microfinance projects. However, the response of the
participants showed a relatively average to poor confidence on their capacity to pay the loan
terms. Given adequate training and education, they expressed their confidence that they can be
able to compensate with the loan terms that is both applicable to and considerate of their
conditions. Substantial responses to the follow-up questions after each part of the structured-
questionnaire were noted.
The responses of the group on the structured discussion-question were summarized in the
following table:
Financing the Poor of Laguna | 12
Page 13
TABLE 2. Summary of the responses of the participants in FGD
Questions Number of those who responded in each
scale
Mean
Response
Level 1 Level 2 Level 3 Level 4 Level 5
1. Do you consider yourself poor? 0 0 0 1 4 4.8
(Agree)
2. Are you interested to avail of
microfinance services?
0 0 0 0 5 5.0
(Agree)
3. Do you feel neglected in the
government's program on
microfinance?
0 0 1 1 3 4.4
(Agree)
4. Are you confident of you ability to
pay your debt in case you have
availed microfinance services?.
0 2 2 1 0 2.8
(Disagree)
PHASE II – Assessing the current operations of microfinance in Laguna and evaluating
the capacity of the municipality to decrease incidence of poverty
To fulfill the objective of Phase 2, interviews were administered in 3 private microfinance-
providing companies and 4 provincial government offices. For the provincial government
offices, unstructured open-questions were used to give the respondents the leeway to explain
their answers. The researchers similarly opted to make an unstructured interview considering the
lack of knowledge on how microfinance is operating in Laguna. On the other hand, given that
private microfinance companies were considered an intervening and less important variable in
this study, a structured set of interview was administered to the contact persons in these
companies for easier comparison. The researchers also attempted to ask for copies of numerical
data for quantitative evaluation from both the public and private offices.
Financing the Poor of Laguna | 13
Page 14
A. Microfinance in Kaunlaran sa Laguna (KSL) Office
German Hara, the Head of Inspection of the Kaunlaran sa Laguna (KSL) office, was
interviewed. KSL was created by Provincial Board Resolution number 361 series of 1985. It
started operation in 1985 and the seed money came from the late president Corazon C. Aquino
for livelihood program to the tune of Php 10,000,000.00. Later the provincial Government gave
Php 1,000,000.00. Since then not a single centavo was added to the fund. The late Governor F.
San Luis decided to hire Philippine National Bank (PNB) retirees to manage the project with the
active help of the Dept. of Agriculture and the Dept. of Social Welfare and Development. They
endorsed loan applicants and helped the office in the collection campaign. However, when they
were devolved, authority and control over them fell into the hands of the Mayors. Since then the
KSL personnel consisting of five employees handle all work from processing, releases, loan
collections and maintaining books of accounts.
The following were useful data derived from the interview with Hara:
• PROBLEM ENCOUNTERED: Many of their borrowers still consider money coming
from the government as dole outs.
• Since its operation in 1985, debtors from poor households (those who did not have a
stable business themselves yet) did not value good credit standing with creditors. The
loan processed and endorsed by DA and DSWD from 1988 to the time they were
devolved constitute a big portion of their past dues.
• To resolve such problems, the office conducted intensive campaigns to remind applicants
that the money they will receive are loans and not a dole outs and maintaining of good
credit record will assure them of loan renewal and even an increase of their credit
accommodations.
• Yet, on 2002, they have set limit on the scope of their microfinance terms to the
government official working in the provincial government. This is to minimize the risk
of having unpaid accounts.
• The incumbent governor considered the creation of either a merger, foundation, or a
cooperative to avoid duplication of work of lending offices of the Provincial Government
Financing the Poor of Laguna | 14
Page 15
and insure a more effective thrust in uplifting the economy of the province. This was still
under study.
B. Microfinance in Laguna's Special Livelihood System
The branch of the municipality specialized in implementing microfinance program is the Special
Livelihood Office (SLO). The said office was established in 1991 through a city ordinance
which originally aimed to modernize agro-industrial economies in the province. The researchers
set-up an interview with Dennis Sibayan, the director of SLO last 7 March 2013 and the
following data were derived:
• The office of SLO intends to “promote and develop entrepreneurship as the core strategy
of the province's” economic thrusts towards developing a globally competitive
agricultural sector.
• One of the programs under SLO is the implementation of microfinance system which
was initially administered in 1991.
• The ordinance for microfinance in SLO expired last 1996 and was renewed until 2010.
• In 2010, the incumbent governor Estregan Ejercito mandated the revision of the
microfinance programs in order to cope up with the changing sector needs.
• In 2011, SLO has introduced four microfinance programs which includes:
1. Laguna Sari-Sari Store Assistance Program
Microfinance programs for: debtors who currently have a small, retail store or
those who would want to star a store for their own.
Terms of contract: PHP5,000 to PHP 10,000 worth of store items, to be settled for
a year with a 5% ineterest.
2. Laguna Vending Assistance Program
Microfinance programs for: buy-and-sell trades, market and food businesses
Terms of Conrtract: PHP1,000 to PHP 5,000 to be settled for a six months with a
5% ineterest for every six months late.
3. Laguna Cutflower Production Development Fund
Microfinance programs for: assisting debtors in the industry of agriculture and
Financing the Poor of Laguna | 15
Page 16
planting; or to those who would want to see start a business in Cutflower industry.
Terms of contract: debtors can avail up to PHP 5,000 to be settled for a six
months with a 5% ineterest for every six months late.
4. Laguna Sub-Contracting Financial Assistance Program
Microfinance programs for: supporting debtors in the industry of handicraft
making
Terms of Conrtract: PHP 5,000 for starting businesses, PHP 10,000- PHP 20,000
for licensed and established businesses.
• Since 1996 up to 2010, there is an average of 100 recipient of the microfinance service
annually.
• In 2009, the SLO, as mandated by incumbent Governor Ejercito, limited the eligibility in
microfinance to individuals who already have a starting business in order to minimize
the risk of unpaid accounts.
• SLO similarly assumed that the recipients need lesser education on entrepreneurial skills
given that they already have their business on their own.
• The last release of microfinance funds is last June 2011. The program still needs to be
renewed and the provincial legislation for its approval haven't yet been processed.
• Since 2011, the SLO transferred the jurisdiction of collecting the monthly payment on
microfinance terms to the Office of Treasury.
• At the time of writing of this paper, Sibayan suggested that it is unlikely that the
microfinance operation be renewed at once given that election ban prohibits the
deliberation of its renewal.
C. Budget Allocation of Laguna for Microfinance
The Laguna government has been transparent in informing concerned citizens on the allocation
of its annual budget. The following table shows the breakdown of the provincial general fund
(Provincial Development Fund), with emphasis on allotment on entrepreneurial development.
Table 3. Breakdown of Budget Allocation of Laguna for Year 2012
Financing the Poor of Laguna | 16
Page 17
CAPITAL OUTLAY INITIAL APPROPRIATION/
ALLOCATION
ACTUAL ALLOTMENT
1. Purchase of Relocation
Center
7,000,000.00 7,000,000.00
2. Land Improvement 432,420,000.00 3,000,000.00
3. Electrification, Power,
Energy
3,000,000.00 3,000,000.00
4. School Building 164,000,000.00 4,000,00.00
5. Construction and
Rehabilitation of Hospital
25,000,000.00 25,000,000.00
6.Other structures 16,000,000.00 11,000,000.00
7. Office Equipment 2,400,000.00 2,000,000.00
8. Entrepreneurial
Development
3,000,000.00 1,700,000.00
9. Purchase of hospital
equipment
255,000,000.00 5,000,000.00
10. Other Equipment
(Calamity) Structures
1,400,000.00 1,400,000.00
11. Other Public Intra 906,000,000.00 754,000,000.00
12. Financial Expenses
(Loan Amortization)
45,000,000.00 45,000,000.00
13. Financial Expenses
(Interest Payment)
62,000,000.00 62,000,000.00
GRAND TOTAL 1,922,220,000.00 931,000,000.00Source. Budget Office, Provincial Government of Laguna. 2012.
According to the Budget Offfice, item 8 in the above list or fund for “Entrepreneurial
Development” is the fund where the allocation for microfinance projects is collected from.
Although the office cannot clearly itemize the exact amount allocated for microfinance project,
Budget Assistant Officer Emmanuel M. Miranda said that it amounts to an estimated percentage
of 5-10 per cent of the entire budget for Enterpreneurial Development. Thus, the total initial
Financing the Poor of Laguna | 17
Page 18
provincial budget for microfinance is approximately PHP150,000 – PHP300,000 which is
0.00007 % -0.00015% of the total provincial development fund. In terms of actual allotment, it
was about PHP85,000 – PHP170,000 which is 0.00009% -0.00018% of the total actual used
provincial fund.
D. Estimate Procurement Amount of Laguna's Treasury Office
As inferred from an interview with SLO, the jurisdiction in collecting microfinance accounts
from debtors were transferred to Laguna's Treasury Office. An interview was administered to
Provincial Treasurer Evelyn Alejandro De Guzman, and the following information were derived:
• The Treasury Office started collecting debtor's credit for the microfinance projects of
SLO in 2011.
• The usual difficulties that they encounter in collecting is the incidence of debtors who
were complacent in paying their loans.
• Strategically, they devise methods to easily procure collection by centralizing the
collection efforts in each Barangay.
• For the year 2012, the beginning balance of the total clients debt amounts to
PHP1,498,877.72. By the end of the year, the office was able to collect PHP 1,001, 983,
000, leaving an outstanding balance of PHP 496,894.72.
Table 4. Summary of the Collection of the Treasury Office for Year 2012
Collection Total
Beginning Balance (as of December 2011) 1, 498,877.72
January 2012 67, 152.50
February 2012 67, 405.00
March 2012 104,132.00
April 2012 95,523.00
May 2012 91,548.00
June 2012 105,507.00
July 2012 45,478.00
August 2012 248,695.00
Financing the Poor of Laguna | 18
Page 19
September 2012 47,573.00
October 2012 66,235.00
November 2012 34,825.00
December 2012 28,045.00
Total Collection 1,001,983.00SOURCE: Treasury Office, Laguna Provincial Government
E. Interview on private microfinance-providing companies
The following table summarizes the results of the interview with the private microfinance-
providing companies.
TABLE 5. Summary of the interview on private microfinance-providing companies
Interview Questions
BLESS
MICROFINANCE
CORP.
ADVANCE
MICROFINANCING
& COMMUNITY
DEVELOPMENT
CORP
QUICK LENDING
PHILIPPINES
1.Reason in offering
microfinance services
To help the
community,
particularly the
Christian community
Aside from lending,
education assistance
Profit
2. Usual clients Small-time business
owners (sari-sari
stores); around 350
clients
Small-time business
owners; specifically
mothers; around 2000
clients
Small-time business
owners, vehicle
owners/operators;
around 500 clients3. Amount loaned Small scale-
10,000php
Large scale-
20,000php above
5,000php per cycle
Up to 21,000php for
members with good
credit standing
Car loans- 50,000php
PUV loans-
20,000php
Business loans-
20,000php4. Procedure for Credit committee Credit investigation Credit investigation
Financing the Poor of Laguna | 19
Page 20
approval5. Other Services None Educational
scholarships for
members
None
6. Marketing
strategies
Flyers, referrals,
walk-in clients
Flyers, marketing on
business centres,
barangay events
Door to door, referrals
IV. Analysis
PHASE I- Determining the perception and reception of poor households in microfinance
It appears that more household members consider themselves poor. During the FGD, the
respondents even mockingly acknowledged that microfinance could be their “hope” to get
through the poverty line. The mean response for the first question is 4.8, suggesting that the
respondents are likely to consider themselves poor. Kondo and Orbeta (2008) admitted that it is
difficult to qualify the construct of being poor. Ledgerwood & White (2006), on the other hand,
maintained that the economic status of a household is hardwired to (1) the number of the
members of that household, (2) their necessities, and (3) their estimated income.
Barangay Maitim, Bay, Laguna is one of the poorest barangay in Laguna, according to the
Populations Office of Laguna Provincial Government. When the respondents' response to
Question 1 is compared with their response to Question 2, it became apparent that since they
regard themselves as poor, the promise of microfinance in alleviating their poverty is appealing
to them. Scoring a mean response of 5.0 with a solid mode diversion on Question 2 resonates the
interest of the respondents to get engaged in microfinance programs.
However, the FGD results also revealed that while the respondents are unanimously interested in
availing microfinance services, they grew skeptic on assessing the abilities in paying their credit,
thus reflecting a low mean response score of 2.8 in Question 4. One of the participants even
Financing the Poor of Laguna | 20
Page 21
raised during the FGD if they will be sued or jailed in the event that they can no longer settle
their debt.
The participants response to Question 3 also deserve attention since it suggests their perception
of being neglected in the government's microfinance program. In fact, during the FGD, one of
them maintained that she is not aware that there is such a financing program like microfinance.
PHASE II – Assessing the current operations of microfinance in Laguna and evaluating
the capacity of the municipality to decrease incidence of poverty
With the interview with key persons from the Provincial Offices in Laguna, it transpired that the
government is not yet aware of the current trends in adopting the framework of ADB on
microfinance implementation. KSL, for example, directs its microfinance programs to
government officials alone.
Also, SLO, the government's branch aimed in fostering microfinance program, has even
discounted the inclusion of poor households who do not have a tangible collateral terms or any
existing business. While they have a well-delineated microfinance programs, it does not cater to
the members of the low-income households.
The budget allocation for microfinance project is also inappropriate and incongruent to ADB's
proposal that at least 2-3 per cent of the total development fund of a local government should be
allotted therein (ADB, 2012). 0.00007% - 0.00015% is an alarming partition of budget for
microfinance. Even more, the actual allotment for “Entreprenurial Development” of the
province does not match the initial appropriation of the budget. Initially, 3-million is supposed to
be allotted for the said capital outlay factor, but only 56 per cent of the initial appropriation were
actualized at the end of the term 2012.
There is also a significant positive-deficit excess between the actual cost and initial
appropriation of the provincial budget which could actually translate to the idea that the Laguna
Financing the Poor of Laguna | 21
Page 22
government could allocate more funds to the Entrepreneurial Development capital and thus meet
the requirements of ADB on 2-3 per cent budget allocation for microfinance.
The discretion of the SLO to entrust the collection tasks to the Treasury Office is commendable
given that they can free them selves from the trouble of collecting credits, and focus instead on
developing their microfinance implementation. The turn-out of collection of the Treasury Office
similarly reflects a positive implication for the industry since out of the remaining of 1.4-million
credit balance as of 2011 from the 2009 loan release, over 1-million were collected. It means
that there is only 30 per cent remaining debts needed to be settled.
However, with the existing programs of SLO, the researcher deem it inadequate to actualize the
purpose of microfinance. On the average, the debtors can borrow a maximum of PHP13,000.00
to finance their microeconomic activities. The researcher believe that it is inadequate to assist
clients in starting a stable business. Also, the SLO lack necessary educational training and
assistance to guide its clients on generating profit out of the money they have received.
The credit terms of private microfinance-providing companies surveyed are more flexible than
that of the governments'. Yet, it does not seem to follow ADB's proposal that the private and
public sector should not separate itself from each other. Instead, they should come up with a
sustainable microfinance system that can efficiently mobilize both the resources of the private
and public microfinance companies. In that way, a cooperative can be developed and
community-based policies and regulations can be espoused for the benefit of the clients.
V. Conclusion
What transpired in the analysis of relevant case facts is the need to have a paradigm shift in the
quality of microfinance delivery in Laguna. The researchers' inference on this study remained
faithful to the premise of microfinance: if poor people are provided access to financial services,
including loans and credit, they may be able to start or expand a micronterprise to help them
break out of poverty (Sarakr, 2011).
Financing the Poor of Laguna | 22
Page 23
This study still inferred microfinance as an effective poverty-alleviation program. In Laguna, it
has been found out that there is an incompetent microfinance system that does not catalyze
needed policies and institutional reforms.
This study also found out that the provincial government of Laguna has an institutional capacity
to meet the requirements of adequately funding microfinance programs. Laguna government has
a strong institution and good governance that can be of use in providing quality microfinance
services to the poor on a permanent basis. Such claim can be grounded on the information from
various offices, both public and private, whose initial purpose is to provide opportunities for
microfinance.
The provincial government of Laguna also has a wide-margin of excess budget when the 2012
budget report summary is considered. The problem is that, it has not yet recognized the
importance of mobilizing its resources.
VI. Recommendations
From the conclusion, it is essential that Laguna government adheres to a more focused and
deliberate efforts in targeting poor households. They should clearly define (1)the target group of
the program in such a way that extends its credit terms to the poor, (2) the possible barriers of
the program participation, and (3) the potential mechanisms to remove this barriers.
Client-focused programs
As reflected on the survey of the recent programs of the Laguna government in microfinance,
one can infer that lack of credit terms for financing the poor is a major predicament. Intervention
should thus be adopted to make the programs more client-focused. In ADB's framework,
including disadvantaged and vulnerable clients has yielded a positive impression to the
microfinance programs in countries like India and Sri Lanka (ADB, 2012).
Financing the Poor of Laguna | 23
Page 24
Client-focused implementation similarly entails what ADB (2005) referred to as a “close
monitoring of beneficiaries' poverty levels” (p.33). It can be carried out by adopting a
standardized sector financial and social performance indicator for a mandatory reporting and
audit of microfinance projects.
Government-to-person payment method
As regards to the modes of payment, the “government-to-person payment method” of the ADB
(2012) framework is suitable to the geographical and ethnological nature of the province of
Laguna. Such method may increase poor people's access to and use of financial services through
basic banking. It also underscores the importance of technology-based solutions in re-
configuring the microfinance industry in Laguna. The researcher deemed that the provincial
budget has the capacity to adopt such method upon reviewing the recent budget turn-out of the
province.
Supply-Demand Balance
Note that the researchers, in coming up with this econometric recommendation still subscribe to
the proposition of Matin and Hulme (2000, as cited in Arum & Hulme 2009) when they posited
the importance of balancing supply and demand in supporting the development of microfinance
industry. In other words, emphasis on either the capabilities of the creditors and the need of the
debtors should not outweigh the other.
Evidently, Laguna government should implement policy support for the integration of
microfinance in the formal financial system of the provincial budget. Aggregate data indicated
that there is a significant-positive excess between the province financial allotment and actual
usage. According to the Budget Officer of the provincial government, the said excess were
carried out for the next annual budget allocation. Yet, following ADB's framework, microfinance
is a lucrative industry to invest in.
Sustainable and Participative Microfinance
One potential mechanism to remove barriers for effective operation is to adapt ADB's idea on
Financing the Poor of Laguna | 24
Page 25
sustainable and participative implementation of microfinance. On one hand, sustainability can
be attained by supplementing the lending affairs with training and education to assist clients on
how they can generate profits from the money they have borrowed. This can be particularly
applicable to SLO given that they have discounted the importance of conduction education and
training due to the fact that most of their clients have existing businesses already. Participation,
on the other hand, can be fostered by joining the non-government lending companies and public
government microfinance project to come up with a community-based policies. At this end,
policies for microfinance should be germane to the region where it is implemented.
Microfinance providers in Laguna should have the capacity to understand the clients and
provide services that match these preferences at an affordable price. In return, the clients should
be informed on the requisites and requirements of availing such services. The education of the
borrowers should be initiated by the microfinance agencies themselves. Confirming Daley's
(2006) proposition, microfinance is best supplemented with education initiative from the lenders
so that the opportunity to earn from the considerable value lent by the agencies will not be
wasted. Education programs is not an obligation that microfinance-providing companies
administer in order to assist its clients. It should also be perceived as a profit-generating tactic
which ensures that the credit will be paid and the system will be sustained (Daley, 2006)
Community banking in Laguna
More importantly, it is recommended that the Laguna government, led by the Small Livelihood
Office, should consider adopting the model of community banking where the whole community
is treated as one unit and a semi-formal institution where microfinance funds are distributed. In
that way, as ADB's (2012) framework maintained, the burden of education or conducting
seminars and trainings to borrowers will be lessened. Assistance from NGOs and other
government agencies who tutor the community members in various financial and entrepreneurial
activities can assist debtors to keep up with their responsibility of paying their credit at the right
time.
As the interview similarly reflected the incapacity and unawareness of government employee to
Financing the Poor of Laguna | 25
Page 26
the requisites of microfinance programs, it thus follows that they should be educated and trained
herein. It is important that Laguna government should build staff capacity in microfinance in
order to effectively implement the supplementary schemes to the program such as education
campaigns.
Consumer-protection schemes
Apart from which, the Laguna government may also develop consumer-protection programs to
attract more clients to invest. Naturally, more paying clients suggests continuation and
expansion of the programs. Consumer-protection, according to ADB's framework, should be an
essential component of the entire microfinance operation. This is particularly true for
microfinance implementation in local governments given that they are more knowledgeable of
the conditions and needs of their region.
From a community bank, members of the community can then form cooperatives or unions to
centralize the management of their income-production affairs. With that, payment of the credit
will be ensured.
The researchers believed that pertinent findings in this research can provide insights into the
potential of microfinance to assist eradication of poverty in other municipalities as well.
Financing the Poor of Laguna | 26
Page 27
APPENDIXES
Number Title Page
1 Summary of Microfinance Development Strategy 2000 30
2 Character Profile of the Participants of the Focus Group Discussion 32
Financing the Poor of Laguna | 27
Page 28
Appendix 1, Page 1
APPENDIX 1
Summary of Microfinance Development Strategy 2000
Source: Asian Development Bank (September 2012). Microfinance development strategy 2000:
Sector performance and client welfare. Mandaluyong City, Philippines: ADB Publications.
Retrieved http://www.adb.org/sites/default/files/SES-Microfinance-Strategy_o.odf last 02 March
2013.
Microfinance is seen in Asia and the Pacific as an effective instrument to help low-income
households take advantage of economic opportunities and improve living standards. But despite
the popularity of microfinance in recent years, the gap in access and use of financial services for
the poor remains a great challenge to governments and development agencies. The degree to
which microfinance reaches the poor is also the subject of an ongoing public debate.
The Asian Development Bank (ADB), in 2000, approved its microfinance development strategy
to set out a strategic framework and broad guidance for its microfinance operations. During
2000–2010, ADB provided $2.8 billion to support microfinance activities in 21 developing
member countries in the region through loans, grants, and technical assistance operations.
This study shows that ADB’s microfinance support was relevant and responsive to the sector
development needs of developing member countries. Overall, ADB support performed
reasonably well in easing regulatory and policy constraints. But it was less than effective in
market and institutional development, sustainability of microfinance operations, and outreach to
the poor.
Indeed, one of the study’s key findings is that improvements in the policy environment and \
Financing the Poor of Laguna | 28
Page 29
Appendix 1, Page 2
commercialization of microfinance did not necessarily result in greater outreach to the poor.
The average penetration of microfinance among the poor in countries with ADB support
remained low at nearly 20% of the population at the end of 2011. Six case countries—
Cambodia, Pakistan, Papua New Guinea, Philippines, Uzbekistan and Viet Nam—showed that
fewer than 9% of microfinance clients lived below $1.25 per day and fewer than 22% lived
below $2 per day.
Impact evaluations of two ADB microfinance programs—the Rural Enterprise Finance Project
for Viet Namand the Microfinance Sector Development Program for Pakistan—showed that
smaller loans (as in the case of the Pakistan program) did better in targeting poor households.
However, they were less effective in producing welfare outcomes for borrowers. In the Viet
Nam program, which had larger average loan sizes, the study found more positive welfare
benefits.
The study recommends that future ADB microfinance interventions targetpoor and low-income
households using “deliberate and innovative approaches,” the close monitoring of beneficiaries’
poverty levels and the empowerment of women. It also recommends a more demand-side
orientation in microfinance interventions that focuses on client needs to make microfinance
more beneficial for the borrowers.
Financing the Poor of Laguna | 29
Page 30
Appendix 2, Page 1
APPENDIX 2
Character Profile of the Participants of the Focus Group Discussion
A focus group discussion was organized in Barangay Maitim, Bay, Laguna. Five members of a
low-income household were randomly selected and asked to respond on a structured guide-
questions which identify their knowledge and receptiveness on microfinance. The following
table summarizes the profile of each participant. Upon their discretion, some of the participants'
real names were intentionally withheld, thus presented in quotation marks.
Respondent’s Name Age Sex Background (Occupation Family Income)
“Anthony” 54 Male
-community helper (barangay tanod)-6 in household (4 children)-earns P180 a day
“Jacqueline” 33 Female
-owns a sari-sari store-husband working abroad-3 in the family (1 child)-earns P300 – P500 a day
Virginia Lucanas 48 Female
-unemployed-husband working as a company driver-4 in the family (2 children)-no stable earning
“Anti (Auntie) Mariz” 56 Female
-unemployed-no husband, resided with relatives-no stable earning
Lita Ferrer 33 Female
-accepts laundry jobs and babysiting jobs-4 in the household (3 children, single parent)- earns P1500 – P3000 a month.
Financing the Poor of Laguna | 30
Page 31
References:
Arum, T., & Hulme, D. (Eds.). (2009). Microfinance: A reader. New York, United States of
America: Routledge Publishing.
Asian Development Bank (September 2012). Microfinance development strategy 2000: Sector
performance and client welfare. Mandaluyong City, Philippines: ADB Publications.
Retrieved http://www.adb.org/sites/default/files/SES-Microfinance-Strategy_0.pdf last 02
March 2013.
Asian Development Bank. (June 2005). Finance for the poor: Microfinance Development
Strategy. Mandaluyong City, Philippines: ADB Publications.
Asian Development Bank. (n.d.). Philippine microfinance industry. Mandaluyong City,
Philippines: ADB Publications. Retrieved from
http://www2.adb.org/Documents/Reports/Consultant/38597-PHI/4-5-Philippine-
Microfinance-Industry.pdf last 04 March 2013.
Daley, S. (2005). Microfinance in action: The Philippine experience. Virginia, United States of
America: George Mason University. Retrieved from http://www.gdrc.org/icm/mf-
philippines.pdf last 5 March 2013.
Kondo, T.,& Orbeta, A. (2008). Impact of microfinance on rural households in the Philippines.
Quezon City, Philippines: Philippine Institute for Development Studies.
Kring, T. (2006). Child labour and microfinance: A case study of two urban areas in the
Philippines. (Dissertation Thesis). School of Anthropology and Environmental Studies,
University of Melbourne. Australia.
Ledgerwoodm J., & White, V. (2006). Transforming microfinance institutions: providing full
Financing the Poor of Laguna | 31
Page 32
financial services. Washington D.C., United States of America: World Bank.
Oxford Business Group (2010). The Report: The Philippines 2009. London, United Kingdom,
OBG. Retrieved from http://books.google.com.ph/books?id=eY-
Oq1IGzdMC&pg=PA139&dq=microfinance+philippines&hl=fil&sa=X&ei=-
7dAUa5cyNetB5qEgYAH&redir_esc=y#v=onepage&q=microfinance
%20philippines&f=false last 04 March 2013.
Sarkar, S. (2011).Microfinance Concepts, systems, perceptions, and impact: A review of SGSY
operations in India. New Delhi, India: Readworthy Publications, Ltd.
Sundaresan, S. (Ed.). (2008). Microfinance: Emerging trends and challenges. Massachusetts,
United States of America: Edward Elgar Publishing. Retrieved from
http://books.google.com.ph/books?
id=iVdIxfNHyakC&printsec=frontcover&dq=microfinance last 04 March 2013.
Financing the Poor of Laguna | 32