FROM THE MARGINS

Happy Independence Day! As we commemorate this very important milestone in our nation’s history, let us try to go one step further: to celebrate our independence while also pursuing freedom from poverty. Since microfinance is an important component of poverty eradication, allow me to continue last week’s discussion on microfinance best practices. Many microfinance institutions (MFIs) started with microcredit programs then expanded to include other financial products like savings and capital build-up, as well as financial literacy and livelihood trainings. As their clients’ lives improved, their needs also grew more complex. MFIs responded to these needs by offering more and better products and services: microinsurance, remittance, business development, educational loans, health services, among others. This needs-based and client-focused approach is the key to many MFIs’ success. Today, many MFIs are pursuing digitalization to improve their operations and serve more clients, but these elements will always remain: 1\. Building strong client centers\. MFI clients are organized into groups called “Centers\,” which meet every week and elect their own officers\, usually the center chief\, secretary\, and treasurer\. From my experience\, it is best to rotate center leadership every two \- three years\, so the center becomes a training ground for community leadership and social formation\. Natural grouping is the best and most effective way of organizing clients\, who are mostly women\.  An observant account officer \(AO\) could easily observe peer groupings \(barkadahan\) from a walk through the village: a group of women washing clothes together\, laughing and sharing stories\. In farming areas\, women huddling during breaks to share food and banter\.   Peer groups are easy to organize\. They will actively attend center meetings and support each other in difficult times\. 2\. Center meetings as learning opportunities\. Center meetings\, which last from 30 minutes to an hour\, serve as venues for financial transactions and clients’ learning\. They are organized in an orderly manner to cover all the agenda\, from processing of loans to collection of dues\, as well as the interventions to improve clients’ knowledge and skills in financial management\, health\, nutrition\, financial literacy\, and disaster preparation\, among others\. Training/education modules are calibrated\, to ensure client absorption and avoid long center meetings\. 3\. Credit discipline\. Teaching clients about financial literacy and credit discipline is integral to MFI operations\. Still\, there will always be clients who will have a thousand and one reasons not to attend meetings to avoid paying their loans\. MFIs need to foster a strong sense of discipline\, provide values formation and training to the center and membership\. If there are really recalcitrant members\, the AOs must find out if they are willful defaulters; if they are not\, then efforts must be extended to help them recover so they can pay their loans\. 4\. Financial transparency\. Access to their accounts is important to clients\. We have observed that they always want to know how much money they have saved\, the amounts of amortizations they paid and to ensure that their financial transactions are properly recorded\. That is why members always have a passbook that records all their loan payments\, savings and microinsurance premiums\. Even with today’s advanced technology\, most members prefer their physical passbooks to digital records\. 5\. Client\-responsiveness\.  The best MFIs support clients in difficult times\. Like what happened during the pandemic\, many MFIs suspended loan collection and waived penalties to help their clients\. During disaster\, they become the first responders: visiting communities\, distributing relief goods and processing microinsurance claims\. In my experience\, once the clients realize that you are serious in helping them\, they will not renege on their responsibilities\. At the first instance that they are able to recover\, they will start paying their loans\. MFIs that help clients get back on their feet after a calamity win their clients’ loyalty and support\. 6\. Minimalist approach\. In my long years of experience in development work\, I have come to realize that giving formal trainings to clients to help in managing simple income\-generating projects like pig\-raising\, vegetable gardening\, food vending\, among others is not oftentimes practical\. These will just be an additional cost to the MFI and time lost for the AOs\.  After all\, the AOs are also not experts in those projects\. Learning from each other by comparing notes in the centers\, or visiting each other’s projects is a more effective strategy for teaching and knowledge\-transfer\. Those who are experts among the members may also act as resource persons during the Credit with Education sessions during center meetings\. This is the minimalist approach – capitalizing on the existing resources and expertise within the community\. What is the common thread that binds the most successful MFIs? It is client-centrism. The best MFIs monitor not just their financial performance but the impact of their programs on their clients’ lives. MFIs continually refine their business models and develop new and better products to respond to their clients’ evolving needs. As stated by former UN Secretary-General Kofi Annan: “Microfinance recognizes that poor people are remarkable reservoirs of energy and knowledge.” *(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)*