Dossier, Vol. 13 #5, Development: Small Steps

Native Cakes and Sewing Machines

Microlending and microenterprise have been making waves in development communities: the roscas (rotating savings and credit associations) in Africa, the Grameen and other models in Asia, and the loans for microempresas in Latin America all tell the story of how people bail themselves out of poverty through self-help. Some common features of these schemes are the substitution of solidarity or group liability for conventional collateral, the intensive value formation and technical assistance that accompany the program and the strengthening of the organization of people involved in the scheme. Success stories from different places have forced multilateral agencies like the World Bank to seriously consider microlending as a poverty alleviation tool.

Davao Cooperative Bank (DCB), established in the Philippines in 1978, provides a modest example of microlending in the context of a cooperative bank where (in contrast to some other programs) subsidy dependence is almost nil. In addition, the co-op bank provides a vision to microlending clients: that they can grow with the bank that is helping them help themselves.

The DCB operates branches in three towns and one city in addition to its main office in Tagum, Davao Province in Mindanao. Its Microlending Scheme started only in August 1993, shortly after two bank staff members attended a Grameen banking seminar. Realizing the need to reach out to the poorer sectors in the town, the bank staff proposed a Grameen Bank Replication Program among poor women in Tagum. To be accepted by the bank's board, the idea had to pass management standards of viability: the project should be able to cover its own costs and eventually generate income for the bank.

This particular scheme is unique in a significant way. While most microlending programs start with a huge subsidy, which the proponents try to trim down as their loan portfolio grows, DCB's scheme started at the size that the bank could afford using its existing co-op banking systems. The scheme was self-liquidating before the end of its first year, with direct income covering salaries of the supervisor, unit head, field representative and bookkeeper, office supplies, fuel and oil, and cost of funds.

The scheme grew so successfully that membership more than tripled between June 1994 and June 1995, while total savings almost quintupled. Total loans in the same period rose from US$76,047 to US$251,431.

As of June 1995, the project had 1,684 members: 1,598 married women, eighty-two single mothers and four men. All these members have been through the seven-day compulsory group training with perfect attendance and have passed the centre recognition test. The test covers the topics tackled during the training: value reformation, credit consciousness, entrepreneurship and human relations.

The members are grouped into clusters of five, and five groups belong to a centre. The regular activities of a group are daily savings of three cents (U.S.) per day, loan availment, weekly loan payment and weekly centre meetings. Each group of five members handles its own common fund and decides which of them will borrow from it first. As the one chosen begins a small business venture, she continues to pay in her three cents a day and also starts repaying the loan. A sick member will send a child to the meeting to deliver the weekly payment.

Predetermined selection criteria ensure that only the very poor are covered by the program. The bank's field representative conducts a "means test" to identify people within the income bracket of US$138 a month, with semipermanent dwelling and having at least five dependent family members. The loaning process starts with the bank's staff contacting people in slum and semislum areas. It takes off when the prospective members begin to work together in groups and vouch for one another. Most groups are made up of women who live as neighbours and have known one another for some time.

A member who engages in trading as a part-time occupation and borrows US$120 is able to turn over this amount four times in one month, realizing a gain of 10 per cent per turnover and thus earning about US$576 in additional income a year. The program introduced a mutual death benefit for members and their dependents this year. Members each contribute eight cents (U.S.) and half a kilo of rice to the bereaved family.

Members of the DCB Microlending Scheme know that they are joining a bank project. They realize that the scheme is a serious business and not a charity program. However, because the bank reaches out to them, teaches them how to organize their small enterprises, helps them manage their finances, and makes them feel good about doing things the right way while earning more for the family, they do their best to keep their membership in good standing. To date only sixteen members have been dropped because of poor attendance, delinquent repayment or transfer of residence.

It is difficult to devise an accurate measure of social impact. It is easier to appreciate the smiles on the faces of mothers who have been enabled as part-time entrepreneurs preparing native cakes to sell to schoolchildren as they come out of their classes. It is simpler to describe a housewife proud of having bought her own sewing machine. It gladdens the heart to watch small entrepreneurs graduating into regular clients of the cooperative bank. All of these together build a stronger local economy on the way to becoming a self-sustaining community.

Salvacion M. Bulatao is the country project development officer for the Philippines Ecumenical Development Cooperative Society in Manila.