What a difference a loan can make: micro enterprise development in the Philippines

Case Study

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Background:

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The Philippines is a land of considerable beauty and many contrasts. As in many countries, wealth is not evenly distributed and a significant part of the population live in poverty.

The government has estimated that 55 per cent of Filipinos lived below the poverty line in 1988 (the latest official figures). Thus at least half of Filipino families can barely meet their basic needs like food and shelter. Millions of people live in crowded urban slums or in rural areas lacking safe water and other services.

Making ends meet in rural areas

Many indicators show that people in rural areas are more likely to be living in poverty than Filipinos who live in cities. Not only are average incomes lower, but country people have fewer choices of employment and education, and are less likely to have running water, sanitation, or electricity.

Many families do not own any land; and those who do own or rent land often lack the money to experiment with new crops and methods. Often they have to sell the harvested crop at once to pay their rent or to settle other debts.

In coastal areas, some people who own no land turn to the sea for a living; but fishermen have to pay rent for their small outrigger boats and the motorised "pump boat" to tow them out to deeper water. During the typhoon season from June to November, fishing is a risky business. To make matters worse, as commercial operators trawl with vast nets and some people use dynamite to stun the fish, there are fewer fish returning to spawn. If their catch is very small, the fishermen are forced to borrow from moneylenders.

There are no unemployment benefits in the Philippines, so people have to take any job they can find - doing laundry by hand for other families, selling fruit door-to-door, delivering water to peoples' homes. A few lucky people get a job in the local shops. Some might drive a bus or a jeepney.

Many poor families earn barely enough to buy food and clothing and pay for school materials. If someone has an accident or gets sick, or a young person wants to study at college, they have to go into debt (and pay high rates of interest to private moneylenders). There is no money to invest in starting up a business.

In spite of their best efforts it is very hard for these families to work their way out of poverty. Yet with the help of training and a relatively small loan it can become possible for them to set up their own small business enterprise (or micro enterprise) and increase their income.

Micro enterprise

Two Filipino communities, one in Mindanao and the other in Southern Leyte (see map), have received Australian aid through AusAID and World Vision. Assistance was provided for three main objectives: caring for the environment, improving health and water supply, and increasing incomes. This report concentrates on the third objective. [For information on the others, see the resource list]

By offering low-interest loans and training to individuals and groups, these projects provided opportunities for men and women to undertake new or expanded ways to earn an income. Some of the activities which people chose are illustrated below.

• Rosario taught herself how to draft patterns and has set up a garment-making business, using a loan to purchase a stock of fabrics, so she can make ready-to-wear clothes instead of having to wait for a sale before she could buy more materials.

  
  Rosaria taught herself dress making

• Eugenia and four friends have set up a rice-trading cooperative. With a loan to get them started, they buy the unhusked rice, truck it to town and spread it out on the "solar dryer" - an expanse of concrete. After one to three days (with some turning), the rice is raked into bags and taken for milling, to remove the husks. Milled rice can be sold in Cebu City for more than twice the purchase price.

  
  Eugenia at the Rice Trading Cooperative

• Quintin is a tinsmith. Since a loan enabled him to buy a grooving machine, he can produce a wider range of tinware such as buckets, lamps and watering cans.

  
  Quintin the Tinsmith

• Leonides is a carpenter-welder. His new welding equipment allows him to take on larger projects and provide casual work for his son and several others. This has doubled his family's income.

  
  Leonidis the carpenter/welder

• Romy and Nelsa have borrowed a small sum of money to buy equipment and raw materials to build up their small blacksmithing business, which produces tools for local use.

  
  Romy and Nelsa - Blacksmiths

• A small group of women have learned how to make soap and herbal medicines. With a loan they can buy containers and ingredients such as good quality coconut oil, while they add leaves from plants grown in their own gardens.

  
  Making herbal medicines

• Farmers worked out they could make a profit by growing cassava, if they could process the root crop into chips for use as animal feed. They learned how to care for the plants and to intercrop with mung beans to replace soil nutrients and earn extra cash; and they took a loan to buy a chipping-machine. The machine can do in one hour the work that used to take three days by hand. The cassava chips are spread out to dry, and turned over regularly, until their moisture content is only 14 per cent: dry chips can be stored longer and are cheaper to transport.

  
  Farming Casava

• Fishermen have been able to borrow from the project loan fund at low interest to buy their own boats and pump boat. This has meant they are no longer restricted to fishing in small boats which can only be used close to shore, and they do not have to pay most of their earnings in rent to the owner of the pump-boat. They plan to repay the loan with the money earned from the extra fish they catch. The community is also working to restore the coastal environment, so that fishing is a sustainable source of income.

  
  Fishermen with their own boat

• Pedicabs are a popular form of transport for short trips to school or shops. Drivers have taken low-interest loans to buy their own pedicabs, instead of having to pay rent to someone else. They save part of their earnings to pay for essential repairs.

  
  Pedicabs - a popular form of transport

As the loans are repaid, money will become available for other people to borrow for new businesses. Community members have undergone training in planning to set up a small business and in administering the loan fund, and take responsibility for monitoring repayments.

With the support of Australians through AusAID and World Vision, people in these two communities are exploring new opportunities to overcome the obstacles of poverty.